-----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, LDMq8lx6/nqCb6gKAh1B0NoCiFrAxFnAGovdjqq9L+RAJT21pq09ce3BdMRvTZ5T F9pT3ZjkCloNmjDQEelfiA== 0000950144-02-004565.txt : 20020430 0000950144-02-004565.hdr.sgml : 20020430 ACCESSION NUMBER: 0000950144-02-004565 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 12 FILED AS OF DATE: 20020430 EFFECTIVENESS DATE: 20020430 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IVY FUND CENTRAL INDEX KEY: 0000052858 IRS NUMBER: 046006759 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1933 Act SEC FILE NUMBER: 002-17613 FILM NUMBER: 02627793 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 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IVY FUND CENTRAL INDEX KEY: 0000052858 IRS NUMBER: 046006759 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1940 Act SEC FILE NUMBER: 811-01028 FILM NUMBER: 02627794 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 485BPOS 1 g74718e485bpos.txt IVY FUNDS POST EFFECTIVE AMENDMENT NO. 121 As filed electronically with the Securities and Exchange Commission on April 30, 2002 (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. 121 [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 925 South Federal Highway - Suite 600 Boca Raton, Florida 33432 (Address of Principal Executive Offices) Registrant's Telephone Number: (800) 777-6472 Beverly J. Yanowitch Mackenzie Investment Management Inc. Via Mizner Financial Plaza 925 South Federal Highway - Suite 600 Boca Raton, Florida 33432 (Name and Address of Agent for Service) Copies to: Joseph R. Fleming, Esq. Dechert Ten Post Office Square, South Boston, MA 02109 [X] It is proposed that this Post-Effective Amendment become effective April 30, 2002, pursuant to paragraph (b) of Rule 485. THIS POST-EFFECTIVE AMENDMENT NO. 121 TO THE REGISTRATION STATEMENT OF IVY FUND (THE "REGISTRANT") IS BEING FILED FOR THE PURPOSE OF UPDATING CERTAIN FINANCIAL INFORMATION FOR THE SIXTEEN SERIES OF THE REGISTRANT AND TO MAKE CERTAIN NON-MATERIAL CHANGES TO THE REGISTRANT'S DISCLOSURE DOCUMENTS. IVY FUNDS [PHOTO] Ivy Fund is a registered open-end investment company consisting of sixteen separate portfolios (the "Funds"). This prospectus relates to the fifteen funds listed below. 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. 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. PROSPECTUS APRIL 30, 2002 IVY CUNDILL GLOBAL VALUE FUND IVY DEVELOPING MARKETS FUND IVY EUROPEAN OPPORTUNITIES FUND IVY GLOBAL FUND IVY GLOBAL NATURAL RESOURCES FUND IVY GLOBAL SCIENCE & TECHNOLOGY FUND IVY INTERNATIONAL FUND IVY INTERNATIONAL SMALL COMPANIES FUND IVY INTERNATIONAL VALUE FUND IVY PACIFIC OPPORTUNITIES FUND IVY GROWTH FUND IVY US BLUE CHIP FUND IVY US EMERGING GROWTH FUND IVY BOND FUND IVY MONEY MARKET FUND [IVY LOGO] IVY FUNDS(R) Embracing the world BOARD OF TRUSTEES John S. Anderegg, Jr. James W. Broadfoot Keith J. Carlson Stanley Channick Roy J. Glauber Joseph G. Rosenthal Richard Silverman J. Brendan Swan Edward M. Tighe OFFICERS Keith J. Carlson, Chairman James W. Broadfoot, President Beverly J. Yanowitch, Treasurer LEGAL COUNSEL Dechert Boston, Massachusetts CUSTODIAN Brown Brothers Harriman & Co. Boston, Massachusetts TRANSFER AGENT PFPC, Inc. P.O. Box 9770 Providence, RI 02940 AUDITORS PricewaterhouseCoopers LLP Ft. Lauderdale, Florida DISTRIBUTOR Ivy Mackenzie Distributors, Inc. 925 South Federal Highway, Suite 600 Boca Raton, Florida 33432 800.456.5111 INVESTMENT MANAGER Ivy Management, Inc. 925 South Federal Highway, Suite 600 Boca Raton, Florida 33432 800.456.5111 www.ivyfunds.com E-mail; acctinfo@ivyfunds.com TABLE OF CONTENTS WORLDWIDE FUNDS Ivy Cundill Global Value Fund ................................... 1 Ivy Developing Markets Fund ..................................... 3 Ivy European Opportunities Fund ................................. 5 Ivy Global Fund ................................................. 7 Ivy Global Natural Resources Fund ............................... 9 Ivy Global Science & Technology Fund ............................ 11 Ivy International Fund .......................................... 13 Ivy International Small Companies Fund .......................... 15 Ivy International Value Fund .................................... 17 Ivy Pacific Opportunities Fund .................................. 19 DOMESTIC FUNDS Ivy Growth Fund ................................................. 21 Ivy US Blue Chip Fund ........................................... 23 Ivy US Emerging Growth Fund ..................................... 25 FIXED INCOME FUNDS Ivy Bond Fund ................................................... 27 Ivy Money Market Fund ........................................... 29 Additional Information About Principal Investment Strategies and Risks .... 31 Management ................................................................ 35 Shareholder Information ................................................... 37 Financial Highlights ...................................................... 44
IVY CUNDILL GLOBAL VALUE FUND INVESTMENT OBJECTIVE The Fund seeks long-term capital growth. Any income realized will be incidental. PRINCIPAL INVESTMENT STRATEGIES The Fund invests at least 65% of its assets in equity securities (including common stock, preferred stock and securities convertible into common stock) throughout the world, including emerging market countries, that the Fund's management team believes are trading below their estimated "intrinsic value." "Intrinsic value" is the perceived realizable market value, determined through the management team's analysis of the companies' financial statements (and includes factors such as earnings, cash flows, dividends, business prospects, management capabilities and other catalysts for potentially increasing shareholder value). Up to 15% of the Fund's net assets may be invested in illiquid securities. To control its exposure to certain risks, the Fund might use certain derivative investment techniques (such as foreign currency exchange transactions and forward foreign currency contracts). PRINCIPAL RISKS The main risks to which the Fund is exposed in carrying out its investment strategies are the following: MANAGEMENT RISK - Securities selected for the Fund may not perform as well as the securities held by other mutual funds with investment objectives that are similar to those of the Fund. MARKET RISK - Equity securities typically represent a proportionate ownership interest in a company. The market value of equity securities can fluctuate significantly even where "management risk" is not a factor. You could lose money if you redeem your Fund shares at a time when the Fund's portfolio is not performing as well as expected. FOREIGN SECURITY RISK AND EMERGING-MARKET RISK - Investing in foreign securities involves a number of economic, financial, and political considerations that are not associated with the US markets and that could affect the Fund's performance unfavorably, depending on the prevailing conditions at any given time. Among these potential risks are greater price volatility; comparatively weak supervision and regulations of security 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. ILLIQUID SECURITY RISK - The Fund may not be able to readily dispose of illiquid securities promptly at an acceptable price. DERIVATIVES RISK - The Fund may, but is not required to, use a range of derivative investment techniques to hedge various market risks (such as interest rates, currency exchange rates, and broad or specific equity or fixed-income market movements) or to enhance potential gain. The use of these derivative investment techniques involves a number of risks, including the possibility of default by the counterparty to the transaction and, to the extent the judgement of the Fund's manager as to the 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 long-term growth potential, but who can accept significant fluctuations in capital value in the short term. 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 comparing the Fund's performance for the first full calendar year since its commencement on April 17, 2000 with a broad measure of market performance. The Fund's past performance (before and after taxes) is not necessarily an indication of how the Fund will perform in the future. ANNUAL TOTAL RETURN FOR ADVISOR CLASS SHARES** for the year ending December 31 [BAR GRAPH] -2.13% BEST QUARTER 5.19% 2nd Quarter,2001 WORST QUARTER -10.54% 2001 3rd Quarter,2001 (**)Any applicable 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 Advisor Class because variations in their respective expense structures. - ------------------------------------------------------------------------------- (*)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. 1 WORLDWIDE FUNDS (continued) AVERAGE ANNUAL TOTAL RETURNS(1) For the periods ending December 31,2001
- ------------------------------------------------------------------ ADVISOR MSCI CLASS(2) WORLD INDEX(2)(*) - ------------------------------------------------------------------ 1 YEAR RETURN BEFORE TAXES -2.13% -16.82% RETURN AFTER TAXES ON DISTRIBUTIONS -8.88% RETURN AFTER TAXES ON DISTRIBUTIONS AND SALE OF FUND SHARES -6.86% SINCE INCEPTION RETURN BEFORE TAXES 1.42% -15.31% RETURN AFTER TAXES ON DISTRIBUTIONS -3.54% RETURN AFTER TAXES ON DISTRIBUTIONS AND SALE OF FUND SHARES -3.00%
After-tax returns are intended to show the impact federal income taxes have on investments in the fund. The fund's return after taxes on distribution calculation shows the effect of taxable distributions, but assumes that you hold the fund shares at the end of the period, thus not having any taxable gain or loss on your investment in shares of the fund. The fund's return after taxes on distribution and sale of Fund shares calculation shows the effect of both a distribution and any taxable gain or loss that would be realized if you purchased fund shares at the beginning of a period and sold them at the end of the period. After-tax returns are calculated using the historical highest individual federal marginal income tax rates. State and local tax rates are not included in the tax effect. Your after-tax returns depend on your own tax situation and may differ from those shown. After-tax returns are not relevant to investors who hold their fund shares in a tax-deferred account (including a 401(k) or IRA account), or to tax-exempt investors. Since no other classes were outstanding for the entire year, after-tax returns are presented for Advisor Class shares and after-tax returns for other classes will vary. (*)Reflects no deduction for fees, expenses or taxes. (1)Performance figures reflect any applicable sales charges. (2)The inception date for the Fund's Advisor Class shares was April 17, 2000. The Fund has no outstanding Class I shares. Class A, B and C shares commenced operations on September 4, 2001, September 26, 2001 and October 19, 2001, respectively. Index performance is calculated from April 19, 2000. 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 fees paid directly from your investment
CLASS A CLASS B CLASS C CLASS I ADVISOR - ------------------------------------------------------------------------------------------ MAXIMUM SALES CHARGE (LOAD) IMPOSED ON PURCHASES (AS A % OF OFFERING PRICE) 5.75% NONE NONE NONE NONE MAXIMUM DEFERRED SALES CHARGE (LOAD) (AS A % OF PURCHASE PRICE) NONE(1) 5.00% 1.00% NONE NONE MAXIMUM SALES CHARGE (LOAD) ON REINVESTED DIVIDENDS NONE NONE NONE NONE NONE REDEMPTION/EXCHANGE FEE (AS A % OF AMOUNT REDEEMED, IF APPLICABLE)(2) 2.00% NONE NONE NONE NONE
ANNUAL FUND OPERATING EXPENSES expenses that are deducted from Fund assets(3)
CLASS A CLASS B CLASS C CLASS I ADVISOR - ----------------------------------------------------------------------------------------- MANAGEMENT FEES 1.00% 1.00% 1.00% 1.00% 1.00% DISTRIBUTION AND/OR SERVICE (12B-1) FEES 0.25% 1.00% 1.00% NONE NONE OTHER EXPENSES 9.85% 9.85% 9.85% 9.21% 9.30% TOTAL ANNUAL FUND OPERATING EXPENSES 11.10% 11.85% 11.85% 10.21% 10.30% EXPENSES REIMBURSED(4) 8.90% 8.90% 8.90% 8.90% 8.90% NET FUND OPERATING EXPENSES 2.20% 2.95% 2.95% 1.31% 1.40%
(1)A contingent deferred sales charge ("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. (2)If you choose to receive your redemption proceeds via Federal Funds wire, a $10 wire fee will be charged to your account. Class A shares redeemed or exchanged within 30 days of purchase are subject to a 2.00% redemption/ exchange fee. This fee also applies to Class A shares purchased without a sales charge. (3)The Fund has had no outstanding Class I shares. Percentages shown are estimates based on expenses for Advisor Class. Class A, B and C shares commenced operations on September 4, 2001, September 26,2001 and October 19, 2001, respectively. The expense information shown above has been restated to reflect current fees. (4)The Fund's Investment Manager has contractually agreed to reimburse the Fund's expenses for the current fiscal year ending December 31,2002, to the extent necessary to ensure that the Fund's Annual Fund Operating Expenses, when calculated at the Fund level, do not exceed 1.95% of the Fund's average net assets (excluding 12b-1 fees and certain other expenses). For each of the following nine years, the Investment Manager has contractually agreed to 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 ADVISOR 1ST $ 785 $ 798 $ 298 $ 398 $ 298 $ 133 $ 143 3RD 1,330 1,323 1,023 1,023 1,023 531 559 5TH 1,900 1,970 1,770 1,770 1,770 955 1,001 10TH 3,440 3,570 3,570 3,738 3,738 2,135 2,230
2 IVY DEVELOPING MARKETS 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 80% of its net assets, plus the amount of any borrowings for investment purposes, in equity securities (including common stock, preferred stock and securities convertible into common stock) of companies that are located in, or are expected to profit from, countries whose markets are generally viewed as "developing" or "emerging" by the World Bank and the International Finance Corporation, or classified as "emerging" by the United Nations. For these purposes, a company "located in" or "expected to profit" from emerging market countries is one: - - whose securities are principally trading in one or more emerging market countries, - - that derives at least 50% of its total revenue from goods, sales or services in one or more emerging market countries, or - - that is organized under the laws of (and has a principal office in) an emerging market country. 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 an investment approach that focuses on analyzing a company's financial statements and taking advantage of over-valued or undervalued markets. Some of the Fund's investments may produce income (such as dividends), although it is expected that any income realized would be incidental. PRINCIPAL RISKS The main risks to which the Fund is exposed in carrying out its investment strategies are the following: MANAGEMENT RISK - Securities selected for the Fund may not perform as well as the securities held by other mutual funds with investment objectives that are similar to those of the Fund. MARKET RISK - Equity securities typically represent a proportionate ownership interest in a company. The market value of equity securities can fluctuate significantly even where "management risk" is not a factor. You could lose money if you redeem your Fund shares at a time when the Fund's portfolio is not performing as well as expected. FOREIGN SECURITY RISK AND EMERGING-MARKET RISK - Investing in foreign securities involves a number of economic, financial, and political considerations that are not associated with the US markets and that could affect the Fund's performance unfavorably, depending on the prevailing conditions at any given time. Among these potential risks are greater price volatility; comparatively weak supervision and regulations of security 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. 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 compare with those of a broad measure of market performance. The Fund's past performance (before and after taxes) is not necessarily an indication of how the Fund will perform in the future. - -------------------------------------------------------------------------------- (*)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. 3 WORLDWIDE FUNDS (continued) ANNUAL TOTAL RETURNS FOR CLASS A SHARES(**) for the years ending December 31 [BAR GRAPH] 46.70% 11.83% BEST QUARTER 35.74% 6.40% -27.42% -11.67% -23.79% -04.50% 2nd Quarter,1999 WORST QUARTER -27.28% 1995 1996 1997 1998 1999 2000 2001 4th Quarter,1997 (**) 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. AVERAGE ANNUAL TOTAL RETURNS(1) For the periods ending December 31,2001
- -------------------------------------------------------------------------------------- MSCI EMERGING ADVISOR MARKETS FREE CLASS A(2) CLASS B(2) CLASS C(3) CLASS(4) INDEX(2)(*) - -------------------------------------------------------------------------------------- 1 YEAR RETURN BEFORE TAXES -10.00% -10.71% -6.92% -5.07% -2.37% RETURN AFTER TAXES ON DISTRIBUTIONS -9.74% RETURN AFTER TAXES ON DISTRIBUTIONS AND SALE OF FUND SHARES -8.57% 5 YEARS RETURN BEFORE TAXES -8.39% -8.53% -8.13% N/A -5.74% RETURN AFTER TAXES ON DISTRIBUTIONS -8.58% RETURN AFTER TAXES ON DISTRIBUTIONS AND SALE OF FUND SHARES -6.86% SINCE INCEPTION RETURN BEFORE TAXES -5.55% -5.60% -6.92% -3.87% -5.79% RETURN AFTER TAXES ON DISTRIBUTIONS -5.74% RETURN AFTER TAXES ON DISTRIBUTIONS AND SALE OF FUND SHARES -4.49%
After-tax returns are intended to show the impact federal income taxes have on investments in the fund. The fund's return after taxes on distribution calculation shows the effect of taxable distributions, but assumes that you hold the fund shares at the end of the period, thus not having any taxable gain or loss on your investment in shares of the fund. The fund's return after taxes on distribution and sale of Fund shares calculation shows the effect of both a distribution and any taxable gain or loss that would be realized if you purchased fund shares at the beginning of a period and sold them at the end of the period. After-tax returns are calculated using the historical highest individual federal marginal income tax rates. State and local tax rates are not included in the tax effect. Your after-tax returns depend on your own tax situation and may differ from those shown. After-tax returns are not relevant to investors who hold their fund shares in a tax-deferred account (including a 401(k) or IRA account), or to tax-exempt investors. After-tax returns are presented for Class A shares and after-tax returns for other classes will vary. (*)Reflects no deduction for fees, expenses or taxes. (1)Performance figures reflect any applicable sales charges. (2)The inception date for the Fund's Class A and Class B shares was November 1, 1994. Index performance is calculated from October 31,1994. (3)The inception date for the Fund's Class C shares was April 30,1996. (4)The inception date for Advisor Class shares was 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: SHAREHOLDER FEES fees paid directly from your investment
CLASS A CLASS B CLASS C ADVISOR - ------------------------------------------------------------------------------------ MAXIMUM SALES CHARGE (LOAD) IMPOSED ON PURCHASES (AS A % OF OFFERING PRICE) 5.75% NONE NONE NONE MAXIMUM DEFERRED SALES CHARGE (LOAD) (AS A % OF PURCHASE PRICE) NONE(1) 5.00% 1.00% NONE MAXIMUM SALES CHARGE (LOAD) ON REINVESTED DIVIDENDS NONE NONE NONE NONE REDEMPTION FEE/EXCHANGE FEE (AS A % OF AMOUNT REDEEMED, IF APPLICABLE)(2) 2.00% 2.00% 2.00% 2.00%
ANNUAL FUND OPERATING EXPENSES expenses that are deducted from Fund assets
CLASS A CLASS B CLASS C ADVISOR - ------------------------------------------------------------------------------ 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 3.10% 3.12% 3.17% 3.00% TOTAL ANNUAL FUND OPERATING EXPENSES 4.35% 5.12% 5.17% 4.00% EXPENSES REIMBURSED(3) 2.16% 2.16% 2.16% 2.16% NET FUND OPERATING EXPENSES 2.19% 2.96% 3.01% 1.84%
(1)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. (2)If you choose to receive your redemption proceeds via Federal Funds wire, a $10 wire fee will be charged to your account. Following an exchange into the Fund, shares redeemed (or exchanged) within 30 days of purchase are subject to a 2.00% redemption fee. This fee also applies to Class A shares purchased without a sales charge. (3)The Fund's Investment Manager has contractually agreed to reimburse the Fund's expenses for the current fiscal year ending December 31, 2002, to the extent necessary to ensure that the Fund's Annual Fund Operating Expenses, when calculated at the Fund level, do not exceed 1.95% of the Fund's average net assets (excluding 12b-1 fees and certain other expenses). For each of the following nine years, the Investment Manager has contractually agreed to 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 ADVISOR - ----------------------------------------------------------------------------------------------------- 1ST $ 784 $ 799 $ 299 $ 404 $ 304 $ 187 3RD 1,327 1,326 1,026 1,041 1,041 693 5TH 1,895 1,975 1,775 1,799 1,799 1,226 10TH 3,431 3,575 3,575 3,791 3,791 2,684
4 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 invests at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in the equity securities (including common stock, preferred stock and securities convertible into common stock) 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). These securities typically are rated Ba or below by Moody's or BB or below by S&P (or are judged by the Fund's manager to be of comparable quality). 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. You could lose money if you redeem your Fund shares at a time when the Fund's portfolio is not performing as well as expected. FOREIGN SECURITY RISK AND EMERGING-MARKET RISK: Investing in foreign securities involves a number of economic, financial, and political considerations that are not associated with the US markets and that could affect the Fund's performance unfavorably, depending on the prevailing conditions at any given time. Among these potential risks are greater price volatility; comparatively weak supervision and regulations of security 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. 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 more thinly traded and because they are subject to greater business risk. Transaction costs of 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 AND MATURITY RISK - The Fund's debt security investments are susceptible to decline in a rising interest rate environment. The risk is more acute for debt securities with longer maturities. 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. EURO CONVERSION RISK - On January 1, 2002, euro notes and coins - the official currency of 12 of the 15 members of the European Union - officially entered circulation. The Fund could be affected by certain euro-related issues such as accounting differences, calculation problems and consumer confusion. In addition, certain European Union members, including the United Kingdom, did not officially implement the euro and may cause market disruptions when and if they do 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. 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 compare * 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. 5 WORLDWIDE FUNDS (continued) with those of a broad measure of market performance. The Fund's past performance (before and after taxes) is not necessarily an indication of how the Fund will perform in the future. ANNUAL TOTAL RETURNS FOR CLASS A SHARES** for the years ending December 31 [BAR GRAPH] 4.51% BEST QUARTER 59.30% -20.67% 4th Quarter, 1999 WORST QUARTER -16.96% 2000 2001 3rd Quarter, 2001
** 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. AVERAGE ANNUAL TOTAL RETURNS(1) For the periods ending December 31, 2001
ADVISOR MSCI CLASS A(2) CLASS B(3) CLASS C(4) CLASS I(5) CLASS(6) EUROPE(2)* ---------- ---------- ---------- ---------- -------- ----------- 1 YEAR RETURN BEFORE TAXES -25.22% -25.28% -22.12% -20.46% -20.44% 19.90% RETURN AFTER TAXES ON DISTRIBUTIONS -25.30% RETURN AFTER TAXES ON DISTRIBUTIONS AND SALE OF FUND SHARES -11.16% SINCE INCEPTION RETURN BEFORE TAXES 40.40% 42.05% 10.41% -28.07% 43.97% -6.19% RETURN AFTER TAXES ON DISTRIBUTIONS 39.68% RETURN AFTER TAXES ON DISTRIBUTIONS AND SALE OF FUND SHARES 33.03%
After-tax returns are intended to show the impact federal income taxes have on investments in the fund. The fund's return after taxes on distribution calculation shows the effect of taxable distributions, but assumes that you hold the fund shares at the end of the period, thus not having any taxable gain or loss on your investment in shares of the fund. The fund's return after taxes on distribution and sale of Fund shares calculation shows the effect of both a distribution and any taxable gain or loss that would be realized if you purchased fund shares at the beginning of a period and sold them at the end of the period. After-tax returns are calculated using the historical highest individual federal marginal income tax rates. State and local tax rates are not included in the tax effect. Your after-tax returns depend on your own tax situation and may differ from those shown. After-tax returns are not relevant to investors who hold their fund shares in a tax-deferred account (including a 401(k) or IRA account), or to tax-exempt investors. After-tax returns are presented for Class A shares and after-tax returns for other classes will vary. * Reflects no deduction for fees, expenses or taxes. (1) Performance figures reflect any applicable sales charges. (2) The inception date for the Fund's Class A shares was May 4, 1999 (performance is calculated based on the date the Fund first became available for sale to the public, May 5, 1999.) Index performance is calculated from April 30, 1999. (3) The inception date for the Fund's Class B shares was May 24, 1999. (4) The inception date for the Fund's Class C shares was October 24, 1999. (5) The inception date for the Fund's Class I shares was March 16, 2000. (6) The inception date for the Fund's Advisor Class shares was May 3, 1999. 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 fees paid directly from your investment
CLASS A CLASS B CLASS C CLASS I ADVISOR ------- ------- ------- ------- ------- MAXIMUM SALES CHARGE (LOAD) IMPOSED ON PURCHASES (AS A % OF OFFERING PRICE) 5.75% NONE NONE NONE NONE MAXIMUM DEFERRED SALES CHARGE (LOAD) (AS A % OF PURCHASE PRICE) NONE(1) 5.00% 1.00% NONE NONE MAXIMUM SALES CHARGE (LOAD) ON REINVESTED DIVIDENDS NONE NONE NONE NONE NONE REDEMPTION FEE/EXCHANGE FEE (AS A % OF AMOUNT REDEEMED, IF APPLICABLE)(2) 2.00% NONE NONE NONE NONE
ANNUAL FUND OPERATING EXPENSES expenses that are deducted from Fund assets(5)
CLASS A CLASS B CLASS C CLASS I ADVISOR ------- ------- ------- ------- ------- MANAGEMENT FEES(3) 1.00% 1.00% 1.00% 1.00% 1.00% DISTRIBUTION AND/OR SERVICE (12B-1) FEES 0.25% 1.00% 1.00% NONE NONE OTHER EXPENSES 0.92% 0.91% 0.93% 0.73% 0.74% TOTAL ANNUAL FUND OPERATING EXPENSES(4) 2.17% 2.91% 2.93% 1.73% 1.74%
(1) 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. (2) If you choose to receive your redemption proceeds via Federal Funds wire, a $10 wire fee will be charged to your account. Class A shares redeemed or exchanged within 30 days of purchase are subject to a 2.00% redemption/exchange fee. This fee also applies to Class A shares purchased without a sales charge. (3) Management fees are reduced to 0.85% for net assets over $250 million, and reduced to 0.75% on net assets over $500 million. (4) The Fund's Investment Manager has contractually agreed to waive1 2% of the 1.00% fee that it is entitled to receive from the Fund for the one year period from November 1, 2001 through October 31, 2002, which is not reflected in the table above. (5) The expense information shown above has been restated to reflect current fees. 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 ADVISOR - ---- ------- ------- --------------- ------- --------------- ------- ------- 1ST $ 782 $ 794 $ 294 $ 396 $ 296 $ 176 $ 177 3RD 1,215 1,201 901 907 907 545 548 5TH 1,672 1,733 1,533 1,543 1,543 939 944 10TH 2,934 3,058 3,058 3,252 3,252 2,041 2,052
6 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 (including common stock, preferred stock and securities convertible into common stock) 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 an investment approach that focuses on analyzing a company's financial statements and taking advantage of overvalued or undervalued markets. 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. You could lose money if you redeem your Fund shares at a time when the Fund's portfolio is not performing as well as expected. FOREIGN SECURITY RISK AND EMERGING-MARKET RISK - Investing in foreign securities involves a number of economic, financial, and political considerations that are not associated with the US markets and that could affect the Fund's performance unfavorably, depending on the prevailing conditions at any given time. Among these potential risks are greater price volatility; comparatively weak supervision and regulation of security 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). DERIVATIVES RISK - The Fund may, but is not required to, use a range of derivative investment techniques to hedge various market risks (such as interest rates, currency exchange rates, and broad or specific equity or fixed-income market movements) or to enhance potential gain. The use of these derivative investment techniques involves a number of risks, including the possibility of default by the counterparty to the transaction and, to the extent the judgement of the Fund's manager as to the 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 long-term growth potential, but who can accept significant fluctuations in capital value in the short term. 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 compare with those of a broad measure of market performance. The Fund's past performance (before and after taxes) is not necessarily an indication of how the Fund will perform in the future. * 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. 7 WORLDWIDE FUNDS (continued) ANNUAL TOTAL RETURNS FOR CLASS A SHARES(**) for the years ending December 31 [BAR GRAPH] 29.63% 26.51% 16.21% BEST QUARTER 24.15% 12.08% 8.59% 4th Quarter, 1998 2.74% -4.60% -8.72% -13.91% -18.06% WORST QUARTER -20.47% 3rd Quarter, 1997 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
** 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. AVERAGE ANNUAL TOTAL RETURNS(1) For the periods ending December 31, 2001
MSCI ADVISOR WORLD CLASS A(2) CLASS B(3) CLASS C(4) CLASS(5) INDEX(2)* ---------- ---------- ---------- -------- --------- 1 YEAR RETURN BEFORE TAXES -22.41% -22.89% -19.74% -17.99% -16.82% RETURN AFTER TAXES ON DISTRIBUTIONS -22.41% RETURN AFTER TAXES ON DISTRIBUTIONS AND SALE OF FUND SHARES -15.27% 5 YEARS RETURN BEFORE TAXES -3.57% -3.63% -3.49% N/A 5.37% RETURN AFTER TAXES ON DISTRIBUTIONS -4.70% RETURN AFTER TAXES ON DISTRIBUTIONS AND SALE OF FUND SHARES -2.41% 10 YEARS RETURN BEFORE TAXES 3.27% N/A N/A N/A 8.06% RETURN AFTER TAXES ON DISTRIBUTIONS 1.80% RETURN AFTER TAXES ON DISTRIBUTIONS AND SALE OF FUND SHARES 2.35%
After-tax returns are intended to show the impact federal income taxes have on investments in the fund. The fund's return after taxes on distribution calculation shows the effect of taxable distributions, but assumes that you hold the fund shares at the end of the period, thus not having any taxable gain or loss on your investment in shares of the fund. The fund's return after taxes on distribution and sale of Fund shares calculation shows the effect of both a distribution and any taxable gain or loss that would be realized if you purchased fund shares at the beginning of a period and sold them at the end of the period. After-tax returns are calculated using the historical highest individual federal marginal income tax rates. State and local tax rates are not included in the tax effect. Your after-tax returns depend on your own tax situation and may differ from those shown. After-tax returns are not relevant to investors who hold their fund shares in a tax-deferred account (including a 401(k) or IRA account), or to tax-exempt investors. After-tax returns are presented for Class A shares and after-tax returns for other classes will vary. * Reflects no deduction for fees, expenses or taxes. (1) Performance figures reflect any applicable sales charges. (2) The inception date for the Fund's Class A shares was April 18, 1991. Index performance is calculated from April 30,1991. (3) The inception date for the Fund's Class B shares was April 1, 1994. (4) The inception date for the Fund's Class C shares was April 30, 1996. (5) The inception date for the Fund's Advisor Class shares was 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: SHAREHOLDER FEES fees paid directly from your investment
CLASS A CLASS B CLASS C ADVISOR ------- ------- ------- ------- MAXIMUM SALES CHARGE (LOAD) IMPOSED ON PURCHASES (AS A % OF OFFERING PRICE) 5.75% NONE NONE NONE MAXIMUM DEFERRED SALES CHARGE (LOAD) (AS A % OF PURCHASE PRICE) NONE(1) 5.00% 1.00% NONE MAXIMUM SALES CHARGE (LOAD) ON REINVESTED DIVIDENDS NONE NONE NONE NONE REDEMPTION FEE/EXCHANGE FEE (AS A % OF AMOUNT REDEEMED, IF APPLICABLE)(2) 2.00% NONE NONE NONE
ANNUAL FUND OPERATING EXPENSES expenses that are deducted from Fund assets
CLASS A CLASS B CLASS C ADVISOR ------- ------- ------- ------- MANAGEMENT FEES(3) 1.00% 1.00% 1.00% 1.00% DISTRIBUTION AND/OR SERVICE (12B-1) FEES 0.25% 1.00% 1.00% NONE OTHER EXPENSES 2.96% 3.12% 3.27% 3.09% TOTAL ANNUAL FUND OPERATING EXPENSES 4.21% 5.12% 5.27% 4.09% EXPENSES REIMBURSED(4) 2.07% 2.07% 2.07% 2.07% NET FUND OPERATING EXPENSES 2.14% 3.05% 3.20% 2.02%
(1) 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. (2) If you choose to receive your redemption proceeds via Federal Funds wire, a $10 wire fee will be charged to your account. Class A shares redeemed or exchanged within 30 days of purchase are subject to a 2.00% redemption/exchange fee. This fee also applies to Class A shares purchased without a sales charge. (3) Management fees are reduced to 0.75% for net assets over $500 million. (4) The Fund's Investment Manager has contractually agreed to reimburse the Fund's expenses for the current fiscal year ending December 31, 2002,to the extent necessary to ensure that the Fund's Annual Fund Operating Expenses, when calculated at the Fund level, do not exceed 1.95% of the Fund's average net assets (excluding 12b-1 fees and certain other expenses). For each of the following nine years, the Investment Manager has contractually agreed to 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 ADVISOR - ---- ------- ------- --------------- ------- --------------- ------- 1ST $ 780 $ 808 $ 308 $ 423 $ 323 $ 205 3RD 1,313 1,352 1,052 1,096 1,096 747 5TH 1,872 2,018 1,818 1,888 1,888 1,316 10TH 3,385 3,625 3,625 3,958 3,958 2,864
8 IVY GLOBAL NATURAL RESOURCES FUND INVESTMENT OBJECTIVE The Fund seeks long-term growth. Any income realized will be incidental. PRINCIPAL INVESTMENT STRATEGIES The Fund invests at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in equity securities (including common stock, preferred stock and securities convertible into common stock) of companies of any size throughout the world that own, explore or develop natural resources and other basic commodities or supply goods and services to such companies. For these purposes, "natural resources" generally include: - - precious metals (such as gold, silver and platnium); - - 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. The Fund's manager uses an equity style that focuses on both growth and value. Companies targeted for investment have strong management and financial positions, adding balance with established low cost, low debt producers and positions that are based on anticipated commodity price trends. The Fund may 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. You could lose money if you redeem your Fund shares at a time when the Fund's portfolio is not performing as well as expected. FOREIGN SECURITY RISK AND EMERGING-MARKET RISK - Investing in foreign securities involves a number of economic, financial, and political considerations that are not associated with the US markets and that could affect the Fund's performance unfavorably, depending on the prevailing conditions at any given time. Among these potential risks are greater price volatility; comparatively weak supervision and regulations of security 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. 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 more thinly traded and because they are subject to greater business risk. Transaction costs of smaller-company stocks may also be higher than those of larger companies. INDUSTRY CONCENTRATION RISK - Since the Fund can invest a significant portion of its assets in securities of companies principally engaged in natural resources activities, the Fund could experience wider fluctuations in value than funds with more diversified portfolios. NATURAL RESOURCE AND PHYSICAL COMMODITY RISK - Investing in natural resources can be riskier than other types of investment activities because of a range of factors, including price fluctuation caused by real and perceived inflationary trends and political developments; and the cost 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 exceed the custodial and/or brokerage costs associated with the Fund's other portfolio holdings. 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. 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 compare with those of a broad measure of market performance. The Fund's past performance (before and after taxes) is not necessarily an indication of how the Fund will perform in the future. * 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. 9 WORLDWIDE FUNDS (continued) ANNUAL TOTAL RETURNS FOR CLASS A SHARES(**) for the years ending December 31 [BAR GRAPH] 40.98% 15.40% BEST QUARTER 24.19% 6.95% 9.86% 4th Quarter, 2001 -29.35% WORST QUARTER -23.28% 4th Quarter, 1997 1997 1998 1999 2000 2001
** 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. AVERAGE ANNUAL TOTAL RETURNS(1) For the periods ending December 31, 2001
MSCI COMMODITY ADVISOR RELATED CLASS A(2) CLASS B(2) CLASS C(2) CLASS(3) INDEX(2)* ---------- ---------- ---------- -------- --------- 1 YEAR RETURN BEFORE TAXES 8.76% 9.73% 13.61% 15.71% -1.50% RETURN AFTER TAXES ON DISTRIBUTIONS 8.24% RETURN AFTER TAXES ON DISTRIBUTIONS AND SALE OF FUND SHARES 3.10% SINCE INCEPTION RETURN BEFORE TAXES 4.95% 5.04% 5.16% 19.32% 2.91% RETURN AFTER TAXES ON DISTRIBUTIONS 3.76% RETURN AFTER TAXES ON DISTRIBUTIONS AND SALE OF FUND SHARES 3.31%
After-tax returns are intended to show the impact federal income taxes have on investments in the fund. The fund's return after taxes on distribution calculation shows the effect of taxable distributions, but assumes that you hold the fund shares at the end of the period, thus not having any taxable gain or loss on your investment in shares of the fund. The fund's return after taxes on distribution and sale of Fund shares calculation shows the effect of both a distribution and any taxable gain or loss that would be realized if you purchased fund shares at the beginning of a period and sold them at the end of the period. After-tax returns are calculated using the historical highest individual federal marginal income tax rates. State and local tax rates are not included in the tax effect. Your after-tax returns depend on your own tax situation and may differ from those shown. After-tax returns are not relevant to investors who hold their fund shares in a tax-deferred account (including a 401(k) or IRA account), or to tax-exempt investors. After-tax returns are presented for Class A shares and after-tax returns for other classes will vary. * Reflects no deduction for fees, expenses or taxes. (1) Performance figures reflect any applicable sales charges. (2) The inception date for the Fund's Class A, Class B and Class C shares was January 1, 1997. Index performance is calculated from December 31, 1996. (3)The inception date for the Fund's Advisor Class shares was April 8, 1999. 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 fees paid directly from your investment
CLASS A CLASS B CLASS C ADVISOR ------- ------- ------- ------- MAXIMUM SALES CHARGE (LOAD) IMPOSED ON PURCHASES (AS A % OF OFFERING PRICE) 5.75% NONE NONE NONE MAXIMUM DEFERRED SALES CHARGE (LOAD) (AS A % OF PURCHASE PRICE) NONE(1) 5.00% 1.00% NONE MAXIMUM SALES CHARGE (LOAD) ON REINVESTED DIVIDENDS NONE NONE NONE NONE REDEMPTION FEE/EXCHANGE FEE (AS A % OF AMOUNT REDEEMED, IF APPLICABLE)(2) 2.00% NONE NONE NONE
ANNUAL FUND OPERATING EXPENSES expenses that are deducted from Fund assets
CLASS A CLASS B CLASS C ADVISOR ------- ------- ------- ------- 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 2.46% 2.33% 2.32% 2.24% TOTAL ANNUAL FUND OPERATING EXPENSES 3.71% 4.33% 4.32% 3.24% EXPENSES REIMBURSED(3) 1.46% 1.46% 1.46% 1.46% NET FUND OPERATING EXPENSES 2.25% 2.87% 2.86% 1.78%
(1) 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. (2) If you choose to receive your redemption proceeds via Federal Funds wire, a $10 wire fee will be charged to your account. Class A shares redeemed or exchanged within 30 days of purchase are subject to a 2.00% redemption/exchange fee. This fee also applies to Class A shares purchased without a sales charge. (3) The Fund's Investment Manager has contractually agreed to reimburse the Fund's expenses for the current fiscal year ending December 31, 2002, to the extent necessary to ensure that the Fund's Annual Fund Operating Expenses, when calculated at the Fund level, do not exceed 1.95% of the Fund's average net assets (excluding 12b-1 fees and certain other expenses). For each of the following nine years, the Investment Manager has contractually agreed to 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 ADVISOR - ---- ------- ------- --------------- ------- --------------- ------- 1ST $ 790 $ 790 $ 290 $ 389 $ 289 $ 181 3RD 1,344 1,300 1,000 997 997 675 5TH 1,923 1,932 1,732 1,727 1,727 1,195 10TH 3,486 3,527 3,527 3,657 3,657 2,624
10 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 invests at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in the equity securities (including common stock, preferred stock and securities convertible into common stock) of companies throughout the world that are expected to profit from the development, advancement and use of science and technology. 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. 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 and 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 the securities held by other mutual funds with investment objectives that are similar to those of the Fund. MARKET RISK - Equity securities typically represent a proportionate ownership interest in a company. The market value of equity securities can fluctuate significantly even where "management risk" is not a factor. You could lose money if you redeem your Fund shares at a time when the Fund's portfolio is not performing as well as expected. FOREIGN SECURITY RISK - Investing in foreign securities involves a number of economic, financial, and political considerations that are not associated with the US markets and that could affect the Fund's performance unfavorably, depending on the prevailing conditions at any given time. Among these potential risks are greater price volatility; comparatively weak supervision and regulations of security exchanges, brokers, and issuers; higher brokerage costs; fluctuations in foreign currency exchange rates and related conversion costs; adverse tax consequences; and settlement delays. 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 more thinly traded and because they are subject to greater business risk. Transaction cost of 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 principally 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. 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. 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 compare with those of a broad measure of market performance. The Fund's past performance (before and after taxes) is not necessarily an indication of how the Fund will perform in the future. * 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. 11 WORLDWIDE FUNDS (continued) ANNUAL TOTAL RETURNS FOR CLASS A SHARES(**) for the years ending December 31 [BAR GRAPH] 122.56% BEST QUARTER 65.43% 35.26% 4th Quarter, 1999 6.53% -42.99% -51.65% WORST QUARTER -44.97% 1st Quarter, 2001 1997 1998 1999 2000 2001 **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. AVERAGE ANNUAL TOTAL RETURNS(1) For the periods ending December 31, 2001
- ------------------------------------------------------------------------------------------------- RUSSELL 3000 ADVISOR TECH. CLASS A(2) CLASS B(2) CLASS C(2) CLASS I(3) CLASS(4) INDEX(2)(*) - ------------------------------------------------------------------------------------------------- 1 YEAR RETURN BEFORE TAXES -54.43% -54.41% -52.54% N/A -51.56% -29.31% RETURN AFTER TAXES ON DISTRIBUTION -54.43% RETURN AFTER TAXES ON DISTRIBUTIONS AND SALE OF FUND SHARES 1.17% 5 YEARS RETURN BEFORE TAXES -3.59% -3.58% -3.16% N/A N/A 10.69% RETURN AFTER TAXES ON ON DISTRIBUTION -3.91% RETURN AFTER TAXES ON DISTRIBUTIONS AND SALE OF FUND SHARES -1.95% SINCE INCEPTION RETURN BEFORE TAXES 5.93% 6.22% 6.43% N/A -8.45% 14.92% RETURN AFTER TAXES 5.60% ON DISTRIBUTION RETURN AFTER TAXES ON DISTRIBUTIONS AND SALE OF FUND SHARES 5.25%
After-tax returns are intended to show the impact federal income taxes have on investments in the fund. The fund's return after taxes on distribution calculation shows the effect of taxable distributions, but assumes that you hold the fund shares at the end of the period, thus not having any taxable gain or loss on your investment in shares of the fund. The fund's return after taxes on distribution and sale of Fund shares calculation shows the effect of both a distribution and any taxable gain or loss that would be realized if you purchased fund shares at the beginning of a period and sold them at the end of the period. After-tax returns are calculated using the historical highest individual federal marginal income tax rates. State and local tax rates are not included in the tax effect. Your after-tax returns depend on your own tax situation and may differ from those shown. After-tax returns are not relevant to investors who hold their fund shares in a tax-deferred account (including a 401(k) or IRA account), or to tax-exempt investors. After-tax returns are presented for Class A shares and after-tax returns for other classes will vary. (*)Reflects no deduction for fees, expenses or taxes. (1)Performance figures reflect any applicable sales charges. (2)The inception date for the Fund's Class A, Class B and Class C shares was July 22, 1996. Index performance is calculated from July 30, 1996. (3)The Fund has had no outstanding Class I shares. (4)The inception date for the Fund's Advisor Class shares was April 15, 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: SHAREHOLDER FEES fees paid directly from your investment
CLASS A CLASS B CLASS C CLASS I ADVISOR - ------------------------------------------------------------------------------------------- MAXIMUM SALES CHARGE (LOAD) IMPOSED ON PURCHASES (AS A % OF OFFERING PRICE) 5.75% NONE NONE NONE NONE MAXIMUM DEFERRED SALES CHARGE (LOAD) (AS A % OF PURCHASE PRICE) NONE(1) 5.00% 1.00% NONE NONE MAXIMUM SALES CHARGE (LOAD) ON REINVESTED DIVIDENDS NONE NONE NONE NONE NONE REDEMPTION FEE/EXCHANGE FEE (AS A % OF AMOUNT REDEEMED, IF APPLICABLE)(2) 2.00% NONE NONE NONE NONE
ANNUAL FUND OPERATING EXPENSES expenses that are deducted from Fund assets
CLASS A CLASS B CLASS C CLASS I(3) ADVISOR - -------------------------------------------------------------------------------------------- MANAGEMENT FEES 1.00% 1.00% 1.00% 1.00% 1.00% DISTRIBUTION AND/OR SERVICE (12B-1) FEES 0.25% 1.00% 1.00% NONE NONE OTHER EXPENSES 1.21% 1.22% 1.24% 1.12% 1.27% TOTAL ANNUAL FUND OPERATING EXPENSES 2.46% 3.22% 3.24% 2.12% 2.27% EXPENSES REIMBURSED(4) 0.26% 0.26% 0.26% 0.26% 0.26% NET FUND OPERATING EXPENSES 2.20% 2.96% 2.98% 1.86% 2.01%
(1)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. (2)If you choose to receive your redemption proceeds via Federal Funds wire, a $10 wire fee will be charged to your account. Class A shares redeemed or exchanged within 30 days of purchase are subject to a 2.00% redemption/ exchange fee. This fee also applies to Class A shares purchased without a sales charge. (3)The Fund has had no outstanding Class I shares. Percentages shown are estimates based on expenses for Class A shares. (4)The Fund's Investment Manager has contractually agreed to reimburse the Fund's expenses for the current fiscal year ending December 31, 2002, to the extent necessary to ensure that the Fund's Annual Fund Operating Expenses, when calculated at the Fund level, do not exceed 1.95% of the Fund's average net assets (excluding 12b-1 fees and certain other expenses). For each of the following nine years, the Investment Manager has contractually agreed to 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 ADVISOR 1ST $ 785 $ 799 $ 299 $ 401 $ 301 $ 189 $ 204 3RD 1,274 1,268 968 974 974 639 684 5TH 1,788 1,861 1,661 1,670 1,670 1,115 1,191 10TH 3,192 3,330 3,330 3,522 3,522 2,431 2,585
12 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 (including common stock, preferred stock and securities convertible into common stock) principally traded in European, Pacific Basin and Latin American markets. To enhance potential return, the Fund my invest in countries with new or comparatively undeveloped economies. The Fund's manager uses an investment approach that focuses on: - - analyzing a company's financial statements; - - taking advantage of overvalued or undervalued markets; and - - building a portfolio that is diversified by both region and sector. Some of the Fund's investments may produce income (such as dividends), although it is expected that any income realized would be incidental. 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. You could lose money if you redeem your Fund shares at a time when the Fund's portfolio is not performing as well as expected. FOREIGN SECURITY RISK - Investing in foreign securities involves a number of economic, financial, and political considerations that are not associated with the US markets and that could affect the Fund's performance unfavorably, depending on the prevailing conditions at any given time. Among these potential risks are greater price volatility; comparatively weak supervision and regulations of security 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. 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 compare with those of a broad measure of market performance. The Fund's past performance (before and after taxes) is not necessarily an indication of how the Fund will perform in the future. ANNUAL TOTAL RETURNS FOR CLASS A SHARES(**) for the years ending December 31 [BAR GRAPH] 48.37% 21.05% BEST QUARTER 16.41% 19.72% 4th Quarter, 1998 12.65% 10.38% WORST QUARTER -17.10% 3.92% 7.34% 3rd Quarter, 2001 0.07% -17.26% -21.03% 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
**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. - --------------- *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. 13 \ WORLDWIDE FUNDS (continued) AVERAGE ANNUAL TOTAL RETURNS(1) For the periods ending December 31, 2001
- ---------------------------------------------------------------------------------------------------------------------------- MSCI ADVISOR EAFE CLASS A(2) CLASS B(3) CLASS C(4) CLASS I(5) CLASS(6) INDEX(2)(*) - ---------------------------------------------------------------------------------------------------------------------------- 1 YEAR RETURN BEFORE TAXES -25.57% -25.79% -22.62% -20.87% -21.26% -21.44% RETURN AFTER TAXES ON DISTRIBUTION -25.40% RETURN AFTER TAXES ON DISTRIBUTIONS AND SALE OF FUND SHARES -6.08% 5 YEARS RETURN BEFORE TAXES -2.45% -2.53% -2.12% -0.91% N/A 0.89% RETURN AFTER TAXES ON DISTRIBUTIONS -4.08% RETURN AFTER TAXES ON DISTRIBUTIONS AND SALE OF FUND SHARES -4.35% 10 YEARS RETURN BEFORE TAXES 6.27% N/A N/A N/A N/A 4.46% RETURN AFTER TAXES ON DISTRIBUTION 4.92% RETURN AFTER TAXES ON DISTRIBUTIONS AND SALE OF FUND SHARES 8.52%
After-tax returns are intended to show the impact federal income taxes have on investments in the fund. The fund's return after taxes on distribution calculation shows the effect of taxable distributions, but assumes that you hold the fund shares at the end of the period, thus not having any taxable gain or loss on your investment in shares of the fund. The fund's return after taxes on distribution and sale of Fund shares calculation shows the effect of both a distribution and any taxable gain or loss that would be realized if you purchased fund shares at the beginning of a period and sold them at the end of the period. After-tax returns are calculated using the historical highest individual federal marginal income tax rates. State and local tax rates are not included in the tax effect. Your after-tax returns depend on your own tax situation and may differ from those shown. After-tax returns are not relevant to investors who hold their fund shares in a tax-deferred account (including a 401(k) or IRA account), or to tax-exempt investors. After-tax returns are presented for Class A shares and after-tax returns for other classes will vary. (*) Reflects no deduction for fees, expenses or taxes. (1) Performance figures reflect any applicable sales charges. (2) The inception date for the Fund's Class A shares was April 30, 1986. Index performance is calculated from April 30, 1986. (3) The inception date for the Fund's Class B shares was October 22, 1993. (4) The inception date for the Fund's Class C shares was April 30, 1996. (5) The inception date for the Fund's Class I shares was October 6, 1994. (6) The inception date for the Fund's Advisor Class shares was August 31, 2000. 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 fees paid directly from your investment
CLASS A CLASS B CLASS C CLASS I ADVISOR - -------------------------------------------------------------------------------------------- MAXIMUM SALES CHARGE (LOAD) IMPOSED ON PURCHASES (AS A % OF OFFERING PRICE) 5.75% NONE NONE NONE NONE MAXIMUM DEFERRED SALES CHARGE (LOAD) (AS A % OF PURCHASE PRICE) NONE(1) 5.00% 1.00% NONE NONE MAXIMUM SALES CHARGE (LOAD) ON REINVESTED DIVIDENDS NONE NONE NONE NONE NONE REDEMPTION FEE/EXCHANGE FEE (AS A % OF AMOUNT REDEEMED, IF APPLICABLE)(2) 2.00% NONE NONE NONE NONE
ANNUAL FUND OPERATING EXPENSES expenses that are deducted from Fund assets(4)
CLASS A CLASS B CLASS C CLASS I ADVISOR - -------------------------------------------------------------------------------------------- MANAGEMENT FEES(3) 1.00% 1.00% 1.00% 1.00% 1.00% DISTRIBUTION AND/OR SERVICE (12B-1) FEES 0.25% 1.00% 1.00% NONE NONE OTHER EXPENSES 0.35% 0.54% 0.54% 0.24% 0.35% TOTAL ANNUAL FUND OPERATING EXPENSES 1.60% 2.54% 2.54% 1.24% 1.35%
(1)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. (2)If you choose to receive your redemption proceeds via Federal Funds wire, a $10 wire fee will be charged to your account. Class A shares redeemed or exchanged within 30 days of purchase are subject to a 2.00% redemption/ exchange fee. This fee also applies to Class A shares purchased without a sales charge. (3)Management fees are reduced to 0.90% for net assets over $2.0 billion, reduced to 0.80% for net assets over $2.5 billion and reduced to 0.70% for net assets over $3.0 billion. (4)The expense information shown above has been restated to reflect current fees. 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 ADVISOR 1ST $ 728 $ 757 $ 257 $ 357 $ 257 $ 126 $ 137 3RD 1,051 1,091 791 791 791 393 428 5TH 1,396 1,550 1,350 1,350 1,350 681 739 10TH 2,366 2,645 2,645 2,875 2,875 1,500 1,624
14 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 80% of its net assets, plus the amount of any borrowings for investment purposes, in the equity securities (including common stock, preferred stock and securities convertible into common stock) of foreign issuers having total market capitalization of less than $2 billion at the time of initial purchase. To enhance potential return, the Fund may invest in countries with new or comparatively undeveloped economies. The Fund may also 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. Some of the Fund's investments may produce income (such as dividends), although it is expected that any income realized would be incidental. PRINCIPAL RISKS The main risks to which the Fund is exposed in carrying out its investment strategies are the following: MANAGEMENT RISK - Securities selected for the Fund may not perform as well as the securities held by other mutual funds with investment objectives that are similar to those of the Fund. MARKET RISK - Equity securities typically represent a proportionate ownership interest in a company. The market value of equity securities can fluctuate significantly even where "management risk" is not a factor. You could lose money if you redeem your Fund shares at a time when the Fund's portfolio is not performing as well as expected. FOREIGN SECURITY RISK AND EMERGING-MARKET RISK - Investing in foreign securities involves a number of economic, financial, and political considerations that are not associated with the US markets and that could affect the Fund's performance unfavorably, depending on the prevailing conditions at any given time. Among these potential risks are greater price volatility; comparatively weak supervision and regulations of security 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. 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 smaller companies tend to be more thinly traded and because they are subject to greater business risk. Transaction costs of 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). DERIVATIVES RISK - The Fund may, but is not required to, use a range of derivative investment techniques to hedge various market risks (such as interest rates, currency exchange rates, and broad or specific equity or fixed-income market movements) or to enhance potential gain. The use of these derivative investment techniques involves a number of risks, including the possibility of default by the counterparty to the transaction and, to the extent the judgement of the Fund's manager as to the 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 long-term growth potential, but who can accept significant fluctuations in capital value in the short term. 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 compare with those of a broad measure of market performance. The Fund's past performance (before and after taxes) is not necessarily an indication of how the Fund will perform in the future. - -------------- (*) 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. 15 WORLDWIDE FUNDS (continued) ANNUAL TOTAL RETURNS FOR CLASS A SHARES(**) for the years ending December 31 [BAR GRAPH] 39.45% BEST QUARTER 26.58% 4th Quarter, 1999 5.24% 4.94% WORST QUARTER -22.43% - -12.52% -35.65% 3rd Quarter, 2001 1997 1998 1999 2000 2001 (**)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. AVERAGE ANNUAL TOTAL RETURNS(1) For the periods ending December 31, 2001
- ----------------------------------------------------------------------------------------------------------------- SSB EMI WORLD ADVISOR EX-US CLASS A(2) CLASS B(2) CLASS C(2) CLASS I(3) CLASS(4) INDEX(2)(*) - ----------------------------------------------------------------------------------------------------------------- 1 YEAR RETURN BEFORE TAXES -39.36% -39.28% -36.76% N/A -35.44% -15.64% RETURN AFTER TAXES ON DISTRIBUTION -39.27% RETURN AFTER TAXES ON DISTRIBUTIONS AND SALE OF FUND SHARES -21.52% SINCE INCEPTION RETURN BEFORE TAXES -3.97% -3.93% -3.50% N/A N/A -1.03% RETURN AFTER TAXES ON DISTRIBUTION -4.12% RETURN AFTER TAXES ON ON DISTRIBUTIONS AND SALE OF FUND SHARES -3.22%
After-tax returns are intended to show the impact federal income taxes have on investments in the fund. The fund's return after taxes on distribution calculation shows the effect of taxable distributions, but assumes that you hold the fund shares at the end of the period, thus not having any taxable gain or loss on your investment in shares of the fund. The fund's return after taxes on distribution and sale of Fund shares calculation shows the effect of both a distribution and any taxable gain or loss that would be realized if you purchased fund shares at the beginning of a period and sold them at the end of the period. After-tax returns are calculated using the historical highest individual federal marginal income tax rates. State and local tax rates are not included in the tax effect. Your after-tax returns depend on your own tax situation and may differ from those shown. After-tax returns are not relevant to investors who hold their fund shares in a tax-deferred account (including a 401(k) or IRA account), or to tax-exempt investors. After-tax returns are presented for Class A shares and after-tax returns for other classes will vary. (*)Reflects no deduction for fees, expenses or taxes. (1)Performance figures reflect any applicable sales charges. (2)The inception date for the Fund's Class A, Class B and Class C shares was January 1, 1997. Index performance is calculated from December 31, 1996. (3)The Fund has had no outstanding Class I shares. (4)The inception date for the Fund's Advisor Class shares was July 1, 1999. 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 fees paid directly from your investment
CLASS A CLASS B CLASS C CLASS I ADVISOR - ------------------------------------------------------------------------------------------------------ MAXIMUM SALES CHARGE (LOAD) IMPOSED ON PURCHASES (AS A % OF OFFERING PRICE) 5.75% NONE NONE NONE NONE MAXIMUM DEFERRED SALES CHARGE (LOAD) (AS A % OF PURCHASE PRICE) NONE(1) 5.00% 1.00% NONE NONE MAXIMUM SALES CHARGE (LOAD) ON REINVESTED DIVIDENDS NONE NONE NONE NONE NONE REDEMPTION FEE/EXCHANGE FEE (AS A % OF AMOUNT REDEEMED, IF APPLICABLE)(2) 2.00% NONE NONE NONE NONE
ANNUAL FUND OPERATING EXPENSES expenses that are deducted from Fund assets
CLASS A CLASS B CLASS C CLASS I(3) ADVISOR - --------------------------------------------------------------------------------------------------------- MANAGEMENT FEES 1.00% 1.00% 1.00% 1.00% 1.00% DISTRIBUTION AND/OR SERVICE (12B-1) FEES 0.25% 1.00% 1.00% NONE NONE OTHER EXPENSES 1.90% 1.86% 1.87% 1.69% 1.78% TOTAL ANNUAL FUND OPERATING EXPENSES 3.15% 3.86% 3.87% 2.69% 2.78% EXPENSES REIMBURSED(4) 0.91% 0.91% 0.91% 0.91% 0.91% NET FUND OPERATING EXPENSES 2.24% 2.95% 2.96% 1.78% 1.87%
(1)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. (2)If you choose to receive your redemption proceeds via Federal Funds wire, a $10 wire fee will be charged to your account. Class A shares redeemed or exchanged within 30 days of purchase are subject to a 2.00% redemption/exchange fee. This fee also applies to Class A shares purchased without a sales charge. (3)The Fund has had no outstanding Class I shares. Percentages shown are estimates based on expenses for Class A shares. (4)The Fund's Investment Manager has contractually agreed to reimburse the Fund's expenses for the current fiscal year ending December 31, 2002, to the extent necessary to ensure that the Fund's Annual Fund Operating Expenses, when calculated at the Fund level, do not exceed 1.95% of the Fund's average net assets (excluding 12b-1 fees and certain other expenses). For each of the following nine years, the Investment Manager has contractually agreed to 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 ADVISOR 1ST $ 789 $ 798 $ 298 $ 399 $ 299 $ 181 $ 190 3RD 1,341 1,323 1,023 1,026 1,026 675 702 5TH 1,919 1,970 1,770 1,775 1,775 1,195 1,241 10TH 3,477 3,579 3,579 3,747 3,747 2,624 2,715
16 IVY INTERNATIONAL VALUE 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 equity securities (including common stock, preferred stock and securities convertible into common stock) 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 (including countries with new or comparatively undeveloped economies). Some of the Fund's investments may produce income (such as dividends), although it is expected that any income realized would be incidental. PRINCIPAL RISKS The main risks to which the Fund is exposed in carrying out its investment strategies are the following: MANAGEMENT RISK - Securities selected for the Fund may not perform as well as the securities held by other mutual funds with investment objectives that are similar to those of the Fund. MARKET RISK - Equity securities typically represent a proportionate ownership interest in a company. The market value of equity securities can fluctuate significantly even where "management risk" is not a factor. You could lose money if you redeem your Fund shares at a time when the Fund's portfolio is not performing as well as expected. FOREIGN SECURITY RISK AND EMERGING-MARKET RISK - Investing in foreign securities involves a number of economic, financial, and political considerations that are not associated with the US markets and that could affect the Fund's performance unfavorably, depending on the prevailing conditions at any given time. Among these potential risks are greater price volatility; comparatively weak supervision and regulations of security 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. 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 the 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 long-term growth potential, but who can accept moderate fluctuations in capital value in the short term. 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 compare with those of a broad measure of market performance. The Fund's past performance (before and after taxes) is not necessarily an indication of how the Fund will perform in the future. * 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. 17 WORLDWIDE FUNDS (continued) ANNUAL TOTAL RETURNS FOR CLASS A SHARES** for the years ending December 31 [BAR GRAPH] 27.79% BEST QUARTER 16.49% 6.63% 4th Quarter, 1998 -7.25% -17.17% WORST QUARTER -18.29% 3rd Quarter, 1998 1998 1999 2000 2001
** 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. AVERAGE ANNUAL TOTAL RETURNS(1) For the periods ending December 31,2001
MSCI ADVISOR EAFE CLASS A(2) CLASS B(2) CLASS C(2) CLASS I(3) CLASS(4) INDEX(2)* ---------- ---------- ---------- ---------- -------- --------- 1 YEAR RETURN BEFORE TAXES -21.94% -21.94% -18.65% N/A -17.03% -21.44% RETURN AFTER TAXES ON DISTRIBUTIONS -21.79% RETURN AFTER TAXES ON DISTRIBUTIONS AND SALE OF FUND SHARES -14.33% SINCE INCEPTION RETURN BEFORE TAXES -2.60% -2.53% -2.11% N/A -0.25% 1.19% RETURN AFTER TAXES ON DISTRIBUTIONS -2.62% RETURN AFTER TAXES ON DISTRIBUTIONS AND SALE OF FUND SHARES -2.22%
After-tax returns are intended to show the impact federal income taxes have on investments in the fund. The fund's return after taxes on distribution calculation shows the effect of taxable distributions, but assumes that you hold the fund shares at the end of the period, thus not having any taxable gain or loss on your investment in shares of the fund. The fund's return after taxes on distribution and sale of Fund shares calculation shows the effect of both a distribution and any taxable gain or loss that would be realized if you purchased fund shares at the beginning of a period and sold them at the end of the period. After-tax returns are calculated using the historical highest individual federal marginal income tax rates. State and local tax rates are not included in the tax effect. Your after-tax returns depend on your own tax situation and may differ from those shown. After-tax returns are not relevant to investors who hold their fund shares in a tax-deferred account (including a 401(k) or IRA account), or to tax-exempt investors. After-tax returns are presented for Class A shares and after-tax returns for other classes will vary. * Reflects no deduction for fees, expenses or taxes. (1) Performance figures reflect any applicable sales charges. (2) The inception date for the Fund's Class A, Class B and Class C shares was May 13, 1997. Index performance is calculated from May 31, 1997. (3) The Fund has had no outstanding Class I shares. (4) The inception date for the Fund's Advisor Class shares was February 23, 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: SHAREHOLDER FEES fees paid directly from your investment
CLASS A CLASS B CLASS C CLASS I ADVISOR ------- ------- ------- ------- ------- MAXIMUM SALES CHARGE (LOAD) IMPOSED ON PURCHASES (AS A % OF OFFERING PRICE) 5.75% NONE NONE NONE NONE MAXIMUM DEFERRED SALES CHARGE (LOAD) (AS A % OF PURCHASE PRICE) NONE(1) 5.00% 1.00% NONE NONE MAXIMUM SALES CHARGE (LOAD) ON REINVESTED DIVIDENDS NONE NONE NONE NONE NONE REDEMPTION FEE/EXCHANGE FEE (AS A % OF AMOUNT REDEEMED, IF APPLICABLE)(2) 2.00% NONE NONE NONE NONE
ANNUAL FUND OPERATING EXPENSES expenses that are deducted from Fund assets
CLASS A CLASS B CLASS C CLASS I(3) ADVISOR ------- ------- ------- ---------- ------- MANAGEMENT FEES 1.00% 1.00% 1.00% 1.00% 1.00% DISTRIBUTION AND/OR SERVICE (12B-1) FEES 0.25% 1.00% 1.00% NONE NONE OTHER EXPENSES 0.90% 0.88% 0.89% 0.76% 0.85% TOTAL ANNUAL FUND OPERATING EXPENSES 2.15% 2.88% 2.89% 1.76% 1.85% EXPENSES REIMBURSED(4) 0.38% 0.38% 0.38% 0.38% 0.38% NET FUND OPERATING EXPENSES 1.77% 2.50% 2.51% 1.38% 1.47%
(1) 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. (2) If you choose to receive your redemption proceeds via Federal Funds wire, a $10 wire fee will be charged to your account. Class A shares redeemed or exchanged within 30 days of purchase are subject to a 2.00% redemption/exchange fee. This fee also applies to Class A shares purchased without a sales charge. (3) The Fund has had no outstanding Class I shares. Percentages shown are estimates based on expenses for Advisor Class shares. (4) The Fund's Investment Manager has contractually agreed to reimburse the Fund's expenses for the current fiscal year ending December 31,2002,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 certain other expenses). For each of the following nine years, the Investment Manager has contractually agreed to 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 ADVISOR - ---- ------- ------- --------------- ------- --------------- ------- ------- 1ST $ 745 $ 753 $ 253 $ 354 $ 254 $ 140 $ 150 3RD 1,175 1,156 856 859 859 517 545 5TH 1,630 1,685 1,485 1,490 1,490 919 965 10TH 2,887 3,004 3,004 3,187 3,187 2,042 2,138
18 IVY PACIFIC OPPORTUNITIES 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 80% of its total net assets, plus the amount of any borrowings for investment purposes, in the equity securities (including common stock, preferred stock and securities convertible into common stock) of companies such as those whose securities are traded mainly on markets in the Pacific region, organized under the laws of a Pacific region country or issued by any company with more than half of its business in the Pacific region. Examples of Pacific region countries include China, Hong Kong, Malaysia, Sri Lanka, Australia and India. Although it is permitted to invest in Japan, the Fund does not currently anticipate doing so. The Fund's management team uses an investment approach that focuses on analyzing a company's financial statements and taking advantage of overvalued or undervalued markets. Some of the Fund's investments may produce income (such as dividends), although it is expected that any income realized would be incidental. PRINCIPAL RISKS The main risks to which the Fund is exposed in carrying out its investment strategies are the following: MANAGEMENT RISK - Securities selected for the Fund may not perform as well as the securities held by other mutual funds with investment objectives that are similar to those of the Fund. MARKET RISK - Equity securities typically represent a proportionate ownership interest in a company. The market value of equity securities can fluctuate significantly even where "management risk" is not a factor. You could lose money if you redeem your Fund shares at a time when the Fund's portfolio is not performing as well as expected. FOREIGN SECURITY RISK AND EMERGING-MARKET RISK - Investing in foreign securities involves a number of economic, financial, and political considerations that are not associated with the US markets and that could affect the Fund's performance unfavorably, depending on the prevailing conditions at any given time. Among these potential risks are greater price volatility; comparatively weak supervision and regulation of security 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). REGIONAL RISK - Investing in the Pacific region involves special risks beyond those described above. For example, certain Pacific region 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 Pacific region 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. 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 compare with those of a broad measure of market performance. The Fund's past performance (before and after taxes) is not necessarily an indication of how the Fund will perform in the future. * 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. 19 WORLDWIDE FUNDS (continued) ANNUAL TOTAL RETURNS FOR CLASS A SHARES(**) for the years ending December 31 [BAR GRAPH] 46.72% BEST QUARTER 40.73% 20.50% 2nd Quarter, 1999 WORST QUARTER -30.21% - -24.88% 1.59% -21.94% -20.56% -18.25% -9.29% 4th Quarter, 1997 1994 1995 1996 1997 1998 1999 2000 2001
** Any applicable sales charges and account fees are not reflected, and if 5 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. AVERAGE ANNUAL TOTAL RETURNS(1) For the periods ending December 31, 2001
MSCI ASIA PACIFIC ADVISOR EX-JAPAN CLASS A(2) CLASS B(2) CLASS C(3) CLASS(4) INDEX(2)* ---------- ---------- ---------- -------- ------------ 1 YEAR RETURN BEFORE TAXES -14.50% -14.84% -11.15% 9.58% -2.42% RETURN AFTER TAXES ON DISTRIBUTIONS -14.56% RETURN AFTER TAXES ON DISTRIBUTIONS AND SALE OF FUND SHARES -11.82% 5 YEARS RETURN BEFORE TAXES -8.66% -8.72% -8.28% N/A -8.43% RETURN AFTER TAXES ON DISTRIBUTIONS -8.87% RETURN AFTER TAXES ON DISTRIBUTIONS AND SALE OF FUND SHARES -7.08% SINCE INCEPTION RETURN BEFORE TAXES -4.66% -4.74% -5.86% -3.68% -2.77% RETURN AFTER TAXES ON DISTRIBUTIONS -4.92% RETURN AFTER TAXES ON DISTRIBUTIONS AND SALE OF FUND SHARES -3.81%
After-tax returns are intended to show the impact federal income taxes have on investments in the fund. The fund's return after taxes on distribution calculation shows the effect of taxable distributions, but assumes that you hold the fund shares at the end of the period, thus not having any taxable gain or loss on your investment in shares of the fund. The fund's return after taxes on distribution and sale of Fund shares calculation shows the effect of both a distribution and any taxable gain or loss that would be realized if you purchased fund shares at the beginning of a period and sold them at the end of the period. After-tax returns are calculated using the historical highest individual federal marginal income tax rates. State and local tax rates are not included in the tax effect. Your after-tax returns depend on your own tax situation and may differ from those shown. After-tax returns are not relevant to investors who hold their fund shares in a tax-deferred account (including a 401(k) or IRA account), or to tax-exempt investors. After-tax returns are presented for Class A shares and after-tax returns for other classes will vary. * Reflects no deduction for fees, expenses or taxes. (1) Performance figures reflect any applicable sales charges. (2) The inception date for the Fund's Class A and Class B shares was October 22, 1993. Index performance is calculated from October 31,1993. (3) The inception date for the Fund's Class C shares was April 30,1996. (4) The inception date for Advisor Class shares was February 10,1998. FEES AND EXPENSES The following tables describe the fees and expenses that you may pay if you buy and hold shares of the Fund: SHAREHOLDER FEES fees paid directly from your investment
CLASS A CLASS B CLASS C ADVISOR ------- ------- ------- ------- MAXIMUM SALES CHARGE (LOAD) IMPOSED ON PURCHASES (AS A % OF OFFERING PRICE) 5.75% NONE NONE NONE MAXIMUM DEFERRED SALES CHARGE (LOAD) (AS A % OF PURCHASE PRICE) NONE(1) 5.00% 1.00% NONE MAXIMUM SALES CHARGE (LOAD) ON REINVESTED DIVIDENDS NONE NONE NONE NONE REDEMPTION/EXCHANGE FEE (AS A % OF AMOUNT REDEEMED, IF APPLICABLE)(2) 2.00% 2.00% 2.00% 2.00%
ANNUAL FUND OPERATING EXPENSES expenses that are deducted from Fund assets
CLASS A CLASS B CLASS C ADVISOR ------- ------- ------- ------- 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 2.32% 2.31% 2.26% 2.39% TOTAL ANNUAL FUND OPERATING EXPENSES 3.57% 4.31% 4.26% 3.39% EXPENSES REIMBURSED(3) 1.36% 1.36% 1.36% 1.36% NET FUND OPERATING EXPENSES 2.21% 2.95% 2.90% 2.03%
(1) 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. (2) If you choose to receive your redemption proceeds via Federal Funds wire, a $10 wire fee will be charged to your account. Following an exchange into the Fund, shares redeemed (or exchanged) within one month are subject to a 2.00% redemption fee. This fee also applies to Class A shares purchased without a sales charge. (3) The Fund's Investment Manager has contractually agreed to reimburse the Fund's expenses for the current fiscal year ending December 31,2002,to the extent necessary to ensure that the Fund's Annual Fund Operating Expenses, when calculated at the Fund level, do not exceed 1.95% of the Fund's average net assets (excluding 12b-1 fees and certain other expenses). For each of the following nine years, the Investment Manager has contractually agreed to 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 ADVISOR - ---- ------- ------- --------------- ------- --------------- ------- 1ST $ 786 $ 798 $ 298 $ 393 $ 293 $ 206 3RD 1,333 1,323 1,023 1,008 1,008 750 5TH 1,905 1,970 1,770 1,746 1,746 1,321 10TH 3,449 3,573 3,573 3,693 3,693 2,874
20 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 (including common stock, preferred stock and securities convertible into common stock) of US 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. Some of the Fund's investments may produce income (such as dividends), although it is expected that any income realized would be incidental. 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. You could lose money if you redeem your Fund shares at a time when the Fund's portfolio is not performing as well as expected. SMALL AND MEDIUM SIZED COMPANY RISK - 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 more thinly traded and because they are subject to greater business risk. Transaction costs of 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. 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 compare with those of a broad measure of market performance. The Fund's past performance (before and after taxes) not necessarily an indication of how the Fund will perform in the future. ANNUAL TOTAL RETURNS FOR CLASS A SHARES** for the years ending December 31 [BAR GRAPH] BEST QUARTER 22.79% 4th Quarter, 1999 WORST QUARTER -23.58% 3rd Quarter, 2001 31.87% 27.33% 17.22% 14.05% 12.29% 11.69% 5.21% -2.97% -22.31% -22.43% 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 ** 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. * 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. 21 DOMESTIC FUNDS (continued) AVERAGE ANNUAL TOTAL RETURNS(1) For the periods ending December 31,2001
RUSSELL 3000 S&P ADVISOR GROWTH 500 CLASS A(2) CLASS B(3) CLASS C(4) CLASS(5) INDEX(6)* INDEX(7)* ---------- ---------- ---------- -------- --------- --------- 1 YEAR RETURN BEFORE TAXES - 26.89 -27.05% -23.97% -22.68% -19.63% -11.89% RETURN AFTER TAXES ON DISTRIBUTIONS -26.90% RETURN AFTER TAXES ON DISTRIBUTIONS AND SALE OF FUND SHARES -13.73% 5 YEARS RETURN BEFORE TAXES -0.93% -1.11% -0.80% N/A 7.72% 10.70% RETURN AFTER TAXES ON DISTRIBUTIONS -2.75% RETURN AFTER TAXES ON DISTRIBUTIONS AND SALE OF FUND SHARES 0.43% 10 YEARS RETURN BEFORE TAXES 5.02% N/A N/A N/A N/A 12.94% RETURN AFTER TAXES ON DISTRIBUTIONS 2.66% RETURN AFTER TAXES ON DISTRIBUTIONS AND SALE OF FUND SHARES 4.17%
After-tax returns are intended to show the impact federal income taxes have on investments in the fund. The fund's return after taxes on distribution calculation shows the effect of taxable distributions, but assumes that you hold the fund shares at the end of the period, thus not having any taxable gain or loss on your investment in shares of the fund. The fund's return after taxes on distribution and sale of Fund shares calculation shows the effect of both a distribution and any taxable gain or loss that would be realized if you purchased fund shares at the beginning of a period and sold them at the end of the period. After-tax returns are calculated using the historical highest individual federal marginal income tax rates. State and local tax rates are not included in the tax effect. Your after-tax returns depend on your own tax situation and may differ from those shown. After-tax returns are not relevant to investors who hold their fund shares in a tax-deferred account (including a 401(k) or IRA account), or to tax-exempt investors. After-tax returns are presented for Class A shares and after-tax returns for other classes will vary. * Reflects no deduction for fees, expenses or taxes. (1) Performance figures reflect any applicable sales charges. (2) The inception date for the Fund's Class A shares was December 31, 1960. (3) The inception date for the Fund's Class B shares was October 22, 1993. (4) The inception date for the Fund's Class C shares was April 30, 1996. (5) The inception date for the Fund's Advisor Class shares was April 30, 1998. (6) Index performance is calculated from June 30, 1995, the earliest year of the Russell 3000 Growth Index. The Fund recently changed its benchmark to one that more accurately reflects the universe of securities in which it invests. (7) Index performance is calculated from December 31, 1969, the earliest year of the S&P 500 Index. 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 fees paid directly from your investment
CLASS A CLASS B CLASS C ADVISOR ------- ------- ------- ------- MAXIMUM SALES CHARGE (LOAD) IMPOSED ON PURCHASES (AS A % OF OFFERING PRICE) 5.75% NONE NONE NONE MAXIMUM DEFERRED SALES CHARGE (LOAD) (AS A % OF PURCHASE PRICE) NONE(1) 5.00% 1.00% NONE MAXIMUM SALES CHARGE (LOAD) ON REINVESTED DIVIDENDS NONE NONE NONE NONE REDEMPTION/EXCHANGE FEE (AS A % OF AMOUNT REDEEMED, IF APPLICABLE)(2) 2.00% NONE NONE NONE
ANNUAL FUND OPERATING EXPENSES expenses that are deducted from Fund assets
CLASS A CLASS B CLASS C ADVISOR ------- ------- ------- ------- MANAGEMENT FEES(3) 0.85% 0.85% 0.85% 0.85% DISTRIBUTION AND/OR SERVICE (12B-1) FEES 0.25% 1.00% 1.00% NONE OTHER EXPENSES 0.41% 0.65% 0.70% 0.73% TOTAL ANNUAL FUND OPERATING EXPENSES 1.51% 2.50% 2.55% 1.58%
(1) 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. (2) If you choose to receive your redemption proceeds via Federal Funds wire, a $10 wire fee will be charged to your account. Class A shares redeemed or exchanged within 30 days of purchase are subject to a 2.00% redemption/exchange fee. This fee also applies to Class A shares purchased without a sales charge. (3) 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 ADVISOR - ---- ------- ------- --------------- ------- --------------- ------- 1ST $ 720 $ 753 $ 253 $ 358 $ 258 $ 161 3RD 1,025 1,079 779 793 793 499 5TH 1,351 1,531 1,331 1,355 1,355 860 10TH 2,273 2,592 2,592 2,885 2,885 1,878
22 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 at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in the equity securities (including common stock, preferred stock and securities convertible into common stock) of US companies that the Fund's investment manager believes are "blue chip" companies. US blue chip companies are large, well known companies that typically have an established earnings and dividend history are traded mainly on US markets, and that are organized under the laws of the US or that have more than half their business in the US. The Fund's manager uses an equity style that focuses on both growth and value. The median market capitalization of companies targeted for investment is expected to be at least $5 billion. Some of the Fund's investments may produce income (such as dividends), although it is expected that any income realized would be incidental. PRINCIPAL RISKS The main risks to which the Fund is exposed in carrying out its investment strategies are the following: MANAGEMENT RISK - Securities selected for the Fund may not perform as well as the securities held by other mutual funds with investment objectives that are similar to those of the Fund. MARKET RISK - Equity securities typically represent a proportionate ownership interest in a company. The market value of equity securities can fluctuate significantly even where "management risk" is not a factor. You could lose money if you redeem your Fund shares at a time when the Fund's portfolio is not performing as well as expected. 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. 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 compare with those of a broad measure of market performance. The Fund's past performance (before and after taxes) is not necessarily an indication of how the Fund will perform in the future. ANNUAL TOTAL RETURNS FOR CLASS A SHARES(**) for the years ending December 31 [BAR GRAPH] 15.35% BEST QUARTER 12.62% 4th Quarter, 1999 -12.69% -11.61% WORST QUARTER -14.21% 3rd Quarter, 2001 1999 2000 2001 (**) 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. - ------------ (*) 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 DOMESTIC FUNDS (continued) AVERAGE ANNUAL TOTAL RETURNS(1) For the periods ending December 31, 2001
- ----------------------------------------------------------------------------------------------------------- S&P ADVISOR 500 CLASS A(2) CLASS B(3) CLASS C(3) CLASS I(4) CLASS(2) INDEX(2)(*) - ----------------------------------------------------------------------------------------------------------- 1 YEAR - ------ RETURN BEFORE TAXES -16.70% -16.60% -13.27% N/A -11.36% -11.89% RETURN AFTER TAXES ON DISTRIBUTIONS -16.70% RETURN AFTER TAXES ON DISTRIBUTIONS AND SALE OF FUND SHARES -11.89% SINCE INCEPTION - --------------- RETURN BEFORE TAXES -3.25% -3.93% -3.04% N/A -1.08% 2.70% RETURN AFTER TAXES ON DISTRIBUTIONS -3.40% RETURN AFTER TAXES ON DISTRIBUTIONS AND SALE OF FUND SHARES -2.95%
After-tax returns are intended to show the impact federal income taxes have on investments in the fund. The fund's return after taxes on distribution calculation shows the effect of taxable distributions, but assumes that you hold the fund shares at the end of the period, thus not having any taxable gain or loss on your investment in shares of the fund. The fund's return after taxes on distribution and sale of Fund shares calculation shows the effect of both a distribution and any taxable gain or loss that would be realized if you purchased fund shares at the beginning of a period and sold them at the end of the period. After-tax returns are calculated using the historical highest individual federal marginal income tax rates. State and local tax rates are not included in the tax effect. Your after-tax returns depend on your own tax situation and may differ from those shown. After-tax returns are not relevant to investors who hold their fund shares in a tax-deferred account (including a 401 (k) or IRA account), or to tax-exempt investors. After-tax returns are presented for Class A shares and after-tax returns for other classes will vary. (*) Reflects no deduction for fees, expenses or taxes. (1) Performance figures reflect any applicable sales charges. (2) The inception date for the Fund's Class A and Advisor Class shares was November 2, 1998. Index performance is calculated from October 31, 1998. (3) The inception date for the Fund's Class B and Class C shares was November 6, 1998. (4) The Fund had no Class I shares outstanding. 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 fees paid directly from your investment
CLASS A CLASS B CLASS C CLASS I ADVISOR - -------------------------------------------------------------------------------------------------- MAXIMUM SALES CHARGE (LOAD) IMPOSED ON PURCHASES (AS A % OF OFFERING PRICE) 5.75% NONE NONE NONE NONE - -------------------------------------------------------------------------------------------------- MAXIMUM DEFERRED SALES CHARGE (LOAD) (AS A % OF PURCHASE PRICE) NONE(1) 5.00% 1.00% NONE NONE - -------------------------------------------------------------------------------------------------- MAXIMUM SALES CHARGE (LOAD) ON REINVESTED DIVIDENDS NONE NONE NONE NONE NONE - -------------------------------------------------------------------------------------------------- REDEMPTION FEE/EXCHANGE FEE (AS A % OF AMOUNT REDEEMED, IF APPLICABLE)(2) 2.00% NONE NONE NONE NONE - --------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES expenses that are deducted from Fund assets
CLASS A CLASS B CLASS C CLASS I(3) ADVISOR - -------------------------------------------------------------------------------------------------- MANAGEMENT FEES 0.75% 0.75% 0.75% 0.75% 0.75% - -------------------------------------------------------------------------------------------------- DISTRIBUTION AND/OR SERVICE (12B-1) FEES 0.25% 1.00% 1.00% NONE NONE - -------------------------------------------------------------------------------------------------- OTHER EXPENSES 0.83% 0.83% 0.88% 0.74% 0.78% - -------------------------------------------------------------------------------------------------- TOTAL ANNUAL FUND OPERATING EXPENSES 1.83% 2.58% 2.63% 1.49% 1.53% - -------------------------------------------------------------------------------------------------- EXPENSES REIMBURSED(4) 0.27% 0.27% 0.27% 0.27% 0.27% - -------------------------------------------------------------------------------------------------- NET FUND OPERATING EXPENSES 1.56% 2.31% 2.36% 1.22% 1.26% - --------------------------------------------------------------------------------------------------
(1) 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. (2) If you choose to receive your redemption proceeds via Federal Funds wire, a $10 wire fee will be charged to your account. Class A shares redeemed or exchanged within 30 days of purchase are subject to a 2.00% redemption/exchange fee. This fee also applies to Class A shares purchased without a sales charge. (3) The Fund has had no outstanding Class I shares. Percentages shown are estimates based on expenses for Class A shares. (4) The Fund's Investment Manager has contractually agreed to reimburse the Fund's expenses for the current fiscal year ending December 31, 2002, to the extent necessary to ensure that the Fund's Annual Fund Operating Expenses, when calculated at the Fund level, do not exceed 1.34% of the Fund's average net assets (excluding 12b-1 fees and certain other expenses). For each of the following nine years, the Investment Manager has contractually agreed to 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 ADVISOR 1ST $ 725 $ 734 $ 234 $ 339 $ 239 $ 124 $ 128 3RD 1,093 1,077 777 792 792 445 457 5TH 1,485 1,546 1,346 1,371 1,371 788 809 10TH 2,579 2,712 2,712 2,944 2,944 1,756 1,801
24 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 80% of its net assets, plus the amount of any borrowings for investment purposes, in equity securities (including common stock, preferred stock and securities convertible into common stock) of small- and medium-sized US 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. US companies are companies whose securities are traded mainly on US markets and are organized under the laws of the US or that have more than half their business in the US. The Fund's manager uses a growth strategy of investing. Companies typically are selected from within the technology, healthcare, entertainment, and business and consumer services sectors, and may include companies engaged in initial public offerings. Some of the Fund's investments may produce income (such as dividends), although it is expected that any income realized would be incidental. PRINCIPAL RISKS The main risks to which the Fund is exposed in carrying out its investment strategies are the following: MANAGEMENT RISK - Securities selected for the Fund may not perform as well as the securities held by other mutual funds with investment objectives that are similar to those of the Fund. MARKET RISK - Equity securities typically represent a proportionate ownership interest in a company. The market value of equity securities can fluctuate significantly even where "management risk" is not a factor. You could lose money if you redeem your Fund shares at a time when the Fund's portfolio is not performing as well as expected. SMALL AND MEDIUM SIZED COMPANY RISK - 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 more thinly traded and because they are subject to greater business risk. Transaction costs of 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. 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 compare with those of a broad measure of market performance. The Fund's past performance (before and after taxes) is not necessarily an indication of how the Fund will perform in the future. ANNUAL TOTAL RETURNS FOR CLASS A SHARES(**) for the years ending December 31 [BAR GRAPH] BEST QUARTER 51.31% 4th Quarter, 1999 WORST QUARTER -35.18% 3rd Quarter,2001 62.47% 42.07% 18.52% 18.00% 3.29 4.26% -25.81% -33.49% 1994 1995 1996 1997 1998 1999 2000 2001
(**) 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. - ------------ (*) 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. 25 DOMESTIC FUNDS (continued) AVERAGE ANNUAL TOTAL RETURNS(1) For the periods ending December 31, 2001
- ------------------------------------------------------------------------------------------------------ RUSSELL 2500 ADVISOR GROWTH CLASS A(2) CLASS B(3) CLASS C(4) CLASS(5) INDEX(2)(*) - ------------------------------------------------------------------------------------------------------ 1 YEAR - ------ RETURN BEFORE TAXES -37.31% -37.35% -34.70% -33.40% -10.83% RETURN AFTER TAXES ON DISTRIBUTIONS -37.31% RETURN AFTER TAXES ON DISTRIBUTIONS AND SALE OF FUND SHARES -5.66% 5 YEARS - ------- RETURN BEFORE TAXES -1.45% -1.43% -1.00% N/A 6.60% RETURN AFTER TAXES ON DISTRIBUTIONS -2.42% RETURN AFTER TAXES ON DISTRIBUTIONS AND SALE OF FUND SHARES 0.25% SINCE INCEPTION - --------------- RETURN BEFORE TAXES 10.34% 6.02% -1.68% -2.22% 10.94% RETURN AFTER TAXES ON DISTRIBUTIONS 9.08% RETURN AFTER TAXES ON DISTRIBUTIONS AND SALE OF FUND SHARES 8.78%
After-tax returns are intended to show the impact federal income taxes have on investments in the fund. The fund's return after taxes on distribution calculation shows the effect of taxable distributions, but assumes that you hold the fund shares at the end of the period, thus not having any taxable gain or loss on your investment in shares of the fund. The fund's return after taxes on distribution and sale of Fund shares calculation shows the effect of both a distribution and any taxable gain or loss that would be realized if you purchased fund shares at the beginning of a period and sold them at the end of the period. After-tax returns are calculated using the historical highest individual federal marginal income tax rates. State and local tax rates are not included in the tax effect. Your after-tax returns depend on your own tax situation and may differ from those shown. After-tax returns are not relevant to investors who hold their fund shares in a tax-deferred account (including a 401(k) or IRA account), or to tax-exempt investors. After-tax returns are presented for Class A shares and after-tax returns for other classes will vary. (*) Reflects no deduction for fees, expenses or taxes. (1) Performance figures reflect any applicable sales charges. (2) 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).Index performance is calculated from April 30, 1993. (3) The inception date for the Fund's Class B shares was October 22, 1993. (4) The inception date for the Fund's Class C shares was April 30, 1996. (5) The inception date for the Fund's Advisor Class shares was 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: SHAREHOLDER FEES fees paid directly from your investment
CLASS A CLASS B CLASS C ADVISOR - -------------------------------------------------------------------------------------------- MAXIMUM SALES CHARGE (LOAD) IMPOSED ON PURCHASES (AS A % OF OFFERING PRICE) 5.75% NONE NONE NONE - -------------------------------------------------------------------------------------------- MAXIMUM DEFERRED SALES CHARGE (LOAD) (AS A % OF PURCHASE PRICE) NONE(1) 5.00% 1.00% NONE - -------------------------------------------------------------------------------------------- MAXIMUM SALES CHARGE (LOAD) ON REINVESTED DIVIDENDS NONE NONE NONE NONE - -------------------------------------------------------------------------------------------- REDEMPTION FEE/EXCHANGE FEE (AS A % OF AMOUNT REDEEMED, IF APPLICABLE)(2) 2.00% NONE NONE NONE - --------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES expenses that are deducted from Fund assets
CLASS A CLASS B CLASS C ADVISOR - -------------------------------------------------------------------------------------------- MANAGEMENT FEES 0.85% 0.85% 0.85% 0.85% - -------------------------------------------------------------------------------------------- DISTRIBUTION AND/OR SERVICE (12B-1) FEES 0.25% 1.00% 1.00% NONE - -------------------------------------------------------------------------------------------- OTHER EXPENSES 0.70% 0.76% 0.76% 0.78% - -------------------------------------------------------------------------------------------- TOTAL ANNUAL FUND OPERATING EXPENSES 1.80% 2.61% 2.61% 1.63% - --------------------------------------------------------------------------------------------
(1) 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. (2) If you choose to receive your redemption proceeds via Federal Funds wire, a $10 wire fee will be charged to your account. Class A shares redeemed or exchanged within 30 days of purchase are subject to a 2.00% redemption/exchange fee. This fee also applies to Class A shares purchased without a sales charge. - ------------ 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 ADVISOR 1ST $ 747 $ 764 $ 264 $ 364 $ 264 $ 166 3RD 1,109 1,111 811 811 811 514 5TH 1,494 1,585 1,385 1,385 1,385 887 10TH 2,569 2,747 2,747 2,944 2,944 1,933
26 IVY BOND FUND INVESTMENT OBJECTIVE The Fund seeks a high level of current income. PRINCIPAL INVESTMENT STRATEGIES The Fund normally invests at least 80% of its net assets, plus the amount of any borrowings for investment purposes, 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 20% of its net assets in low-rated debt securities (commonly referred to as "high yield" or "junk" bonds). These securities typically are rated Ba or below by Moody's or BB or below by S&P (or are judged by the Fund's manager to be of comparable quality). The Fund may invest a portion of its assets in foreign (including emerging market) debt securities to diversify its holdings and to increase its potential return. The Fund may also invest in 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. FOREIGN SECURITY 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 US markets and that could affect the Fund's performance unfavorably, depending on the prevailing conditions at any given time. Among these potential risks are greater price volatility; comparatively weak supervision and regulations of security 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. INTEREST RATE AND MATURITY 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. You could lose money if you redeem your shares at a time when interest rates are rising. The risk is more acute for debt securities with longer maturities. CREDIT RISK - The market value of debt securities also tends to vary according to the relative financial condition of the issuer. As much as 20% 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. 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. 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 compare with those of a broad measure of market performance. The Fund's past performance (before and after taxes) is not necessarily an indication of how the Fund will perform in the future. ANNUAL TOTAL RETURNS FOR CLASS A SHARES(**) for the years ending December 31 [BAR GRAPH] BEST QUARTER 7.56% 2nd Quarter, 1995 WORST QUARTER -4.02% 2nd Quarter, 2000 17.41% 15.45% 11.87% 8.70% 8.16% 8.06% 1.89% -4.10% 0.00% -6.17% 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 (**) 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. - ------------ (*) 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. 27 FIXED INCOME FUNDS (continued) AVERAGE ANNUAL TOTAL RETURNS(1) For the periods ending December 31, 2001
- ------------------------------------------------------------------------------------------------------------ LEHMAN BROTHERS ADVISOR US CREDIT CLASS A(2) CLASS B(3) CLASS C(4) CLASS I(5) CLASS(6) INDEX(2)(*) - ------------------------------------------------------------------------------------------------------------ 1 YEAR - ------ RETURN BEFORE TAXES 3.53% 2.60% 6.50% N/A 9.07% 10.40% RETURN AFTER TAXES ON DISTRIBUTIONS 1.20% RETURN AFTER TAXES ON DISTRIBUTIONS AND SALE OF FUND SHARES 1.22% 5 YEARS - ------- RETURN BEFORE TAXES 2.06% 1.64% 2.22% N/A N/A 6.57% RETURN AFTER TAXES ON DISTRIBUTIONS -0.66% RETURN AFTER TAXES ON DISTRIBUTIONS AND SALE OF FUND SHARES -0.56% 10 YEARS - -------- RETURN BEFORE TAXES 5.34% N/A N/A N/A N/A 7.35% RETURN AFTER TAXES ON DISTRIBUTIONS 2.28% RETURN AFTER TAXES ON ON DISTRIBUTIONS AND SALE OF FUND SHARES 2.53%
After-tax returns are intended to show the impact federal income taxes have on investments in the fund. The fund's return after taxes on distribution calculation shows the effect of taxable distributions, but assumes that you hold the fund shares at the end of the period, thus not having any taxable gain or loss on your investment in shares of the fund. The fund's return after taxes on distribution and sale of Fund shares calculation shows the effect of both a distribution and any taxable gain or loss that would be realized if you purchased fund shares at the beginning of a period and sold them at the end of the period. After-tax returns are calculated using the historical highest individual federal marginal income tax rates. State and local tax rates are not included in the tax effect. Your after-tax returns depend on your own tax situation and may differ from those shown. After-tax returns are not relevant to investors who hold their fund shares in a tax-deferred account (including a 401(k) or IRA account), or to tax-exempt investors. After-tax returns are presented for Class A shares and after-tax returns for other classes will vary. (*) Reflects no deduction for fees, expenses or taxes. (1) Performance figures reflect any applicable sales charges. (2) The inception date for the Fund's Class A shares was September 9, 1985. Index performance is calculated from September 1, 1985. (3) The inception date for the Fund's Class B shares was April 1, 1994. (4) The inception date for the Fund's Class C shares was April 30, 1996. (5) The Fund has had no outstanding Class I shares. (6) The inception date for the Fund's Advisor Class shares was 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: SHAREHOLDER FEES fees paid directly from your investment
CLASS A CLASS B CLASS C CLASS I ADVISOR - -------------------------------------------------------------------------------------------------- MAXIMUM SALES CHARGE (LOAD) IMPOSED ON PURCHASES (AS A % OF OFFERING PRICE) 4.75% NONE NONE NONE NONE - -------------------------------------------------------------------------------------------------- MAXIMUM DEFERRED SALES CHARGE (LOAD) (AS A % OF PURCHASE PRICE) NONE(1) 5.00% 1.00% NONE NONE - -------------------------------------------------------------------------------------------------- MAXIMUM SALES CHARGE (LOAD) ON REINVESTED DIVIDENDS NONE NONE NONE NONE NONE - -------------------------------------------------------------------------------------------------- REDEMPTION FEE/EXCHANGE FEE (AS A % OF AMOUNT REDEEMED, IF APPLICABLE)(2) 2.00% NONE NONE NONE NONE - --------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES expenses that are deducted from Fund assets
CLASS A CLASS B CLASS C CLASS I ADVISOR - -------------------------------------------------------------------------------------------------- MANAGEMENT FEES(4) 0.50% 0.50% 0.50% 0.50% 0.50% - -------------------------------------------------------------------------------------------------- DISTRIBUTION AND/OR SERVICE (12B-1) FEES 0.25% 1.00% 1.00% NONE NONE - -------------------------------------------------------------------------------------------------- OTHER EXPENSES 0.66% 0.75% 0.68% 0.57% 0.82% - -------------------------------------------------------------------------------------------------- TOTAL ANNUAL FUND OPERATING EXPENSES 1.41% 2.25% 2.18% 1.07% 1.32% - --------------------------------------------------------------------------------------------------
(1) 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. (2) If you choose to receive your redemption proceeds via Federal Funds wire, a $10 wire fee will be charged to your account. Class A shares redeemed or exchanged within 30 days of purchase are subject to a 2.00% redemption/exchange fee. This fee also applies to Class A shares purchased without a sales charge. (3) The Fund has had no outstanding Class I shares. Percentages shown are estimates based on expenses for Class A shares. (4) Management fees are reduced to 0.40% of average net assets over $500 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 CLASS I ADVISOR 1ST $ 612 $ 728 $ 228 $ 321 $ 221 $ 109 $ 134 3RD 900 1,003 703 682 682 340 418 5TH 1,209 1,405 1,205 1,169 1,169 590 723 10TH 2,086 2,373 2,373 2,513 2,513 1,306 1,590
28 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 US 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 US 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. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money investing in the Fund. INTEREST RATE AND MATURITY RISK - Many of the Fund's portfolio holdings are susceptible to decline in a rising interest rate environment. The risk is more acute for debt securities with longer maturities. 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. 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 compare with those of a broad measure of market performance. The Fund's past performance is not necessarily an indication of how the Fund will perform in the future. ANNUAL TOTAL RETURNS FOR CLASS A SHARES for the years ending December 31 [BAR GRAPH] BEST QUARTER 1.42% 3rd Quarter, 2000 WORST QUARTER 0.53% 2nd Quarter, 1993 5.37% 4.80% 4.47% 4.60% 4.51% 4.21% 4.16% 3.12% 2.81% 2.42% 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 AVERAGE ANNUAL TOTAL RETURNS(1) For the periods ending December 31, 2001
- ------------------------------------------------------------ CLASS A CLASS B CLASS C - ------------------------------------------------------------ 1 YEAR 3.12% 3.19% 3.10% 5 YEARS 4.44% 4.51% 4.40% 10 YEARS 4.03% N/A N/A SINCE INCEPTION 4.91% 4.54% 4.41%
(1)The inception date for the Fund's three classes of shares were as follows: Class A shares, April 3, 1987; Class B shares, January 1, 1996; and Class C shares, April 30, 1996. The Fund's seven day yield as of December 31, 2001 was 0.67%, 0.76% and 0.50% for Class A, Class B and Class C shares, respectively. - --------------- (*)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. 29 FIXED INCOME FUNDS (continued) 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 fees paid directly from your investment
CLASS A CLASS B CLASS C - -------------------------------------------------------------------- MAXIMUM SALES CHARGE (LOAD) IMPOSED ON PURCHASES (AS A % OF OFFERING PRICE) NONE NONE NONE - -------------------------------------------------------------------- MAXIMUM DEFERRED SALES CHARGE (LOAD) (AS A % OF PURCHASE PRICE)(1) NONE NONE NONE - -------------------------------------------------------------------- MAXIMUM SALES CHARGE (LOAD) ON REINVESTED DIVIDENDS NONE NONE NONE - -------------------------------------------------------------------- REDEMPTION/EXCHANGE FEE(2) NONE NONE NONE - --------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES expenses that are 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 1.19% 1.12% 1.20% - ---------------------------------------------------------------------- TOTAL ANNUAL FUND OPERATING EXPENSES 1.59% 1.52% 1.60% - ---------------------------------------------------------------------- EXPENSES REIMBURSED(3) 0.72% 0.72% 0.72% - ---------------------------------------------------------------------- NET FUND OPERATING EXPENSES 0.87% 0.80% 0.88% - ----------------------------------------------------------------------
(1) No 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). (2) If you choose to receive your redemption proceeds via Federal Funds wire, a $10 wire fee will be charged to your account. (3) The Fund's Investment Manager has contractually agreed to reimburse the Fund's expenses for the current fiscal year ending December 31, 2002, to the extent necessary to ensure that the Fund's Annual Fund Operating Expenses, when calculated at the Fund level, 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 has contractually agreed to 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 (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:
YEAR CLASS A CLASS B CLASS C 1ST $ 89 $ 82 $ 90 3RD 363 341 366 5TH 659 621 664 10TH 1,499 1,439 1,510
30 ADDITIONAL INFORMATION ABOUT PRINCIPAL INVESTMENT STRATEGIES AND RISKS PRINCIPAL STRATEGIES IVY CUNDILL GLOBAL VALUE 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 investment approach of Peter Cundill & Associates, Inc. ("Cundill"), the Fund's sub-advisor, is based on a contrarian "value" philosophy. Cundill looks for securities that are trading below their estimated intrinsic value. To determine the intrinsic value of a particular company, Cundill focuses primarily on the company's financial statements. Cundill also considers factors such as earnings, dividends, business prospects, management capabilities and potential catalysts (such as a change in management) to realize shareholder value. A security is purchased when the price reflects a significant discount to Cundill's estimate of the company's intrinsic value. Given the bottom-up or company-specific approach, Cundill does not forecast economies or corporate earnings and does not rely on market timing. IVY DEVELOPING MARKETS 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 increase shareholder value through 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 and the International Finance Corporation, or classified as "emerging" by the United Nations. The Fund usually invests its assets in at least three different emerging market countries, and may invest more than 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 an 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 European 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 an 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 Fund's manager attempts to minimize risk through diversifying the Fund's portfolio by commodity, country, issuer and asset class. IVY GLOBAL SCIENCE & TECHNOLOGY FUND: The Fund seeks to achieve its principal objective of long-term capital growth by investing in the equity securities of companies throughout the world that are expected to increase shareholder value through the development, advancement and use of science and technology. The Fund may also invest in companies that are expected to profit 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. 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. 31 IVY INTERNATIONAL FUND: 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 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 various indicators (such as earnings, cash flow, assets and long term growth potential) and are reviewed for fundamental financial strength. IVY INTERNATIONAL SMALL COMPANIES FUND: The Fund seeks to achieve its principal objective of long-term capital growth by investing in equity securities of foreign issuers having total market capitalization of less than $2 billion at initial purchase 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. 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 INTERNATIONAL VALUE FUND: 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 PACIFIC OPPORTUNITIES FUND: The Fund seeks to achieve its investment objective of long-term capital growth by investing primarily in equity securities of companies traded mainly on markets in the Pacific region, issued by companies organized under the laws of a Pacific region country or issued by any company with more than half of its business in the Pacific region. Examples of Pacific region countries include China, Hong Kong, Malaysia, Sri Lanka, Australia and India. 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 an 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 GROWTH FUND: The Fund seeks to achieve its principal objective of long-term growth by investing primarily in mid- and large-cap US stocks, and seeks to provide additional diversification by investing a portion of its assets in small-cap US 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 US 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 US BLUE CHIP FUND: The Fund seeks to achieve its principal objective of long-term growth by investing primarily in equity securities of US 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 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, healthcare, 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. IVY BOND FUND: The Fund seeks to achieve its investment objective of a high level of current income by investing 32 primarily in investment grade bonds (which are those rated in the four highest rating categories used by Moody's and S&P) and US Government securities that mature in more than 13 months. The Fund may invest up to 20% of its net assets in debt securities that are considered below investment grade (commonly referred to as "high yield" or "junk" bonds). As much as 20% of the Fund's net assets may be invested in foreign securities (including those in emerging markets). 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 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 debt 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 expects 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 US Government securities, investment-grade debt securities (which are those rated in the four highest rating categories used by Moody's and S&P), 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 the fund 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 Funds' share value will decrease at any time during which its security holdings or other investment techniques are not performing as well as anticipated. You could lose money by investing in the Funds depending upon the timing of your initial purchase and any subsequent redemption or exchange. OTHER RISKS: Funds that invest heavily in the equity securities of foreign issuers are more susceptible to the risks associated with these types of securities than Funds that invest 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 Funds' portfolio managers consider important in achieving the Funds' investment objectives or in managing the Funds' exposure to risk (and that could therefore have a significant effect on the Funds' returns). Other investment methods that the Funds may use (such as derivative investments), but that do not play a key role in the Funds' overall investment strategy, are described in the Funds' Statement of Additional Information (see back cover page for information on how you can receive a free copy). 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 Funds (with the exception of Ivy Global Natural Resources Fund and Ivy International Small Companies Fund, which may borrow up to 33%) may borrow up to 10% of the value of its total assets from qualified banks. Borrowing may exaggerate the effect on the Funds' share value of any increase or decrease in the value of the securities it holds. Money borrowed will also be subject to interest costs. 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 Funds' 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. DEPOSITORY RECEIPTS: The Funds 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 Funds' 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: The Funds may, but are 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 Funds might use are options, futures, forward foreign currency contracts and foreign currency exchange transactions. Using put and call options could cause the Funds to lose money by forcing the sale or purchase of portfolio securities 33 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 Funds can realize on its investments, or by causing the Funds 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 Funds could cause losses on the hedging instrument that are greater than gains in the value of the Funds' 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 Funds 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 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 advisors' 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 the Funds' portfolio holdings of securities denominated in a particular currency and the forward contracts entered into by the Funds. An imperfect correlation of this type may prevent the Funds from achieving the intended hedge or expose the Funds to the risk of currency exchange loss. These investment techniques also tend to limit any potential gain that might result from an increase in the value of the hedged position. 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. FOREIGN CURRENCIES: Foreign securities may be denominated in foreign currencies. The value of the Funds' investments, as measured in U.S. dollars, may be affected unfavorably 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 Funds (not including Ivy Money Market Fund) may, but are 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 Funds' 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 Funds' portfolio holdings of securities denominated in a particular currency and the forward contracts entered into by the Funds. An imperfect correlation of this type may prevent the Funds from achieving the intended hedge or expose the Funds to the risk of currency exchange loss. These investment techniques also tend to limit any potential gain that might result from an increase in the value of the hedged position. 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 Funds' performance 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 the Funds' 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 Funds 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). ILLIQUID SECURITIES:The Funds (not including Ivy Money Market Fund) may invest up to 15% of their 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 Funds have valued the assets. Some of these may be "restricted securities," which cannot be sold to the public without registration under the Securities Act of 1933 (in the absence of an exemption) or because of other legal or contractual restrictions on resale. There is a risk that the Funds will not be able to dispose of its illiquid securities on a timely basis at an acceptable price. 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 34 instrument. For this reason, these bonds are considered speculative and could significantly weaken the Funds' returns. 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. 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); - - abrupt changes in exchange rate regime or monetary policy; - - unusually large currency fluctuations and currency conversion costs (see "Foreign Currencies" above); and - - high national debt levels (which may impede an issuer's payment of principal and/or interest on external debt). WARRANTS: As a holder of certain securities, the Funds 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 of its expiration (such as when the underlying securities are no longer an attractive investment), the Funds would lose what it paid for the warrant. 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. RISK CHARACTERISTICS Investors in Ivy European Opportunities Fund, Ivy Global Science & Technology Fund, and Ivy US Emerging Growth Fund should note that the aforementioned risks may be heightened in the case of securities issued through IPOs. OTHER IMPORTANT INFORMATION European Monetary Union ("EMU"): On January 1, 2002, euro notes and coins - the official currency of 12 of the 15 members of the EMU - officially entered circulation. The Funds could be affected by certain euro-related issues such as accounting differences, valuation problems and consumer confusion during this transitional period. In addition, certain European Union members, including the United Kingdom, did not officially implement the euro and may cause market disruptions if they decide to do so. Should this occur, the Funds could experience investment losses. MANAGEMENT INVESTMENT ADVISOR Ivy Management, Inc. ("IMI") 925 South Federal Highway, Suite 600 Boca Raton, Florida 33432 IMI provides business management services to the Funds and investment advisory services to all Funds other than Ivy Global Natural Resources Fund. IMI is an SEC-registered investment advisor with approximately $3.1 billion in assets under management as of December 31, 2001. For the Funds' fiscal year ended December 31, 2001, all Funds paid IMI a fee that was equal to the following percentages of the Funds' respective average net assets as listed below:
FEE PAID TO IMI AS A PERCENTAGE OF THE FUND NAME FUND'S AVERAGE NET ASSETS - --------- ------------------------- IVY GLOBAL NATURAL RESOURCES FUND .50% IVY GROWTH FUND .85% IVY US BLUE CHIP FUND .75% IVY US EMERGING GROWTH FUND .85% IVY BOND FUND .50% IVY MONEY MARKET FUND .40% ALL OTHER FUNDS 1.00%
Cundill, an SEC-registered investment adviser located at Suite A1, 1470 East Valley Road, P.O. Box 50133, Montecito, California, 93150-0133, serves as subadvisor to Ivy Cundill Global Value Fund under an agreement with IMI. Cundill began operations in 1984, and as of December 31, 2001 (along with its affiliates) had approximately $2 billion in assets under management. For its services, Cundill receives a fee from IMI that is equal, on an annual basis, to 0.50% of Ivy Cundill Global Value Fund's average net assets. Henderson Investment Management Limited ("Henderson"), 4 Broadgate Avenue, London, England EC2M 2DA, serves as subadvisor to Ivy European Opportunities Fund and Ivy International Small Companies Fund under an agreement with IMI. For its services, Henderson receives a fee from IMI that is equal,on an annual basis, to 0.22% of the Fund's 35 average net assets. 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 Ivy Global Natural Resources Funds' portfolio investments. MFC has been an investment counsel and mutual fund manager in Toronto for more than 33 years, and as of December 31, 2001 had over $38.7 billion in assets under management. For its services, MFC receives a fee from the Fund that is equal, on an annual basis, to 0.50% of the Fund's average net assets. The Funds' investment advisor, IMI, is an indirect subsidiary of MFC which is a wholly owned subsidiary of Investors Group, Inc. ("IGI"), One Canada Centre, 447 Portage Avenue, Winnipeg, Manitoba, Canada R3C3B6. PORTFOLIO MANAGEMENT IVY CUNDILL GLOBAL VALUE FUND: The Fund is managed by investment professionals who are supported by a team of research analysts who are responsible for providing information on regional and country-specific economic and political developments and monitoring individual companies. F. Peter Cundill has over 31 years of value-investing experience and has managed MFC's Cundill Value Fund since 1975. He is a Chartered Financial Analyst, a Chartered Accountant and holds a Bachelor of Commerce degree from McGill University, Montreal. In December 2001,the Canadian Mutual Fund Awards, sponsored by Morningstar Canada, honored Mr. Cundill with an Analysts' Choice Career Achievement Award. Hiok Hhu Ng assists in the management of the Fund. Mr. Ng holds a degree in finance from the University of British Columbia and is a Chartered Financial Analyst. He has been with Cundill since 1998 and has four years of professional investment experience. IVY DEVELOPING MARKETS FUND, IVY INTERNATIONAL FUND, IVY INTERNATIONAL VALUE FUND AND IVY PACIFIC OPPORTUNITIES FUND: Moira McLachlan, Vice President of IMI is the lead manager for the Funds, supported by IMI's international equities team. Ms. McLachlan joined IMI in 1995 and has 7 years of professional investment experience. She holds a master's degree in international business, a bachelor of science degree in multinational business operations and a bachelor of arts degree in Spanish literature. A Chartered Financial Analyst, Ms. McLachlan is fluent in Spanish and Portuguese and has corporate experience working in Brazil, Spain and the United Kingdom. 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 27 years of investment experience. He joined Henderson in 1986 and since that time has won numerous awards in recognition of his long-term performance record (eight S&P Micropal awards, two Lipper awards, three Investment Week awards and one Canadian Mutual Funds award.) The awards were based on the performance of other funds that he manages, such as the TR European Growth Trust and the Mackenzie Universal European Opportunities Fund. IVY GLOBAL FUND: The Fund's portfolio is divided into two different segments, which are managed by a team of professionals and headed by the following individuals: Moira McLachlan, Vice President of IMI, supported by IMI's international equities team (comprised of portfolio managers and analysts). Paul P. Baran, Senior Vice President of IMI, manages the core growth segment of the Fund's portfolio. Mr. Baran joined IMI in 1998 and has 27 years of professional investment experience and is a Chartered Financial Analyst. He has an MBA from Wayne State University. Prior to joining IMI in 1998, Mr. Baran was named by Morningstar as one of only 13 US fund managers to add value while decreasing volatility. 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 international markets, IMI's research analysts also conduct primary research by: meeting with company management; touring facilities; and speaking with local research professionals. 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 17 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 President of Ivy Fund, is the Team's lead manager. Mr. Broadfoot joined IMI in 1990,has over 28 years of professional investment experience, holds an MBA from the Wharton School of Business and is a Chartered Financial Analyst. IVY INTERNATIONAL SMALL COMPANIES FUND: The Fund is managed by the Henderson team. The Henderson team's investment process combines top down regional allocation with a bottom up stock selection approach. Miranda Richards, Divisional Director, International Investment, of Henderson, is the global small companies strategist and is responsible for the Fund's regional allocations. Ms. Richards has over 14 years of economic and investment experience and holds a Master of Arts degree in economics and international relations from the University of St. Andrews in Scotland. 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. 36 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 of Ivy Fund, manages the US emerging growth segment of the Fund's portfolio (see "Ivy Global Science & Technology Fund," above). Paul P. Baran, a Senior Vice President of IMI, manages the core growth segment of the Fund's portfolio (see "Ivy Global Fund," above). IVY US BLUE CHIP FUND: The Fund is managed by Paul P. Baran (see "Ivy Global Fund," above). IVY US EMERGING GROWTH FUND: The Fund is managed by James W. Broadfoot (see "Ivy Global Science & Technology Fund," above). IVY BOND FUND AND IVY MONEY MARKET FUND: Richard A. Gluck, Senior Vice President of IMI, is the Funds' portfolio manager. He has 12 years of professional investment experience and holds a Masters Degree in management with a concentration in finance from the M.I.T.S loan 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. SHAREHOLDER INFORMATION PRICING OF FUND SHARES Each Fund calculates its share price by dividing the value of the Funds' 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 New York Stock 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 market or the Nasdaq Stock Market, Inc. ("Nasdaq") system is valued at the security's last quoted sale price on the market 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 or groups of securities at their fair value if events materially affecting the estimated value of the security or groups of securities 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. IMI will monitor for significant events that may call into question the reliability of market quotations. Such events may include situations relating to a single security in a market sector, significant fluctuations in U.S. or foreign markets, natural disasters, armed conflicts, governmental actions or other developments not tied directly to the securities markets. 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, 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 Funds' net asset value next determined after your instructions are received in proper form by PFPC, Inc. (the Funds' 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 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: 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 (except Ivy Money Market Fund) has adopted separate distribution plans pursuant to Rule 12b-1 under the 1940 Act for its Class A, B and C shares that allow the Fund to pay distribution and other fees for the sale and distribution of its shares and for services provided to shareholders. Because these fees are paid out of the Fund's assets on an ongoing basis, over time they will increase the cost of your investment and may cost you more than paying other types of sales charges. The following tables display the various investment minimums, sales charges and expenses that apply to each class. 37
MINIMUM MINIMUM INITIAL SUBSEQUENT INVESTMENT(*) INVESTMENT(*) ------------- ------------- CLASS A $ 1,000 $ 100 CLASS B $ 1,000 $ 100 CLASS C $ 1,000 $ 100 CLASS I $ 5,000,000 $ 10,000 ADVISOR CLASS $ 10,000 $ 250
(*) minimum initial and subsequent investments for retirement plans are $25.
INITIAL SERVICE & SALES DISTRIBUTION CHARGE CDSC FEES(*) ------- ---- ------------ CLASS A Maximum none, .25% service 5.75%,(**) with options except on fee for a reduction certain NAV or waiver purchases CLASS B none Maximum .75% 5.00%; distribution declines over fee and .25% six years(***) service fee CLASS C none 1.00% for .75% the first year(***) distribution fee and .25% service fee CLASS I none none none ADVISOR CLASS none none none
(*) None for Ivy Money Market Fund. (**) 4.75% for Ivy Bond Fund; none for Ivy Money Market Fund. (***) For Ivy Money Market Fund, CDSC is applicable only on shares purchased with proceeds from the exchange of other Ivy Fund shares that would otherwise have been subject to a CDSC. ADDITIONAL PURCHASE INFORMATION All information in this section applies to all Funds except Ivy Money Market Fund, which does not charge an initial sales charge or CDSC on any share class. 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 in the tables below (which is reduced as the amount invested increases): ALL FUNDS (EXCEPT IVY BOND FUND)
SALES SALES PORTION OF CHARGE AS CHARGE AS PUBLIC A PERCENTAGE A PERCENTAGE OFFERING AMOUNT OF PUBLIC OF NET AMOUNT PRICE RETAINED INVESTED OFFERING PRICE INVESTED BY 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%
IVY BOND FUND
SALES SALES PORTION OF CHARGE AS CHARGE AS PUBLIC A PERCENTAGE A PERCENTAGE OFFERING AMOUNT OF PUBLIC OF NET AMOUNT PRICE RETAINED INVESTED OFFERING PRICE INVESTED BY 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. 38 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. A CDSC of 1.00% may apply to shares redeemed within two years of the end of the month in which they were purchased. Ivy Mackenzie Distributors, Inc. ("IMDI"), the Funds' 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 two years 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 1.00%, 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 DOLLAR YEAR SINCE PURCHASE AMOUNT 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 reinvested dividends or distributions, or on shares held over six years. If your shares have appreciated in value, each share redeemed will include both your original cost (subject to the above CDSC schedule) and any proportional increase in market value (not subject to a CDSC). If your shares have depreciated in value, the CDSC will be assessed on the market value of the shares being redeemed. At the time of redemption, the calculation is performed on a share-by-share basis as described below. Shares will be redeemed in the following order: - - Shares held more than six years - - Shares acquired through reinvestment of dividends and distributions - - Shares subject to the lowest CDSC percentage; on a first-in, first-out basis with the portion of the lot attributable to capital appreciation, which is not subject to a CDSC redeemed first; then 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. 39 - - 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, Class I and Advisor Class 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. ADVISOR CLASS SHARES: Advisor Class shares are offered 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 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.) SUBMITTING YOUR PURCHASE ORDER INITIAL INVESTMENTS: Complete and sign the Ivy Funds Account Application. 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 38 for minimum initial investments.) Deliver your application materials to your registered representative or selling broker, or send them to the address below: BY REGULAR MAIL: BY COURIER: Ivy Funds Ivy Funds P.O. Box 9770 c/o PFPC, Inc. Providence, RI 02940 4400 Computer Drive Westborough, MA 01581 BUYING ADDITIONAL SHARES There are several ways to increase your investment in the Funds: 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 the address 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 FEDERAL FUNDS 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 PFPC at 800.777.6472. Wiring instructions are as follows: Mellon Bank ABA #011001234 DDA #002593 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 through Electronic Funds Transfer ("EFT") and invested as a purchase of shares into your Ivy Fund account. Complete sections 8 and 9 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 PFPC. If you choose to redeem through your registered securities dealer, the dealer is responsible for transmitting redemption orders in proper form and in a timely manner. If you choose to redeem directly through PFPC, you have several ways to submit your request: BY MAIL: Send your written redemption request to PFPC at the address on this page. 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, PFPC 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). 40 BY TELEPHONE: Call PFPC 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. PFPC 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 PFPC 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 through EFT. Certain minimum balances and minimum distributions apply. BY CHECK WRITING: The check writing privilege is only available to Ivy Money Market Fund Class A shareholders and is not available for retirement accounts or corporate accounts. You may write checks against your Ivy Money Market Fund Account. Checks written must be for a minimum of $100. You may sign up for this option by completing Section 14 of the Account Application. If you are redeeming shares that have been purchased by check, payment may be delayed until your check has cleared or for up to 15 calendar days after the date of purchase. Please note that all registered owners named on the account must sign the signature card, and only registered owners may have the check writing privilege on an account. In order to qualify for the check writing privilege, Class A shareholders must maintain a minimum average account balance of $1,000. Shares must be uncertificated (i.e., held by the Fund) for any account requesting check writing privileges. Checks can be reordered by calling PFPC at 800.777.6472. Checking activity is reported on your Ivy Funds statement. There is no limitation on the number of checks a shareholder may write. When a check is presented for payment, the Fund redeems a sufficient number of shares to cover the amount of the check. Checks written on accounts with insufficient shares will be returned to the payee marked "non-sufficient funds." There may be a nominal charge for each supply of checks, copies of canceled checks, stop payment orders, checks drawn for amounts less than the Fund minimum (i.e.,$100) and checks returned for "non-sufficient funds." To pay for these charges, the Fund automatically redeems an appropriate number of the shareholder's Fund shares after the charges are incurred. You may not close your Fund account by writing a check, because any earned dividends will remain in your account. The Fund reserves the right to change, modify or terminate the check writing service at any time upon notification mailed to your address of record. BY INTERNET: Select the Ivy Fund Internet option on your Account Application. Mail the application form to PFPC. Once your request for this option has been processed (which may take up to 10 days), you may place your redemption order at www.ivyfunds.com. RECEIVING YOUR REDEMPTION PROCEEDS: You can receive redemption proceeds through a variety of payment methods: BY CHECK: Unless otherwise instructed in writing, checks will be made payable to the current account registration and sent to the address of record. BY FEDERAL FUNDS WIRE: Proceeds will be wired on the next business day to a pre-designated bank account. Your account will be charged $10 each time redemption proceeds are wired to your bank, and your bank may also charge you a fee for receiving a Federal Funds wire. BY ELECTRONIC FUNDS TRANSFER ("EFT"): For SWP redemptions only. Other important redemption information: Short term "market timers" who engage in frequent purchases and redemptions can disrupt a fund's investment program and create additional transaction costs. For these reasons, each Fund (other than Ivy Money Market Fund) will deduct a redemption fee of 2.00% from any redemption or exchange proceeds if you sell or exchange your Class A shares after holding them less than 30 days. For Ivy Developing Markets Fund and Ivy Pacific Opportunities Fund this fee also applies to Class B, Class C and Advisor Class shares. These fees are paid to the Fund rather than IMI or PFPC, and are designed to offset the brokerage commissions, market impact, and other costs associated with fluctuations in fund asset levels and cash flow caused by short term shareholder trading. If you bought your shares on different days, the "first-in, first-out" (FIFO) method is used to determine the holding period. Under this method, the shares you held longest will be redeemed first for purposes of determining whether the redemption fee applies. The redemption fee does not apply to shares that were acquired through reinvestment of distributions and generally is waived for Class A shares purchased through certain retirement and educational plans. However, if Class A shares are purchased through a broker, financial institution or record keeper maintaining an omnibus account for the shares, the fee waiver may not apply. (Before purchasing Class A shares, please check with your account representative concerning the availability of the fee waiver.) In addition, the fee waiver does not apply to any IRA or SEP-IRA accounts. The Funds reserve the right to modify the terms of or terminate the redemption/exchange fee at any time. - - 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. 41 - - 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 day's 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" below). 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 Ivy Money Market 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 PFPC as follows: BY MAIL: Send your written exchange request to PFPC at the address on page 40 of this Prospectus. Be sure that all registered owners listed on the account sign the request. BY TELEPHONE: Call PFPC 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. PFPC 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 PFPC may be liable for any losses due to unauthorized or fraudulent telephone instructions. BY INTERNET: You will be allowed to exchange by Internet if (1) you do not hold physical share certificates; (2) you can provide proper identification information; (3) you have established the Internet trading option. 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 or cancel a shareholder's exchange privilege if at any time it appears that such market-timing strategies are being used. (See "Other important redemption information" on page 41).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 PFPC at 800.777.6472. Dividends ordinarily will vary from one class to another. The Funds, except for Ivy Bond Fund and Ivy Money Market Fund, intend to declare and pay dividends annually. Ivy Bond Fund intends 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 investment income and net realized capital gains, if any, at least once a year. Any capital gains distribution from Ivy Bond Fund will be declared and paid annually. 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 Funds' 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 Funds' income consists of dividends paid by US corporations, a portion of the dividends paid by the Fund 42 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 (in the case of a worldwide fund). Each year, your fund will notify you of the tax status of dividends and other distributions. 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 US Federal income tax at the rate of 30% (for 2002 and 2003) of all taxable 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 US 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. 43 FINANCIAL HIGHLIGHTS The Financial Highlights tables are meant to help you understand each Fund's financial performance for the past five years, if applicable. The total returns in the table represent the rate you would have earned (or lost) on an investment in each Fund, assuming reinvestment of all dividends and distributions. This information has been derived from the Fund's financial statements which were audited by PricewaterhouseCoopers LLP, whose report, along with the Fund's financial statements, are included in the Fund's Annual Report, which is available upon request.
SELECTED PER SHARE DATA (LOSS) INCOME FROM INVESTMENT OPERATIONS NET (LOSS) NET ASSET NET GAIN ON VALUE, INVESTMENT SECURITIES TOTAL FROM SHARE BEGINNING INCOME (REALIZED AND INVESTMENT FUND NAME CLASS FOR THE PERIOD FROM OF PERIOD (LOSS) UNREALIZED) OPERATIONS IVY CUNDILL GLOBAL VALUE A 09/04(e) to 12/31/2001 $10.15 $ .01(c) $ (.23) $ (.22) FUND B 09/26(e) to 12/31/2001 9.26 .01(c) .62 .63 C 10/19(e) to 12/31/2001 9.44 .01(c) .40 .41 ADVISOR 01/01 to 12/31/2001 10.07 .03(c) (.25) (.22) 04/19(e) to 12/31/2000 10.00 .05(c) .41 .46 ------------------------------------------------------------------------------------------------ IVY DEVELOPING A 01/01 to 12/31/2001 6.66 .01(c) (.31)(h) (.30) MARKETS FUND 01/01 to 12/31/2000 8.77 (.02)(c) (2.07) (2.09) 01/01 to 12/31/1999 6.02 .01(c) 2.80 2.81 01/01 to 12/31/1998 6.82 .06(c)(d) (.86)(d) (.80) 01/01 to 12/31/1997 10.12 .01(c) (2.80) (2.79) B 01/01 to 12/31/2001 6.49 (.05)(c) (.34) (.39) 01/01 to 12/31/2000 8.63 (.10)(c) (2.02) (2.12) 01/01 to 12/31/1999 5.93 (.04)(c) 2.76 2.72 01/01 to 12/31/1998 6.77 .01(c)(d) (.85)(d) (.84) 01/01 to 12/31/1997 10.04 (.06)(c) (2.76) (2.82) C 01/01 to 12/31/2001 6.52 (.05)(c) (.34) (.39) 01/01 to 12/31/2000 8.67 (.14)(c) (1.99) (2.13) 01/01 to 12/31/1999 5.96 (.03)(c) 2.76 2.73 01/01 to 12/31/1998 6.79 .01(c)(d) (.84)(d) (.83) 01/01 to 12/31/1997 10.06 (.07)(c) (2.76) (2.83) ADVISOR 01/01 to 12/31/2001 6.70 .04(c) (.38) (.34) 01/01 to 12/31/2000 8.80 .02(c) (2.10) (2.08) 01/01 to 12/31/1999 6.05 .03(c) 2.83 2.86 04/30(e) to 12/31/1998 7.48 .04(c)(d) (1.47)(d) (1.43) ------------------------------------------------------------------------------------------------ IVY EUROPEAN A 01/01 to 12/31/2001 17.25 (.08)(c) (3.49)(h) (3.57) OPPORTUNITIES FUND 01/01 to 12/31/2000 17.13 (.07) .82 .75 05/04(e) to 12/31/1999 10.01 - (c) 16.35 16.35 B 01/01 to 12/31/2001 17.26 (.20)(c) (3.49) (3.69) 01/01 to 12/31/2000 17.13 (.18) .83 .65 05/24(e) to 12/31/1999 10.21 (.01)(c) 16.15 16.14 C 01/01 to 12/31/2001 17.32 (.22)(c) (3.48) (3.70) 01/01 to 12/31/2000 17.13 (.22) .88 .66 10/24(e) to 12/31/1999 11.57 (.01)(c) 6.00 5.99 I 01/01 to 12/31/2001 17.37 (.01)(c) (3.55) (3.56) 03/16(e) to 12/31/2000 26.00 (.01) (7.92) (7.93) ADVISOR 01/01 to 12/31/2001 17.39 (.02)(c) (3.54) (3.56) 01/01 to 12/31/2000 17.23 (.02) .85 .83 05/03(e) to 12/31/1999 10.01 - (c) 16.46 16.46
(a) Total return does not reflect a sales charge. (d) Based on average shares outstanding. (b) For 1997, total expenses include fees paid indirectly, (e) Commencement. if any, through an expense offset arrangement. (f) Total return represents aggregate total return. (c) Net investment income (loss) is net of expenses (g) Annualized. reimbursed by Manager. (h) Includes redemption fees added to Capital paid-in of $0.06 and $0.02 per average shares outstanding for na -- not applicable Developing Markets and European Opportunities, respectively. Total return excluding redemption fees would have been (5.41%) and (20.78%), respectively.
44 FINANCIAL HIGHLIGHTS (continued)
SELECTED PER SHARE DATA LESS DISTRIBUTIONS DIVIDENDS FROM NET DISTRIBUTIONS INVESTMENT FROM TOTAL INCOME REALIZED GAINS DISTRIBUTIONS $ .27 $ .29 $ .02 .26 .28 .02 .26 .28 .02 .28 .30 .02 .20 .39 .19 - --------------------------------------------------------- - - - .02 .02 - .05 .06 .01 - - - .50 .51 .01 - - - .02 .02 - .02 .02 - - - - .44 .45 .01 - - - .02 .02 - .02 .02 - - - - .43 .44 .01 - - - .02 .02 - .05 .11 .06 - - - - --------------------------------------------------------- .03 .03 - .63 .63 - 9.22 9.23 .01 .03 .03 - .52 .52 - 9.22 9.22 - .03 .03 - .47 .47 - .42 .43 .01 .03 .03 - .70 .70 - .03 .03 - .67 .67 - 9.22 9.24 .02
45 FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA RATIOS AND SUPPLEMENTAL DATA RATIO OF NET ASSET NET ASSETS, EXPENSES TO VALUE, TOTAL END OF AVERAGE NET END OF RETURN PERIOD ASSETS WITH FUND NAME PERIOD (%)(A)(F) (000) REIMBURSEMENT (%)(B) IVY CUNDILL GLOBAL VALUE $ 9.64 (2.07) $ 213 4.47(g) FUND 9.61 6.91 867 6.04(g) 9.57 4.44 30 7.71(g) 9.55 (2.13) 964 1.40 10.07 4.66 747 1.95(g) -------------------------------------------------------------------------------------- IVY DEVELOPING 6.36 (4.50)(h) 2,390 2.19 MARKETS FUND 6.66 (23.79) 4,213 2.12 8.77 46.70 5,652 2.30 6.02 (11.67) 5,487 2.18 6.82 (27.42) 8,584 2.31 6.10 (6.01) 2,506 2.96 6.49 (24.53) 4,525 2.90 8.63 45.82 7,676 2.92 5.93 (12.35) 6,145 2.96 6.77 (27.93) 8,488 3.09 6.13 (5.98) 619 3.01 6.52 (24.53) 1,173 2.85 8.67 45.84 3,474 2.85 5.96 (12.16) 2,641 2.96 6.79 (28.01) 2,420 3.12 6.36 (5.07) 83 1.84 6.70 (23.60) 120 1.71 8.80 47.38 337 1.74 6.05 (19.06) 82 1.68(g) -------------------------------------------------------------------------------------- IVY EUROPEAN 13.65 (20.67)(h) 30,833 2.15 OPPORTUNITIES FUND 17.25 4.51 54,655 na 17.13 215.58 13,932 2.22(g) 13.54 (21.35) 33,705 2.89 17.26 4.12 57,283 na 17.13 209.41 5,900 2.96(g) 13.59 (21.32) 24,918 2.91 17.32 3.98 49,527 na 17.13 51.80 8,076 2.96(g) 13.78 (20.46) 13 1.80 17.37 (30.40) 17 na 13.80 (20.44) 9,186 1.72 17.39 5.01 19,178 na 17.23 217.16 5,246 1.93(g)
(a) Total return does not reflect a sales charge. (d) Based on average shares outstanding. (b) For 1997, total expenses include fees paid indirectly, (e) Commencement. if any, through an expense offset arrangement. (f) Total return represents aggregate total return. (c) Net investment income (loss) is net of expenses (g) Annualized. reimbursed by Manager. (h) Includes redemption fees added to Capital paid-in of $0.06 and $0.02 per average shares outstanding for na -- not applicable Developing Markets and European Opportunities, respectively. Total return excluding redemption fees would have been (5.41%) and (20.78%), respectively.
46 FINANCIAL HIGHLIGHTS (continued)
RATIOS AND SUPPLEMENTAL DATA RATIO OF RATIO OF EXPENSES TO NET INVESTMENT AVERAGE NET INCOME (LOSS) PORTFOLIO ASSETS WITHOUT TO AVERAGE TURNOVER REIMBURSEMENT (%)(B) NET ASSETS (%) RATE (%) .94 (c)(g) 57 31.77(g) .60 (c)(g) 57 39.53(g) .99 (c)(g) 57 51.61(g) .37(c) 57 10.30 .70 (c)(g) 53 19.15(g) - -------------------------------------------------------------- .17(c) 14 4.35 (.27)(c) 76 3.50 .13(c) 37 3.28 .88(c) 47 3.47 .09(c) 42 2.39 (.59)(c) 14 5.12 (1.04)(c) 76 4.28 (.49)(c) 37 3.90 .10(c) 47 4.25 (.69)(c) 42 3.17 (.65)(c) 14 5.17 (1.00)(c) 76 4.23 (.43)(c) 37 3.83 .10(c) 47 4.25 (.72)(c) 42 3.20 .52(c) 14 4.00 .14(c) 76 3.09 .69(c) 37 2.72 1.38 (c)(g) 47 2.97(g) - -------------------------------------------------------------- (.44)(c) 66 2.17 (.36) 46 1.83 (.15)(c)(g) 108 6.10(g) (1.18)(c) 66 2.91 (1.12) 46 2.59 (.89)(c)(g) 108 6.84(g) (1.20)(c) 66 2.93 (1.11) 46 2.58 (.89)(c)(g) 108 6.84(g) (.08)(c) 66 1.82 (.07)(g) 46 1.54(g) (.00)(c) 66 1.74 (.09) 46 1.55 .14 (c)(g) 108 5.81(g)
47 FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA (LOSS) INCOME FROM INVESTMENT OPERATIONS NET (LOSS) NET ASSET NET GAIN ON VALUE, INVESTMENT SECURITIES TOTAL FROM SHARE BEGINNING INCOME (REALIZED AND INVESTMENT FUND NAME CLASS FOR THE PERIOD FROM OF PERIOD (LOSS) UNREALIZED) OPERATIONS IVY GLOBAL FUND A 01/01 to 12/31/2001 $10.63 $(.06)(c) $(1.86) $(1.92) 01/01 to 12/31/2000 13.42 .02(c) (1.91) (1.89) 01/01 to 12/31/1999 11.32 .01(c) 2.98 2.99 01/01 to 12/31/1998 10.93 .02(c) .91 .93 01/01 to 12/31/1997 13.17 .08 (1.23) (1.15) B 01/01 to 12/31/2001 10.30 (.17)(c) (1.77) (1.94) 01/01 to 12/31/2000 13.14 (.09)(c) (1.85) (1.94) 01/01 to 12/31/1999 11.19 (.10)(c) 2.94 2.84 01/01 to 12/31/1998 10.90 (.09)(c) .92 .83 01/01 to 12/31/1997 13.12 (.02) (1.20) (1.22) C 01/01 to 12/31/2001 9.93 (.13)(c) (1.75) (1.88) 01/01 to 12/31/2000 12.75 (.11)(c) (1.81) (1.92) 01/01 to 12/31/1999 10.90 (.16)(c) 2.90 2.74 01/01 to 12/31/1998 10.67 (.16)(c) .93 .77 01/01 to 12/31/1997 12.94 (.02) (1.24) (1.26) ADVISOR 01/01 to 12/31/2001 10.73 (.05)(c) (1.88) (1.93) 01/01 to 12/31/2000 13.50 .05(c) (1.92) (1.87) 01/01 to 12/31/1999 11.36 .08(c) 2.95 3.03 04/30(e) to 12/31/1998 13.26 .05(c) (1.41) (1.36) ------------------------------------------------------------------------------------------------ IVY GLOBAL NATURAL A 01/01 to 12/31/2001 9.74 .04(c)(d) 1.45(d) 1.49 RESOURCES FUND 01/01 to 12/31/2000 8.91 (.07)(c) .95 .88 01/01 to 12/31/1999 6.32 - (c)(d) 2.59(d) 2.59 01/01 to 12/31/1998 9.01 .03(c) (2.68) (2.65) 01/01 to 12/31/1997 10.00 (.11)(c) .70 .59 B 01/01 to 12/31/2001 9.56 (.02)(c)(d) 1.42(d) 1.40 01/01 to 12/31/2000 8.77 (.09)(c) .90 .81 01/01 to 12/31/1999 6.27 (.04)(c)(d) 2.54(d) 2.50 01/01 to 12/31/1998 9.00 (.04)(c) (2.65) (2.69) 01/01 to 12/31/1997 10.00 (.15)(c) .68 .53 C 01/01 to 12/31/2001 9.40 (.02)(c)(d) 1.39(d) 1.37 01/01 to 12/31/2000 8.63 (.07)(c) .89 .82 01/01 to 12/31/1999 6.21 (.04)(c)(d) 2.46(d) 2.42 01/01 to 12/31/1998 9.00 (.14)(c) (2.61) (2.75) 01/01 to 12/31/1997 10.00 (.17)(c) .68 .51 ADVISOR 01/01 to 12/31/2001 9.74 .09(c)(d) 1.43(d) 1.52 01/01 to 12/31/2000 8.90 (.05)(c) .95 .90 04/08(e) to 12/31/1999 7.00 .02(c)(d) 1.88(d) 1.90
(a) Total return does not reflect a sales charge. (d) Based on average shares outstanding. (b) For 1997, total expenses include fees paid indirectly, (e) Commencement. if any, through an expense offset arrangement. (f) Total return represents aggregate total return. (c) Net investment income (loss) is net of expenses (g) Annualized. reimbursed by Manager. na -- not applicable
48 FINANCIAL HIGHLIGHTS (continued)
SELECTED PER SHARE DATA LESS DISTRIBUTIONS DIVIDENDS FROM NET DISTRIBUTIONS INVESTMENT FROM TOTAL INCOME REALIZED GAINS DISTRIBUTIONS $ - $ - $ - .90 .90 - .89 .89 - .54 .54 - .99 1.09 .10 - - - .90 .90 - .89 .89 - .54 .54 - .90 1.00 .10 - - - .90 .90 - .89 .89 - .54 .54 - .91 1.01 .10 - - - .90 .90 - .89 .89 - .54 .54 - - --------------------------------------------------------- - .18 .18 - .05 .05 - - - - .04 .04 1.36 1.58 .22 - .15 .15 - .02 .02 - - - - .04 .04 1.36 1.53 .17 - .16 .16 - .05 .05 - - - - .04 .04 1.36 1.51 .15 - .24 .24 - .06 .06 - - -
49 FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA RATIOS AND SUPPLEMENTAL DATA RATIO OF NET ASSET NET ASSETS, EXPENSES TO VALUE, TOTAL END OF AVERAGE NET END OF RETURN PERIOD ASSETS WITH FUND NAME PERIOD (%)(A)(F) (000) REIMBURSEMENT (%)(B) IVY GLOBAL FUND $ 8.71 (18.06) $ 5,542 2.14 10.63 (13.91) 8,135 2.17 13.42 26.51 11,828 2.17 11.32 8.59 14,660 2.18 10.93 (8.72) 19,692 na 8.36 (18.83) 2,421 3.05 10.30 (14.58) 4,769 2.99 13.14 25.31 7,316 2.99 11.19 7.69 7,495 2.97 10.90 (9.33) 10,056 na 8.05 (18.93) 148 3.20 9.93 (14.88) 178 3.36 12.75 25.24 267 3.23 10.90 7.30 428 3.30 10.67 (9.72) 727 na 8.80 (17.99) 94 2.02 10.73 (13.67) 155 1.95 13.50 26.77 179 1.96 11.36 (10.19) 321 1.75(g) -------------------------------------------------------------------------------------- IVY GLOBAL NATURAL 11.05 15.40 7,695 2.25 RESOURCES FUND 9.74 9.86 5,549 2.29 8.91 40.98 5,823 2.16 6.32 (29.35) 1,345 2.22 9.01 6.95 3,907 2.10 10.81 14.73 5,231 2.87 9.56 9.27 3,157 2.80 8.77 39.87 2,520 2.71 6.27 (29.82) 1,320 2.90 9.00 6.28 2,706 2.86 10.61 14.62 1,788 2.86 9.40 9.49 715 2.70 8.63 38.97 472 2.73 6.21 (30.49) 41 3.57 9.00 6.08 124 3.08 11.02 15.71 465 1.78 9.74 10.17 22 2.02 8.90 27.14 26 1.87(g)
(a) Total return does not reflect a sales charge. (d) Based on average shares outstanding. (b) For 1997, total expenses include fees paid indirectly, (e) Commencement. if any, through an expense offset arrangement. (f) Total return represents aggregate total return. (c) Net investment income (loss) is net of expenses (g) Annualized. reimbursed by Manager. na -- not applicable
50 FINANCIAL HIGHLIGHTS (continued)
RATIOS AND SUPPLEMENTAL DATA RATIO OF RATIO OF EXPENSES TO NET INVESTMENT AVERAGE NET INCOME (LOSS) PORTFOLIO ASSETS WITHOUT TO AVERAGE TURNOVER REIMBURSEMENT (%)(B) NET ASSETS (%) RATE (%) (.58)(c) 72 4.21 .16(c) 102 3.11 .09(c) 50 2.77 .16(c) 17 2.54 .58 45 2.07 (1.49)(c) 72 5.12 (.66)(c) 102 3.93 (.72)(c) 50 3.59 (.63)(c) 17 3.33 (.18) 45 2.82 (1.64)(c) 72 5.27 (1.03)(c) 102 4.30 (.96)(c) 50 3.83 (.96)(c) 17 3.66 (.18) 45 2.82 (.45)(c) 72 4.09 .38(c) 102 2.89 .31(c) 50 2.56 .59 (c)(g) 17 2.11(g) - -------------------------------------------------------------- .38(c) 169 3.71 (.69)(c) 134 4.54 .02(c) 157 4.53 .29(c) 98 5.75 (1.10)(c) 199 2.88 (.24)(c) 169 4.33 (1.20)(c) 134 5.05 (.53)(c) 157 5.08 (.39)(c) 98 6.43 (1.86)(c) 199 3.64 (.23)(c) 169 4.32 (1.10)(c) 134 4.95 (.55)(c) 157 5.10 (1.06)(c) 98 7.10 (2.08)(c) 199 3.86 .85(c) 169 3.24 (.42)(c) 134 4.27 .31 (c)(g) 157 4.24(g)
51 FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA (LOSS) INCOME FROM INVESTMENT OPERATIONS NET (LOSS) NET ASSET NET GAIN ON VALUE, INVESTMENT SECURITIES TOTAL FROM SHARE BEGINNING INCOME (REALIZED AND INVESTMENT FUND NAME CLASS FOR THE PERIOD FROM OF PERIOD (LOSS) UNREALIZED) OPERATIONS IVY GLOBAL SCIENCE & A 01/01 to 12/31/2001 $27.53 $ (.31)(c) $(13.91) $(14.22) TECHNOLOGY FUND 01/01 to 12/31/2000 48.90 (.64) (20.38) (21.02) 01/01 to 12/31/1999 23.63 (.43) 29.27 28.84 01/01 to 12/31/1998 17.47 (.36)(d) 6.52 (d) 6.16 01/01 to 12/31/1997 16.40 (.31)(d) 1.38 (d) 1.07 B 01/01 to 12/31/2001 26.80 (.45)(c) (13.49) (13.94) 01/01 to 12/31/2000 47.97 (.93) (19.89) (20.82) 01/01 to 12/31/1999 23.31 (.62) 28.67 28.05 01/01 to 12/31/1998 17.37 (.50)(d) 6.44 (d) 5.94 01/01 to 12/31/1997 16.44 (.32)(d) 1.25 (d) .93 C 01/01 to 12/31/2001 26.93 (.53)(c) (13.49) (14.02) 01/01 to 12/31/2000 48.19 (1.10) (19.81) (20.91) 01/01 to 12/31/1999 23.38 (.70) 28.87 28.17 01/01 to 12/31/1998 17.40 (.48)(d) 6.46 (d) 5.98 01/01 to 12/31/1997 16.46 (.42)(d) 1.36 (d) .94 ADVISOR 01/01 to 12/31/2001 27.54 (.27)(c) (13.93) (14.20) 01/01 to 12/31/2000 48.82 (.43) (20.50) (20.93) 01/01 to 12/31/1999 23.62 (.24) 29.07 28.83 04/15(e) to 12/31/1998 20.19 (.20)(d) 3.63 (d) 3.43 ------------------------------------------------------------------------------------------------ IVY INTERNATIONAL FUND A 01/01 to 12/31/2001 26.20 .05(c) (5.56)(h) (5.51) 01/01 to 12/31/2000 47.09 .19 (12.44) (12.25) 01/01 to 12/31/1999 41.20 .30 8.31 8.61 01/01 to 12/31/1998 39.03 .37 2.50 2.87 01/01 to 12/31/1997 35.89 .24 3.47 3.71 B 01/01 to 12/31/2001 25.64 (.21)(c) (5.40) (5.61) 01/01 to 12/31/2000 46.78 (.17) (12.33) (12.50) 01/01 to 12/31/1999 40.97 (.06) 8.27 8.21 01/01 to 12/31/1998 38.82 - 2.50 2.50 01/01 to 12/31/1997 35.73 (.06) 3.44 3.38 C 01/01 to 12/31/2001 25.46 (.21)(c) (5.35) (5.56) 01/01 to 12/31/2000 46.57 (.19) (12.28) (12.47) 01/01 to 12/31/1999 40.79 (.05) 8.23 8.18 01/01 to 12/31/1998 38.64 - 2.50 2.50 01/01 to 12/31/1997 35.58 (.05) 3.42 3.37 I 01/01 to 12/31/2001 26.35 .15(c) (5.65) (5.50) 01/01 to 12/31/2000 47.09 .64 (12.74) (12.10) 01/01 to 12/31/1999 41.21 .52 8.34 8.86 01/01 to 12/31/1998 39.06 .55 2.48 3.03 01/01 to 12/31/1997 35.89 .32 3.56 3.88 ADVISOR 01/01 to 12/31/2001 26.25 .01(c) (5.59) (5.58) 08/31(e) to 12/31/2000 40.05 .02 (5.18) (5.16)
(a) Total return does not reflect a sales charge. (d) Based on average shares outstanding. (b) For 1997, total expenses include fees paid indirectly, (e) Commencement. if any, through an expense offset arrangement. (f) Total return represents aggregate total return. (c) Net investment income (loss) is net of expenses (g) Annualized. reimbursed by Manager. (h) Includes redemption fees added to Capital paid-in of $0.03 per average shares outstanding. Total return excluding na -- not applicable redemption fees would have been (21.15%).
52 FINANCIAL HIGHLIGHTS (continued)
SELECTED PER SHARE DATA LESS DISTRIBUTIONS DIVIDENDS FROM NET DISTRIBUTIONS INVESTMENT FROM TOTAL INCOME REALIZED GAINS DISTRIBUTIONS $ - $ - $ - .35 .35 - 3.57 3.57 - - - - - - - - - - .35 .35 - 3.39 3.39 - - - - - - - - - - .35 .35 - 3.36 3.36 - - - - - - - - - - .35 .35 - 3.63 3.63 - - - - - --------------------------------------------------------- - - - 8.60 8.64 .04 2.48 2.72 .24 .35 .70 .35 .36 .57 .21 - - - 8.60 8.64 .04 2.40 2.40 - .35 .35 - .29 .29 - - - - 8.60 8.64 .04 2.40 2.40 - .35 .35 - .30 .31 .01 - - - 8.60 8.64 .04 2.52 2.98 .42 .35 .88 .53 .39 .71 .32 - - - 8.60 8.64 .04
53 FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA RATIOS AND SUPPLEMENTAL DATA RATIO OF NET ASSET NET ASSETS, EXPENSES TO VALUE, TOTAL END OF AVERAGE NET END OF RETURN PERIOD ASSETS WITH FUND NAME PERIOD (%)(A)(F) (000) REIMBURSEMENT (%)(B) IVY GLOBAL SCIENCE & $13.31 (51.65) $ 13,472 2.20 TECHNOLOGY FUND 27.53 (42.99) 32,016 na 48.90 122.56 41,516 na 23.63 35.26 17,888 na 17.47 6.53 12,159 na 12.86 (52.01) 11,731 2.96 26.80 (43.41) 28,675 na 47.97 120.82 35,879 na 23.31 34.20 10,197 na 17.37 5.66 8,577 na 12.91 (52.06) 2,918 2.98 26.93 (43.40) 9,977 na 48.19 120.98 18,769 na 23.38 34.37 8,431 na 17.40 5.71 6,348 na 13.34 (51.56) 361 2.01 27.54 (42.88) 826 na 48.82 122.56 431 na 23.62 16.99 15 na -------------------------------------------------------------------------------------- IVY INTERNATIONAL FUND 20.69 (21.03)(h) 344,641 1.60 26.20 (17.26) 588,282 na 47.09 21.05 1,573,615 na 41.20 7.34 1,613,797 na 39.03 10.38 1,705,772 na 20.03 (21.88) 136,831 2.54 25.64 (17.95) 280,782 na 46.78 20.15 540,514 na 40.97 6.43 542,997 na 38.82 9.46 568,521 na 19.90 (21.84) 26,430 2.54 25.46 (17.97) 57,337 na 46.57 20.16 143,320 na 40.79 6.46 154,378 na 38.64 9.50 174,880 na 20.85 (20.87) 17,062 1.24 26.35 (16.92) 33,907 na 47.09 21.66 166,816 na 41.21 7.75 156,999 na 39.06 10.87 115,046 na 20.67 (21.26) 5 1.69 26.25 (12.09) 4 na
(a) Total return does not reflect a sales charge. (d) Based on average shares outstanding. (b) For 1997, total expenses include fees paid indirectly, (e) Commencement. if any, through an expense offset arrangement. (f) Total return represents aggregate total return. (c) Net investment income (loss) is net of expenses (g) Annualized. reimbursed by Manager. (h) Includes redemption fees added to Capital paid-in of $0.03 per average shares outstanding. Total return excluding na -- not applicable redemption fees would have been (21.15%).
54 FINANCIAL HIGHLIGHTS (continued)
RATIOS AND SUPPLEMENTAL DATA RATIO OF RATIO OF EXPENSES TO NET INVESTMENT AVERAGE NET INCOME (LOSS) PORTFOLIO ASSETS WITHOUT TO AVERAGE TURNOVER REIMBURSEMENT (%)(B) NET ASSETS (%) RATE (%) (1.65)(c) 135 2.46 (1.53) 69 1.82 (1.80) 62 1.98 (1.88) 73 2.16 (1.91) 54 2.11 (2.41)(c) 135 3.22 (2.26) 69 2.55 (2.55) 62 2.74 (2.67) 73 2.95 (2.72) 54 2.92 (2.43)(c) 135 3.24 (2.23) 69 2.53 (2.49) 62 2.68 (2.56) 73 2.84 (2.65) 54 2.85 (1.46)(c) 135 2.27 (1.34) 69 1.64 (1.71) 62 1.89 (1.91)(g) 73 2.18(g) - -------------------------------------------------------------- .18(c) 43 1.66 .37 91 1.66 .63 7 1.66 .83 15 1.58 .68 8 1.59 (.76)(c) 43 2.60 (.47) 91 2.50 (.13) 7 2.42 (.01) 15 2.41 (.15) 8 2.42 (.76)(c) 43 2.60 (.46) 91 2.49 (.13) 7 2.42 .01 15 2.40 (.14) 8 2.41 .54(c) 43 1.30 .79 91 1.24 1.11 7 1.18 1.23 15 1.18 1.08 8 1.18 .09(c) 43 1.75 (.08)(g) 91 2.10(g)
55 FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA (LOSS) INCOME FROM INVESTMENT OPERATIONS NET (LOSS) NET ASSET NET GAIN ON VALUE, INVESTMENT SECURITIES TOTAL FROM SHARE BEGINNING INCOME (REALIZED AND INVESTMENT FUND NAME CLASS FOR THE PERIOD FROM OF PERIOD (LOSS) UNREALIZED) OPERATIONS IVY INTERNATIONAL SMALL A 01/01 to 12/31/2001 $12.71 $(.12)(c)(d) $(4.41)(d) $(4.53) COMPANIES FUND 01/01 to 12/31/2000 12.45 (.03)(c)(d) .64 (d) .61 01/01 to 12/31/1999 8.95 (.05)(c) 3.58 3.53 01/01 to 12/31/1998 8.66 .04 (c) .41 .45 01/01 to 12/31/1997 10.00 (.01)(c) (1.24) (1.25) B 01/01 to 12/31/2001 12.53 (.18)(c)(d) (4.34)(d) (4.52) 01/01 to 12/31/2000 12.30 (.13)(c) .65 .52 01/01 to 12/31/1999 8.92 (.13)(c) 3.54 3.41 01/01 to 12/31/1998 8.63 (.03)(c) .41 .38 01/01 to 12/31/1997 10.00 (.05)(c) (1.27) (1.32) C 01/01 to 12/31/2001 12.60 (.18)(c)(d) (4.37)(d) (4.55) 01/01 to 12/31/2000 12.38 (.12)(c) .64 .52 01/01 to 12/31/1999 8.97 (.12)(c) 3.56 3.44 01/01 to 12/31/1998 8.65 (.03)(c) .42 .39 01/01 to 12/31/1997 10.00 (.06)(c) (1.25) (1.31) ADVISOR 01/01 to 12/31/2001 12.76 (.08)(c)(d) (4.44)(d) (4.52) 01/01 to 12/31/2000 12.48 .02 (c)(d) .64 (d) .66 07/01(e) to 12/31/1999 9.94 - (c) 2.57 2.57 ------------------------------------------------------------------------------------------------ IVY INTERNATIONAL A 01/01 to 12/31/2001 11.01 .07 (c) (1.96)(h) (1.89) VALUE FUND 01/01 to 12/31/2000 11.99 .14 (c) (1.01) (.87) 01/01 to 12/31/1999 9.48 .09 (c) 2.54 2.63 01/01 to 12/31/1998 8.98 .08 (c) .52 .60 05/13(e) to 12/31/1997 10.01 - (c)(d) (1.03)(d) (1.03) B 01/01 to 12/31/2001 10.94 (.02)(c) (1.93) (1.95) 01/01 to 12/31/2000 11.91 .02 (c) (.96) (.94) 01/01 to 12/31/1999 9.42 .01 (c) 2.51 2.52 01/01 to 12/31/1998 8.93 .01 (c) .51 .52 05/13(e) to 12/31/1997 10.01 (.02)(c)(d) (1.06)(d) (1.08) C 01/01 to 12/31/2001 10.94 (.02)(c) (1.93) (1.95) 01/01 to 12/31/2000 11.92 .02 (c) (.97) (.95) 01/01 to 12/31/1999 9.42 .02 (c) 2.51 2.53 01/01 to 12/31/1998 8.93 .01 (c) .51 .52 05/13(e) to 12/31/1997 10.01 (.02)(c)(d) (1.06)(d) (1.08) ADVISOR 01/01 to 12/31/2001 11.03 .11 (c) (1.98) (1.87) 01/01 to 12/31/2000 11.99 .50 (c) (1.33) (.83) 01/01 to 12/31/1999 9.48 .04 (c) 2.64 2.68 02/23(e) to 12/31/1998 9.63 .11 (c) (.13) (.02)
(a) Total return does not reflect a sales charge. (d) Based on average shares outstanding. (b) For 1997, total expenses include fees paid indirectly, (e) Commencement. if any, through an expense offset arrangement. (f) Total return represents aggregate total return. (c) Net investment income (loss) is net of expenses (g) Annualized. reimbursed by Manager. (h) Includes redemption fees added to Capital paid-in of $0.01 and $0.04 per average shares outstanding for na -- not applicable International Value and Pacific Opportunities, respectively. Total return excluding redemption fees would have been (17.26%) and (9.83%), respectively.
56 FINANCIAL HIGHLIGHTS (continued)
SELECTED PER SHARE DATA LESS DISTRIBUTIONS DIVIDENDS FROM NET DISTRIBUTIONS INVESTMENT FROM TOTAL INCOME REALIZED GAINS DISTRIBUTIONS $ .01 $ .01 $ - .35 .35 - .03 .03 - .01 .16 .15 .09 .09 - .01 .01 - .29 .29 - .03 .03 - .01 .09 .08 .05 .05 - .01 .01 - .30 .30 - .03 .03 - .01 .07 .06 .04 .04 - .01 .01 - .38 .38 - .03 .03 - - --------------------------------------------------------- - .02 .02 .07 .11 .04 .02 .12 .10 .02 .10 .08 - - - - .02 .02 .02 .03 .01 .02 .03 .01 .02 .03 .01 - - - - .02 .02 .02 .03 .01 .02 .03 .01 .02 .03 .01 - - - - .02 .02 .08 .13 .05 .07 .17 .10 .02 .13 .11
57 FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA RATIOS AND SUPPLEMENTAL DATA RATIO OF NET ASSET NET ASSETS, EXPENSES TO VALUE, TOTAL END OF AVERAGE NET END OF RETURN PERIOD ASSETS WITH FUND NAME PERIOD (%)(A)(F) (000) REIMBURSEMENT (%)(B) IVY INTERNATIONAL SMALL $ 8.17 (35.65) $ 3,583 2.24 COMPANIES FUND 12.71 4.94 8,976 2.24 12.45 39.45 1,069 2.33 8.95 5.24 980 2.47 8.66 (12.52) 992 2.50 8.00 (36.09) 3,190 2.95 12.53 4.27 5,553 2.96 12.30 38.24 1,238 3.10 8.92 4.46 1,027 3.24 8.63 (13.19) 1,007 3.31 8.04 (36.13) 2,308 2.96 12.60 4.25 4,522 2.96 12.38 38.36 1,196 3.04 8.97 4.55 1,125 3.16 8.65 (13.14) 1,574 3.23 8.23 (35.44) 982 1.87 12.76 5.32 4,165 1.89 12.48 25.87 291 1.83(g) -------------------------------------------------------------------------------------- IVY INTERNATIONAL 9.10 (17.17)(h) 13,238 1.77 VALUE FUND 11.01 (7.25) 23,565 1.74 11.99 27.79 32,624 1.72 9.48 6.63 24,993 1.74 8.98 (10.29) 16,202 1.80(g) 8.97 (17.84) 46,210 2.50 10.94 (7.94) 75,609 2.51 11.91 26.81 95,363 2.51 9.42 5.84 80,938 2.49 8.93 (10.29) 53,652 2.63(g) 8.97 (17.84) 16,096 2.51 10.94 (7.97) 29,726 2.51 11.92 26.91 43,995 2.49 9.42 5.79 40,408 2.52 8.93 (10.79) 27,074 2.63(g) 9.14 (17.03) 377 1.47 11.03 (6.90) 668 1.35 11.99 28.30 2,748 1.38 9.48 (.15) 510 1.32(g)
(a) Total return does not reflect a sales charge. (d) Based on average shares outstanding. (b) For 1997, total expenses include fees paid indirectly, (e) Commencement. if any, through an expense offset arrangement. (f) Total return represents aggregate total return. (c) Net investment income (loss) is net of expenses (g) Annualized. reimbursed by Manager. (h) Includes redemption fees added to Capital paid-in of $0.01 and $0.04 per average shares outstanding for na -- not applicable International Value and Pacific Opportunities, respectively. Total return excluding redemption fees would have been (17.26%) and (9.83%), respectively.
58 FINANCIAL HIGHLIGHTS (continued)
RATIOS AND SUPPLEMENTAL DATA RATIO OF RATIO OF EXPENSES TO NET INVESTMENT AVERAGE NET INCOME (LOSS) PORTFOLIO ASSETS WITHOUT TO AVERAGE TURNOVER REIMBURSEMENT (%)(B) NET ASSETS (%) RATE (%) (1.15)(c) 118 3.15 (.21)(c) 124 3.77 (.47)(c) 98 8.56 .39 (c) 18 6.38 (.11)(c) 10 4.87 (1.85)(c) 118 3.86 (.93)(c) 124 4.49 (1.23)(c) 98 9.33 (.38)(c) 18 7.15 (.91)(c) 10 5.68 (1.87)(c) 118 3.87 (.93)(c) 124 4.49 (1.18)(c) 98 9.27 (.30)(c) 18 7.07 (.83)(c) 10 5.60 (.78)(c) 118 2.78 .15 (c) 124 3.42 .03 (c)(g) 98 8.06(g) - -------------------------------------------------------------- .58 (c) 39 2.15 .96 (c) 36 1.92 .92 (c) 21 1.87 .80 (c) 16 1.88 .12 (c)(g) 10 2.11(g) (.15)(c) 39 2.88 .20 (c) 36 2.69 .12 (c) 21 2.66 .05 (c) 16 2.63 (.71)(c)(g) 10 2.94(g) (.16)(c) 39 2.89 .19 (c) 36 2.69 .14 (c) 21 2.64 .03 (c) 16 2.66 (.71)(c)(g) 10 2.94(g) .89 (c) 39 1.85 1.36 (c) 36 1.53 1.25 (c) 21 1.53 1.23 (c)(g) 16 1.45(g)
59 FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA (LOSS) INCOME FROM INVESTMENT OPERATIONS NET (LOSS) NET ASSET NET GAIN ON VALUE, INVESTMENT SECURITIES TOTAL FROM SHARE BEGINNING (LOSS) (REALIZED AND INVESTMENT FUND NAME CLASS FOR THE PERIOD FROM OF PERIOD INCOME UNREALIZED) OPERATIONS IVY PACIFIC A 01/01 to 12/31/2001 $ 7.42 $ (.03)(c)(d) $ (.66)(d)(h) $ (.69) OPPORTUNITIES FUND 01/01 to 12/31/2000 9.15 .07 (c) (1.74) (1.67) 01/01 to 12/31/1999 6.30 .08 (c) 2.86 2.94 01/01 to 12/31/1998 8.04 .13 (c) (1.78) (1.65) 01/01 to 12/31/1997 10.30 .02 (c)(d) (2.28)(d) (2.26) B 01/01 to 12/31/2001 7.33 (.08)(c)(d) (.68)(d) (.76) 01/01 to 12/31/2000 9.04 .01 (c) (1.71) (1.70) 01/01 to 12/31/1999 6.24 .02 (c) 2.81 2.83 01/01 to 12/31/1998 7.96 .05 (c) (1.73) (1.68) 01/01 to 12/31/1997 10.28 (.04)(c)(d) (2.28)(d) (2.32) C 01/01 to 12/31/2001 7.31 (.08)(c)(d) (.67)(d) (.75) 01/01 to 12/31/2000 9.07 .01 (c) (1.71) (1.70) 01/01 to 12/31/1999 6.25 .02 (c) 2.82 2.84 01/01 to 12/31/1998 7.94 .08 (c) (1.75) (1.67) 01/01 to 12/31/1997 10.24 (.03)(c)(d) (2.27)(d) (2.30) ADVISOR 01/01 to 12/31/2001 7.30 (.02)(c)(d) (.68)(d) (.70) 01/01 to 12/31/2000 9.03 .12 (c)(d) (1.82)(d) (1.70) 01/01 to 12/31/1999 6.27 .04 (c) 2.86 2.90 02/10(e) to 12/31/1998 7.89 .08 (c) (1.62) (1.54) --------------------------------------------------------------------------------------------------- IVY GROWTH FUND A 01/01 to 12/31/2001 14.98 (.07)(d) (3.29)(d) (3.36) 01/01 to 12/31/2000 22.15 (.15) (4.84) (4.99) 01/01 to 12/31/1999 19.88 (.32) 6.61 6.29 01/01 to 12/31/1998 17.80 .01 2.49 2.50 01/01 to 12/31/1997 17.76 .02 1.98 2.00 B 01/01 to 12/31/2001 14.48 (.19)(d) (3.17)(d) (3.36) 01/01 to 12/31/2000 21.72 (.30) (4.76) (5.06) 01/01 to 12/31/1999 19.60 (.21) 6.17 5.96 01/01 to 12/31/1998 17.72 (.16) 2.46 2.30 01/01 to 12/31/1997 17.69 (.14) 1.96 1.82 C 01/01 to 12/31/2001 14.14 (.19)(d) (3.09)(d) (3.28) 01/01 to 12/31/2000 21.28 (.26) (4.70) (4.96) 01/01 to 12/31/1999 19.27 (.25) 6.08 5.83 01/01 to 12/31/1998 17.47 (.16) 2.38 2.22 01/01 to 12/31/1997 17.59 (.07) 1.86 1.79 ADVISOR 01/01 to 12/31/2001 14.99 (.08)(d) (3.32)(d) (3.40) 01/01 to 12/31/2000 22.18 (.15) (4.86) (5.01) 01/01 to 12/31/1999 19.91 (.04) 6.33 6.29 04/30(e) to 12/31/1998 20.36 .03 (.06) (.03)
(a) Total return does not reflect a sales charge. (d) Based on average shares outstanding. (b) For 1997, total expenses include fees paid indirectly, (e) Commencement. if any, through an expense offset arrangement. (f) Total return represents aggregate total return. (c) Net investment income (loss) is net of expenses (g) Annualized. reimbursed by Manager. (h) Includes redemption fees added to Capital paid-in of $0.01 and $0.04 per average shares outstanding for na -- not applicable International Value and Pacific Opportunities, respectively. Total return excluding redemption fees would have been (17.26%) and (9.83%), respectively.
60 FINANCIAL HIGHLIGHTS (continued)
SELECTED PER SHARE DATA LESS DISTRIBUTIONS DIVIDENDS FROM NET DISTRIBUTIONS INVESTMENT FROM TOTAL INCOME REALIZED GAINS DISTRIBUTIONS $ - $ .01 $ .01 - .06 .06 .01 .09 .08 - .09 .09 - - - - .01 .01 - .01 .01 .01 .03 .02 - .04 .04 - - - - .01 .01 - .06 .06 .01 .02 .01 - .02 .02 - - - - .01 .01 - .03 .03 .01 .14 .13 - .08 .08 - --------------------------------------------------------- .01 .01 - 2.18 2.18 - 4.02 4.02 - .40 .42 .02 1.81 1.96 .15 .01 .01 - 2.18 2.18 - 3.84 3.84 - .40 .42 .02 1.72 1.79 .07 .01 .01 - 2.18 2.18 - 3.82 3.82 - .40 .42 .02 1.78 1.91 .13 .01 .01 - 2.18 2.18 - 4.02 4.02 - .40 .42 .02
61 FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA RATIOS AND SUPPLEMENTAL DATA RATIO OF NET ASSET NET ASSETS, EXPENSES TO VALUE, TOTAL END OF AVERAGE NET END OF RETURN PERIOD ASSETS WITH FUND NAME PERIOD (%)(A)(F) (000) REIMBURSEMENT (%)(B) IVY PACIFIC $ 6.72 (9.29)(h) $ 6,291 2.21 OPPORTUNITIES FUND 7.42 (18.25) 9,096 2.16 9.15 46.72 12,738 2.19 6.30 (20.56) 9,061 2.30 8.04 (21.94) 12,020 2.44 6.56 (10.35) 3,966 2.95 7.33 (18.80) 6,462 2.92 9.04 45.33 7,508 2.97 6.24 (21.04) 6,080 3.08 7.96 (22.57) 7,893 3.17 6.55 (10.25) 917 2.90 7.31 (18.79) 1,539 3.03 9.07 45.41 776 3.03 6.25 (21.02) 704 2.98 7.94 (22.46) 1,129 3.05 6.59 (9.58) 3 2.03 7.30 (18.77) 42 1.77 9.03 46.29 313 1.79 6.27 (19.56) 10 2.92(g) -------------------------------------------------------------------------------------- IVY GROWTH FUND 11.61 (22.43) 180,806 na 14.98 (22.31) 261,744 na 22.15 31.87 363,723 na 19.88 14.05 318,444 na 17.80 11.69 320,000 na 11.11 (23.21) 5,763 na 14.48 (23.07) 7,517 na 21.72 30.63 8,070 na 19.60 12.99 4,889 na 17.72 10.69 4,433 na 10.85 (23.20) 350 na 14.14 (23.08) 744 na 21.28 30.43 576 na 19.27 12.72 263 na 17.47 10.58 400 na 11.58 (22.68) 296 na 14.99 (22.37) 359 na 22.18 31.78 438 na 19.91 (.14) 347 na(g)
(a) Total return does not reflect a sales charge. (d) Based on average shares outstanding. (b) For 1997, total expenses include fees paid indirectly, (e) Commencement. if any, through an expense offset arrangement. (f) Total return represents aggregate total return. (c) Net investment income (loss) is net of expenses (g) Annualized. reimbursed by Manager. (h) Includes redemption fees added to Capital paid-in of $0.01 and $0.04 per average shares outstanding for na -- not applicable International Value and Pacific Opportunities, respectively. Total return excluding redemption fees would have been (17.26%) and (9.83%), respectively.
62 FINANCIAL HIGHLIGHTS (continued)
RATIOS AND SUPPLEMENTAL DATA RATIO OF RATIO OF EXPENSES TO NET INVESTMENT AVERAGE NET INCOME (LOSS) PORTFOLIO ASSETS WITHOUT TO AVERAGE TURNOVER REIMBURSEMENT (%)(B) NET ASSETS (%) RATE (%) (.49)(c) 82 3.57 .83 (c) 108 3.10 1.01 (c) 23 2.84 1.60 (c) 56 2.86 .28 (c) 20 2.51 (1.22)(c) 82 4.31 .07 (c) 108 3.86 .24 (c) 23 3.62 .82 (c) 56 3.64 (.45)(c) 20 3.24 (1.18)(c) 82 4.26 (.03)(c) 108 3.97 .18 (c) 23 3.68 .92 (c) 56 3.54 (.33)(c) 20 3.12 (.31)(c) 82 3.39 1.23 (c) 108 2.71 1.42 (c) 23 2.44 .98 (c)(g) 56 3.48(g) - -------------------------------------------------------------- (.55) 114 1.51 (.73) 94 1.34 (.13) 51 1.38 .03 59 1.38 .13 39 1.38 (1.54) 114 2.50 (1.70) 94 2.31 (1.09) 51 2.34 (.90) 59 2.32 (.79) 39 2.30 (1.59) 114 2.55 (1.72) 94 2.33 (1.22) 51 2.47 (1.11) 59 2.53 (.82) 39 2.33 (.62) 114 1.58 (.80) 94 1.41 (.17) 51 1.42 .24 (g) 59 1.18(g)
63 FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA (LOSS) INCOME FROM INVESTMENT OPERATIONS NET (LOSS) NET ASSET NET GAIN ON VALUE, INVESTMENT SECURITIES SHARE BEGINNING (LOSS) (REALIZED AND FUND NAME CLASS FOR THE PERIOD FROM OF PERIOD INCOME UNREALIZED) IVY US BLUE CHIP FUND A 01/01 to 12/31/2001 $10.59 $ (.02)(c)(d) $ (1.21)(d) 01/01 to 12/31/2000 12.32 (.03)(c) (1.54) 01/01 to 12/31/1999 10.74 (.01)(c) 1.66 11/02(e) to 12/31/1998 10.00 - (c)(d) .74 (d) B 01/01 to 12/31/2001 10.48 (.09)(c)(d) (1.19)(d) 01/01 to 12/31/2000 12.29 (.09)(c) (1.56) 01/01 to 12/31/1999 10.72 (.07)(c) 1.65 11/06(e) to 12/31/1998 10.30 (.01)(c)(d) .43 (d) C 01/01 to 12/31/2001 10.49 (.09)(c)(d) (1.21)(d) 01/01 to 12/31/2000 12.30 (.12)(c) (1.53) 01/01 to 12/31/1999 10.72 (.07)(c) 1.66 11/06(e) to 12/31/1998 10.30 (.01)(c)(d) .43 (d) ADVISOR 01/01 to 12/31/2001 10.65 .01 (c)(d) (1.22)(d) 01/01 to 12/31/2000 12.35 (.01)(c) (1.53) 01/01 to 12/31/1999 10.74 .02 (c) 1.69 11/02(e) to 12/31/1998 10.00 .01 (c)(d) .73(d) -------------------------------------------------------------------------------------- IVY US EMERGING A 01/01 to 12/31/2001 30.31 (.37) (9.78)(h) GROWTH FUND 01/01 to 12/31/2000 47.29 (.50) (11.94) 01/01 to 12/31/1999 32.65 (.49) 20.70 01/01 to 12/31/1998 27.67 (.44)(d) 5.42 (d) 01/01 to 12/31/1997 26.54 (.41)(d) 1.54 (d) B 01/01 to 12/31/2001 29.10 (.58) (9.33) 01/01 to 12/31/2000 46.01 (.81) (11.56) 01/01 to 12/31/1999 31.93 (.77) 20.15 01/01 to 12/31/1998 27.26 (.65)(d) 5.32 (d) 01/01 to 12/31/1997 26.33 (.33)(d) 1.26 (d) C 01/01 to 12/31/2001 29.08 (.61) (9.29) 01/01 to 12/31/2000 45.98 (.92) (11.44) 01/01 to 12/31/1999 31.91 (.80) 20.19 01/01 to 12/31/1998 27.23 (.63)(d) 5.31 (d) 01/01 to 12/31/1997 26.29 (.34)(d) 1.28 (d) ADVISOR 01/01 to 12/31/2001 30.57 (.34) (9.87) 01/01 to 12/31/2000 47.57 (.40) (12.06) 01/01 to 12/31/1999 32.79 (.44) 20.85 02/18(e) to 12/31/1998 28.82 (.23)(d) 4.20 (d) SELECTED PER SHARE DATA (LOSS) INCOME FROM INVESTMENT OPERATIONS TOTAL FROM INVESTMENT FUND NAME OPERATIONS IVY US BLUE CHIP FUND $ (1.23) (1.57) 1.65 .74 (1.28) (1.65) 1.58 .42 (1.30) (1.65) 1.59 .42 (1.21) (1.54) 1.71 .74 ------------------------------- IVY US EMERGING (10.15) GROWTH FUND (12.44) 20.21 4.98 1.13 (9.91) (12.37) 19.38 4.67 .93 (9.90) (12.36) 19.39 4.68 .94 (10.21) (12.46) 20.41 3.97
(a) Total return does not reflect a sales charge. (g) Annualized. (b) For 1997, total expenses include fees paid indirectly, (h) Includes redemption fees added to Capital paid-in of if any, through an expense offset arrangement. $0.01 per average shares outstanding for each of Emerging (c) Net investment income (loss) is net of expenses Growth and Bond. Total return excluding redemption fees reimbursed by Manager. would have been (33.52%) and 8.55%, respectively. (d) Based on average shares outstanding. (e) Commencement. (f) Total return represents aggregate total return. na -- not applicable
64 FINANCIAL HIGHLIGHTS (continued)
SELECTED PER SHARE DATA LESS DISTRIBUTIONS DIVIDENDS FROM NET DISTRIBUTIONS INVESTMENT FROM TOTAL INCOME REALIZED GAINS DISTRIBUTIONS $ - $ - $ - .16 .16 - - .07 .07 - - - - - - .16 .16 - - .01 .01 - - - - - - .16 .16 - - .01 .01 - - - - - - .16 .16 - - .10 .10 - - - - --------------------------------------------------------- - - - 4.54 4.54 - 5.57 5.57 - - - - - - - - - - 4.54 4.54 - 5.30 5.30 - - - - - - - - - - 4.54 4.54 - 5.32 5.32 - - - - - - - - - - 4.54 4.54 - 5.63 5.63 - - - -
65 FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA RATIOS AND SUPPLEMENTAL DATA RATIO OF NET ASSET NET ASSETS, EXPENSES TO VALUE, TOTAL END OF AVERAGE NET END OF RETURN PERIOD ASSETS WITH FUND NAME PERIOD (%)(A)(F) (000) REIMBURSEMENT (%)(B) IVY US BLUE CHIP FUND $ 9.36 (11.61) $ 38,754 1.56 10.59 (12.69) 57,584 1.57 12.32 15.35 3,353 1.46 10.74 7.40 726 1.43(g) 9.20 (12.21) 19,379 2.31 10.48 (13.37) 24,314 2.31 12.29 14.74 8,742 2.15 10.72 4.08 1,047 2.13(g) 9.19 (12.39) 1,119 2.36 10.49 (13.36) 2,965 2.30 12.30 14.84 2,497 2.08 10.72 4.08 110 2.22(g) 9.44 (11.36) 808 1.26 10.65 (12.42) 1,061 1.24 12.35 15.89 920 1.10 10.74 7.40 537 1.08(g) -------------------------------------------------------------------------------------- IVY US EMERGING 20.16 (33.49)(h) 43,974 na GROWTH FUND 30.31 (25.81) 78,840 na 47.29 62.47 101,798 na 32.65 18.00 62,961 na 27.67 4.26 64,910 na 19.19 (34.05) 26,856 na 29.10 (26.38) 56,036 na 46.01 61.27 79,659 na 31.93 17.13 52,940 na 27.26 3.53 47,789 na 19.18 (34.04) 3,998 na 29.08 (26.37) 9,048 na 45.98 61.32 15,438 na 31.91 17.19 9,664 na 27.23 3.58 9,484 na 20.36 (33.40) 991 na 30.57 (25.70) 1,987 na 47.57 62.85 1,432 na 32.79 13.78 740 na
(a) Total return does not reflect a sales charge. (g) Annualized. (b) For 1997, total expenses include fees paid indirectly, (h) Includes redemption fees added to Capital paid-in of if any, through an expense offset arrangement. $0.01 per average shares outstanding for each of Emerging (c) Net investment income (loss) is net of expenses Growth and Bond. Total return excluding redemption fees reimbursed by Manager. would have been (33.52%) and 8.55%, respectively. (d) Based on average shares outstanding. (e) Commencement. (f) Total return represents aggregate total return. na -- not applicable
66 FINANCIAL HIGHLIGHTS (continued)
RATIOS AND SUPPLEMENTAL DATA RATIO OF RATIO OF EXPENSES TO NET INVESTMENT AVERAGE NET INCOME (LOSS) PORTFOLIO ASSETS WITHOUT TO AVERAGE TURNOVER REIMBURSEMENT (%)(B) NET ASSETS (%) RATE (%) (.16)(c) 74 1.83 (.47)(c) 69 1.81 (.12)(c) 80 3.49 .02 (c)(g) 3 6.34(g) (.90)(c) 74 2.58 (1.21)(c) 69 2.55 (.81)(c) 80 4.18 (.68)(c)(g) 3 7.04(g) (.96)(c) 74 2.63 (1.20)(c) 69 2.54 (.74)(c) 80 4.11 (.77)(c)(g) 3 7.13(g) .14 (c) 74 1.53 (.13)(c) 69 1.48 .24 (c) 80 3.13 .37 (c)(g) 3 5.99(g) - -------------------------------------------------------------- (1.33) 133 1.80 (1.23) 83 1.55 (1.53) 107 1.69 (1.48) 67 1.70 (1.37) 65 1.67 (2.14) 133 2.61 (2.00) 83 2.31 (2.27) 107 2.43 (2.23) 67 2.45 (2.13) 65 2.43 (2.14) 133 2.61 (1.98) 83 2.30 (2.23) 107 2.39 (2.18) 67 2.40 (2.09) 65 2.39 (1.16) 133 1.63 (1.04) 83 1.36 (1.30) 107 1.46 (1.00)(g) 67 1.22(g)
67 FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA (LOSS) INCOME FROM INVESTMENT OPERATIONS NET (LOSS) NET ASSET NET GAIN ON VALUE, INVESTMENT SECURITIES SHARE BEGINNING (LOSS) (REALIZED AND FUND NAME CLASS FOR THE PERIOD FROM OF PERIOD INCOME UNREALIZED) IVY BOND FUND A 01/01 to 12/31/2001 $ 7.89 $ .49(d) $ .18(d)(h) 01/01 to 12/31/2000 8.29 .55 (.40) 01/01 to 12/31/1999 9.54 .67 (1.24) 01/01 to 12/31/1998 10.22 .69 (.69) 01/01 to 12/31/1997 9.80 .80 .42 B 01/01 to 12/31/2001 7.88 .42(d) .17 (d) 01/01 to 12/31/2000 8.28 .48 (.40) 01/01 to 12/31/1999 9.53 .59 (1.24) 01/01 to 12/31/1998 10.22 .59 (.67) 01/01 to 12/31/1997 9.80 .68 .46 C 01/01 to 12/31/2001 7.91 .42(d) .16 (d) 01/01 to 12/31/2000 8.31 .48 (.40) 01/01 to 12/31/1999 9.55 .62 (1.25) 01/01 to 12/31/1998 10.24 .60 (.68) 01/01 to 12/31/1997 9.82 .64 .48 ADVISOR 01/01 to 12/31/2001 7.90 .49(d) .21 (d) 01/01 to 12/31/2000 8.28 .56 (.38) 01/01 to 12/31/1999 9.54 .67 (1.24) 01/20(e) to 12/31/1998 10.28 .69 (.72) --------------------------------------------------------------------------------- IVY MONEY MARKET FUND A 01/01 to 12/31/2001 1.00 .03(c) - 01/01 to 12/31/2000 1.00 .05(c) - 01/01 to 12/31/1999 1.00 .04(c) - 01/01 to 12/31/1998 1.00 .05(c) - 01/01 to 12/31/1997 1.00 .05(c) - B 01/01 to 12/31/2001 1.00 .03(c) - 01/01 to 12/31/2000 1.00 .05(c) - 01/01 to 12/31/1999 1.00 .04(c) - 01/01 to 12/31/1998 1.00 .05(c) - 01/01 to 12/31/1997 1.00 .05(c) - C 01/01 to 12/31/2001 1.00 .03(c) - 01/01 to 12/31/2000 1.00 .05(c) - 01/01 to 12/31/1999 1.00 .04(c) - 01/01 to 12/31/1998 1.00 .05(c) - 01/01 to 12/31/1997 1.00 .05(c) - SELECTED PER SHARE DATA (LOSS) INCOME FROM INVESTMENT OPERATIONS TOTAL FROM INVESTMENT FUND NAME OPERATIONS IVY BOND FUND $ .67 .15 (.57) - 1.22 .59 .08 (.65) (.08) 1.14 .58 .08 (.63) (.08) 1.12 .70 .18 (.57) (.03) ---------------------------------------------------- IVY MONEY MARKET FUND .03 .05 .04 .05 .05 .03 .05 .04 .05 .05 .03 .05 .04 .05 .05
(a) Total return does not reflect a sales charge. (g) Annualized. (b) For 1997, total expenses include fees paid indirectly, (h) Includes redemption fees added to Capital paid-in of if any, through an expense offset arrangement. $0.01 per average shares outstanding for each of Emerging (c) Net investment income (loss) is net of expenses Growth and Bond. Total return excluding redemption fees reimbursed by Manager. would have been (33.52%) and 8.55%, respectively. (d) Based on average shares outstanding. (i) Dividend includes a return of capital distribution of (e) Commencement. $0.01 per average share. (f) Total return represents aggregate total return. (j) The seven day and thirty day yield for Class A shares at December 31, 2001 was 0.67% and 0.95%, respectively. The na -- not applicable seven day yield for Class B shares at December 31, 2001 was 0.76% and the thirty day yield was 1.05%. The seven day yield for Class C shares at December 31, 2001 was 0.50% and the thirty day yield was 0.66% (unaudited).
68 FINANCIAL HIGHLIGHTS (continued)
SELECTED PER SHARE DATA LESS DISTRIBUTIONS DIVIDENDS FROM NET DISTRIBUTIONS INVESTMENT FROM TOTAL INCOME REALIZED GAINS DISTRIBUTIONS $ - $ .47 $ .47(i) - .55 .55 - .68 .68 - .68 .68 - .80 .80 - .41 .41(i) - .48 .48 - .60 .60 - .61 .61 - .72 .72 - .41 .41(i) - .48 .48 - .61 .61 - .61 .61 - .70 .70 - .48 .48(i) - .56 .56 - .69 .69 - .71 .71 - --------------------------------------------------------- - .03 .03 - .05 .05 - .04 .04 - .05 .05 - .05 .05 - .03 .03 - .05 .05 - .04 .04 - .05 .05 - .05 .05 - .03 .03 - .05 .05 - .04 .04 - .05 .05 - .05 .05
69 FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA RATIOS AND SUPPLEMENTAL DATA RATIO OF NET ASSET NET ASSETS, EXPENSES TO VALUE, TOTAL END OF AVERAGE NET END OF RETURN PERIOD ASSETS WITH FUND NAME PERIOD (%)(A)(F) (000) REIMBURSEMENT (%)(B) IVY BOND FUND $ 8.09 8.70 (h) $ 36,401 na 7.89 1.89 52,305 na 8.29 (6.17) 69,249 na 9.54 - 109,445 na 10.22 11.87 106,497 na 8.06 7.61 19,305 na 7.88 1.03 20,079 na 8.28 (6.97) 27,550 na 9.53 (.81) 42,166 na 10.22 11.12 18,499 na 8.08 7.51 2,188 na 7.91 1.07 2,726 na 8.31 (6.81) 3,928 na 9.55 (.81) 11,266 na 10.24 11.11 6,580 na 8.12 9.07 170 na 7.90 2.26 192 na 8.28 (6.21) 332 na 9.54 (.30) 347 na -------------------------------------------------------------------------------------- IVY MONEY MARKET FUND 1.00 3.12 12,904 .87 1.00 5.37 20,394 .85 1.00 4.16 18,524 .88 1.00 4.51 19,103 .87 1.00 4.60 15,385 .88 1.00 3.19 6,680 .80 1.00 5.35 5,872 .87 1.00 4.30 7,486 .77 1.00 4.59 6,636 .76 1.00 4.77 3,812 .70 1.00 3.10 519 .88 1.00 5.65 1,975 .72 1.00 4.14 372 .87 1.00 4.55 423 .81 1.00 4.78 405 .70
(a) Total return does not reflect a sales charge. (g) Annualized. (b) For 1997, total expenses include fees paid indirectly, (h) Includes redemption fees added to Capital paid-in of if any, through an expense offset arrangement. $0.01 per average shares outstanding for each of Emerging (c) Net investment income (loss) is net of expenses Growth and Bond. Total return excluding redemption fees reimbursed by Manager. would have been (33.52%) and 8.55%, respectively. (d) Based on average shares outstanding. (i) Dividend includes a return of capital distribution of (e) Commencement. $0.01 per average share. (f) Total return represents aggregate total return. (j) The seven day and thirty day yield for Class A shares at December 31, 2001 was 0.67% and 0.95%, respectively. The na -- not applicable seven day yield for Class B shares at December 31, 2001 was 0.76% and the thirty day yield was 1.05%. The seven day yield for Class C shares at December 31, 2001 was 0.50% and the thirty day yield was 0.66% (unaudited).
70 FINANCIAL HIGHLIGHTS (continued)
RATIOS AND SUPPLEMENTAL DATA RATIO OF RATIO OF EXPENSES TO NET INVESTMENT AVERAGE NET INCOME (LOSS) PORTFOLIO ASSETS WITHOUT TO AVERAGE TURNOVER REIMBURSEMENT (%)(B) NET ASSETS (%) RATE (%) 6.03 22 1.41 6.71 26 1.62 7.40 28 1.52 6.88 43 1.39 7.08 71 1.47 5.19 22 2.25 5.88 26 2.45 6.55 28 2.36 6.13 43 2.13 6.35 71 2.21 5.25 22 2.18 5.93 26 2.40 6.65 28 2.26 6.15 43 2.12 6.35 71 2.20 6.12 22 1.32 6.84 26 1.49 7.49 28 1.43 7.16(g) 43 1.11(g) - -------------------------------------------------------------- 3.12(c) na 1.59 5.38(c) na 1.52 4.17(c) na 1.40 4.50(c) na 1.42 4.60(c) na 1.57 3.19(c) na 1.52 5.36(c) na 1.54 4.28(c) na 1.29 4.61(c) na 1.31 4.77(c) na 1.39 3.10(c) na 1.60 5.51(c) na 1.39 4.18(c) na 1.39 4.56(c) na 1.36 4.78(c) na 1.39
71 QUOTRON SYMBOLS AND CUSIP NUMBERS
FUND SYMBOL CUSIP - ------------------------------------------------------------------------------------------------ Ivy Cundill Global Value Fund Class A (*) 465898880 Ivy Cundill Global Value Fund Class B (*) 465898799 Ivy Cundill Global Value Fund Class C (*) 465898781 Ivy Cundill Global Value Fund Class I (*) 465898773 Ivy Cundill Global Value Fund Advisor Class (*) 465898765 Ivy Developing Markets Fund Class A IVCAX 465897841 Ivy Developing Markets Fund Class B IVCBX 465897833 Ivy Developing Markets Fund Class C IVCCX 465897569 Ivy Developing Markets Fund Advisor Class IVCVX 465897163 Ivy European Opportunities Fund Class A IEOAX 465898815 Ivy European Opportunities Fund Class B IEOBX 465898823 Ivy European Opportunities Fund Class C IEOCX 465898831 Ivy European Opportunities Fund Class I (*) 465898849 Ivy European Opportunities Fund Advisor Class IEVOX 465898856 Ivy Global Fund Class A MCGLX 465897742 Ivy Global Fund Class B IVGBX 465897734 Ivy Global Fund Class C IVGCX 465897593 Ivy Global Fund Advisor Class IVGVX 465897239 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 Natural Resources Fund Advisor Class IGNVX 465897221 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 Global Science & Technology Fund Advisor Class IVTVX 465897213 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 Ivy International Fund Advisor Class (*) 465898690 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 International Small Companies Fund Advisor Class IYSVX 465897189 Ivy International Value Fund Class A IVIAX 465897353 Ivy International Value Fund Class B IIFBX 465897346 Ivy International Value Fund Class C IVIFX 465897338 Ivy International Value Fund Class I (*) 465897320 Ivy International Value Fund Advisor Class IVIVX 465897197 Ivy Pacific Opportunities Fund Class A IPOAX 465897866 Ivy Pacific Opportunities Fund Class B IPOBX 465897858 Ivy Pacific Opportunities Fund Class C IPOCX 465897643 Ivy Pacific Opportunities Fund Advisor Class IPOVX 465897270 Ivy Growth Fund Class A IVYFX 466002102 Ivy Growth Fund Class B IVYBX 466002201 Ivy Growth Fund Class C IBYCX 465897627 Ivy Growth Fund Advisor Class IVYVX 465897254 Ivy US Blue Chip Fund Class A IBCAX 465898609 Ivy US Blue Chip Fund Class B IBCBX 465898708 Ivy US Blue Chip Fund Class C IBCCX 465898807 Ivy US Blue Chip Fund Class I IBCIX 465898872 Ivy US Blue Chip Fund Advisor Class IBCVX 465898864 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 Ivy US Emerging Growth Fund Advisor Class IVEVX 465897262 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 Bond Fund Advisor Class IVBVX 465897296 Ivy Money Market Fund Class A IVMXX 465897684 Ivy Money Market Fund Class B IVBXX 465897676 Ivy Money Market Fund Class C IVCXX 465897551
(*) No symbol assigned at time of printing HOW TO RECEIVE MORE INFORMATION ABOUT THE FUNDS Additional information about the Funds and their investments is contained in each Fund's Statement of Additional Information dated April 30, 2002 (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 each Fund's 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. 925 South Federal Highway, Suite 600 Boca Raton, Florida 33432 800.456.5111 Information about the Funds (including the SAI and each Fund's 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 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 Investment Company Act File No. 811-1028 IFPRO0402 [IVY MACKENZIE LOGO] [Ivy Logo] This is your prospectus from Ivy Mackenzie Distributors, Inc. 925 South Federal Highway, Suite 600 Boca Raton, Florida 33432 800.456.5111 April 30, 2002 IVY INTERNATIONAL GROWTH FUND Ivy Fund is a registered open-end investment company consisting of sixteen separate portfolios. This Prospectus relates to the Class A, Class B, Class C, Class I and Advisor Class shares of Ivy International Growth Fund (the "Fund"). 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. [Mackenzie Logo] BOARD OF TRUSTEES John S. Anderegg, Jr. James W. Broadfoot Keith J. Carlson Stanley Channick Roy J. Glauber Joseph G. Rosenthal Richard Silverman J. Brendan Swan Edward M. Tighe OFFICERS Keith J. Carlson, Chairman James W. Broadfoot, President Beverly J. Yanowitch, Treasurer LEGAL COUNSEL Dechert Boston, Massachusetts CUSTODIAN Brown Brothers Harriman & Co. Boston, Massachusetts TRANSFER AGENT PFPC, Inc. P.O. Box 9770 Providence, RI 02940 AUDITORS PricewaterhouseCoopers LLP Ft. Lauderdale, Florida DISTRIBUTOR Ivy Mackenzie Distributors, Inc. 925 South Federal Highway, Suite 600 Boca Raton, Florida 33432 800.456.5111 INVESTMENT MANAGER Ivy Management, Inc. 925 South Federal Highway, Suite 600 Boca Raton, Florida 33432 800.456.5111 www.ivyfunds.com E-mail: acctinfo@ivyfunds.com 2 TABLE OF CONTENTS Objective, Strategies, Risks and Performance ........................................ 1 Additional Information About Principal Investment Strategies and Risks .............. 3 Management .......................................................................... 5 Shareholder Information ............................................................. 5 Financial Highlights ................................................................ 10 Account Application ................................................................. 11
3 IVY INTERNATIONAL GROWTH 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 equity securities (including common stock, preferred stock and securities convertible into common stock) 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 management team uses an investment approach that focuses on analyzing a company's financial statements and taking advantage of over-valued or undervalued markets. The Fund is expected to have some emerging markets exposure in an attempt to achieve higher returns over the long-term. Some of the Fund's investments may produce income (such as dividends), although it is expected that any income realized would be incidental. For temporary defensive purposes, the Fund may also invest in equity securities principally traded in U.S. markets. The Fund may not achieve its investment objective during the time that these temporary defensive investments are made. PRINCIPAL RISKS The main risks to which the Fund is exposed in carrying out its investment strategies are the following: Management risk: Securities selected for the Fund may not perform as well as the securities held by other mutual funds with investment objectives that are similar to those of the Fund. Market risk: Equity securities typically represent a proportionate ownership interest in a company. The market value of equity securities can fluctuate significantly even where "management risk" is not a factor. You could lose money if you redeem your Fund shares at a time when the Fund's portfolio is not performing as well as expected. Foreign security and emerging-market risk: Investing in foreign securities involves a number of economic, financial and political considerations that are not associated with the U.S. markets and that could affect the Fund's performance unfavorably, depending upon prevailing conditions at any given time. Among these potential risks are: - - greater price volatility; - - comparatively weak supervision and regulation of securities exchanges, brokers and issuers; - - higher brokerage costs; - - fluctuations in foreign currency exchange rates and related conversion costs; - - adverse tax consequences; and - - settlement delays. The risks of investing in foreign securities are more acute in countries with emerging or developing economies. DERIVATIVES RISK - The Fund may, but is not required to, use certain derivative investment techniques to hedge various market risks (such as interest rates, currency exchange rates, and broad or specific 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 long-term growth potential, but who can accept significant fluctuations in capital value in the short term. (*) You should consult with your financial advisor before deciding whether the Fund is an appropriate investment choice in light of your particular financial needs and risk tolerance. PERFORMANCE BAR CHART AND TABLE The information in the following chart and table provides some indication of the risks of an investment in the Fund by comparing the Fund's performance with a broad measure of market performance. The Fund's past performance (before and after taxes) is not necessarily an indication of how the Fund will perform in the future. ANNUAL TOTAL RETURN FOR ADVISOR CLASS SHARES** For the year ending December 31 [GRAPH] - -26.02% BEST QUARTER 11.03% 4th Quarter, 2001 2001 WORST QUARTER -17.98% 1st Quarter, 2001 (**) 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 this periods would be different from those of Advisor Class because of variations in their respective expense structures. 1 AVERAGE ANNUAL TOTAL RETURNS(1)
- ------------------------------------------------------------------------------------------------------------------------- MSCI EAFE ADVISOR GROWTH CLASS A CLASS B CLASS C CLASS I CLASS INDEX* - ------------------------------------------------------------------------------------------------------------------------- 1 YEAR AND SINCE INCEPTION RETURN BEFORE TAXES N/A N/A N/A N/A -26.02% -24.58% RETURN AFTER TAXES ON DISTRIBUTIONS -30.77% RETURN AFTER TAXES ON DISTRIBUTIONS AND SALE OF FUND SHARES -19.93%
After-tax returns are intended to show the impact federal income taxes have on investments in the fund. The fund's return after taxes on distribution calculation shows the effect of taxable distributions, but assumes that you hold the fund shares at the end of the period, thus not having any taxable gain or loss on your investment in shares of the fund. The fund's return after taxes on distribution and sale of Fund shares calculation shows the effect of both a distribution and any taxable gain or loss that would be realized if you purchased fund shares at the beginning of a period and sold them at the end of the period. After-tax returns are calculated using the historical highest individual federal marginal income tax rates. State and local tax rates are not included in the tax effect. Your after-tax returns depend on your own tax situation and may differ from those shown. After-tax returns are not relevant to investors who hold their fund shares in a tax-deferred account (including a 401 (k) or IRA account), or to tax-exempt investors. Since no other classes were outstanding for the entire year, after-tax returns are presented for Advisor Class shares and after-tax returns for other classes will vary. * Reflects no deduction for fees, expenses or taxes. (1) Performance figures do not reflect any deductions for fees, expenses and taxes. The inception date for the Fund's Advisor Class shares was December 29, 2000. The Fund has no Class A, B, C or I shares outstanding. Index performance is calculated from December 31, 2000. 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 fees paid directly from your investment
Class A(1) Class B Class C Class I Advisor - ----------------------------------------------------------------------------------------------------------- Maximum sales charge (load) imposed on purchases (as a % of offering price) 5.75% none none none none - ----------------------------------------------------------------------------------------------------------- Maximum deferred sales charge (load) (as a % of purchase price) none 5.00% 1.00% none none - ----------------------------------------------------------------------------------------------------------- Maximum sales charge (load) on reinvested dividends none none none none none - ----------------------------------------------------------------------------------------------------------- Redemption fee/exchange fee (as a % of amount redeemed, if applicable)(2) 2.00% none none none none - -----------------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES expenses that are deducted from Fund assets
CLASS A(3) CLASS B(3) CLASS C(3) CLASS I(3) ADVISOR - ------------------------------------------------------------------------------------------------------------ MANAGEMENT FEES 1.00% 1.00% 1.00% 1.00% 1.00% - ------------------------------------------------------------------------------------------------------------ DISTRIBUTION AND/OR SERVICE (12B-1) FEES 0.25% 1.00% 1.00% NONE NONE - ------------------------------------------------------------------------------------------------------------ OTHER EXPENSES 25.08% 25.08% 25.08% 24.99% 25.08% - ------------------------------------------------------------------------------------------------------------ TOTAL ANNUAL FUND OPERATING EXPENSES 26.33% 27.08% 27.08% 25.99% 26.08% - ------------------------------------------------------------------------------------------------------------ EXPENSES REIMBURSED(4) 24.58% 24.58% 24.58% 24.58% 24.58% - ------------------------------------------------------------------------------------------------------------ NET FUND OPERATING EXPENSES 1.75% 2.50% 2.50% 1.41% 1.50% - ------------------------------------------------------------------------------------------------------------
(1) 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. (2) Class A shares redeemed or exchanged within 30 days of purchase are subject to a 2.00% redemption/exchange fee. This fee also applies to Class A shares purchased without a sales charge. If you choose to receive your redemption proceeds via Federal Funds wire, a $10 wire fee will be charged to your account. (3) The Fund has had no outstanding Class A, B, C or I shares. Percentages shown are estimates based on expenses for Advisor Class shares. (4) The Fund's Investment Manager has contractually agreed to reimburse the Fund's expenses for the current fiscal year ending December 31, 2002, 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 certain other expenses). For each of the following nine years, the Investment Manager will ensure that these expenses do not exceed 2.50% of the Fund's average net assets. EXAMPLE The following example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods (with additional information shown for Class B and Class C shares based on the assumption that you do not redeem your shares at that time). The example also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions, your costs would be as follows:
(no redemption) (no redemption) YEAR CLASS A CLASS B CLASS B CLASS C CLASS C CLASS I ADVISOR 1ST $ 743 $ 753 $ 253 $ 353 $ 253 $ 144 $ 153 3RD 1,290 1,281 981 981 981 656 683 5TH 1,862 1,932 1,732 1,732 1,732 1,195 1,241 10TH 3,409 3,540 3,540 3,708 3,708 2.670 2,761
2 ADDITIONAL INFORMATION ABOUT PRINCIPAL INVESTMENT STRATEGIES AND RISKS PRINCIPAL STRATEGIES The Fund seeks to achieve its principal objective of long-term capital growth by investing 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. Individual securities are selected on the basis of indicators (such as earnings, cash flows, 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 US Government securities, investment-grade debt securities (which are those rated in the four highest rating categories used by Moody's and S&P), and cash and cash equivalents such as commercial paper, short term notes and other money market securities. When the Fund assumes such a defensive position it may not achieve its investment objective. Investing in debt securities also involves both interest rate and credit risk. PRINCIPAL RISKS GENERAL MARKET RISK: As with any mutual fund, the value of the Fund's investments and the income they generate will vary daily and generally reflect market conditions, interest rates and other issuer-specific, political or economic developments. The Fund's share value will decrease at any time during which its security holdings or other investment techniques are not performing as well as anticipated, and you could therefore lose money by investing in the Fund depending upon the timing of your initial purchase and any subsequent redemption or exchange. OTHER RISKS: Funds that invest heavily in the equity securities of foreign issuers are more susceptible to the risks associated with these types of securities than Funds that invest primarily in the securities of US issuers and/or debt securities. The following is a description of these risks, along with the general risk characteristics of the investment techniques that the Fund's advisor considers important in achieving the Fund's investment objective or in managing the Fund's exposure to risk (and that could therefore have a significant effect on the Fund's returns). The risks of certain investment practices that are not principal strategies of the Fund (such as borrowing) are also described below. Other investment techniques that the Fund may use, but that are not likely to play a key role in the Fund's overall investment strategy, are described in the Fund's Statement of Additional Information ("SAI") (see back cover page for information on how you can receive a free copy). RISK CHARACTERISTICS EQUITY SECURITIES: The Fund invests primarily in equity securities, including common stocks, preferred stocks and securities convertible into common stocks. Equity securities typically represent a proportionate ownership interest in a company. As a result, the value of equity securities rises and falls with a company's success or failure. The market value of these securities can fluctuate significantly, with smaller companies being particularly susceptible to price swings. Transaction costs in smaller-company stocks may also be higher than those of larger companies. FOREIGN SECURITIES: The Fund may invest in the securities of foreign issuers. Investing in foreign securities involves a number of economic, financial and political considerations that are not associated with the U.S. markets and that could affect the Fund's performance favorably or unfavorably, depending upon prevailing conditions at any given time. For example, the securities markets of many foreign countries may be smaller, less liquid and subject to greater price volatility than those in the U.S. Foreign investing may also involve brokerage costs and tax considerations that are not usually present in the U.S. markets. Other factors that can affect the value of the Fund's foreign investments include the comparatively weak supervision and regulation by some foreign governments of securities exchanges, brokers and issuers, and the fact that many foreign companies may not be subject to uniform accounting, auditing and financial reporting standards. It may also be difficult to obtain reliable information about the securities and business operations of certain foreign issuers. Settlement of portfolio transactions may also be delayed due to local restrictions or communication problems, which can cause the Fund to miss attractive investment opportunities or impair its ability to dispose of securities in a timely fashion (resulting in a loss if the value of the securities subsequently declines). FOREIGN CURRENCIES: A number of the Fund's securities may also be denominated in foreign currencies, and the value of the Fund's investments as measured in U.S. dollars may be affected favorably or unfavorably by changes in foreign currency exchange rates and exchange control regulations. Currency conversion can also be costly. 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 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 3 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. SPECIAL EMERGING-MARKET CONCERNS: The risks of investing in foreign securities are heightened in countries with developing economies. Among these additional risks are the following: - - securities that are even less liquid and more volatile than those in more developed foreign countries; - - less stable governments that are susceptible to sudden adverse actions (such as nationalization of businesses, restrictions on foreign ownership or prohibitions against repatriation of assets); - - increased settlement delays; - - unusually high inflation rates (which in extreme cases can cause the value of a country's assets to erode sharply); - - abrupt changes in exchange rate regime or monetary policy; - - unusually large currency fluctuations and currency conversion costs (see "Foreign Currencies" above); and - - high national debt levels (which may impede an issuer's payment of principal and/or interest on external debt). ILLIQUID SECURITIES: Illiquid securities are assets that may not be disposed of in the ordinary course of business within seven days at roughly the value at which the investing fund has valued the assets. Some of these may be "restricted securities," which cannot be sold to the public without registration under the Securities Act of 1933 (in the absence of an exemption) or because of other legal or contractual restrictions on resale. There is also a risk that the investing fund will not be able to dispose of its illiquid securities promptly at an acceptable price. DERIVATIVE INVESTMENT TECHNIQUES: The Fund may, but is not required to, use certain derivative investment techniques to hedge various market risks (such as interest rates, currency exchange rates and broad or specific market movements) or to enhance potential gain. Among the derivative techniques the Fund might use are options, futures and forward foreign currency contracts and foreign currency exchange transactions. Writing put and call options could cause the Fund to lose money by forcing the sale or purchase of portfolio securities at inopportune times or for prices higher (in the case of put options) or lower (in the case of call options) than current market values, by limiting the amount of appreciation the Fund can realize on its investments, or by causing the Fund to hold a security it might otherwise sell. Futures transactions (and related options) involve other types of risks. For example, the variable degree of correlation between price movements of futures contracts and price movements in the related portfolio position of the Fund could cause losses on the hedging instrument that are greater than gains in the value of the Fund's position. In addition, futures and options markets may not be liquid in all circumstances and certain over-the-counter options may have no markets. As a result, the Fund might not be able to close out a transaction before expiration without incurring substantial losses (and it is possible that the transaction cannot even be closed). In addition, the daily variation margin requirements for futures contracts would create a greater ongoing potential financial risk than would purchases of options, where the exposure is limited to the cost of the initial premium. Foreign currency exchange transactions and forward foreign currency contracts involve a number of risks, including the possibility of default by the counterparty to the transaction and, to the extent the adviser's judgment as to certain market movements is incorrect, the risk of losses that are greater than if the investment technique had not been used. For example, changes in currency exchange rates may result in poorer overall performance for the Fund than if it had not engaged in such transactions. There may also be an imperfect correlation between the Fund's portfolio holdings of securities denominated in a particular currency and the forward contracts entered into by the Fund. An imperfect correlation of this type may prevent the Fund from achieving the intended hedge or expose the Fund to the risk of currency exchange loss. These investment techniques also tend to limit any potential gain that might result from an increase in the value of the hedged position. 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 ("EMU"): The Fund may have investments in Europe. On January 1, 2002 euro notes and coins -- the official currency of 12 of the 15 members of the EMU -- officially entered circulation. The Fund could be affected by certain euro-related issues such as accounting differences, valuation problems and consumer confusion during this transitional period. In addition, certain European Union members, including the United Kingdom, did not officially implement the euro and may cause market disruptions if they decide to do so. Should this occur, the Fund could experience investment losses. 4 MANAGEMENT INVESTMENT ADVISOR Ivy Management, Inc. 925 South Federal Highway, Suite 600 Boca Raton, Florida 33432 Ivy Management, Inc. ("IMI", or the "Advisor"), provides investment advisory and business management services to the Fund. IMI is an SEC-registered investment adviser with approximately $3.1 billion in assets under management (as of December 31, 2001), and provides similar services to the other fifteen series of Ivy Fund. For its services, IMI receives a fee that is equal, on an annual basis, to 1.00% of the Fund's average net assets. The Funds' investment advisor, IMI, is an indirect subsidiary of Mackenzie Financial Corporation ("MFC") which is a wholly-owned subsidiary of Investors Group Inc. ("IGI"), a leading Canadian financial services organization. PORTFOLIO MANAGEMENT The 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. 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 New York Stock 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 market 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 or group of securities at their "fair value" if events materially affecting the estimated value of the security or group of securities 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. IMI will monitor for significant events that may call into question the reliability of market quotations. Such events may include situations relating to a single security in a market sector, significant fluctuations in U. S. or foreign markets, natural disasters, armed conflicts, governmental actions or other developments not tied directly to the securities markets. Fair-value pricing under these circumstances is designed to protect existing shareholders from the actions of short-term investors trading into and out of the Fund in an attempt to profit from short-term market movements. When such fair value pricing occurs, there may be some period of time during which the Fund's share price and/or performance information is not available. The number of shares you receive when you place a purchase order, and the payment you receive after submitting a redemption request, is based on the Fund's net asset value next determined after your instructions are received in proper form by PFPC, Inc. ("PFPC"), 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 invest in securities that are listed on foreign exchanges that may trade on weekends or other days when the Fund does not price its shares, each Fund's share value may change on days when shareholders will not be able to purchase or redeem the Fund's shares. HOW TO BUY SHARES Please read these sections below carefully before investing. CHOOSING THE APPROPRIATE CLASS OF SHARES: If you do not specify on your Account Application which class of shares you are purchasing, it will be assumed that you are purchasing Class A shares. The Fund has adopted separate distribution plans pursuant to Rule 12b-1 under the 1940 Act for its Class A, B and C shares that allow the Fund to pay distribution and other fees for the sale and distribution of its shares and for services provided to shareholders. Because these fees are paid out of the Fund's assets on an ongoing basis, over time they will increase the cost of your investment and may cost you more than paying other types of sales charges. The following table displays the various investment minimums, sales charges and expenses that apply to each class.
MINIMUM MINIMUM INITIAL SUBSEQUENT INVESTMENT* INVESTMENT* ----------- ----------- CLASS A $1,000 $100 CLASS B $1,000 $100 CLASS C $1,000 $100 CLASS I $5,000,000 $10,000 ADVISOR CLASS $10,000 $250
*minimum initial and subsequent investments for retirement plans are $25. 5
INITIAL SERVICE & SALES DISTRIBUTION CHARGE CDSC FEES ------------------- -------------- ------------ CLASS A Maximum none, .25% service 5.75%, with options except on fee for a reduction certain NAV or waiver purchases CLASS B none Maximum .75% 5.00%; distribution declines over fee and .25% six years service fee CLASS C none 1.00% for .75% the first year distribution fee and .25% service fee CLASS I none none none ADVISOR CLASS none none none
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 CHARGE AS PUBLIC A PERCENTAGE A PERCENTAGE OFFERING AMOUNT OF PUBLIC OF NET AMOUNT PRICE RETAINED INVESTED OFFERING PRICE INVESTED BY 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 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. A CDSC of 1% may apply to shares redeemed within two years of the end of the month in which they were purchased. 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 the Fund and/or other funds distributed by IMDI. The Fund may, from time to time, waive the initial sales charge on its Class A shares sold to clients of certain dealers meeting criteria established by IMDI. This privilege will apply only to Class A shares of the Fund that are purchased using proceeds obtained by such clients through redemption of another mutual fund's shares on which a sales charge was paid. Purchases must be made within 60 days of redemption from the other fund, and 6 the Class A shares purchased are subject to a 1.00% CDSC on shares redeemed within two years after purchase. Class B and Class C shares: Class B and Class C shares are not subject to an initial sales charge but are subject to a CDSC. If you redeem your Class C shares within one year of purchase they will be subject to a CDSC of 1.00%, and Class B shares redeemed within six years of purchase will be subject to a CDSC at the following rates:
CDSC AS A PERCENTAGE OF DOLLAR YEAR SINCE PURCHASE AMOUNT 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 reinvested dividends or distributions, or on shares held over six years. If your shares have appreciated in value, each share redeemed will include both your original cost (subject to the above CDSC schedule) and any proportional increase in market value (not subject to a CDSC). If your shares have depreciated in value, the CDSC will be assessed on the market value of the shares being redeemed. At the time of redemption, the calculation is performed on a share-by-share basis as described below. Shares will be redeemed in the following order: - - Shares held more than six years; - - Shares acquired through reinvestment of dividends and distributions; - - Shares subject to the lowest CDSC percentage, on a first-in, first-out basis: (1) with the portion of the lot attributable to capital appreciation, which is not subject to a CDSC, redeemed first, then (2) the portion of the lot attributable to your original basis, which is subject to a CDSC. The CDSC for Class B shares is waived for: - - Certain post-retirement withdrawals from an IRA or other retirement plan if you are over 59 1/2 years old. - - Redemptions by certain eligible 401(a) and 401(k) plans and certain retirement plan rollovers. - - Redemptions resulting from a tax-free return of excess contribution to an IRA. - - Withdrawals resulting from shareholder death or disability provided that the redemption is requested within one year of death or disability. - - Withdrawals through the Systematic Withdrawal Plan of up to 12% per year of your account value at the time the plan is established. Both Class B shares and Class C shares are subject to an ongoing service and distribution fee at a combined annual rate of up to 1.00% of the portfolio's average net assets attributable to its Class B or Class C shares. The ongoing distribution fees will cause these shares to have a higher expense ratio than that of Class A and Class I shares. IMDI uses the money that it receives from the deferred sales charge and the distribution fees to cover various promotional and sales related expenses, as well as expenses related to providing distributions services, such as compensating selected dealers and agents for selling these shares. Approximately eight years after the original date of purchase, your Class B shares will be converted automatically to Class A shares. Class A shares are subject to lower annual expenses than Class B shares. The conversion from Class B shares to Class A shares is not considered a taxable event for Federal income tax purposes. Class C shares do not have a similar conversion privilege. Class I shares: Class I shares are offered only to institutions and certain individuals, and are not subject to an initial sales charge or a CDSC, nor to ongoing service or distribution fees. Class I shares also bear lower fees than Class A, Class B and Class C shares. ADVISOR CLASS SHARES: Advisor Class shares are offered 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 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.) 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 Growth Fund. You should note on the check the class of shares you wish to purchase (see page 5 for minimum initial investments). Deliver your application materials to your registered representative or selling broker, or send them to the address on the right: 7 BY REGULAR MAIL: BY COURIER: Ivy Funds Ivy Funds PO Box 9770 c/o PFPC, Inc. Providence, RI 02940 4400 Computer Drive Westborough, MA 01581 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 the address above. THROUGH YOUR BROKER: Deliver to your registered representative or selling broker the investment slip attached to your statement, or written instructions, along with your payment. BY WIRE: Purchases may also be made by wiring money from your bank account to your Fund account. Your bank may charge a fee for wiring funds. Before wiring any funds, please call PFPC at 800.777.6472. Wiring instructions are as follows: Mellon Bank ABA #011001234 DDA #002593 For further credit to: Your Account Registration Your Fund Number and Account Number BY AUTOMATIC INVESTMENT PLAN: You can authorize to have funds electronically drawn each month from your bank account and invested as a purchase of shares into your Fund account. Complete sections 6A and 7B of the Account Application. HOW TO REDEEM SHARES Submitting your redemption order: You may redeem your Fund shares through your registered securities dealer or directly through PFPC. 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 PFPC, you have several ways to submit your request: BY MAIL: Send your written redemption request to PFPC at one of the addresses above. 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, PFPC 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 INTERNET: Select the Ivy Fund Internet option on your Account Application. Mail the application form to PFPC. Once your request for this option has been processed (which may take up to 10 days), you may place your redemption order at www.ivyfunds.com. BY TELEPHONE: Call PFPC 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. PFPC 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 PFPC may be liable for any losses due to unauthorized or fraudulent telephone instructions. Requests by telephone can only be accepted for amounts up to $50,000. BY SYSTEMATIC WITHDRAWAL PLAN ("SWP"): You can authorize to have funds electronically drawn each month from your Fund account and deposited directly into your bank account. Certain minimum balances and minimum distributions apply. Complete section 6B of the Account Application to add this feature to your account. RECEIVING YOUR REDEMPTION PROCEEDS: You can receive redemption proceeds through a variety of payment methods: BY CHECK: Unless otherwise instructed in writing, checks will be made payable to the current account registration and sent to the address of record. BY FEDERAL FUNDS WIRE: Proceeds will be wired on the next business day to a pre-designated bank account. Your account will be charged $10 each time redemption proceeds are wired to your bank, and your bank may also charge you a fee for receiving a Federal Funds wire. BY ELECTRONIC FUNDS TRANSFER ("EFT"): For SWP redemptions only. OTHER IMPORTANT REDEMPTION INFORMATION: FEE: Short term "market timers" who engage in frequent purchases and redemptions can disrupt a fund's investment program and can create additional transaction costs. For these reasons, the Fund will deduct a redemption or exchange fee of 2.00% from any redemption or exchange proceeds if you sell or exchange your Class A shares after holding them less than 30 days. These fees are paid to the Fund rather than IMI or PFPC, and are designed to offset the brokerage commissions, market impact, and other costs associated with fluctuations in fund asset levels and cash flow caused by short-term shareholder trading. If you bought Class A shares on different days the "first-in, first-out") (FIFO) method is used to determine the holding period. Under this method, the Class A shares you held longest will be redeemed first for the purposes of determining whether the fee applies. The fee does not apply to shares that were acquired through reinvestment of Class A distributions and is waived for Class A shares purchased through certain retirement and educational plans. However, if Class A shares are purchased through a broker, financial institution or recordkeeper maintaining an omnibus account for the shares, the fee waiver may not apply. (Before purchasing Class A shares, please check with your account representative concerning the availability of the fee 8 waiver does not apply to any IRA or SEP-IRA accounts. The Funds reserve the right to modify the terms of or terminate the redemption/exchange fee at any time. - - 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". - - 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" below). Submitting your exchange order: You may submit an exchange request to PFPC as follows: BY MAIL: Send your written exchange request to PFPC at the address on page 8 of this Prospectus. Be sure that all registered owners listed on the account sign the request. BY TELEPHONE: Call PFPC 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. PFPC 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 PFPC may be liable for any losses due to unauthorized or fraudulent telephone instructions. BY INTERNET: You will be allowed to exchange by Internet if (1) you do not hold physical share certificates; (2) you can provide proper identification information; (3) you have established the Internet trading option. IMPORTANT EXCHANGE INFORMATION: - - You must exchange into the same share class you currently own. - - Exchanges are considered taxable events and may result in a capital gain or a capital loss for tax purposes. - - It is the policy of the Fund to discourage the use of the exchange privilege for the purpose of timing short-term market fluctuations. The Fund may therefore limit the frequency of exchanges by a shareholder, charge a redemption fee, or cancel a shareholder's exchange privilege if at any time it appears that such market-timing strategies are being used. (See "Redemption Fee" under "Other important redemption information" above). For example, shareholders exchanging more than five times in a 12-month period may be considered to be using market-timing strategies. DIVIDENDS, DISTRIBUTIONS AND TAXES - - The Fund generally declares and pays dividends and capital gain distributions (if any) at least once a year. - - Dividends and distributions are "reinvested" in additional Fund shares unless you request to receive them in cash. - - Cash dividends and distributions can be sent to you: BY MAIL: a check will be mailed to the address of record unless otherwise instructed. BY ELECTRONIC FUNDS TRANSFER: your proceeds will be directly deposited into your bank account. To change your dividend and/or distribution options, call PFPC at 800.777.6472. Dividends ordinarily will vary from one class of shares to another. The Fund intends to declare and pay dividends annually. The Fund will distribute net investment income and net realized capital gains, if any, at least once a year. The Fund may make an additional distribution of net investment income and net realized capital gains to comply with the calendar year distribution requirement under the excise tax provisions of Section 4982 of the Internal Revenue Code of 1986, as amended (the "Code"). Dividends paid out of the Fund's investment company taxable income (including dividends, interest and net short-term capital gains) will be taxable to you as ordinary income. If a portion of the Fund's income consists of dividends paid by U.S. corporations, a portion of the dividends paid by the Fund may be eligible for the corporate dividends-received deduction. Distributions of net capital gains (the excess of net long-term capital gains over net short-term capital losses), if any, are taxable to you as long-term capital gains, regardless of how long you have held your shares. Dividends are taxable to you in the same manner whether received in cash or reinvested in additional Fund shares. While the Fund's manager may at times pursue strategies that result in tax efficient outcomes for Fund shareholders, they do not generally manage the Fund to optimize tax efficiencies. If shares of the Fund are held in a tax-deferred account, such as a retirement plan, income and gain will not be taxable each year. Instead, the taxable portion of amounts held in a tax-deferred account generally will be subject to tax as ordinary income only when distributed from that account. A distribution will be treated as paid to you on December 31 of the current calendar year if it is declared by the Fund in October, November or December with a record date in such a waiver.) In addition, the fee 9 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. Each year, the Fund will notify you of the tax status of dividends and other distributions. 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 30% (for 2002 and 2003) of all distributions payable to you if you fail to provide the Fund with your correct taxpayer identification number or to make required certifications, or if you have been notified by the Internal Revenue Service that you are subject to backup withholding. Backup withholding is not an additional tax. Any amounts withheld may be credited against your U.S. Federal income tax liability. Fund distributions may be subject to state, local and foreign taxes. You should consult with your tax adviser as to the tax consequences of an investment in the Fund, including the status of distributions from the Fund under applicable state or local law. FINANCIAL HIGHLIGHTS The Financial Highlights table is meant to help you understand the Fund's financial performance since inception. The total return in the table represents the rate that you would have earned (or lost) on an investment in the Fund, assuming reinvestment of all dividends and distributions. This information has been derived from the Fund's financial statements which were audited by PricewaterhouseCoopers LLP, whose report, along with the Fund's financial statements, are included in the Fund's Annual Report which is available upon request.
FOR THE PERIOD FOR THE YEAR DECEMBER 29, 2000 ENDED (COMMENCEMENT) DECEMBER 31, TO DECEMBER 31, -------------------------------------- 2001 2000 -------------------------------------- ADVISOR CLASS SELECTED PER SHARE DATA Net asset value, beginning of period $ 10.01 $ 10.00 -------------------------------------- (Loss) income from investment operations Net investment income (a) 0.02 -- Net (loss) gain on securities (both realized and unrealized) (2.63) 0.01 -------------------------------------- Total from investment operations (2.61) 0.01 -------------------------------------- Less distributions: Dividends From net investment income 0.17 -- -------------------------------------- Total distributions 0.17 -- -------------------------------------- Net asset value, end of period $ 7.23 $ 10.01 ====================================== Total return (%)(b) (26.02) 0.10 RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands) $ 371 $ 500 Ratio of expenses to average net assets (%) With expense reimbursement (%) 1.50 1.50(c) Without expense reimbursement (%) 26.08 443.30(c) Ratio of net investment income (loss) to average net assets (%)(a) 0.16 (1.50)(c) Portfolio turnover rate (%) 252 --
(a) Net Investment income is net of expenses reimbursed by Manager. (b) Total return represents aggregate total return and does not reflect a sales charge. (c) Annualized. 10 [Ivy Logo] Account Application FUND USE ONLY --------------------------- Account Number --------------------------- Dealer/Branch/Rep --------------------------- Account Type/Soc Cd Please mail this application along with your check to: Ivy Funds P.O. Box 9770, Providence, RI 02940 - -------------------------------------------------------------------------------- This application should not be used for retirement accounts for which Ivy Fund (IBT) is custodian. - -------------------------------------------------------------------------------- 1. REGISTRATION Name --------------------------------------------------------------------------- --------------------------------------------------------------------------- --------------------------------------------------------------------------- Address ------------------------------------------------------------------------- City State Zip ---------------------------- ------------------- ------------- Phone # (day) ( ) Phone # (evening) ( ) ------------------ ------------------------- __ Individual __ UGMA/UTMA __ Sole proprietor __ Joint tenant __ Corporation __ Trust __ Estate __ Partnership __ Other ------------------------------------ Date of trust Minor's state of residence -------------------- ------------------ 2. TAX I.D. Citizenship: __ U.S. __ Other (please specify): --------------------------- Social security # - - or Tax identification #- --------------------------- ------------ Under penalties of perjury, I certify by signing in Section 8 that: (1) the number shown in this section is my correct taxpayer identification number (TIN), and (2) I am not subject to backup withholding because: (a) I have not been notified by the Internal Revenue Service (IRS) that I am subject to backup withholding as a result of a failure to report all interest or dividends, or (b) the IRS has notified me that I am no longer subject to backup withholding. (Cross out item (2) if you have been notified by the IRS that you are currently subject to backup withholding because of underreporting interest or dividends on your tax return.) 3. DEALER INFORMATION The undersigned ("Dealer") agrees to all applicable provisions in this Application, guarantees the signature and legal capacity of the Shareholder, and agrees to notify PFPC 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 Growth Fund. Please invest it in: _____Class A _____Class B _____Class C _____Class I _____Advisor Class 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 11 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 PLAN (AIP) ___ 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 Growth Fund account listed below. 1. Withdraw $ ______________ for each time period indicated below and invest my bank proceeds into the following Ivy International Growth 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 Growth 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 Growth Fund account: Share class: __Class A __Class B __Class C Account #:____________________________________ 2. Withdraw from my Ivy International Growth 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. (Remember to sign Section 8) C. FEDERAL FUNDS WIRE FOR REDEMPTION PROCEEDS** ___ yes ___ no By checking "yes" immediately above, I authorize PFPC 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 (AIP)/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 12 [Ivy Logo] IVY INTERNATIONAL GROWTH FUND * QUOTRON SYMBOLS AND CUSIP NUMBERS
- -------------------------------------------------------------------------------- CLASS SYMBOL CUSIP - -------------------------------------------------------------------------------- Ivy International Growth Fund Class A * 465898757 Ivy International Growth Fund Class B * 465898740 Ivy International Growth Fund Class C * 465898732 Ivy International Growth Fund Class I * 465898724 Ivy International Growth Fund Advisor Class * 465898716 - --------------------------------------------------------------------------------
* Symbol not available at time of print 13 [Ivy Logo] - - HOW TO RECEIVE MORE INFORMATION ABOUT THE FUND Additional information about the Fund and its investments is contained in the Fund's Statement of Additional Information dated April 30, 2002 (the "SAI"), which is incorporated by reference into this Prospectus, and its 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 the most recent fiscal year. The SAI and the 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. 925 South Federal Highway, Ste. 600 Boca Raton, FL 33432 800.456.5111 Information about the Fund (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 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. 20549-0102. Investment Company Act File No. 811-1028 IIGF0402 Shareholder inquiries Please call PFPC, the Fund's transfer agent, at 800.777.6472 regarding any other inquiries about the Fund. You can also e-mail us at acctinfo@ivyfunds.com or visit our web site at www. ivyfunds.com. 14 IVY CUNDILL GLOBAL VALUE FUND series of IVY FUND 925 South Federal Highway, Suite 600 Boca Raton, Florida 33432 STATEMENT OF ADDITIONAL INFORMATION ----------- April 30, 2002 Ivy Fund (the "Trust") is an open-end management investment company that currently consists of sixteen portfolios, each of which is diversified. This Statement of Additional Information ("SAI") relates to the Class A, B, C, I and Advisor Class shares of Ivy Cundill Global Value Fund (the "Fund"). The other fifteen portfolios of the Trust are described in separate prospectuses and SAIs. This SAI is not a prospectus and should be read in conjunction with the prospectus for the Fund dated April 30, 2001, as may be supplemented from time to time (the "Prospectus"), which may be obtained upon request and without charge from the Trust at the Distributor's address and telephone number printed below. The Fund's Annual Report to shareholders dated December 31, 2001 ("Annual Report") is incorporated by reference into this SAI. The Fund's Annual Report may be obtained without charge from the Distributor. INVESTMENT MANAGER Ivy Management, Inc. ("IMI") 925 South Federal Highway, Suite 600 Boca Raton, Florida 33432 Telephone: (800) 777-6472 DISTRIBUTOR Ivy Mackenzie Distributors, Inc. ("IMDI") 925 South Federal Highway, Suite 600 Boca Raton, Florida 33432 Telephone: (800) 456-5111 TABLE OF CONTENTS
PAGE ---- GENERAL INFORMATION...............................................................................................1 INVESTMENT OBJECTIVES, STRATEGIES AND RISKS.......................................................................1 RISK CONSIDERATIONS...............................................................................................4 EQUITY SECURITIES........................................................................................4 CONVERTIBLE SECURITIES...................................................................................4 SMALL- AND MEDIUM-SIZED COMPANIES........................................................................5 DEBT SECURITIES..........................................................................................5 IN GENERAL......................................................................................5 INVESTMENT-GRADE DEBT SECURITIES................................................................5 U.S. GOVERNMENT SECURITIES......................................................................6 ZERO COUPON BONDS...............................................................................6 FIRM COMMITMENT AGREEMENTS AND "WHEN-ISSUED" SECURITIES.....................................................................7 ILLIQUID SECURITIES......................................................................................7 FOREIGN SECURITIES.......................................................................................8 DEPOSITORY RECEIPTS......................................................................................9 EMERGING MARKETS.........................................................................................9 FOREIGN CURRENCIES......................................................................................10 FOREIGN CURRENCY EXCHANGE TRANSACTIONS..................................................................11 INVESTMENT CONCENTRATION................................................................................12 OTHER INVESTMENT COMPANIES..............................................................................12 REPURCHASE AGREEMENTS...................................................................................12 BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS.......................................................13 COMMERCIAL PAPER........................................................................................13 BORROWING...............................................................................................13 WARRANTS................................................................................................13 OPTIONS TRANSACTIONS....................................................................................14 IN GENERAL.....................................................................................14 WRITING OPTIONS ON INDIVIDUAL SECURITIES.......................................................15 PURCHASING OPTIONS ON INDIVIDUAL SECURITIES....................................................15 PURCHASING AND WRITING OPTIONS ON SECURITIES INDICES...........................................16 RISKS OF OPTIONS TRANSACTIONS..................................................................16 FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS......................................................17 IN GENERAL.....................................................................................17 FOREIGN CURRENCY FUTURES CONTRACTS AND RELATED OPTIONS.........................................................................19 RISKS ASSOCIATED WITH FUTURES AND RELATED OPTIONS..............................................20 SECURITIES INDEX FUTURES CONTRACTS.............................................................21 RISKS OF SECURITIES INDEX FUTURES..............................................................21 COMBINED TRANSACTIONS...................................................................................22 PORTFOLIO TURNOVER...............................................................................................23 MANAGEMENT OF THE FUND...........................................................................................23 TRUSTEES AND OFFICERS...................................................................................23
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PAGE ---- PERSONAL INVESTMENTS BY EMPLOYEES OF IMI................................................................28 PRINCIPAL HOLDERS OF SECURITIES..................................................................................28 INVESTMENT ADVISORY AND OTHER SERVICES...........................................................................35 BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES....................................................35 INVESTMENT MANAGER......................................................................................35 SUB-ADVISOR.............................................................................................37 TERM AND TERMINATION OF ADVISORY AGREEMENT AND SUB-ADVISORY AGREEMENT...........................................................................? DISTRIBUTION SERVICES...................................................................................38 RULE 18F-3 PLAN................................................................................39 RULE 12B-1 DISTRIBUTION PLANS..................................................................40 CUSTODIAN...............................................................................................43 FUND ACCOUNTING SERVICES................................................................................43 TRANSFER AGENT AND DIVIDEND PAYING AGENT................................................................43 ADMINISTRATOR...........................................................................................44 AUDITORS.........................................................................................................44 BROKERAGE ALLOCATION.............................................................................................44 CAPITALIZATION AND VOTING RIGHTS.................................................................................45 SPECIAL RIGHTS AND PRIVILEGES....................................................................................47 AUTOMATIC INVESTMENT METHOD.............................................................................47 EXCHANGE OF SHARES......................................................................................47 INITIAL SALES CHARGE SHARES....................................................................47 CONTINGENT DEFERRED SALES CHARGE SHARES.................................................................48 CLASS A........................................................................................48 CLASS B........................................................................................48 CLASS C........................................................................................49 CLASS I........................................................................................49 ALL CLASSES....................................................................................49 LETTER OF INTENT........................................................................................50 RETIREMENT PLANS........................................................................................51 INDIVIDUAL RETIREMENT ACCOUNTS.................................................................51 ROTH IRAs......................................................................................52 QUALIFIED PLANS................................................................................53 DEFERRED COMPENSATION FOR PUBLIC SCHOOLS AND CHARITABLE ORGANIZATIONS ("403(B)(7) ACCOUNT")....54 SIMPLIFIED EMPLOYEE PENSION ("SEP") IRAs.......................................................54 SIMPLE PLANS...................................................................................54 REINVESTMENT PRIVILEGE..................................................................................54 REDUCED SALES CHARGES AND RIGHTS OF ACCUMULATION........................................................55 SYSTEMATIC WITHDRAWAL PLAN..............................................................................55 GROUP SYSTEMATIC INVESTMENT PROGRAM.....................................................................56 REDEMPTIONS......................................................................................................57 CONVERSION OF CLASS B SHARES.....................................................................................59 NET ASSET VALUE..................................................................................................59 TAXATION.........................................................................................................61
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PAGE ---- OPTIONS, FUTURES AND FOREIGN CURRENCY FORWARD CONTRACTS....................................................................................62 CURRENCY FLUCTUATIONS -- "SECTION 988" GAINS OR LOSSES......................................................................................63 INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES......................................................63 DEBT SECURITIES ACQUIRED AT A DISCOUNT..................................................................64 DISTRIBUTIONS...........................................................................................65 DISPOSITION OF SHARES...................................................................................65 FOREIGN WITHHOLDING TAXES...............................................................................66 BACKUP WITHHOLDING......................................................................................67 PERFORMANCE INFORMATION..........................................................................................67 AVERAGE ANNUAL TOTAL RETURN....................................................................67 CUMULATIVE TOTAL RETURN........................................................................71 OTHER QUOTATIONS, COMPARISONS AND GENERAL INFORMATION.........................................................................72 FINANCIAL STATEMENTS.............................................................................................72 APPENDIX A.......................................................................................................73 APPENDIX B.......................................................................................................?
iii GENERAL INFORMATION The Fund is organized as a separate, diversified portfolio of the Trust, an open-end management investment company organized as a Massachusetts business trust on December 21, 1983. The Fund commenced operations on April 17, 2000. Descriptions in this SAI of a particular investment practice or technique in which the Fund may engage or a financial instrument which the Fund may purchase are meant to describe the spectrum of investments that IMI, in its discretion, might, but is not required to, use in managing the Fund's portfolio assets. For example, IMI may, in its discretion, employ a given practice, technique for one or more funds but not for all funds advised by it. It is also possible that certain types of financial instruments or investment techniques described herein may not be available, permissible, economically feasible or effective for their intended purposes in some or all markets, in which case the Fund would not use them. Investors should also be aware that certain practices, techniques, or instruments could, regardless of their relative importance in the Fund's overall investment strategy, from time to time have a material impact on the Fund's performance. INVESTMENT OBJECTIVES, STRATEGIES AND RISKS The Fund has its own investment objectives and policies, which are described in the Prospectus under the captions "Summary" and "Additional Information About Strategies and Risks." Descriptions of the Fund's policies, strategies and investment restrictions, as well as additional information regarding the characteristics and risks associated with the Fund's investment techniques, are set forth below. Whenever an investment objective, policy or restriction set forth in the Prospectus or this SAI states a maximum percentage of assets that may be invested in any security or other asset or describes a policy regarding quality standards, such percentage limitation or standard shall, unless otherwise indicated, apply to the Fund only at the time a transaction is entered into. Accordingly, if a percentage limitation is adhered to at the time of investment, a later increase or decrease in the percentage which results from circumstances not involving any affirmative action by the Fund, such as a change in market conditions or a change in the Fund's asset level or other circumstances beyond the Fund's control, will not be considered a violation. The Fund seeks long-term capital growth. Any income realized will be incidental. The Fund seeks to achieve its principal objective of long-term capital growth by investing primarily in the equity securities of companies throughout the world. Under normal conditions, the Fund invests at least 65% of its assets in equity securities. Although the Fund will not invest more than 25% of its total assets in any one industry and does not expect to focus its investments in a single country, it may at any given time have a significant percentage of its total assets in one or more market sectors and could have a substantial portion of its total assets invested in a particular country. The investment approach of Peter Cundill & Associates, Inc., the Fund's sub-advisor ("Cundill" or the "sub-advisor"), is based on a contrarian "value" philosophy. The sub-advisor looks for securities that it believes are trading below their estimated intrinsic value. To determine the intrinsic value of a particular company, the sub-advisor focuses on assets, earnings, dividends, prospects and management capabilities of the company. Essentially, the sub-advisor revalues the assets and liabilities of the company to reflect the sub-advisor's estimate of fair value. Securities are purchased where there is a substantial discount of price to the estimate of the company's intrinsic value. Because the approach is to look for undervalued securities, the sub-advisor does not forecast economies or corporate earnings and does not rely on market timing. The Fund may invest in warrants, and securities issued on a "when-issued" or firm commitment basis, and may engage in foreign currency exchange transactions and enter into forward foreign currency contracts. The Fund may also invest up to 10% of its total assets in other investment companies and up to 15% of its net assets in illiquid securities. The Fund may not invest more than 5% of its total assets in restricted securities. For temporary defensive purposes and during periods when IMI believes that circumstances warrant, the Fund may invest without limit in U.S. Government securities, obligations issued by domestic or foreign banks (including certificates of deposit, time deposits and bankers' acceptances), and domestic or foreign commercial paper (which, if issued by a corporation, must be rated Prime-1 by Moody's Investors Service, Inc. ("Moody's") or A-1 -by Standard & Poor's Ratings Group ("S&P"), or if unrated has been issued by a company that at the time of investment has an outstanding debt issue rated Aaa or Aa by Moody's or AAA or AA by S&P). The Fund may also enter into repurchase agreements, and, for temporary or emergency purposes, may borrow up to 10% of the value of its total assets from banks. The Fund may purchase put and call options on stock indices, provided the premium paid for such options does not exceed 5% of the Fund's net assets. The Fund may also sell covered put options with respect to up to 10% of the value of its net assets, and may write covered call options so long as not more than 25% of the Fund's net assets is subject to being purchased upon the exercise of the calls. For hedging purposes only, the Fund may engage in transactions in (and options on) stock index and foreign currency futures contracts, provided that the Fund's equivalent exposure in such contracts does not exceed 15% of its total assets. INVESTMENT RESTRICTIONS FOR THE FUND The Fund's investment objectives as set forth in the "Summary" section of the Prospectus, together with the investment restrictions set forth below, are fundamental policies of the Fund and may not be changed without the approval of a majority of the outstanding voting shares of the Fund. The Fund has adopted the following fundamental investment restrictions: (i) The Fund has elected to be classified as a diversified series of an open-end investment company. (ii) The Fund will not borrow money, except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. (iii) The Fund will not issue senior securities, except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. 2 (iv) The Fund will not engage in the business of underwriting securities issued by others, except to the extent that the Fund may be deemed to be an underwriter in connection with the disposition of portfolio securities. (v) The Fund will not purchase or sell real estate (which term does not include securities of companies that deal in real estate or mortgages or investments secured by real estate or interests therein), except that the Fund may hold and sell real estate acquired as a result of the Fund's ownership of securities. (vi) The Fund will not purchase physical commodities or contracts relating to physical commodities, although the Fund may invest in commodities futures contracts and options thereon to the extent permitted by its Prospectus and this SAI. (vii) The Fund will not make loans to other persons, except (a) loans of portfolio securities, and (b) to the extent that entry into repurchase agreements and the purchase of debt instruments or interests in indebtedness in accordance with the Fund's investment objective and policies may be deemed to be loans. (viii) The Fund will not concentrate its investments in a particular industry, as the term "concentrate" is interpreted in connection with the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. ADDITIONAL RESTRICTIONS The Fund has adopted the following additional restrictions, which are not fundamental and which may be changed without shareholder approval, to the extent permitted by applicable law, regulation or regulatory policy. Under these restrictions, the Fund may not: (i) purchase or sell real estate limited partnership interests; (ii) purchase or sell interests in oil, gas or mineral leases (other than securities of companies that invest in or sponsor such programs); (iii) invest in oil, gas and/or mineral exploration or development programs; (iv) purchase securities on margin, except such short-term credits as are necessary for the clearance of transactions, and except that the Fund may make margin deposits in connection with transactions in options, futures and options on futures; (v) make investments in securities for the purpose of exercising control over or management of the issuer; (vi) participate on a joint or a joint and several basis in any trading account in securities. The "bunching" of orders of the Fund and of other accounts under the investment management of the Manager for the sale or purchase of portfolio securities shall not be considered participation in a joint securities trading account; 3 (vii) borrow amounts in excess of 10% of its total assets, taken at the lower of cost or market value, and then only from banks as a temporary measure for extraordinary or emergency purposes. All borrowings will be repaid before any additional investments are made; (viii) purchase any security if, as a result, the Fund would then have more than 5% of its total assets (taken at current value) invested in securities restricted as to disposition under the Federal securities laws; or (ix) purchase securities of another investment company, except in connection with a merger, consolidation, reorganization or acquisition of assets, and except that the Fund may invest in securities of other investment companies subject to the restrictions in Section 12(d)(1) of the 1940 Act. RISK CONSIDERATIONS EQUITY SECURITIES Equity securities can be issued by companies to raise cash; all equity securities shares represent a proportionate ownership interest in a company. As a result, the value of equity securities rises and falls with a company's success or failure. The market value of equity securities can fluctuate significantly, with smaller companies being particularly susceptible to price swings. Transaction costs in smaller company stocks may also be higher than those of larger companies. CONVERTIBLE SECURITIES The convertible securities in which the Fund may invest include corporate bonds, notes, debentures, preferred stock and other securities that may be converted or exchanged at a stated or determinable exchange ratio into underlying shares of equity securities. Investments in convertible securities can provide income through interest and dividend payments as well as an opportunity for capital appreciation by virtue of their conversion or exchange features. Because convertible securities can be converted into equity securities, their values will normally vary in some proportion with those of the underlying equity securities. Convertible securities usually provide a higher yield than the underlying equity, however, so that the price decline of a convertible security may sometimes be less substantial than that of the underlying equity security. The exchange ratio for any particular convertible security may be adjusted from time to time due to stock splits, dividends, spin-offs, other corporate distributions or scheduled changes in the exchange ratio. Convertible debt securities and convertible preferred stocks, until converted, have general characteristics similar to both debt and equity securities. Although to a lesser extent than with debt securities generally, the market value of convertible securities tends to decline as interest rates increase and, conversely, tends to increase as interest rates decline. In addition, because of the conversion or exchange feature, the market value of convertible securities typically changes as the market value of the underlying equity securities changes, and, therefore, also tends to follow movements in the general market for equity securities. When the market price of the underlying equity securities increases, the price of a convertible security tends to rise 4 as a reflection of the value of the underlying equity securities, although typically not as much as the price of the underlying equity securities. While no securities investments are without risk, investments in convertible securities generally entail less risk than investments in equity securities of the same issuer. As debt securities, convertible securities are investments that provide for a stream of income. Like all debt securities, there can be no assurance of income or principal payments because the issuers of the convertible securities may default on their obligations. Convertible securities generally offer lower yields than non-convertible securities of similar quality because of their conversion or exchange features. Convertible securities generally are subordinated to other similar but non-convertible securities of the same issuer, although convertible bonds, as corporate debt obligations, are senior in right of payment to all equity securities, and convertible preferred stock is senior to common stock, of the same issuer. However, convertible bonds and convertible preferred stock typically have lower coupon rates than similar non-convertible securities. Convertible securities may be issued as fixed income obligations that pay current income. SMALL- AND MEDIUM-SIZED COMPANIES Investing in smaller company stocks involves certain special considerations and risks that are not usually associated with investing in larger, more established companies. For example, the securities of small or new companies may be subject to more abrupt or erratic market movements because they tend to be thinly traded and are subject to a greater degree to changes in the issuer's earnings and prospects. Small companies also tend to have limited product lines, markets or financial resources. Transaction costs in smaller company stocks also may be higher than those of larger companies. DEBT SECURITIES IN GENERAL. Investment in debt securities involves both interest rate and credit risk. Generally, the value of debt instruments rises and falls inversely with fluctuations in interest rates. As interest rates decline, the value of debt securities generally increases. Conversely, rising interest rates tend to cause the value of debt securities to decrease. Bonds with longer maturities generally are more volatile than bonds with shorter maturities. The market value of debt securities also varies according to the relative financial condition of the issuer. In general, lower-quality bonds offer higher yields due to the increased risk that the issuer will be unable to meet its obligations on interest or principal payments at the time called for by the debt instrument. INVESTMENT-GRADE DEBT SECURITIES. Bonds rated Aaa by Moody's and AAA by S&P are judged to be of the best quality (i.e., capacity to pay interest and repay principal is extremely strong). Bonds rated Aa/AA are considered to be of high quality (i.e., capacity to pay interest and repay principal is very strong and differs from the highest rated issues only to a small degree). Bonds rated A are viewed as having many favorable investment attributes, but elements may be present that suggest a susceptibility to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories. Bonds rated Baa/BBB (considered by Moody's to be "medium grade" obligations) are considered to have an adequate capacity to pay interest and repay principal, but 5 certain protective elements may be lacking (i.e., such bonds lack outstanding investment characteristics and have some speculative characteristics). The Fund may invest in debt securities that are given an investment-grade rating by Moody's or S&P, and may also invest in unrated debt securities that are considered by IMI to be of comparable quality. U.S. GOVERNMENT SECURITIES. U.S. Government securities are obligations of, or guaranteed by, the U.S. Government, its agencies or instrumentalities. Securities guaranteed by the U.S. Government include: (1) direct obligations of the U.S. Treasury (such as Treasury bills, notes, and bonds) and (2) Federal agency obligations guaranteed as to principal and interest by the U.S. Treasury (such as GNMA certificates, which are mortgage-backed securities). When such securities are held to maturity, the payment of principal and interest is unconditionally guaranteed by the U.S. Government, and thus they are of the highest possible credit quality. U.S. Government securities that are not held to maturity are subject to variations in market value due to fluctuations in interest rates. Mortgage-backed securities are securities representing part ownership of a pool of mortgage loans. For example, GNMA certificates are such securities in which the timely payment of principal and interest is guaranteed by the full faith and credit of the U.S. Government. Although the mortgage loans in the pool will have maturities of up to 30 years, the actual average life of the loans typically will be substantially less because the mortgages will be subject to principal amortization and may be prepaid prior to maturity. Prepayment rates vary widely and may be affected by changes in market interest rates. In periods of falling interest rates, the rate of prepayment tends to increase, thereby shortening the actual average life of the security. Conversely, rising interest rates tend to decrease the rate of prepayments, thereby lengthening the actual average life of the security (and increasing the security's price volatility). Accordingly, it is not possible to predict accurately the average life of a particular pool. Reinvestment of prepayment may occur at higher or lower rates than the original yield on the certificates. Due to the prepayment feature and the need to reinvest prepayments of principal at current rates, mortgage-backed securities can be less effective than typical bonds of similar maturities at "locking in" yields during periods of declining interest rates, and may involve significantly greater price and yield volatility than traditional debt securities. Such securities may appreciate or decline in market value during periods of declining or rising interest rates, respectively. Securities issued by U.S. Government instrumentalities and certain Federal agencies are neither direct obligations of nor guaranteed by the U.S. Treasury; however, they involve Federal sponsorship in one way or another. Some are backed by specific types of collateral, some are supported by the issuer's right to borrow from the Treasury, some are supported by the discretionary authority of the Treasury to purchase certain obligations of the issuer, others are supported only by the credit of the issuing government agency or instrumentality. These agencies and instrumentalities include, but are not limited to, Federal Land Banks, Farmers Home Administration, Central Bank for Cooperatives, Federal Intermediate Credit Banks, Federal Home Loan Banks, Federal National Mortgage Association, Federal Home Loan Mortgage Association, and Student Loan Marketing Association. ZERO COUPON BONDS. Zero coupon bonds are debt obligations issued without any requirement for the periodic payment of interest. Zero coupon bonds are issued at a significant discount from face value. The discount approximates the total amount of interest the bonds would accrue and compound over the period until maturity at a rate of interest reflecting the market rate at the time of issuance. If the Fund holds zero coupon bonds in its portfolio, it would recognize income currently for Federal income tax purposes in the amount of the 6 unpaid, accrued interest and generally would be required to distribute dividends representing such income to shareholders currently, even though funds representing such income would not have been received by the Fund. Cash to pay dividends representing unpaid, accrued interest may be obtained from, for example, sales proceeds of portfolio securities and Fund shares and from loan proceeds. The potential sale of portfolio securities to pay cash distributions from income earned on zero coupon bonds may result in the Fund being forced to sell portfolio securities at a time when it might otherwise choose not to sell these securities and when the Fund might incur a capital loss on such sales. Because interest on zero coupon obligations is not distributed to the Fund on a current basis, but is in effect compounded, the value of the securities of this type is subject to greater fluctuations in response to changing interest rates than the value of debt obligations which distribute income regularly. FIRM COMMITMENT AGREEMENTS AND "WHEN-ISSUED" SECURITIES. New issues of certain debt securities are often offered on a "when-issued" basis, meaning the payment obligation and the interest rate are fixed at the time the buyer enters into the commitment, but delivery and payment for the securities normally take place after the date of the commitment to purchase. Firm commitment agreements call for the purchase of securities at an agreed-upon price on a specified future date. The Fund uses such investment techniques in order to secure what is considered to be an advantageous price and yield to the Fund and not for purposes of leveraging the Fund's assets. In either instance, the Fund will maintain in a segregated account with its Custodian cash or liquid securities equal (on a daily marked-to-market basis) to the amount of its commitment to purchase the underlying securities. ILLIQUID SECURITIES The Fund may purchase securities other than in the open market. While such purchases may often offer attractive opportunities for investment not otherwise available on the open market, the securities so purchased are often "restricted securities" or "not readily marketable" (i.e., they cannot be sold to the public without registration under the Securities Act of 1933, as amended (the "1933 Act"), or the availability of an exemption from registration (such as Rule 144A) or because they are subject to other legal or contractual delays in or restrictions on resale). This investment practice, therefore, could have the effect of increasing the level of illiquidity of the Fund. It is the Fund's policy that illiquid securities (including repurchase agreements of more than seven days duration, certain restricted securities, and other securities which are not readily marketable) may not constitute, at the time of purchase, more than 15% of the value of the Fund's net assets. The Trust's Board of Trustees has approved guidelines for use by IMI in determining whether a security is illiquid. Generally speaking, restricted securities may be sold (i) only to qualified institutional buyers; (ii) in a privately negotiated transaction to a limited number of purchasers; (iii) in limited quantities after they have been held for a specified period of time and other conditions are met pursuant to an exemption from registration; or (iv) in a public offering for which a registration statement is in effect under the 1933 Act. Issuers of restricted securities may not be subject to the disclosure and other investor protection requirements that would be applicable if their securities were publicly traded. If adverse market conditions were to develop during the period between the 7 Fund's decision to sell a restricted or illiquid security and the point at which the Fund is permitted or able to sell such security, the Fund might obtain a price less favorable than the price that prevailed when it decided to sell. Where a registration statement is required for the resale of restricted securities, the Fund may be required to bear all or part of the registration expenses. The Fund may be deemed to be an "underwriter" for purposes of the 1933 Act when selling restricted securities to the public and, if so, could be liable to purchasers of such securities if the registration statement prepared by the issuer is materially inaccurate or misleading. Since it is not possible to predict with assurance that the market for securities eligible for resale under Rule 144A will continue to be liquid, IMI will monitor such restricted securities subject to the supervision of the Board of Trustees. Among the factors IMI may consider in reaching liquidity decisions relating to Rule 144A securities are: (1) the frequency of trades and quotes for the security; (2) the number of dealers wishing to purchase or sell the security and the number of other potential purchasers; (3) dealer undertakings to make a market in the security; and (4) the nature of the security and the nature of the market for the security (i.e., the time needed to dispose of the security, the method of soliciting offers, and the mechanics of the transfer). FOREIGN SECURITIES The securities of foreign issuers in which the Fund may invest include non-U.S. dollar-denominated debt securities, Euro dollar securities, sponsored and unsponsored American Depository Receipts ("ADRs"), Global Depository Receipts ("GDRs") and related depository instruments, American Depository Shares ("ADSs"), Global Depository Shares ("GDSs"), and debt securities issued, assumed or guaranteed by foreign governments or political subdivisions or instrumentalities thereof. Shareholders should consider carefully the substantial risks involved in investing in securities issued by companies and governments of foreign nations, which are in addition to the usual risks inherent in the Fund's domestic investments. Although IMI intends to invest the Fund's assets only in nations that are generally considered to have relatively stable and friendly governments, there is the possibility of expropriation, nationalization, repatriation or confiscatory taxation, taxation on income earned in a foreign country and other foreign taxes, foreign exchange controls (which may include suspension of the ability to transfer currency from a given country), default on foreign government securities, political or social instability or diplomatic developments which could affect investments in securities of issuers in those nations. In addition, in many countries there is less publicly available information about issuers than is available for U.S. companies. Moreover, foreign companies are not generally subject to uniform accounting, auditing and financial reporting standards, and auditing practices and requirements may not be comparable to those applicable to U.S. companies. In many foreign countries, there is less governmental supervision and regulation of business and industry practices, stock exchanges, brokers, and listed companies than in the United States. Foreign securities transactions may also be subject to higher brokerage costs than domestic securities transactions. The foreign securities markets of many of the countries in which the Fund may invest may also be smaller, less liquid and subject to greater price volatility than those in the United States. In addition, the Fund may encounter difficulties or be unable to pursue legal remedies and obtain judgment in foreign courts. Foreign bond markets have different clearance and settlement procedures and in certain markets there have been times when settlements have been unable to keep pace with the volume of securities transactions, making it difficult to conduct such transactions. Delays in settlement could result in temporary 8 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 9 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 10 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. 11 The Fund may also cross-hedge currencies by entering into transactions to purchase or sell one or more currencies that are expected to decline in value relative to other currencies to which the Fund has or in which the Fund expects to have portfolio exposure. Currency transactions are subject to risks different from those of other portfolio transactions. Because currency control is of great importance to the issuing governments and influences economic planning and policy, purchases and sales of currency and related instruments can be negatively affected by government exchange controls, blockages, and manipulations or exchange restrictions imposed by governments. These can result in losses to the Fund if it is unable to deliver or receive currency or funds in settlement of obligations and could also cause hedges it has entered into to be rendered useless, resulting in full currency exposure as well as incurring transactions costs. Buyers and sellers of currency futures are subject to the same risks that apply to the use of futures generally. Further, settlement of a currency futures contract for the purchase of most currencies must occur at a bank based in the issuing nation. Trading options on currency futures is relatively new, and the ability to establish and close out positions on such options is subject to the maintenance of a liquid market which may not always be available. Currency exchange rates may fluctuate based on factors extrinsic to that country's economy. INVESTMENT CONCENTRATION Although the Fund will not invest more than 25% of its total assets in any one industry and does not expect to focus its investments in a single country, it may at any given time have a significant percentage of its total assets in one or more market sectors and could have a substantial portion of its total assets invested in a particular country. If this were to occur, the Fund could experience a wider fluctuation in value than funds with more diversified portfolios. OTHER INVESTMENT COMPANIES The Fund may invest up to 10% of its total assets in the shares of other investment companies. As a shareholder of an investment company, the Fund would bear its ratable shares of the fund's expenses (which often include an asset-based management fee). The Fund could also lose money by investing in other investment companies, since the value of their respective investments and the income they generate will vary daily based on prevailing market conditions. REPURCHASE AGREEMENTS Repurchase agreements are contracts under which the Fund buys a money market instrument and obtains a simultaneous commitment from the seller to repurchase the instrument at a specified time and at an agreed-upon yield. Under guidelines approved by the Board, the Fund is permitted to enter into repurchase agreements only if the repurchase agreements are at least fully collateralized with U.S. Government securities or other securities that IMI has approved for use as collateral for repurchase agreements and the collateral must be marked-to-market daily. The Fund will enter into repurchase agreements only with banks and broker-dealers deemed to be creditworthy by IMI under the above-referenced guidelines. In the unlikely event of failure of the executing bank or broker-dealer, the Fund could experience some delay in obtaining direct ownership of the underlying collateral and might incur a loss if the value of the security should decline, as well as costs in disposing of the security. 12 BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS Certificates of deposit are negotiable certificates issued against funds deposited in a commercial bank for a definite period of time and earning a specified return. Bankers' acceptances are negotiable drafts or bills of exchange, normally drawn by an importer or exporter to pay for specific merchandise, which are "accepted" by a bank (meaning, in effect, that the bank unconditionally agrees to pay the face value of the instrument at maturity). In addition to investing in certificates of deposit and bankers' acceptances, the Fund may invest in time deposits in banks or savings and loan associations. Time deposits are generally similar to certificates of deposit, but are uncertificated. The Fund's investments in certificates of deposit, time deposits, and bankers' acceptance are limited to obligations of (i) banks having total assets in excess of $1 billion, (ii) U.S. banks which do not meet the $1 billion asset requirement, if the principal amount of such obligation is fully insured by the Federal Deposit Insurance Corporation (the "FDIC"), (iii) savings and loan association which have total assets in excess of $1 billion and which are members of the FDIC, and (iv) foreign banks if the obligation is, in IMI's opinion, of an investment quality comparable to other debt securities which may be purchased by the Fund. The Fund's investments in certificates of deposit of savings associations are limited to obligations of Federal and state-chartered institutions whose total assets exceed $1 billion and whose deposits are insured by the FDIC. COMMERCIAL PAPER Commercial paper represents short-term unsecured promissory notes issued in bearer form by bank holding companies, corporations and finance companies. The Fund may invest in commercial paper that is rated Prime-1 by Moody's or A-1 by S&P or, if not rated by Moody's or S&P, is issued by companies having an outstanding debt issue rated Aaa or Aa by Moody's or AAA or AA by S&P. BORROWING Borrowing may exaggerate the effect on the Fund's net asset value of any increase or decrease in the value of the Fund's portfolio securities. Money borrowed will be subject to interest costs (which may include commitment fees and/or the cost of maintaining minimum average balances). Although the principal of the Fund's borrowings will be fixed, the Fund's assets may change in value during the time a borrowing is outstanding, thus increasing exposure to capital risk. WARRANTS The holder of a warrant has the right, until the warrant expires, to purchase a given number of shares of a particular issuer at a specified price. Such investments can provide a greater potential for profit or loss than an equivalent investment in the underlying security. However, prices of warrants do not necessarily move in a tandem with the prices of the underlying securities, and are, therefore, considered speculative investments. Warrants pay no dividends and confer no rights other than a purchase option. Thus, if a warrant held by the Fund was not exercised by the date of its expiration, the Fund would lose the entire purchase price of the warrant. 13 OPTIONS TRANSACTIONS IN GENERAL. A call option is a short-term contract (having a duration of less than one year) pursuant to which the purchaser, in return for the premium paid, has the right to buy the security underlying the option at the specified exercise price at any time during the term of the option. The writer of the call option, who receives the premium, has the obligation, upon exercise of the option, to deliver the underlying security against payment of the exercise price. A put option is a similar contract pursuant to which the purchaser, in return for the premium paid, has the right to sell the security underlying the option at the specified exercise price at any time during the term of the option. The writer of the put option, who receives the premium, has the obligation, upon exercise of the option, to buy the underlying security at the exercise price. The premium paid by the purchaser of an option will reflect, among other things, the relationship of the exercise price to the market price and volatility of the underlying security, the time remaining to expiration of the option, supply and demand, and interest rates. If the writer of a U.S. exchange-traded option wishes to terminate the obligation, the writer may effect a "closing purchase transaction." This is accomplished by buying an option of the same series as the option previously written. The effect of the purchase is that the writer's position will be canceled by the Options Clearing Corporation. However, a writer may not effect a closing purchase transaction after it has been notified of the exercise of an option. Likewise, an investor who is the holder of an option may liquidate his or her position by effecting a "closing sale transaction." This is accomplished by selling an option of the same series as the option previously purchased. There is no guarantee that either a closing purchase or a closing sale transaction can be effected at any particular time or at any acceptable price. If any call or put option is not exercised or sold, it will become worthless on its expiration date. Closing purchase transactions are not available for OTC transactions. In order to terminate an obligations in an OTC transaction, the Fund would need to negotiate directly with the counterparty. The Fund will realize a gain (or a loss) on a closing purchase transaction with respect to a call or a put previously written by the Fund if the premium, plus commission costs, paid by the Fund to purchase the call or the put is less (or greater) than the premium, less commission costs, received by the Fund on the sale of the call or the put. A gain also will be realized if a call or a put that the Fund has written lapses unexercised, because the Fund would retain the premium. Any such gains (or losses) are considered short-term capital gains (or losses) for Federal income tax purposes. Net short-term capital gains, when distributed by the Fund, are taxable as ordinary income. See "Taxation." The Fund will realize a gain (or a loss) on a closing sale transaction with respect to a call or a put previously purchased by the Fund if the premium, less commission costs, received by the Fund on the sale of the call or the put is greater (or less) than the premium, plus commission costs, paid by the Fund to purchase the call or the put. If a put or a call expires unexercised, it will become worthless on the expiration date, and the Fund will realize a loss in the amount of the premium paid, plus commission costs. Any such gain or loss will be long-term or short-term gain or loss, depending upon the Fund's holding period for the option. Exchange-traded options generally have standardized terms and are issued by a regulated clearing organization (such as the Options Clearing Corporation), which, in effect, guarantees the completion of every 14 exchange-traded option transaction. In contrast, the terms of OTC options are negotiated by the Fund and its counterparty (usually a securities dealer or a financial institution) with no clearing organization guarantee. When the Fund purchases an OTC option, it relies on the party from whom it has purchased the option (the "counterparty") to make delivery of the instrument underlying the option. If the counterparty fails to do so, the Fund will lose any premium paid for the option, as well as any expected benefit of the transaction. Accordingly, IMI will assess the creditworthiness of each counterparty to determine the likelihood that the terms of the OTC option will be satisfied. WRITING OPTIONS ON INDIVIDUAL SECURITIES. The Fund may write (sell) covered call options on the Fund's securities in an attempt to realize a greater current return than would be realized on the securities alone. The Fund may also write covered call options to hedge a possible stock or bond market decline (only to the extent of the premium paid to the Fund for the options). In view of the investment objectives of the Fund, it generally would write call options only in circumstances where the investment advisor 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 15 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, 16 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 17 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 18 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 19 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. 20 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 21 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 an 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. 22 PORTFOLIO TURNOVER The Fund purchases securities that are believed by IMI to have above average potential for capital appreciation. Securities are disposed of in situations where it is believed that potential for such appreciation has lessened or that other securities have a greater potential. Therefore, the Fund may purchase and sell securities without regard to the length of time the security is to be, or has been, held. A change in securities held by the Fund is known as "portfolio turnover" and may involve the payment by the Fund of dealer markup or underwriting commission and other transaction costs on the sale of securities, as well as on the reinvestment of the proceeds in other securities. The Fund's portfolio turnover rate is calculated by dividing the lesser of purchases or sales of portfolio securities for the most recently completed fiscal year by the monthly average of the value of the portfolio securities owned by the Fund during that year. For purposes of determining the Fund's portfolio turnover rate, all securities whose maturities at the time of acquisition were one year or less are excluded. MANAGEMENT OF THE FUND The business and affairs of the Fund are managed under the direction of the Trustees. Information about the Fund's investment manager and other service providers appears in the "Investment Advisory and Other Services" section, below. TRUSTEES AND OFFICERS The Board of Trustees of the Trust is responsible for the overall management of the Fund, including general supervision and review of the Fund's investment activities. The Board, in turn, elects the officers who are responsible for administering the Fund's day-to-day operations. 23 The non-Independent Trustees (as defined below) and Executive Officers of the Trust, their business addresses and principal occupations during the past five years are:
- ------------------------- -------------- -------------- --------------------------------------- ------------------ ------------- Number of Other Term of Principal Portfolios in Directorships Name, Position(s) Office and Occupation(s) Fund Complex Held Address, Held with Length of During Past 5 Overseen by by And Age Fund Time Served(1) Years Trustee Trustee - ------------------------- -------------- -------------- --------------------------------------- ------------------ ------------- James W. Broadfoot (2) Trustee and 6 years President and Chief Investment 16 __ 925 South Federal Hwy. President of Officer -- US Equities of IMI; Boca Raton, FL 33432 Ivy Fund Director, Senior Vice President of Age: 59 Mackenzie Investment Management Inc.; Director of Ivy Mackenzie Distributors, Inc.; Director of Ivy Mackenzie Services Corp. - ------------------------- -------------- -------------- --------------------------------------- ------------------ ------------- Keith J. Carlson (2) Trustee and 8 years Director, Chairman and Senior Vice 16 __ 925 South Federal Hwy. Chairman of President of IMI; Director, President Suite 600 Ivy Fund and Chief Executive Officer of Boca Raton, FL 33432 Mackenzie Investment Management Inc. Age: 45 and Ivy Mackenzie Distributors, Inc.; Director, President and Chairman of Ivy Mackenzie Services Corp. - ------------------------- -------------- -------------- --------------------------------------- ------------------ ------------- Paula Wolfe Secretary 4 years Compliance Manager of Mackenzie 16 __ 925 South Federal Hwy. Investment Management Inc.; Assistant Suite 600 Secretary of Ivy Fund ; Secretary of Boca Raton, FL 33432 Ivy Mackenzie Distributors, Inc.; Age: 40 Secretary of Ivy Mackenzie Services Corp. - ------------------------- -------------- -------------- --------------------------------------- ------------------ ------------- Beverly J. Yanowitch Treasurer of 1 year Vice President, Chief Financial 16 __ 925 South Federal Hwy. Ivy Fund Officer and Treasurer of Mackenzie Suite 600 Investment Management, Inc.; Vice Boca Raton, FL 33432 Present and Treasurer of IMI; Senior Age: 52 Vice President and Treasurer of Ivy Mackenzie Distributors, Inc. and Ivy Mackenzie Services Corp. - ------------------------- -------------- -------------- --------------------------------------- ------------------ -------------
(1) Each Trustee and Officer serves an indefinite term, until he or she sooner dies, resigns, is removed, or becomes disqualified. (2) Deemed to be an "interested person" of the Trust, as defined in the 1940 Act, by virtue of his or her employment by MIMI or IMI. The Trustees who are not "interested persons" of the Trust within the meaning of Section 2(a)(19) of the 1940 Act ("Independent Trustees"), their business addresses and principal occupations during the past five years are: 24
- ------------------------- -------------- -------------- --------------------------------------- ------------------ ------------- Number of Other Term of Principal Portfolios in Directorships Name, Position(s) Office and Occupation(s) Fund Complex Held Address, Held with Length of During Past 5 Overseen by by And Age Fund Time Served(1) Years Trustee Trustee - ------------------------- -------------- -------------- --------------------------------------- ------------------ ------------- John S. Anderegg, Jr. Trustee 35 years Chairman Emeritus, Dynamics Research 16 -- c/o Dynamics Research Corp.; (Defense Contractor) Corp. 60 Concord Street Wilmington, MA 01810 Age: 78 - ------------------------- -------------- -------------- --------------------------------------- ------------------ ------------- Stanley Channick Trustee 27 years Chairman, Scott Management Company; 16 -- 20234 Valley Forge Circle President, The Channick Group; King of Prussia, PA President and CEO, The Whitestone 19406 Corporation (Retired) (2) Age: 78 - ------------------------- -------------- -------------- --------------------------------------- ------------------ ------------- Dr. Roy J. Glauber Trustee 41 years Professor of Physics, Harvard 16 -- Lyman Laboratory of University Physics Harvard University Cambridge, MA 02138 Age: 76 - ------------------------- -------------- -------------- --------------------------------------- ------------------ ------------- Joseph G. Rosenthal Trustee 10 years Chartered Accountant. Rosenthal & 16 -- 925 South Federal Katkauskas (Accountants) Highway Suite 600 Boca Raton, FL 33432 Age: 67 - ------------------------- -------------- -------------- --------------------------------------- ------------------ ------------- Richard N. Silverman Trustee 29 years President, Van Leer USA (Retired) 16 Trustee of 925 South Federal (3); President, Hysil (Retired) (4) Boston Highway Ballet, Suite 600 Member Boca Raton, FL 33432 Charitable Age: 78 Foundation Board and Newton Wellesley Hospital - ------------------------- -------------- -------------- --------------------------------------- ------------------ ------------- James Brendan Swan Trustee 10 years President, Airspray International 16 -- 925 South Federal Inc. (5) Highway Suite 600 Boca Raton, FL 33432 Age: 71 - ------------------------- -------------- -------------- --------------------------------------- ------------------ ------------- Edward M. Tighe Trustee 3 years Chairman and CEO of JBE Technology 16 Director of 925 South Federal Group, Inc. (6) President of Global Hansberger Highway Mutual Fund Services Inc.; President Institutional Suite 600 & CEO of Global Technology Funds & Boca Raton, FL 33432 Global Age: 59 Funds Ltd. - ------------------------- -------------- -------------- --------------------------------------- ------------------ -------------
(1) Each Trustee and Officer serves an indefinite term, until he or she sooner dies, resigns, is removed, or becomes disqualified. (2) Scott Management Co., The Channick Group and The Whitestone Corporation are consultants to insurance companies and agencies in the area of mass marketing and worksite payroll deduction marketing. (3) Manufacturer of packing materials. (4) Gift wrapping business. (5) Manufacturer of aerosol dispensing systems. (6) Telecommunications and computer network consulting. 25 The Board has an Audit Committee, an Investment Review Committee, a Valuation Committee, and a Corporate Governance Committee. The function of the Audit Committee is to assist the Board in fulfilling its responsibilities to shareholders of the Fund relating to accounting and reporting, internal controls and the adequacy of auditing relative thereto. The Audit Committee currently consists of Joseph G. Rosenthal, Edward M. Tighe and J. Brendan Swan. During the last year, the Audit Committee held 4 meetings. The function of the Investment Review Committee is to consider the Fund's investment processes, policies and risks, and the overall performance of the Fund. The Investment Review Committee currently consists of Edward M. Tighe, James W. Broadfoot, Keith J. Carlson, Stanley Channick, Joseph G. Rosenthal and Richard N. Silverman. During the last year, the Investment Review Committee held 4 meetings. The function of the Valuation Committee is to consider the valuation of portfolio securities which may be difficult to price. The Valuation Committee currently consists of Roy J. Glauber, John S. Anderegg, Jr. and James W. Broadfoot. During the last year, the Valuation Committee held 4 meetings. The function of the Corporate Governance Committee is to consider the responsibilities and actions of the Board of Trustees. The Corporate Governance Committee currently consists of Stanley Channick, Joseph G. Rosenthal, J. Brendan Swan, Keith J. Carlson and Richard N. Silverman. During the last year, the Corporate Governance Committee held 4 meetings. 26 COMPENSATION TABLE IVY FUND (FISCAL YEAR ENDED DECEMBER 31, 2001)
- ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- TOTAL COMPENSATION AGGREGATE PENSION OR RETIREMENT ESTIMATED ANNUAL FROM TRUST AND FUND NAME, COMPENSATION FROM BENEFITS ACCRUED AS BENEFITS UPON COMPLEX PAID TO POSITION TRUST PART OF FUND EXPENSES RETIREMENT TRUSTEES* - ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- John S. Anderegg, Jr. $25,000 N/A N/A $25,000 (Trustee) - ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- James W. Broadfoot $0 N/A N/A $0 (Trustee and President) - ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- Keith J. Carlson $0 N/A N/A $0 (Trustee and Chairman) - ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- Stanley Channick $25,000 N/A N/A $25,000 (Trustee) - ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- Roy J. Glauber $25,000 N/A N/A $25,000 (Trustee) - ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- Joseph G. Rosenthal $25,000 N/A N/A $25,000 (Trustee) - ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- Richard N. Silverman $25,000 N/A N/A $25,000 (Trustee) - ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- J. Brendan Swan $25,000 N/A N/A $25,000 (Trustee) - ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- Edward M. Tighe $25,000 N/A N/A $25,000 (Trustee) - ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- Paula Wolfe $0 N/A N/A $0 (Assistant Secretary) - ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- Beverly J. Yanowitch $0 N/A N/A $0 (Treasurer) - ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
* The Fund complex consists of Ivy Fund. 27 As of April 4, 2002, 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 sixteen Ivy funds that are series of the Trust, except that the Officers and Trustees of the Trust as a group owned 1.97%, 4.34%, 18.71% and 8.87% of Ivy Cundill Global Value Fund, Ivy Global Science & Technology Fund, Ivy Growth Fund and Ivy US Emerging Growth Fund Advisor Class shares, respectively. The following table sets forth the dollar range of shares of the Fund held directly or indirectly by the Trustees:
DOLLAR RANGE OF AGGREGATE DOLLAR RANGE IN ALL FUNDS EQUITY SECURITIES OVERSEEN BY THE TRUSTEE IN THE IVY NAME OF TRUSTEE IN THE FUND FUND FAMILY - --------------- ------------------- ------------------------------------- John S. Anderegg, Jr $ -- $144,781 James W. Broadfoot -- 404,680 Keith J. Carlson -- 140 Stanley Channick -- 55,485 Dr. Roy J. Glauber -- 371,607 Joseph G. Rosenthal -- -- Richard N. Silverman -- 158,140 J. Brendan Swan -- -- Edward M. Tighe 21,306 21,306
PERSONAL INVESTMENTS BY EMPLOYEES OF IMI, IMDI, CUNDILL AND THE TRUST. IMI, IMDI and the Trust have adopted a Code of Ethics and Business Conduct Policy and Cundill has adopted a Code of Ethics (the "Codes of Ethics") which are each designed to identify and address certain conflicts of interest between personal investment activities and the interests of investment advisory clients such as the Fund, in compliance with Rule 17j-1 under the 1940 Act. The Codes of Ethics permit personnel of IMI, IMDI, Cundill and the Trust subject to the Codes of Ethics to engage in personal securities transactions, including with respect to securities held by the Fund, subject to certain requirements and restrictions. PRINCIPAL HOLDERS OF SECURITIES SHARE OWNERSHIP To the knowledge of the Trust as of April 4, 2002, no shareholder owned beneficially or of record 5% or more of any Fund's outstanding shares of any class, with the following exceptions: CLASS A Of the outstanding Class A shares of: IVY CUNDILL GLOBAL VALUE FUND, Raymond James & Assoc Inc CSDN Kyle M Payne IRA, 221 Sylvan Glen Drive, South Bend, IN 46615, owned of record 2,762.486 shares (8.08%), and John M Elkowitz Jr., 41 Smith Road, Denville, NJ 07834, owned of record 2598.811 shares (7.60%), and William L. Tepas Sep IRA, 48 Oakview Dr., Amherst, NY 14221, owned of record 2,479.669 (7.25%), and Katherine E. Sayre, Separate Property, PO Box 2224, Canyon Lake, TX 78130, owned of record 28 2,444.495 shares (7.15%), and Evelyn Dolins,Cust FBO: Sarah Laura Dolins UGMA/PA, 6 Jean Lo Way, York, PA 17402, owned of record 1,803.413 shares (5.27%), Jeanette C Arnone, 14 Lions Street, East Strousberg, PA 18301, owned of record 1,709.474 shares (5.00%); IVY EUROPEAN OPPORTUNITIES FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 303,064.982 shares (14.05%), and Charles Schwab & Co. Inc. Reinvest Account, Attn: Mutual Fund Dept., 101 Montgomery Street, San Francisco, CA 94104, owned of record 162,633.605 shares (7.54%); IVY GLOBAL NATURAL RESOURCES FUND, Carn & Co. #93030213 Wacker Salaried SVGS Plan Act42300001285000000 Attn: Mutual Funds Star , P.O. Box 96211 Washington, DC 20090-6211,owned of record 67,907.258 shares (5.53%), and Charles Schwab & Co. Inc. Reinvest Account, Attn: Mutual Fund Dept., 101 Montgomery Street, San Francisco, CA 94104, owned of record 194,730.641 shares (15.86%), and Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 77,836.226 shares (6.34%), and Deutsche Bank Securities Inc. FBO: 235-73733-11, PO Box 1346, Baltimore, MD 21203, VA 21203, owned of record 75,131.480 shares (6.12%); IVY GLOBAL SCIENCE & TECHNOLOGY FUND, Donaldson Lufkin Jenrette Securities Corporation Inc., P.O. Box 2052, Jersey City, NJ 07303-9998, owned of record 46,068.538 shares (5.04%),BBH & Co, Cust FBO: Lifetime Achievement Fund, 525 Washington Blvd, Jersey City, NJ 07310, owned of record 56,657.224 shares (6.20%), and Securities Trust Co. as Trustee FBO: Local 104 Supplemental Pension Plan, 2390 East Camelback Road Ste. 240, Phoenix, AZ 85016, owned of record 48,831.395 shares (5.34%); IVY INTERNATIONAL FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd Floor, Jacksonville, FL 32246, owned of record 2,594,179.817 (26.85%), and Charles Schwab & Co. Inc. Reinvest Account, Attn: Mutual Fund Dept., 101 Montgomery Street, San Francisco, CA 94104, owned of record 1,275,845.774 shares (13.20%); IVY INTERNATIONAL SMALL COMPANIES FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 43,468.854 shares (11.02%); IVY INTERNATIONAL VALUE FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246 owned of record 487,739.415 shares (38.73%); IVY PACIFIC OPPORTUNITIES FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 76,218.797 shares (8.30%); and IVY US EMERGING GROWTH FUND, F & Co. Inc. Cust FBO 401 K Plan, Attn: Cathy Laich ADM, 300 River Place - Suite 4000, Detroit, MI 48207, owned of record 158,123.679 shares (7.75%). 29 CLASS B Of the outstanding Class B shares of: IVY BOND FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 1,065,008.211 shares (47.74%); IVY DEVELOPING MARKETS FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 98,627.609 shares (26.97%); IVY EUROPEAN OPPORTUNITIES FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 583,670.050 shares (25.48%); IVY GLOBAL FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 51,540.966 shares (18.67%); IVY GLOBAL NATURAL RESOURCES FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 68,342.843 shares (11.37%) and Rede & Co, 4380 SW Macadam Suite 450, Portland, OR 97201, owned of record 42,666.000 shares (7.10 %); IVY GLOBAL SCIENCE & TECHNOLOGY FUND, Merrill Lynch Pierce Fenner & Smith Inc. Mutual Fund Operations - Service Team, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 87,925.353 shares (10.74%); IVY GROWTH FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 73,155.436 shares (15.56%); IVY INTERNATIONAL FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 2,577,317.424 shares (42.60%); IVY INTERNATIONAL VALUE FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 2,723,623.738 shares (56.89%); IVY INTERNATIONAL SMALL COMPANIES FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 109,860.158 shares (31.02%); IVY PACIFIC OPPORTUNITIES FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 126,191.785 shares (23.07%); 30 IVY US BLUE CHIP FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 322,620.577 shares (15.95%); and IVY US EMERGING GROWTH FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 256,476.943 shares (20.44%). CLASS C Of the outstanding Class C shares of: IVY BOND FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 146,700.086 shares (62.45%); IVY CUNDILL GLOBAL VALUE FUND, Raymond James & Assoc Inc FAO: Katherine P. Ralston & James W. Ralston JT/WROS, 609 Hwy 466, Lady Lake, FL 32159, owned of record 835.491 shares (24.27%), Catherine Kawula, 1900 West Alpha Court, Lecanto, FL 34461-8435, owned of record 639.631 shares (18.58%), IBT Cust Ira Fbo: Phyllis W Monahan, 15 B Swan Cedar Glen West, Manchester, NJ 08759, owned of record 453.697 shares (13.18%), Lawrence J Mccarthy, 14 Sarian Drive, Nepune, NJ 07753, owned of record 448.060 shares (13.02%), Phyllis Monahan, Cedar Glenn West, 15 B Swan, Manchester, NJ 08759, owned of records 428.207 shares (12.44%), Dorothy V Hosonitz, 223 Goodmans Crossing, Clark, NJ 07066-2754, owned of record 323.276 shares (9.39%), IBT Cust IRA FBO: Candace Pignatello, 162 Newark Ave, Bloomfield, NJ 07003, owned of record 312.929 shares (9.09%); IVY DEVELOPING MARKETS FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL 32246, owned of record 31,175.141 shares (32.28%), and Donaldson Lufkin Jenrette Securities Corp Inc, PO Box 2052, Jersey City, NJ 07303-9998, owed of record 7,301.270 shares (7.56%); IVY EUROPEAN OPPORTUNITIES FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL 32246, owned of record 728,807.904 shares (42.93%); IVY GLOBAL FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL 32246, owned of record 4,365.729 shares (25.71%), IBT CUST 403(B) FBO Mattie A Allen, 755 Selma PL., San Diego, CA 92114-1711, owned of record 2,891.025 shares (17.03%), Salomon Smith Barney Inc., 00157417165, 333 West 34th St. - 3rd Floor, New York, NY 10001, owned of record 2,256.265 shares (13.29%), Salomon Smith Barney Inc., 00141860273, 333 West 34th St 3rd "Floor., New York, NY 10001, owned of record 1,256.132 shares (7.39%), Salomon Smith Barney Inc., 00121066732, 333 West 34th St. - 3rd Floor, New York, NY 10001, owned of record 1,177.856 shares (6.93%), and Smith Barney Inc. 00107866133, 388 Greenwich Street, New York, NY 10013, owned of record shares 1,041.015 (6.13%), Smith Barney Inc., 00112701249, 388 Greenwich Street, New York, NY 10013, owned of record 982.067 shares (5.78%); 31 IVY GLOBAL NATURAL RESOURCES FUND, Salomon Smith Barney Inc., 00150805236, 333 West 34th St 3rd Fl., New York, NY 10001, owned of record 12,049.188 shares (5.02%), Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL 32246, owned of record 29,288.072 shares (12.20%), US Bandcorp Piper Jaffray A/C #5882-0411, U S Bancorp Center, 800 Nicollet Mall, Minneapolis, MN 55402 owned of record 15,698.587 shares (6.54%); IVY GLOBAL SCIENCE & TECHNOLOGY FUND, Merrill Lynch Pierce Fenner & Smith Inc. Mutual Fund Operations - Service Team, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 32,904.764 shares (15.82%); IVY GROWTH FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL 32246, owned of record 2,359.140 shares (9.02%), First Presbyterian Church of McAlester, a Non Profit Corporation, PO Box 1550, 222 E Washington, McAlester, OK 74502-1550, owned of record 3,806.649 shares (14.56%), Mary Ann Ash & Robert R. Ash JT -Ten, 1119 Rundle Street, Scranton, PA 18504, owned of record 2,302.853 shares (8.81%), Salomon Smith Barney Inc. #00121013039, 333 West 34th Street 3rd Floor, New York, NY 10001, owned of record 1,743.389 shares (6.67%), Fiduciary Trust Co. of NH Cust 403(B) FBO: Jack L. Ewen, 278 Southside Drive, Oneonta, NY 13820, owned of record 1,630.943 shares (6.24%), Fiduciary Trust Co of NH Cust IRA FBO: Roland Wise, 45 Fordham, Buffalo, NY 14216, owned of record 1,629.655 shares (6.23%); IVY INTERNATIONAL FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL 32246, owned of record 723,518.558 shares (62.10%); IVY INTERNATIONAL SMALL COMPANIES FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL 32246, owned of record 162,385.988 shares (63.89%); IVY INTERNATIONAL VALUE FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL 32246, owned of record 976,744.805 shares (59.95%); IVY MONEY MARKET FUND, Robert J Laws & Katherine A Laws JT ten, PO Box 723, Ramona, CA 92065, owned of record 43,871.340 shares (11.84%), First Trust Corp Cust IRA FBO: Suzanne Helen Anderson U/A/D 10-31-95 #135129-0001, PO Box 173301, Denver, CO 80217-3301, owned of record 35,317.650 shares (9.53%), IBT Cust IRA FBO: Betty J. Carson, 1987 Higgins Lane, El Centro, CA 92243, owned of record 27,781.690 shares (7.50%), Kenneth S. Hansen, 302 Lakeshore Dr, Lakeside, IA 50588-7660, owned of record 24,316.970 shares (6.56%), and Anthony L. Bassano & Marie E. Bassano Ttees of the Anthony & Marie Bassano Trust U/A/D 05-25-99, 8934 Bari Court, Port Richey, FL 34668, owned of record 18,780.970 shares (5.07%); IVY PACIFIC OPPORTUNITIES FUND, Merrill Lynch Pierce Fenner & Smith for the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr E., 3rd FL, Jacksonville, FL 32246, owned of record 25,760.540 shares (21.47%); 32 IVY US BLUE CHIP FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL 32246, owned of record 35,609.358 shares (31.31%); and IVY US EMERGING GROWTH FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL 32246, owned of record 52,859.279 shares (29.60%), and First Clearing Corp, A/C 3109-0705, Robert Feinberg and Harriet Feinberg JTWROS, 1824 Byberry Road, Bensalem, PA 19020-4455, owned of record 9,162.445 shares (5.13%). CLASS I Of the outstanding Class I shares of: IVY EUROPEAN OPPORTUNITIES FUND, NFSC FEBO # RAS-469041 NFSC/FMTC IRA FBO Charles Peavy, 2025 Eagle Nest Bluff, Lawrenceville, GA 30244, owned of record 642.383 shares (100%); and IVY INTERNATIONAL FUND, Harleysville Mutual Ins Co/Equity, 355 Maple Ave, Harleysville, PA 19438, owned of record 284,051.014 shares (35.68%), Vanguard Fiduciary Trust Company FBO Ivy Funds, PO Box 2900, Valley Forge, PA 19482, owned of record 197,455.576 shares (24.80%), Liz Claiborne Foundation, One Claiborne Ave, N Bergen, NJ 07047, owned of record 102,444.806 shares (12.86), David & Co, PO Box 188, Murfreesboro, TN 37133-0188, owned of record 89,730.410 shares (11.27%), Lynspen and Company , P.O. Box 830804, Birmingham, AL 35283, owned of record 43,905.578 Shares (5.51%); ADVISOR CLASS Of the outstanding Advisor Class shares of: IVY BOND FUND, NFSC FEBO # 279-055662 C/James Ferris/Bro, B Yanowitch/J Broadfoot TTES U/A 01/01/98, 925 South Federal Highway, Suite 600, Boca Raton, FL 33432-6143, owned of record 14,093.040 shares (61.31%), LPL Financial Services, 9785 Towne Centre Drive, San Diego, CA 92121-1968, owned of record 8,890.147 shares (38.68%); IVY CUNDILL GLOBAL VALUE FUND, Mackenzie Investment Mgmt Inc., Attn: Bev Yanowitch, 925 South Federal Highway, Suite 600, Boca Raton, FL 33432, owned of record 57,756.571 shares (56.61%), Peter Cundill Holdings Ltd., 1100 Melville St., Ste. 200, Vancouver BC V6E 4A6, owned of record 37,266.358 shares (36.52%); IVY DEVELOPING MARKETS FUND, NFSC FEBO # 279-055662 C/James Ferris/Bro, B Yanowitch/J Broadfoot TTES U/A 01/01/98, 925 South Federal Highway, Suite 600, Boca Raton, FL 33432-6143, owned of record 8,970.050 shares (98.36%); IVY EUROPEAN OPPORTUNITIES FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL 32246, owned of record 325,841.346 shares (51.60%), Donaldson Lufkin Jenrette Securities Corporation Inc, PO Box 33 2052, Jersey City, NJ 07303-9998 owned of record 75,318.881 shares (11.92%); and Donaldson Lufkin Jenrette Securities Corporation Inc, PO Box 2052, Jersey City, NJ 07303-9998 owned of record 62,497.356 shares (9.89%); IVY GLOBAL FUND, NFSC FEBO # 279-055662 C/James Ferris/Bro, B Yanowitch/J Broadfoot TTES U/A 01/01/98 925 South Federal Highway, Suite 600, Boca Raton, FL 33432-6143, owned of record 6,680.157 shares (61.83%), and Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr E., 3rd FL, Jacksonville, FL 32246, owned of record 3,768.327 shares (34.88%); IVY GLOBAL NATURAL RESOURCES FUND, FTC & Co Account #00055 Datalynx , PO Box 173736, Denver, Co 80217-3736, owned of record 122,047.343 (27.25%), FTC & Co Attn Datalynx #118, PO Box 173736, Denver, Co 80217-3736, owned of record 96,748.874 (21.60%), FTC & Co Attn Datalynx #464, PO Box 173736, Denver, Co 80217-3736, owned of record 80,663.486 (18.01%), FTC & Co Attn Datalynx #00315, PO Box 173736, Denver, Co 80217-3736, owned of record 51,401.961 (11.47%), and FTC & Co Attn Datalynx #00328, PO Box 173736, Denver, Co 80217-3736, owned of record 51,256.969 (11.44%); IVY GLOBAL SCIENCE & TECHNOLOGY FUND, NFSC FEBO # 279-055662 C/James Ferris/Bro, B Yanowitch/J Broadfoot TTES U/A 01/01/98, 925 South Federal Highway, Suite 600, Boca Raton, FL 33432-6143 owned of record 13,236.316 shares (53.55%), and Robert Chapin & Michelle Broadfoot TTEE Of The Nella Manes Trust U/A/D 04-09-92, 117 Thatch Palm Cove, Boca Raton, FL 33432, owned of record 3,321.388 shares (13.43%); IVY GROWTH FUND, NFSC FEBO # 279-055662 C/James Ferris/Bro, B Yanowitch/J Broadfoot TTES U/A 01/01/98, 925 South Federal Highway, Suite 600, Boca Raton, FL 33432-6143, owned of record 17,040.218 shares (39.12%) and Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL 32246, owned of record 17,322.097 shares (39.77%), and James Broadfoot, 117 Thatch Palm Cove, Boca Raton, Fl 33432, owned of record 8,150.114 shares (18.71%) IVY INTERNATIONAL FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL 32246, owned of record 249.377 shares (100%); IVY INTERNATIONAL GROWTH FUND, Mackenzie Investment Mgmt Inc., Attn: Bev Yanowitch, 925 South Federal Highway, Suite 600, Boca Raton, FL 33432, owned of record 51,214.386 shares (99.88%); IVY INTERNATIONAL VALUE FUND, Charles Schwab & Co Inc., Reinvest Account, Attn: Mutual Fund Dept, 101 Montgomery Street, San Francisco, CA 94104, owned of record 1,535.769 shares (5.98%), Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr E., 3rd FL, Jacksonville, FL 32246, owned of record 1,792.768 shares (6.98%), NFSC FEBO # 279-055662, C/James Ferris/Bro, B Yanowitch/J Broadfoot TTES U/A 01/01/98, 925 South Federal Highway, Suite 600, Boca Raton, FL 33432-6143, owned of record 7,001.558 shares (27.26%), Donaldson Lufkin Jenrette Securities Corporation Inc., PO Box 2052, Jersey City, NJ 07303-2052, owned of record 2,062.330 shares (8.03%), LPL Financial Services A/C #3383-3796, 34 9785 Towne Centre Drive, San Diego, CA 92121-1968, owned of record 2,503.224 shares (9.74%), LPL Financial Services A/C #1572-6093, 9785 Towne Centre Drive, San Diego, CA 92121-1968, owned of record 3,218.761 shares (12.53%), LPL Financial Services A/C #1982-6979, 9785 Towne Centre Drive, San Diego, CA 92121-1968, owned of record 1,900.057 shares (7.39%), and LPL Financial Services A/C #7105-6816, 9785 Towne Centre Drive, San Diego, CA 92121-1968, owned of record 1,310.281 shares (5.10%); IVY INTERNATIONAL SMALL COMPANIES FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL 32246, owned of record 94,687.863 shares (93.04%); NFSC FEBO # 279-055662, C/James Ferris/Bro, B Yanowitch/J Broadfoot TTES U/A 01/01/98, 925 South Federal Highway, Suite 600, Boca Raton, FL 33432-6143, owned of record 6,190.702 shares (6.08%); IVY PACIFIC OPPORTUNITIES FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL 32246, owned of record 518.000 shares (8.94%), Donaldson Lufkin Jenrette Securities Corporation Inc, PO Box 2052, Jersey City, NJ 07303-9998 owned of record 4,512.894 shares (77.93%), and Donaldson Lufkin Jenrette Securities Corporation Inc, PO Box 2052, Jersey City, NJ 07303-9998 owned of record 748.503 shares (12.92%); IVY US BLUE CHIP FUND, Mackenzie Investment Management Inc., Attn: Bev Yanowitch, 925 South Federal Highway, Suite 600, Boca Raton, FL 33432, owned of record 51,179.697 shares (54.41%), NFSC FEBO # 279-055662 C/James Ferris/Bro, B Yanowitch/J Broadfoot TTES U/A 01/01/98, 925 South Federal Highway, Suite 600, Boca Raton, FL 33432-6143, owned of record 38,299.532 shares (40.72%); and IVY US EMERGING GROWTH FUND, NFSC FEBO # 279-055662 C/James Ferris/Bro, B Yanowitch/J Broadfoot TTES U/A 01/01/98, 925 South Federal Highway, Suite 600, Boca Raton, FL 33432-6143, owned of record 26,549.906 shares (56.61%), Charles Schwab & Co. Inc. Reinvest Account, Attn: Mutual Fund Dept., 101 Montgomery Street, San Francisco, CA 94104, owned of record 4,850.696 shares (10.34%), and James W Broadfoot, 117 Thatch Palm Cove, Boca Raton, FL 33432, owned of record 2,393.086 shares (5.10%). INVESTMENT ADVISORY AND OTHER SERVICES BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES INVESTMENT MANAGER IMI, which provides business management and investment advisory services to the Fund, is a wholly-owned subsidiary of Mackenzie Investment Management Inc. ("MIMI"), 925 South Federal Highway, Suite 600, Boca Raton, Florida 33432. MIMI, a Delaware corporation, has approximately 15% of its outstanding common stock listed for trading on the Toronto Stock Exchange ("TSE"). IMI is an indirect subsidiary of Mackenzie Financial Corporation ("MFC"), 150 Bloor Street West, Suite 400, Toronto, Ontario, Canada M5S3B5. MFC is a wholly-owned subsidiary of Investors Group Inc. ("IGI"), One Canada Centre, 35 447 Portage Avenue, Winnipeg, Manitoba, Canada R3C3B6. MFC is a corporation organized under the laws of Ontario. MFC is registered in Ontario as a mutual fund dealer and advises Ivy Global Natural Resources Fund, a separate series of Ivy Fund. IMI also currently acts as both manager and investment advisor to the other series of Ivy Fund, with the exception of Ivy Global Natural Resources Fund, for which IMI acts solely as manager. The Advisory Agreement obligates IMI to make investments for the account of the Fund in accordance with its best judgment and within the investment objectives and restrictions set forth in the Prospectus, the 1940 Act and the provisions of the Internal Revenue Code of 1986, as amended (the "Code"), relating to regulated investment companies, and subject to policy decisions adopted by the Trustees. IMI has delegated to Cundill the primary responsibility for determining which securities the Fund should purchase and sell (see "Sub-Advisor," below.) Under the Advisory Agreement, IMI is also obligated to (1) coordinate with the Fund's Custodian and monitor the services it provides to the Fund; (2) coordinate with and monitor any other third parties furnishing services to the Fund; (3) provide the Fund with necessary office space, telephones and other communications facilities as needed; (4) provide the services of individuals competent to perform administrative and clerical functions that are not performed by employees or other agents engaged by the Fund or by IMI acting in some other capacity pursuant to a separate agreement or arrangements with the Fund; (5) maintain or supervise the maintenance by third parties of such books and records of the Fund as may be required by applicable Federal or state law; (6) authorize and permit IMI's directors, officers and employees who may be elected or appointed as trustees or officers of the Fund to serve in such capacities; and (7) take such other action with respect to the Fund, upon the approval of its trustees, as may be required by applicable law, including without limitation the rules and regulations of the Securities and Exchange Commission (the "SEC") and of state securities commissions and other regulatory agencies. The Fund pays IMI a fee for its services under the Advisory Agreement at an annual rate of 1.00% of the Fund's average net assets. From April 17, 2000 (commencement) through December 31, 2000 and the fiscal year ended December 31,2001, the Fund paid IMI fees of $5,011 and $10,121, respectively. During the same period, IMI reimbursed Fund expenses in the amount of $86,191 and $127,526, respectively. Under the Advisory Agreement, the Trust is also responsible for the following expenses: (1) the fees and expenses of the Trust's Independent Trustees; (2) the salaries and expenses of any of the Trust's officers or employees who are not affiliated with IMI; (3) interest expenses; (4) taxes and governmental fees, including any original issue taxes or transfer taxes applicable to the sale or delivery of shares or certificates therefor; (5) brokerage commissions and other expenses incurred in acquiring or disposing of portfolio securities; (6) the expenses of registering and qualifying shares for sale with the SEC and with various state securities commissions; (7) accounting and legal costs; (8) insurance premiums; (9) fees and expenses of the Trust's Custodian and Transfer Agent and any related services; (10) expenses of obtaining quotations of portfolio securities and of pricing shares; (11) expenses of maintaining the Trust's legal existence and of shareholders' meetings; (12) expenses of preparation and distribution to existing shareholders of periodic reports, proxy materials and prospectuses; and (13) fees and expenses of membership in industry organizations. 36 In approving the investment advisory agreement, the Board considered a number of factors, including: (1) fee and performance information of the Fund relative to funds with similar objectives; (2) the profitability to IMI from its relationship with the Fund, both individually and from all of the series of the Trust, as applicable; (3) the manner in which expenses are allocated among all series of the Trust and their different classes of shares; (4) the performance and expenses of the Fund relative to comparable funds; (5) the nature and quality of the services historically provided by IMI, including information regarding advisory services and compliance records; (6) the professional qualifications of the personnel providing advisory services to the Fund; and (7) management's soft dollar practices and the use of soft dollars in connection with the Fund, as described under "Brokerage Allocation," below. Based upon their review and consideration of the factors described above, and such other factors and information it considered relevant, the Board recognized that IMI is deemed to owe a fiduciary duty to the Fund and approved the investment advisory agreement. SUB-ADVISOR Cundill, a SEC-registered investment advisor located at Suite A1, 1470 East Valley Road, P.O. Box 50133, Montecito, CA 93150-0133, serves as sub-advisor to the Fund under an interim sub-advisory agreement with IMI (the "Interim Sub-advisory Agreement"). The Cundill Group, consisting of Cundill, Peter Cundill & Associates (Bermuda) Ltd. ("PCB") and Cundill Investment Research Ltd. ("CIR") operating in Canada, began operations in 1975, and as of February 2002 had approximately $2 billion in assets under management. Pursuant to memoranda of understanding ("MOUs") entered into with both PCB and CIR, Cundill has retained the services of investment professionals from both organizations to provide portfolio management and trading services to its U.S. clients, including the Fund. Pursuant to the MOUs, both PCB and CIR are "participating affiliates" of the sub-advisor, as such term is used by the staff of the Securities and Exchange Commission when allowing U.S. -- registered advisers to use portfolio management and trading resources of unregistered advisory affiliates, subject to the control and supervision of the registered advisor. For its services, Cundill receives a fee from IMI that is equal, on an annual basis, to 0.50% of the Fund's average net assets. Cundill's fee is paid by IMI out of the advisory fees that IMI receives from the Fund. From April 17, 2000 (commencement) through December 31, 2000 and the fiscal year ended December 31,2001, IMI paid sub-advisory fees to Cundill in the amount of $2,506 and $5,078, respectively. The Advisory Agreement will continue in effect with respect to the Fund from year to year thereafter, provided that each such continuance is approved annually (i) by the Board or by the vote of a majority of the outstanding voting securities of the Fund, and, in either case, (ii) by a majority of the Trustees who are not parties to the Advisory Agreement or "interested persons" of any such party (other than as Trustees). (See "Capitalization and Voting Rights.") The Advisory Agreement may be terminated with respect to the Fund at any time, without payment of any penalty, by the vote of a majority of the Board, or by a vote of a majority of the outstanding voting securities of the Fund (as defined in the 1940 Act), on 60 days' written notice to IMI, or by IMI on 60 days' written notice to the Trust. The Advisory Agreement provides that it will terminate automatically in the event of its assignment (as defined in the 1940 Act). 37 The Sub-advisory Agreement will continue in effect with respect to the Fund from year to year thereafter, provided that each such continuance is approved annually (i) by the Board or by the vote of a majority of the outstanding voting securities of the Fund, and, in either case, (ii) by a majority of the Trustees who are not parties to the Sub-advisory Agreement or "interested persons" of any such party (other than as Trustees); and provided that Cundill shall not have notified IMI in writing at least 60 days prior to September 30 of any year that Cundill does not desire such continuance. The Sub-advisory Agreement may be terminated with respect to the Fund at any time, without payment of any penalty, by the vote of the Board or a majority of the outstanding voting securities of the Fund (as defined in the 1940 Act), or by IMI on 30 days' written notice, or by Cundill on 120 days' written notice. The Sub-advisory Agreement provides that it will terminate automatically in the event of its assignment (as defined in the 1940 Act), or upon the termination of the Advisory Agreement, or if either party is unable to pay its debts or an administrative or insolvency order is made in respect of a party pursuant to its relevant governing and applicable laws and regulations. In approving the subadvisory agreement, the Board considered (1) the fees paid by the Fund and the terms of the business management and investment advisory agreement between the Fund and IMI and the subadvisory agreement between IMI and Cundill; (2) the services that IMI performs under the management agreement and the investment advisory services that Cundill performs for the Fund under the subadvisory agreement; and (3) that IMI continues to be ultimately responsible for Cundill's compliance with the Fund's investment objective and policies and applicable securities laws, and is also responsible for the selection of the subadviser and monitoring its performance, as well as the overall success or failure of the Fund. Based upon their review and consideration of the factors described above, and such other factors and information it considered relevant, the Board recognized that Cundill is deemed to owe a fiduciary duty to the Fund and approved the subadvisory agreement. DISTRIBUTION SERVICES Ivy Mackenzie Distributors, Inc. ("IMDI"), a wholly owned subsidiary of MIMI, serves as the exclusive distributor of the Fund's shares pursuant to an Amended and Restated Distribution Agreement with the Trust dated March 16, 1999, as amended from time to time (the "Distribution Agreement"). IMDI distributes shares of the Fund through broker-dealers who are members of the National Association of Securities Dealers, Inc. and who have executed dealer agreements with IMDI. IMDI distributes shares of the Fund continuously, but reserves the right to suspend or discontinue distribution on that basis. IMDI is not obligated to sell any specific amount of Fund shares. The Fund has authorized IMDI to accept purchase and redemption orders on its behalf. IMDI is also authorized to designate other intermediaries to accept purchase and redemption orders on the Fund's behalf. The Fund will be deemed to have received a purchase or redemption order when an authorized intermediary or, if applicable, an intermediary's authorized designee, accepts 38 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 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. From April 17, 2000 (Commencement) through December 31, 2000, and the fiscal year ended December 31, 2001, IMDI received from sales of Class A shares $0 and $63, respectively, in sales commissions, of which $0 and $8, respectively, was retained after dealer allowances. During the fiscal year ended December 31, 2001, IMI on behalf of IMDI received $0 in CDSC's on redemption's of Class B shares of the fund. During the fiscal year ended December 31, 2001, IMI on behalf of IMDI received $3 in CDSC's on redemption's 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. PAYMENTS TO DEALERS: MIMI on behalf of IMDI currently intends to pay to dealers a sales commission of 4% of the sale price of Class B shares they have sold, and MIMI or one of its subsidiaries will receive the entire amount of the CDSC paid by shareholders on the redemption of Class B shares to finance the 4% commission and related marketing expenses. With respect to Class C shares, MIMI on behalf of IMDI currently intends to pay to dealers a sales commission of 1% of the sale price of Class C shares that they have sold, a portion of which is to compensate the dealers for providing Class C shareholder account services during the first year of investment. MIMI or one of its subsidiaries will receive the entire amount of the CDSC paid by shareholders on the redemption of Class C shares to finance the 1% commission and related marketing expenses. RULE 18F-3 PLAN. On February 23, 1995, the SEC adopted Rule 18f-3 under the 1940 Act, which permits a registered open-end investment company to issue multiple classes of shares in accordance with a written plan approved by the investment company's board of directors and filed with the SEC. At meetings held 39 on February 3-4, 2000, the Trustees adopted a Rule 18f-3 plan on behalf of the Fund. The key features of the Rule 18f-3 plan are as follows: (i) shares of each class of the Fund represent an equal pro rata interest in the Fund and generally have identical voting, dividend, liquidation, and other rights, preferences, powers, restrictions, limitations, qualifications, terms and conditions, except that each class bears certain class-specific expenses and has separate voting rights on certain matters that relate solely to that class or in which the interests of shareholders of one class differ from the interests of shareholders of another class; (ii) subject to certain limitations described in the Prospectus, shares of a particular class of the Fund may be exchanged for shares of the same class of another Ivy fund; and (iii) the Fund's Class B shares will convert automatically into Class A shares of the Fund after a period of eight years, based on the relative net asset value of such shares at the time of conversion. RULE 12B-1 DISTRIBUTION PLANS. The Trust has adopted on behalf of the Fund, in accordance with Rule 12b-1 under the 1940 Act, separate Rule 12b-1 distribution plans pertaining to the Fund's Class A, Class B and Class C shares (each, a "Plan"). In adopting each Plan, a majority of the Independent Trustees have concluded in accordance with the requirements of Rule 12b-1 that there is a reasonable likelihood that each Plan will benefit the Fund and its shareholders. The Trustees of the Trust believe that the Plans should result in greater sales and/or fewer redemptions of the Fund's shares, although it is impossible to know for certain the level of sales and redemptions of the Fund's shares in the absence of a Plan or under an alternative distribution arrangement. Under each Plan, the Fund pays to IMDI a service fee, accrued daily and paid monthly, at the annual rate of up to 0.25% of the average daily net assets attributable to its Class A, Class B or Class C shares, respectively. The services for which service fees may be paid include, among other things, advising clients or customers regarding the purchase, sale or retention of Fund shares, answering routine inquiries concerning the Fund and assisting shareholders in changing options or enrolling in specific plans. Pursuant to each Plan, service fee payments made out of or charged against the assets attributable to the Fund's Class A, Class B or Class C shares must be in reimbursement for services rendered for or on behalf of the affected class. The expenses not reimbursed in any one month may be reimbursed in a subsequent month. The Class A Plan does not provide for the payment of interest or carrying charges as distribution expenses. Under the Fund's Class B and Class C Plans, the Fund also pays IMDI a distribution fee, accrued daily and paid monthly, at the annual rate of 0.75% of the average daily net assets attributable to its Class B or Class C shares. IMDI may reallow to dealers all or a portion of the service and distribution fees as IMDI may determine from time to time. The distribution fees compensate IMDI for expenses incurred in connection with activities primarily intended to result in the sale of the Fund's Class B or Class C shares, including the printing of prospectuses and reports for persons other than existing shareholders and the preparation, printing and distribution of sales literature and advertising materials. Pursuant to each Class B and Class C Plan, IMDI may include interest, carrying or other finance charges in its calculation of distribution expenses, if not prohibited from doing so pursuant to an order of or a regulation adopted by the SEC. Among other things, each Plan provides that (1) IMDI will submit to the Board at least quarterly, and the Trustees will review, written reports regarding all amounts expended under the Plan and the purposes for which such expenditures were made; (2) each Plan will continue in effect only so long as such continuance is approved at least annually, and any material amendment thereto is approved, by the votes of a majority of the Board, including the 40 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 of the Fund shall be committed to the discretion of the then current Independent Trustees. 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 advisors, 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 permit IMDI to sell its right to receive distribution fees under the Class B Plan and CDSCs to third parties. MIMI on behalf of IMDI enters into such transactions to finance the payment of commissions to brokers at the time of sale and other distribution-related expenses. The Trust has agreed that the distribution fee will not be terminated or modified (including a modification by change in the rules relating to the conversion of Class B shares into shares of another class) for any reason (including a termination of the underwriting agreement) except: (i) to the extent required by a change in the 1940 Act, the rules or regulations under the 1940 Act, or the Conduct Rules of the NASD, in each case enacted, issued, or promulgated after March 16, 1999; (ii) on a basis which does not alter the amount of the distribution payments to IMDI computed with reference to Class B shares the date of original issuance of which occurred on or before December 31, 1998; (iii) in connection with a Complete Termination (as defined in the Class B Plan); or (iv) on a basis determined by the Board of Trustees acting in good faith, so long as (a) neither the Trust nor any successor trust or fund or any trust or fund acquiring a substantial portion of the assets of the Trust (collectively, the "Affected Funds") nor the sponsors of the Affected Funds pay, directly or indirectly, as a fee, a trailer fee, or by way of reimbursement, any fee, however denominated, to any person for personal services, account maintenance services or other shareholder services rendered to the holder of Class B shares of the Affected Funds from and after the effective date of such modification or termination, and (b) the termination or 41 modification of the distribution fee applies with equal effect to all outstanding Class B shares from time to time of all Affected Funds regardless of the date of issuance thereof. In the underwriting agreement, the Trust has also agreed that it will not take any action to waive or change any CDSC in respect of any Class B share the date of original issuance of which occurred on or before December 31, 1998, except as provided in the Trust's prospectus or statement of additional information, without the consent of IMDI and its transferees. During the fiscal year ended December 31, 2001, the Fund paid IMDI $71 pursuant to its Class A plan. During the fiscal year ended December 31, 2001, the Fund paid IMDI $1,212 pursuant to its Class B plan. During the fiscal year ended December 31, 2001, the Fund paid IMDI $40 pursuant to its Class C plan. During the fiscal year ended December 31, 2001, MIMI or IMDI expended the following amounts in marketing Class A shares of the Fund: advertising $0; printing and mailing of prospective and mailing of prospectuses to person other than current shareholders, $110; compensation to underwriters $0; compensation to dealers, $189; compensation to sale personnel $477; interest, carrying or other financing charges $0; seminars and meeting, $47; travel and entertainment, $71; general and administrative, $75; telephone, $11; and occupancy and equipment rental, $73. During the fiscal year ended December 31, 2001, MIMI or IMDI expended the following amounts in marketing Class B shares of the Fund: advertising $9; printing and mailing of prospectuses to persons other than current shareholders, $453; compensation to underwriters $0; compensation to dealers, $164; compensation to sales personnel $1,987; interest, carrying or other financing charges $0; seminars and meetings $41; travel and entertainment, $306; general administrative, $310; telephone, $52; and occupancy and equipment rental, $303. During the fiscal year ended December 31, 2001, MIMI or IMDI expended the following amounts in marketing Class C shares of the Fund: advertising $0; printing and mailing of prospective to person other than current shareholders, $6; compensation to underwriters $0; compensation to dealers, $7; compensation to sales personnel $69; interest, carrying or other financing charges $0; seminars and meetings, $1; travel and entertainment, $11; general and administrative, $9; telephone, $0; and occupancy and equipment rental, $10. Each Plan may be amended at any time with respect to the class of shares of the Fund to which the Plan relates by vote of the Trustees, including a majority of the Independent Trustees, cast in person at a meeting called for the purpose of considering such amendment. Each Plan may be terminated at any time with respect to the class of shares of the Fund to which the Plan relates, without payment of any penalty, by vote of a majority of the Independent Trustees, or by vote of a majority of the outstanding voting securities of that class. If the Distribution Agreement or any Plan is terminated (or not renewed) with respect to any of the Ivy funds (or class of shares thereof), each may continue in effect with respect to any other fund (or Class of shares thereof) as to which they have not been terminated (or have been renewed). 42 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, maintains custody of the Fund's assets. Rules adopted under the 1940 Act permit the Trust to maintain its foreign securities and cash in the custody of certain eligible foreign banks and securities depositories. Pursuant to those rules, the Custodian has entered into subcustodial agreements for the holding of the Fund's foreign securities. With respect to the Fund, the Custodian may receive, as partial payment for its services to the Fund, a portion of the Trust's brokerage business, subject to its ability to provide best price and execution. FUND ACCOUNTING SERVICES Pursuant to the Fund Accounting Services Agreement, MIMI provides certain accounting and pricing services for the Fund. As compensation for those services, the Fund pays MIMI a monthly fee plus out-of-pocket expenses as incurred. The monthly fee is based upon the net assets of the Fund at the preceding month end at the following rates: $1,250 when net assets are $10 million and under; $2,500 when net assets are over $10 million to $40 million; $5,000 when net assets are over $40 million to $75 million; and $6,500 when net assets are over $75 million. From April 17, 2000 (commencement) through December 31, 2000, and for fiscal year ended December 31, 2001, the Fund paid MIMI $13,677 and $18,626, respectively, under the agreement. TRANSFER AGENT AND DIVIDEND PAYING AGENT Pursuant to a Transfer Agency Services Agreement, PFPC Global Fund Services, Inc. ("PFPC"), a Massachusetts corporation, located at 4400 Computer Drive, Westborough, MA 01581, is the transfer agent for the Fund. Under the Agreement, the Fund pays a monthly fee at an annual rate of $17.00 for each open Class A, Class B, Class C and Advisor Class account. The Fund pays $10.25 per open Class I account. In addition, the Fund pays a monthly fee at an annual rate of $3.60 per account that is closed plus certain out-of-pocket expenses. Such fees and expenses for the period of April 17, 2000 (commencement) through December 31, 2000 and the fiscal year ended December 31, 2001, totaled $236 and $826 respectively. 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 PFPC if the individual accounts that comprise the omnibus account were opened by their beneficial owners directly. PFPC pays such broker-dealers a per account fee for each open account within the omnibus account, or a fixed rate (e.g., .10%) fee, based on the average daily net asset value of the omnibus account (or a combination thereof). 43 ADMINISTRATOR Pursuant to an Administrative Services Agreement, MIMI provides certain administrative services to the Fund. As compensation for these services, the Fund (except with respect to its Class I shares) pays MIMI a monthly fee at the annual rate of 0.10% of the Fund's average daily net assets. The Fund pays MIMI a monthly fee at the annual rate of 0.01% of its average daily net assets for Class I shares. Such fees and expenses for the period of April 17, 2000 (commencement) through December 31, 2000 and the fiscal year ended December 31, 2001, totaled $501 and $1,012, respectively. Outside of providing administrative services to the Trust, as described above, MIMI may also act on behalf of IMDI in paying commissions to broker-dealers with respect to sales of Class B and Class C shares of the Fund. AUDITORS PricewaterhouseCoopers LLP, independent certified public accountants, located at 200 E. Las Olas Blvd., Ste. 1700, Ft. Lauderdale, Florida, 33301, has been selected as auditors for the Fund. The audit services performed by PricewaterhouseCoopers LLP include audits of the annual financial statements of the Fund. Other services provided principally relate to filings with the SEC and the preparation of the Fund's tax returns. BROKERAGE ALLOCATION Subject to the overall supervision of the President and the Board, IMI and Cundill place 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 (or Cundill) attempts to deal directly with the principal market makers, except in those circumstances where IMI (or Cundill) believes that a better price and execution are available elsewhere. IMI (or Cundill) selects broker-dealers to execute transactions and evaluates the reasonableness of commissions on the basis of quality, quantity, and the nature of the firms' professional services. Commissions to be charged and the rendering of investment services, including statistical, research, and counseling services by brokerage firms, are factors to be considered in the placing of brokerage business. The types of research services provided by brokers may include general economic and industry data, and information on securities of specific companies. Research services furnished by brokers through whom the Trust effects securities transactions may be used by IMI and/or Cundill in servicing all of its accounts. In addition, not all of these services may be used by IMI and/or Cundill in connection with the services it provides to the Fund or the Trust. IMI and/or Cundill may consider sales of shares of other Ivy, IMI or Cundill managed funds as a factor in the selection of broker-dealers and may select broker-dealers who provide it with research services. IMI and/or Cundill will not, however, execute brokerage transactions other than at the best price and execution. 44 During the period from commencement (April 17, 2000) through December 31, 2000, the Fund paid brokerage commissions of $5,475. For the fiscal year ended December 31, 2001, the Fund paid a total of $7,033 in brokerage commissions with respect to portfolio transactions aggregating $2,188,682. Of such amount, $1,903 in brokerage commissions with respect to portfolio transactions aggregating $490,237 was placed with broker-dealers who provided research services. Brokerage commissions vary from year to year in accordance with the extent to which the Fund is more or less actively traded. The Fund may, under some circumstances, accept securities in lieu of cash as payment for Fund shares. The Fund will accept securities only to increase its holdings in a portfolio security or to take a new portfolio position in a security that IMI and/or Cundill deems to be a desirable investment for the Fund. While no minimum has been established, it is expected that the Fund will not accept securities having an aggregate value of less than $1 million. The Trust may reject in whole or in part any or all offers to pay for Fund shares with securities and may discontinue accepting securities as payment for Fund shares at any time without notice. The Trust will value accepted securities in the manner and at the same time provided for valuing portfolio securities of the Fund, and the Fund shares will be sold for net asset value determined at the same time the accepted securities are valued. The Trust will only accept securities delivered in proper form and will not accept securities subject to legal restrictions on transfer. The acceptance of securities by the Trust must comply with the applicable laws of certain states. CAPITALIZATION AND VOTING RIGHTS The capitalization of the Fund consists of an unlimited number of shares of beneficial interest (no par value per share). When issued, shares of each class of the Fund are fully paid, non-assessable, redeemable and fully transferable. No class of shares of the Fund has preemptive rights or subscription rights. The Declaration of Trust permits the Trustees to create separate series or portfolios and to divide any series or portfolio into one or more classes. Pursuant to the Declaration of Trust, the Trustees may terminate the Fund without shareholder approval. This might occur, for example, if the Fund does not reach an economically viable size. The Trustees have authorized eighteen series, each of which represents a fund. The Trustees have further authorized the issuance of Class A, Class B, and Class C shares for Ivy Money Market Fund and Class A, Class B, Class C and Advisor Class shares for Ivy Bond Fund, Ivy Cundill Global Value Fund, Ivy Developing Markets Fund, Ivy European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund, Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy International Fund, Ivy International Growth Fund, Ivy International Small Companies Fund, Ivy International Value Fund, Ivy Pacific Opportunities Fund, Ivy US Blue Chip Fund and Ivy US Emerging Growth Fund, as well as Class I shares for Ivy Bond Fund, Ivy Cundill Global Value Fund, Ivy European Opportunities Fund, Ivy Global Science & Technology Fund, Ivy International Fund, Ivy International Small Companies Fund, Ivy International Value Fund, and Ivy US Blue Chip Fund. 45 Shareholders have the right to vote for the election of Trustees of the Trust and on any and all matters on which they may be entitled to vote by law or by the provisions of the Trust's By-Laws. The Trust is not required to hold a regular annual meeting of shareholders, and it does not intend to do so. Shares of each class of the Fund entitle their holders to one vote per share (with proportionate voting for fractional shares). Shareholders of the Fund are entitled to vote alone on matters that only affect the Fund. All classes of shares of the Fund will vote together, except with respect to the distribution plan applicable to the Fund's Class A, Class B or Class C shares or when a class vote is required by the 1940 Act. On matters relating to all funds of the Trust, but affecting them differently, separate votes by the shareholders of the Fund are required. Approval of an investment advisory agreement and a change in fundamental policies would be regarded as matters requiring separate voting by the shareholders of the Fund of the Trust. If the Trustees of the Trust determine that a matter does not affect the interests of a particular fund, then the shareholders of that fund will not be entitled to vote on that matter. Matters that affect the Trust in general will be voted upon collectively by the shareholders of all funds of the Trust. As used in this SAI and the Prospectus, the phrase "majority vote of the outstanding shares" of the Fund means the vote of the lesser of: (1) 67% of the shares of the Fund (or of the Trust) present at a meeting if the holders of more than 50% of the outstanding shares are present in person or by proxy; or (2) more than 50% of the outstanding shares of the Fund (or of the Trust). With respect to the submission to shareholder vote of a matter requiring separate voting by the Fund of the Trust, the matter shall have been effectively acted upon with respect to that fund if a majority of the outstanding voting securities of the fund votes for the approval of the matter, notwithstanding that: (1) the matter has not been approved by a majority of the outstanding voting securities of any other fund of the Trust; or (2) the matter has not been approved by a majority of the outstanding voting securities of the Trust. The Declaration of Trust provides that the holders of not less than two-thirds of the outstanding shares of the Trust may remove a person serving as trustee either by declaration in writing or at a meeting called for such purpose. The Trustees are required to call a meeting for the purpose of considering the removal of a person serving as Trustee if requested in writing to do so by the holders of not less than 10% of the outstanding shares of the Trust. Shareholders will be assisted in communicating with other shareholders in connection with the removal of a Trustee. The Trust's shares do not have cumulative voting rights and accordingly the holders of more than 50% of the outstanding shares could elect the entire Board, in which case the holders of the remaining shares would not be able to elect any Trustees. Under Massachusetts law, the Trust's shareholders could, under certain circumstances, be held personally liable for the obligations of the Trust. However, the Declaration of Trust disclaims liability of the shareholders, Trustees or officers of the Trust for acts or obligations of the Trust, which are binding only on the assets and property of the Trust, and requires that notice of the disclaimer be given in each contract or obligation entered into or executed by the Trust or its Trustees. The Declaration of Trust also provides for indemnification out of Fund property for all loss and expense of any shareholder of the Fund held personally liable for the obligations of the Fund. 46 The risk of a shareholder of the Trust incurring financial loss on account of shareholder liability is limited to circumstances in which the Trust itself would be unable to meet its obligations and, thus, should be considered remote. No series of the Trust is liable for any other series of the Trust. SPECIAL RIGHTS AND PRIVILEGES Information as to how to purchase Fund shares is contained in the Prospectus. The Trust offers (and except as noted below) bears the cost of providing, to investors the following additional rights and privileges. The Trust reserves the right to amend or terminate any one or more of these rights and privileges. Notice of amendments to or terminations of rights and privileges will be provided to shareholders in accordance with applicable law. Certain of the rights and privileges described below refer to funds, other than the Fund, whose shares are also distributed by IMDI. These funds are: Ivy Bond Fund, Ivy Developing Markets Fund, Ivy European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund, Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy International Fund, Ivy International Growth Fund, Ivy International Small Companies Fund, Ivy International Value Fund, Ivy Money Market Fund, Ivy Pacific Opportunities Fund, Ivy US Blue Chip Fund and Ivy US Emerging Growth Fund (the other fifteen series of the Trust). Shareholders should obtain a current prospectus before exercising any right or privilege that may relate to these funds. AUTOMATIC INVESTMENT METHOD The Automatic Investment Method, which enables the Fund shareholder to have specified amounts automatically drawn each month from his or her bank for investment in Fund shares, is available for all classes of shares except Class I. The minimum initial and subsequent investment under this method is $50 per month, $250 for Advisor Class Shares (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 PFPC of telephone instructions or written notice. To use this privilege, please complete Sections 8 and 9 of the Account Application that is included with the Prospectus. EXCHANGE OF SHARES As described in the Prospectus, shareholders of the Fund have an exchange privilege with other Ivy funds. 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. A 2% redemption fee or short-term trading fee will be imposed on redemptions and exchanges of Class A shares of the Fund made within 30 days of initial purchase. This fee will be retained by the Fund. See "Redemptions" below. INITIAL SALES CHARGE SHARES. Generally, 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 47 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.) In certain short-term transactions, Class A shares may also be subject to a fee upon redemption or exchange. See "REDEMPTIONS" below. Class A shareholders may also exchange their shares for shares of Ivy Money Market Fund (no initial sales charge will be assessed at the time of such an exchange). The Fund may, from time to time, waive the initial sales charge on its Class A shares sold to clients of The Legend Group and United Planners Financial Services of America, Inc. This privilege will apply on to Class A Shares of the Fund that are purchased using all or a portion of the proceeds obtained by such clients through redemptions of shares of a mutual fund (other than the Fund) on which a sales charge was paid (the "NAV transfer privilege"). Purchases eligible for the NAV transfer privilege must be made within 60 days of redemption from the other fund, and the Class A shares purchased are subject to a 1.00% CDSC on shares redeemed within the first year after purchase. The NAV transfer privilege also applies to Fund shares purchased directly by clients of such dealers as long as their accounts are linked to the dealer's master account. The normal service fee, as described in the "Initial Sales Charge Alternative - Class A Shares" section of the Prospectus, will be paid to those dealers in connection with these purchases. IMDI may from time to time pay a special cash incentive to The Legend Group or United Planners Financial Services of America, Inc. in connection with sales of shares of the Fund by its registered representatives under the NAV transfer privilege. Additional information on sales charge reductions or waivers may be obtained from IMDI at the address listed on the cover of this Statement of Additional Information. CONTINGENT DEFERRED SALES CHARGE SHARES CLASS A: Class A shareholders may exchange their Class A shares that are subject to a contingent deferred sales charge ("CDSC"), as described in the Prospectus ("outstanding Class A shares"), for Class A shares of another Ivy fund ("new Class A shares") on the basis of the relative net asset value per Class A share, without the payment of any CDSC that would otherwise be due upon the redemption of the outstanding Class A shares. Class A shareholders of the Fund exercising the exchange privilege will continue to be subject to the Fund's CDSC period following an exchange if such period is longer than the CDSC period, if any, applicable to the new Class A shares. For purposes of computing the CDSC that may be payable upon the redemption of the new Class A shares, the holding period of the outstanding Class A shares is "tacked" onto the holding period of the new Class A shares. CLASS B: Class B shareholders may exchange their Class B shares ("outstanding Class B shares") for Class B shares of another Ivy fund ("new Class B shares") on the basis of the relative net asset value per Class B share, without the payment of any CDSC that would otherwise be due upon the redemption of the outstanding Class B shares. Class B shareholders of the Fund exercising the exchange privilege will continue to be subject to the Fund's CDSC schedule (or period) following an exchange if such schedule is higher (or such period is longer) than the CDSC schedule (or period) applicable to the new Class B shares. 48 Class B shares of the Fund acquired through an exchange of Class B shares of another Ivy fund will be subject to the Fund's CDSC schedule (or period) if such schedule is higher (or such period is longer) than the CDSC schedule (or period) applicable to the Ivy fund from which the exchange was made. For purposes of both the conversion feature and computing the CDSC that may be payable upon the redemption of the new Class B shares (prior to conversion), the holding period of the outstanding Class B shares is "tacked" onto the holding period of the new Class B shares. The following CDSC table applies to Class B shares of the Ivy Bond Fund, Ivy Cundill Global Value Fund, Ivy Developing Markets Fund, Ivy European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund, Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy International Fund, Ivy International Growth Fund, Ivy International Small Companies Fund, Ivy International Value Fund, Ivy Pacific Opportunities Fund, Ivy US Blue Chip Fund and Ivy US Emerging Growth Fund. CONTINGENT DEFERRED SALES CHARGE AS A PERCENTAGE YEAR SINCE PURCHASE OF DOLLAR AMOUNT SUBJECT TO CHARGE - ------------------- ------------------------------------------------ First 5% Second 4% Third 3% Fourth 3% Fifth 2% Sixth 1% Seventh and thereafter 0% CLASS C: Class C shareholders may exchange their Class C shares ("outstanding Class C shares") for Class C shares of another Ivy fund ("new Class C shares") on the basis of the relative net asset value per Class C share, without the payment of any CDSC that would otherwise be due upon redemption. (Class C shares are subject to a CDSC of 1.00% if redeemed within one year of the date of purchase.) CLASS I AND ADVISOR CLASS: Subject to the restrictions set forth in the following paragraph, Class I and Advisor Class shareholders may exchange their outstanding shares for the same class of 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; $10,000 in the case of Advisor Class. See "EXCHANGE OF SHARES" above). 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; $10,000 in the case of Advisor Class). 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 PFPC of telephone instructions by PFPC or a properly executed request. Exchanges, whether written or telephonic, must be received by PFPC by 49 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 advisor regarding the tax consequences of an exchange transaction. LETTER OF INTENT Reduced sales charges apply to initial investments in Class A shares of the Fund made pursuant to a non-binding Letter of Intent. A Letter of Intent may be submitted by an individual, his or her spouse and children under the age of 21, or a trustee or other fiduciary of a single trust estate or single fiduciary account. (See the Account Application in the Prospectus.) Any investor may submit a Letter of Intent stating that he or she will invest, over a period of 13 months, at least $50,000 in Class A shares of the Fund. A Letter of Intent may be submitted at the time of an initial purchase of Class A shares of the Fund or within 90 days of the initial purchase, in which case the Letter of Intent will be backdated. A shareholder may include, as an accumulation credit, the value (at the applicable offering price) of all Class A shares of Ivy Bond Fund, Ivy Cundill Global Value Fund, Ivy Developing Markets Fund, Ivy European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund, Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy International Fund, Ivy International Growth Fund, Ivy International Small Companies Fund, Ivy International Value Fund, Ivy Pacific Opportunities Fund, Ivy US Blue Chip Fund and Ivy US Emerging Growth Fund (and shares that have been exchanged into Ivy Money Market Fund from any of the other funds in the Ivy funds) held of record by him or her as of the date of his or her Letter of Intent. During the term of the Letter of Intent, PFPC will hold Class A shares representing 5% of the indicated amount (less any accumulation credit value) in escrow. The escrowed Class A shares will be released when the full indicated amount has been purchased. If the full indicated amount is not purchased during the term of the Letter of Intent, the investor is required to pay IMDI an amount equal to the difference between the dollar amount of sales charge that he or she has paid and that which he or she would have paid on his or her aggregate purchases if the total of such purchases had been made at a single time. Such payment will be made by an automatic liquidation of Class A shares in the escrow account. A Letter of Intent does not obligate the investor to buy (or the Trust) to sell the indicated amount of Class A shares, and the investor should read carefully all the provisions of the letter before signing. 50 RETIREMENT PLANS Shares of the Fund may be purchased in connection with several types of tax-deferred retirement plans. Shares of more than one fund distributed by IMDI may be purchased in a single application establishing a single account under the plan, and shares held in such an account may be exchanged among the Ivy funds in accordance with the terms of the applicable plan and the exchange privilege available to all shareholders. Initial and subsequent purchase payments in connection with tax-deferred retirement plans must be at least $25 per participant. The following fees will be charged to individual shareholder accounts as described in the retirement prototype plan document: Retirement Plan New Account Fee no fee Retirement Plan Annual Maintenance Fee $10.00 per fund account For shareholders whose retirement accounts are diversified across several Ivy funds, the annual maintenance fee will be limited to not more than $20. The following discussion describes some aspects of the tax treatment of certain tax-deferred retirement plans under current Federal income tax law. State income tax consequences may vary. An individual considering the establishment of a retirement plan should consult with an attorney and/or an accountant with respect to the terms and tax aspects of the plan. INDIVIDUAL RETIREMENT ACCOUNTS: Shares of the Fund may be used as the Funding medium for an Individual Retirement Account ("IRA"). Eligible individuals may establish an IRA by adopting a model custodial account available from PFPC, who may impose a charge for establishing the account. Individuals should consult their tax advisors before investing IRA assets in the Fund if that fund primarily distributes exempt-interest dividends. An individual who has not reached age 70-1/2 and who receives compensation or earned income is eligible to contribute to an IRA, whether or not he or she is an active participant in a retirement plan. An individual who receives a distribution from another IRA, a qualified retirement plan, a qualified annuity plan or a tax-sheltered annuity or custodial account ("403(b) plan") that qualifies for "rollover" treatment is also eligible to establish an IRA by rolling over the distribution either directly or within 60 days after its receipt. Tax advice should be obtained in connection with planning a rollover contribution to an IRA. In general, for years 2002 through 2004, an eligible individual may contribute up to the lesser of $3,000 ($3,500 if 50 or older) 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 $3,000 ($3,500 if 50 or older) per year, the maximum potential contribution is $6,000 ($7,000 if 50 or older) 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 $6,000 ($7,000 if 50 or older), a contribution of up to $3,000 may be made to each spouse's IRA. Rollover contributions are not subject to these limits. 51 An individual may deduct his or her annual contributions to an IRA in computing his or her Federal income tax within the limits described above, provided he or she (and his or her spouse, if they file a joint Federal income tax return) is not an active participant in a qualified retirement plan (such as a qualified corporate, sole proprietorship, or partnership pension, profit sharing, 401(k) or stock bonus plan), qualified annuity plan, 403(b) plan, simplified employee pension, or governmental plan. If he or she (or his or her spouse) is an active participant, whether the individual's contribution to an IRA is fully deductible, partially deductible or not deductible depends on (i) adjusted gross income and (ii) whether it is the individual or the individual's spouse who is an active participant, in the case of married individuals filing jointly. Contributions may be made up to the maximum permissible amount even if they are not deductible. Rollover contributions are not includible in income for Federal income tax purposes and therefore are not deductible from it. Generally, earnings on an IRA are not subject to current Federal income tax until distributed. Distributions attributable to tax-deductible contributions and to IRA earnings are taxed as ordinary income. Distributions of non-deductible contributions are not subject to Federal income tax. There are special rules for determining what portion of any distribution is allocable to deductible and to non-deductible contributions. In general, distributions from an IRA to an individual before he or she reaches age 59-1/2 are subject to a nondeductible penalty tax equal to 10% of the taxable amount of the distribution. The 10% penalty tax does not apply to amounts withdrawn from an IRA after the individual reaches age 59-1/2, becomes disabled or dies, or if withdrawn in the form of substantially equal payments over the life or life expectancy of the individual and his or her designated beneficiary, if any, or rolled over into another IRA, amounts withdrawn and used to pay for deductible medical expenses, amounts withdrawn by certain unemployed individuals not in excess of amounts paid for certain health insurance premiums, amounts used to pay certain qualified higher education expenses, and amounts used within 120 days of the date the distribution is received to pay for certain first-time homebuyer expenses. Distributions must begin to be withdrawn not later than April 1 of the calendar year following the calendar year in which the individual reaches age 70-1/2. Failure to take certain minimum required distributions will result in the imposition of a 50% non-deductible penalty tax. ROTH IRAs: Shares of the Fund also may be used as the Funding medium for a Roth Individual Retirement Account ("Roth IRA"). A Roth IRA is similar in numerous ways to the regular (traditional) IRA, described above. Some of the primary differences are as follows. A single individual earning below $95,000 can contribute up to $3,000 ($3,500 if 50 or older) per year to a Roth IRA for years 2002 through 2004. 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 $6,000 per year ($7,000 if 50 or older) or ($3,000 per IRA) ($3,500 per IRA if 50 or older). 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 $3,000 52 ($3,500 if 50 or older). Contributions to a Roth IRA are not deductible. Contributions to a Roth IRA may be made even after the individual for whom the account is maintained has attained age 70 1/2. No distributions are required to be taken prior to the death of the original account holder. If a Roth IRA has been established for a minimum of five years, distributions can be taken tax-free after reaching age 59 1/2, for a first-time home purchase ($10,000 maximum, one time use), or upon death or disability. All other distributions from a Roth IRA are taxable and subject to a 10% tax penalty unless an exception applies. Exceptions to the 10% penalty include: disability, deductible medical expenses, certain purchases of health insurance for an unemployed individual and qualified higher education expenses. An individual with an income of less than $100,000 (who is not married filing separately) can roll his or her existing IRA into a Roth IRA. However, the individual must pay taxes on the taxable amount in his or her traditional IRA. After 1998, all taxes on such a rollover will have to be paid in the tax year in which the rollover is made. QUALIFIED PLANS: For those self-employed individuals who wish to purchase shares of one or more Ivy funds through a qualified retirement plan, a Adoption Agreement and a Retirement Plan are available from PFPC. The Retirement Plan may be adopted as a profit sharing plan or a money purchase pension plan. A profit sharing plan permits an annual contribution to be made in an amount determined each year by the self-employed individual within certain limits prescribed by law. A money purchase pension plan requires annual contributions at the level specified in the Adoption Agreement. There is no set-up fee for qualified plans and the annual maintenance fee is $20.00 per account. In general, if a self-employed individual has any common law employees, employees who have met certain minimum age and service requirements must be covered by the Retirement Plan. A self-employed individual generally must contribute the same percentage of income for common law employees as for himself or herself. A self-employed individual may contribute up to the lesser of $40,000 or 100% of compensation or earned income to a money purchase pension plan or to a profit sharing plan each year on behalf of each participant. To be deductible, total contributions to a money purchase plan or profit sharing plan 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 $200,000 for benefits accruing in plan years beginning after 2001, with annual inflation adjustments). A self-employed individual's contributions to a retirement plan on his or her own behalf must be deducted in computing his or her earned income. Corporate employers may also adopt the Adoption Agreement and Retirement Plan for the benefit of their eligible employees. Similar contribution and deduction rules apply to corporate employers. Distributions from the Retirement Plan generally are made after a participant's severance from employment. 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 53 expenses; (5) takes the withdrawal as part of a series of substantially equal payments over his or her life expectancy or the joint life expectancy of himself or herself and a designated beneficiary; or (6) rolls over the distribution. The Transfer Agent will arrange for Investors Bank & Trust to furnish custodial services to the employer and any participating employees. DEFERRED COMPENSATION FOR PUBLIC SCHOOLS AND CHARITABLE ORGANIZATIONS ("403(B)(7) ACCOUNT"): Section 403(b)(7) of the Code permits public school systems and certain charitable organizations to use mutual fund shares held in a custodial account to fund deferred compensation arrangements with their employees. A custodial account agreement is available for those employers whose employees wish to purchase shares of the Fund in conjunction with such an arrangement. The special application for a 403(b)(7) Account is available from PFPC. Distributions from the 403(b)(7) Account may be made only following death, disability, severance from employment, 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 $40,000 or 25% 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 $7,000 for 2002 (as increased for 2003 through 2005 and indexed thereafter). Subject to certain limits, the employer will either match a portion of employee contributions, or will make a contribution equal to 2% of each employee's compensation without regard to the amount the employee contributes. An employer cannot maintain a SIMPLE Plan for its employees if any contributions or benefits are credited to those employees under any other qualified retirement plan maintained by the employer. REINVESTMENT PRIVILEGE Shareholders who have redeemed Class A shares of the Fund may reinvest all or a part of the proceeds of the redemption back into Class A shares of the same Fund at net asset value (without a sales charge) within 60 days from the 54 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 PFPC of the reinvestment order accompanied by the funds to be reinvested. No compensation will be paid to any sales personnel or dealer in connection with the transaction. Any redemption is a taxable event. A loss realized on a redemption generally may be disallowed for tax purposes if the reinvestment privilege is exercised within 30 days after the redemption. In certain circumstances, shareholders will be ineligible to take sales charges into account in computing taxable gain or loss on a redemption if the reinvestment privilege is exercised. See "Taxation." REDUCED SALES CHARGES AND RIGHTS OF ACCUMULATION A scale of reduced sales charges applies to any investment of $50,000 or more in Class A shares of the Fund. See "Initial Sales Charge Alternative -- Class A Shares" in the Prospectus. The reduced sales charge is applicable to investments made at one time by an individual, his or her spouse and children under the age of 21, or a trustee or other fiduciary of a single trust estate or single fiduciary account (including a pension, profit sharing or other employee benefit trust created pursuant to a plan qualified under Section 401 of the Code). "Rights of Accumulation" are also applicable to current purchases of all of the funds of Ivy Fund (except Ivy Money Market Fund) by any of the persons enumerated above where the aggregate quantity of Class A shares of the Fund and of any other investment company distributed by IMDI previously purchased or acquired and currently owned, determined at the higher of current offering price or amount invested, plus the Class A shares being purchased, amounts to $50,000 or more for all funds other than Ivy Bond Fund; or $100,000 or more for Ivy Bond Fund. At the time an investment takes place, PFPC must be notified by the investor or his or her dealer that the investment qualifies for the reduced sales charge on the basis of previous investments. The reduced sales charge is subject to confirmation of the investor's holdings through a check of the particular fund's records. SYSTEMATIC WITHDRAWAL PLAN A shareholder may establish a Systematic Withdrawal Plan (a "Withdrawal Plan") by telephone instructions or by delivery to PFPC of a written election to have his or her shares withdrawn periodically, accompanied by a surrender to PFPC 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 Class A, B or C shareholder must have at least $5,000 in his or her account; an Advisor Class shareholder must have at least $10,000 in his or her account. A Withdrawal Plan may not be established if the investor is currently participating in the Automatic Investment Method. A Withdrawal Plan may involve the depletion of a shareholder's principal, depending on the amount withdrawn. A redemption under a Withdrawal Plan is a taxable event. Shareholders contemplating participating in a Withdrawal Plan should consult their tax advisors. Additional investments made by investors participating in a Withdrawal Plan must equal at least $1,000 each for Class A, B or C shareholders and at 55 least $250 for Advisor Class shareholders 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 PFPC. If all shares held by the investor are liquidated at any time, participation in the Withdrawal Plan will terminate automatically. The Trust or PFPC may terminate the Withdrawal Plan option at any time after reasonable notice to shareholders. GROUP SYSTEMATIC INVESTMENT PROGRAM Shares of the Fund may be purchased in connection with investment programs established by employee or other groups using systematic payroll deductions or other systematic payment arrangements. The Fund does not itself organize, offer or administer any such programs. However, it may, depending upon the size of the program, waive the minimum initial and additional investment requirements for purchases by individuals in conjunction with programs organized and offered by others. Unless shares of the Fund are purchased in conjunction with IRAs (see "How to Buy Shares" in the Prospectus), such group systematic investment programs are not entitled to special tax benefits under the Code. The Fund reserves the right to refuse purchases at any time or suspend the offering of shares in connection with group systematic investment programs, and to restrict the offering of shareholder privileges, such as check writing, simplified redemptions and other optional privileges, to shareholders using group systematic investment programs. With respect to each shareholder account established on or after September 15, 1972 under a group systematic investment program, the Fund and IMI each currently charge a maintenance fee of $3.00 (or portion thereof) for each twelve-month period (or portion thereof) that the account is maintained. The Fund may collect such fee (and any fees due to IMI) through a deduction from distributions to the shareholders involved or by causing on the date the fee is assessed a redemption in each such shareholder account sufficient to pay such fee. The Fund reserves the right to change these fees from time to time without advance notice. Class A shares of the Fund are made available to Merrill Lynch Daily K Plan (the "Plan") participants at NAV without an initial sales charge if: (i) the Plan is recordkept on a daily valuation basis by Merrill Lynch and, on the date the Plan Sponsor signs the Merrill Lynch Recordkeeping Service Agreement, the Plan has $3 million or more in assets invested in broker/dealer funds not advised or managed by Merrill Lynch Asset Management, L.P. ("MLAM") that are made available pursuant to a Service Agreement between Merrill Lynch and the fund's principal underwriter or distributor and in funds advised or managed by MLAM (collectively, the "Applicable Investments"); (ii) the Plan is recordkept on a daily valuation basis by an independent recordkeeper whose services are provided through a contract or alliance arrangement with Merrill Lynch, and on 56 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 PFPC, less any applicable CDSC and redemption fee. Unless a shareholder requests that the proceeds of any redemption be wired to his or her bank account, payment for shares tendered for redemption is made by check within seven days after tender in proper form, except that the Fund reserves the right to suspend the right of redemption or to postpone the date of payment upon redemption beyond seven days (i) for any period during which the Exchange is closed (other than customary weekend and holiday closings) or during which trading on the Exchange is restricted, (ii) for any period during which an emergency exists as determined by the SEC as a result of which disposal of securities owned by the Fund is not reasonably practicable or it is not reasonably practicable for the Fund to fairly determine the value of its net assets, or (iii) for such other periods as the SEC may by order permit for the protection of shareholders of the Fund. Under unusual circumstances, when the Board deems it in the best interest of the Fund's shareholders, the Fund may make payment for shares repurchased or redeemed in whole or in part in securities of that Fund taken at current values. If any such redemption in kind is to be made, the Fund may make an election pursuant to Rule 18f-1 under the 1940 Act. This will require the Fund to redeem with cash at a shareholder's election in any case where the redemption involves less than $250,000 (or 1% of the Fund's net asset value at the beginning of each 90-day period during which such redemptions are in effect, if that amount is less than $250,000). Should payment be made in securities, the redeeming shareholder may incur brokerage costs in converting such securities to cash. The Trust may redeem those accounts of shareholders who have maintained an investment, including sales charges paid, of less than $1,000 in the Fund for a period of more than 12 months for Class A, B, C or I shareholders; $10,000 or less for Advisor Class shareholders 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 for Class A, B, C, or I shareholders, and $10,000 balance for Advisor Class shareholders, 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 57 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 certain retirement plans or accounts who wish to avoid tax consequences must "rollover" any sum so redeemed into another eligible plan within 60 days. The Trustees of the Trust may change the minimum account size. If a shareholder has given authorization for telephonic redemption privilege, shares can be redeemed and proceeds sent by Federal wire to a single previously designated bank account. The Fund may delay for up to seven days delivery of the proceeds of a wire redemption request of $250,000 or more if considered appropriate under then-current market conditions. The Trust reserves the right to change this minimum or to terminate the telephonic redemption privilege without prior notice. The Trust cannot be responsible for the efficiency of the Federal wire system of the shareholder's dealer of record or bank. The shareholder is responsible for any charges by the shareholder's bank. The Fund employs reasonable procedures that require personal identification prior to acting on redemption or exchange instructions communicated by telephone to confirm that such instructions are genuine. In the absence of such instructions, the Fund may be liable for any losses due to unauthorized or fraudulent telephone instructions. Class A shares of the Fund held for less than 30 days are redeemable at a price equal to 98% of the then current net asset value per share. This 2% discount, also referred to in the Prospectus and this statement of additional information as a redemption fee, exchange fee or short-term trading fee, directly affects the amount that a shareholder who is subject to the discount receives upon exchange or redemption. It is intended to encourage long-term investment in the Fund, to avoid transaction and other expenses caused by early redemptions and to facilitate portfolio management. The fee is not a deferred sales charge, is not a commission paid to IMI or its subsidiaries, and does not benefit IMI in any way. The Fund reserves the right to modify the terms of or terminate this fee at any time. The redemption discount may generally be waived for any redemption of Class A shares (a) Class A shares purchased through certain retirement and educational plans, including 401(k) plans, 403(b) plans, 457 plans, Keogh accounts, Profit Sharing and Money Purchase Pension Plans and 529 plans, (b) purchased through the reinvestment of dividends or capital gains distributions paid by the Fund, (c) due to the death of the registered shareholder of a Fund 58 account, or, due to the death of all registered shareholders of a Fund account with more than one registered shareholder, (i.e., joint tenant account), upon receipt by PFPC of appropriate written instructions and documentation satisfactory to the PFPC, or (d) by the Fund upon exercise of its right to liquidate accounts (i) falling below the minimum account size by reason of shareholder redemptions or (ii) when the shareholder has failed to provide tax identification information. However, if Class A shares are purchased for a retirement plan account through a broker, financial institution or recordkeeper maintaining an omnibus account for the shares, these waivers may not apply. (Before purchasing Class A shares, please check with your account representative concerning the availability of the fee waivers.) In addition, these waivers do not apply to IRA and SEP-IRA accounts. For this purpose and without regard to the Class A shares actually redeemed, Class A shares will be treated as redeemed as follows: first, reinvestment shares; second, purchased shares held 30 days or more; and third, purchased shares held for less than 30 days. Finally, if a redeeming shareholder acquires Class A shares through a transfer from another shareholder, the applicability of the discount, if any, will be determined by reference to the date the Class A shares were originally purchased, and not from the date of transfer between shareholders. CONVERSION OF CLASS B SHARES As described in the Prospectus, Class B shares of the Fund will automatically convert to Class A shares of the Fund, based on the relative net asset values per share of the two classes, no later than the month following the eighth anniversary of the initial issuance of such Class B shares of the Fund occurs. For the purpose of calculating the holding period required for conversion of Class B shares, the date of initial issuance shall mean: (1) the date on which such Class B shares were issued, or (2) for Class B shares obtained through an exchange, or a series of exchanges, (subject to the exchange privileges for Class B shares) the date on which the original Class B shares were issued. For purposes of conversion of Class B shares, Class B shares purchased through the reinvestment of dividends and capital gain distributions paid in respect of Class B shares will be held in a separate sub-account. Each time any Class B shares in the shareholder's regular account (other than those shares in the sub-account) convert to Class A shares, a pro rata portion of the Class B shares in the sub-account will also convert to Class A shares. The portion will be determined by the ratio that the shareholder's Class B shares converting to Class A shares bears to the shareholder's total Class B shares not acquired through the reinvestment of dividends and capital gain distributions. NET ASSET VALUE The net asset value per share of the Fund is computed by dividing the value of the Fund's aggregate net assets (i.e., its total assets less its liabilities) by the number of the Fund's shares outstanding. For purposes of determining the Fund's aggregate net assets, receivables are valued at their realizable amounts. The Fund's liabilities, if not identifiable as belonging to a particular class of the Fund, are allocated among the Fund's several classes based on their relative net asset size. Liabilities attributable to a particular class are charged to that class directly. The total liabilities for a class are then deducted from the class's proportionate interest in the Fund's assets, and the resulting amount is divided by the number of shares of the class outstanding to produce its net asset value per share. A security listed or traded on a recognized stock exchange or The Nasdaq Stock Market, Inc. ("Nasdaq") is valued at the security's last sale price on the market 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 59 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 the time as of which such rate is determined by an approved pricing source. 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 asked price, in the case of a written option, and the last bid price, in the case of a purchased option. An OTC traded option is valued at the last asked price, in the case of a written option, and the last bid price, in the case of a purchased option. Exchange-listed and widely-traded OTC futures (and options thereon) are valued at the most recent settlement price. Securities and other assets for which market prices are not readily available are priced at their "fair value" as determined by IMI in accordance with procedures approved by the Board. Trading in securities on many foreign securities exchanges is normally completed before the close of regular trading on the Exchange. Trading on foreign exchanges may not take place on all days on which there is regular trading on the Exchange, or may take place on days on which there is no regular trading on the Exchange (e.g., any of the national business holidays identified below). If events materially affecting the value of the Fund's portfolio securities occur between the time when a foreign exchange closes and the time when the Fund's net asset value is calculated (see following paragraph), such securities may be valued at their "fair value" as determined by IMI in accordance with procedures approved by the Board. IMI will monitor for significant events that may call into question the reliability of market quotations. Such events may include situations relating to a single security in a market sector, significant fluctuations in U.S. or foreign markets, natural disasters, armed conflicts, governmental actions or other developments not tied directly to the securities markets. 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. 60 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 PFPC or by your registered securities dealer. Each purchase and redemption order is subject to any applicable sales charge. Since the Fund invests in securities that are listed on foreign exchanges that may trade on weekends or other days when the Fund does not price their shares, the Fund's net asset value may change on days when shareholders will not be able to purchase or redeem the Fund's shares. The sale of the Fund's shares will be suspended during any period when the determination of its net asset value is suspended pursuant to rules or orders of the SEC and may be suspended by the Board whenever in its judgment it is in the Fund's best interest to do so. TAXATION The following is a general discussion of certain tax rules thought to be applicable with respect to the Fund. It is merely a summary and is not an exhaustive discussion of all possible situations or of all potentially applicable taxes. Accordingly, shareholders and prospective shareholders should consult a competent tax advisor 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 61 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. 62 The Fund may make one or more of the elections available under the Code which are applicable to straddles. If the Fund makes any of the elections, the amount, character and timing of the recognition of gains or losses from the affected straddle positions will be determined under rules that vary according to the election(s) made. The rules applicable under certain of the elections may operate to accelerate the recognition of gains or losses from the affected straddle positions. Because application of the straddle rules may affect the character of gains or losses, defer losses and/or accelerate the recognition of gains or losses from the affected straddle positions, the amount which must be distributed to shareholders as ordinary income or long-term capital gain may be increased or decreased substantially as compared to the Fund that did not engage in such transactions. Notwithstanding any of the foregoing, the Fund may recognize gain (but not loss) from a constructive sale of certain "appreciated financial positions" if the Fund enters into a short sale, offsetting notional principal contract, futures or forward contract transaction with respect to the appreciated position or substantially identical property. Appreciated financial positions subject to this constructive sale treatment are interests (including options, futures and forward contracts and short sales) in stock, partnership interests, certain actively traded trust instruments and certain debt instruments. Constructive sale treatment of appreciated financial positions does not apply to certain transactions closed before the end of the 30th day after the close of the Fund's taxable year, if the position is held throughout the 60-day period beginning on the date the transaction is closed and certain other 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 63 the period during which the Fund held the PFIC shares. the Fund itself will be subject to tax on the portion, if any, of an excess distribution that is so allocated to prior Fund taxable years and an interest factor will be added to the tax, as if the tax had been payable in such prior taxable years. Certain distributions from a PFIC as well as gain from the sale of PFIC shares are treated as excess distributions. Excess distributions are characterized as ordinary income even though, absent application of the PFIC rules, certain excess distributions might have been classified as capital gain. The Fund may be eligible to elect alternative tax treatment with respect to PFIC shares. The Fund may elect to mark to market its PFIC shares, resulting in the shares being treated as sold at fair market value on the last business day of each taxable year. Any resulting gain would be reported as ordinary income; any resulting loss and any loss from an actual disposition of the shares would be reported as ordinary loss to the extent of any net gains reported in prior years. Under another election that currently is available in some circumstances, the Fund generally would be required to include in its gross income its share of the earnings of a PFIC on a current basis, regardless of whether distributions are received from the PFIC in a given year. DEBT SECURITIES ACQUIRED AT A DISCOUNT Some of the debt securities (with a fixed maturity date of more than one year from the date of issuance) that may be acquired by the Fund may be treated as debt securities that are issued originally at a discount. Generally, the amount of the original issue discount ("OID") is treated as interest income and is included in income over the term of the debt security, even though payment of that amount is not received until a later time, usually when the debt security matures. Some of the debt securities (with a fixed maturity date of more than one year from the date of issuance) that may be acquired by the Fund in the secondary market may be treated as having market discount. Generally, gain recognized on the disposition of, and any partial payment of principal on, a debt security having market discount is treated as ordinary income to the extent the gain, or principal payment, does not exceed the "accrued market discount" on such debt security. In addition, the deduction of any interest expenses attributable to debt securities having market discount may be deferred. Market discount generally accrues in equal daily installments. The Fund may make one or more of the elections applicable to debt securities having market discount, which could affect the character and timing of recognition of income. Some debt securities (with a fixed maturity date of one year or less from the date of issuance) that may be acquired by the Fund may be treated as having acquisition discount, or OID in the case of certain types of debt securities. Generally, the Fund will be required to include the acquisition discount, or OID, in income over the term of the debt security, even though payment of that amount is not received until a later time, usually when the debt security matures. The Fund may make one or more of the elections applicable to debt securities having acquisition discount, or OID, which could affect the character and timing of recognition of income. The Fund generally will be required to distribute dividends to shareholders representing discount on debt securities that is currently includable in income, even though cash representing such income may not have been received by the Fund. Cash to pay such dividends may be obtained from sales proceeds of securities held by the Fund. 64 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 65 shares in the same Fund or another regulated investment company and the otherwise applicable sales charge is reduced under a "reinvestment right" received upon the initial purchase of Fund shares. The term "reinvestment right" means any right to acquire shares of one or more regulated investment companies without the payment of a sales load or with the payment of a reduced sales charge. Sales charges affected by this rule are treated as if they were incurred with respect to the shares acquired under the reinvestment right. This provision may be applied to successive acquisitions of fund shares. FOREIGN WITHHOLDING TAXES Income received by the Fund from sources within a foreign country may be subject to withholding and other taxes imposed by that country. If more than 50% of the value of the Fund's total assets at the close of its taxable year consists of securities of foreign corporations, the Fund will be eligible and may elect to "pass-through" to its shareholders the amount of foreign income and similar taxes paid by the Fund. Pursuant to this election, a shareholder will be required to include in gross income (in addition to taxable dividends actually received) his or her pro rata share of the foreign income and similar taxes paid by the Fund, and will be entitled either to deduct his or her pro rata share of foreign income and similar taxes in computing his or her taxable income or to use it as a foreign tax credit against his or her U.S. Federal income taxes, subject to limitations. No deduction for foreign taxes may be claimed by a shareholder who does not itemize deductions. Foreign taxes generally may not be deducted by a shareholder that is an individual in computing the alternative minimum tax. Each shareholder will be notified within 60 days after the close of the Fund's taxable year whether the foreign taxes paid by the Fund will "pass-through" for that year and, if so, such notification will designate (1) the shareholder's portion of the foreign taxes paid to each such country and (2) the portion of the dividend which represents income derived from sources within each such country. Generally, except in the case of certain electing individual taxpayers who have limited creditable foreign taxes and no foreign source income other than passive investment-type income, a credit for foreign taxes is subject to the limitation that it may not exceed the shareholder's U.S. tax attributable to his or her total foreign source taxable income. For this purpose, if the Fund makes the election described in the preceding paragraph, the source of the Fund's income flows through to its shareholders. With respect to the Fund, gains from the sale of securities generally will be treated as derived from U.S. sources and section 988 gains will be treated as ordinary income derived from U.S. sources. The limitation on the foreign tax credit is applied separately to foreign source passive income, including foreign source passive income received from the Fund. In addition, the foreign tax credit may offset only 90% of the revised alternative minimum tax imposed on corporations and individuals. Furthermore, the foreign tax credit is eliminated with respect to foreign taxes withheld on dividends if the dividend-paying shares or the shares of the Fund are held by the Fund or the shareholder, as the case may be, for less than 16 days (46 days in the case of preferred shares) during the 30-day period (90-day period for preferred shares) beginning 15 days (45 days for preferred shares) before the shares become ex-dividend. In addition, if the Fund fails to satisfy these holding period requirements, it cannot elect to pass through to shareholders the ability to claim a deduction for related foreign taxes. 66 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 advisors. 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 30% ("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 advisors 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: 67 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 Advisor Class 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. 68
- ---------------------------------------------------------------------------------------------------------------------------------- STANDARD RETURN[*] - ---------------------------------------------------------------------------------------------------------------------------------- CLASS A[1] CLASS B[2] CLASS C[3] CLASS I[4] ADVISOR CLASS[5] - -------------------------- -------------------- -------------------- ------------------- --------------------- ------------------- Year ended December 31, 2001 N/A N/A N/A N/A (2.13)% - -------------------------- -------------------- -------------------- ------------------- --------------------- ------------------- Return after taxes on distributions *** N/A N/A N/A N/A (8.88)% - -------------------------- -------------------- -------------------- ------------------- --------------------- ------------------- Return after taxes on distributions and sale of Fund shares *** N/A N/A N/A N/A (6.86)% - -------------------------- -------------------- -------------------- ------------------- --------------------- ------------------- Inception [#] to year ended December 31, 2001 [9] (7.70)% 1.91% 3.44% N/A 1.42% - -------------------------- -------------------- -------------------- ------------------- --------------------- ------------------- Return after taxes on distributions *** N/A N/A N/A N/A (3.54)% - -------------------------- -------------------- -------------------- ------------------- --------------------- ------------------- Return after taxes on distributions and sale of Fund shares *** N/A N/A N/A N/A (3.00)% - -------------------------- -------------------- -------------------- ------------------- --------------------- -------------------
- ------------------------------------------------------------------------------------------------------------------------------ NON-STANDARD RETURN[**] - ------------------------------------------------------------------------------------------------------------------------------ CLASS A[6] CLASS B[7] CLASS C[8] CLASS I[4] ADVISOR CLASS[5] - --------------------- -------------------- -------------------- -------------------- -------------------- -------------------- Year ended December 31, 2001 N/A N/A N/A N/A (2.13)% - --------------------- -------------------- -------------------- -------------------- -------------------- -------------------- Inception [#] to year ended December 31, 2001 [9] (2.07)% 6.91% 4.44% N/A 1.42% - --------------------- -------------------- -------------------- -------------------- -------------------- --------------------
[*] 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. 69 [**] The Non-Standardized Return figures do not reflect the deduction of any initial sales charge or CDSC. [***] After-tax returns are calculated using the historical highest individual federal marginal income tax rates. State and local tax rates are not included in the tax effect. [#] The inception date for the Class A shares of Fund was September 4, 2001; the inception date for the Class B shares of the Fund was September 26, 2001. The inception date for Class C shares of the Fund was October 19, 2001; the inception date for Advisor Class shares was April 17, 2000. [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, 2001 would have been (16.27)%. [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, 2001 would have been (7.41)%. [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, 2001 would have been (5.50)%. [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] Advisor Class shares are not subject to an initial sales charge or a CDSC; therefore, the Standardized and Non-Standardized Return figures are identical. Without expense reimbursement, the Standardized and Non-Standardized Return for Advisor Class shares for the period from inception through December 31, 2001 and the one year period ended December 31, 2001 would have been (11.45)% and (10.53)%, respectively. [6] 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, 2001 would have been (11.02)%. [7] 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, 2001 would have been (2.72)%. [8] 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, 2001 would have been (4.55)%. [9] The total return for a period less than a full year is calculated on an aggregate basis and is not annualized. 70 CUMULATIVE TOTAL RETURN. Cumulative total return is the cumulative rate of return on a hypothetical initial investment of $1,000 in a specific class of shares of the Fund for a specified period. Cumulative total return quotations reflect changes in the price of the Fund's shares and assume that all dividends and capital gains distributions during the period were reinvested in the Fund's shares. Cumulative total return is calculated by computing the cumulative rates of return of a hypothetical investment in a specific class of shares of the Fund over such periods, according to the following formula (cumulative total return is then expressed as a percentage): C = (ERV/P) - 1 Where: C = cumulative total return P = a hypothetical initial investment of $1,000 to purchase shares of a specific class ERV = ending redeemable value: ERV is the value, at the end of the applicable period, of a hypothetical $1,000 investment made at the beginning of the applicable period. The following table summarizes the calculation of Cumulative Total Return for the Fund for the periods indicated through December 31, 2001, assuming the maximum 5.75% sales charge has been assessed. ONE YEAR SINCE INCEPTION[*] -------- ------------------ Class A N/A (7.70)% Class B N/A 1.91% Class C N/A 3.44% Advisor Class (2.13)% 2.43% The following table summarizes the calculation of Cumulative Total Return for the Fund for the periods indicated through December 31, 2001, assuming the maximum 5.75% sales charge has not been assessed. ONE YEAR SINCE INCEPTION[*] -------- ------------------ Class A N/A (2.07)% Class B N/A 6.91% Class C N/A 4.44% Advisor Class (2.13)% 2.43% - --------------------------- [*] The inception date for the Fund (Class A shares) was September 4, 2001; the inception date for the Class B shares of the Fund was September 26, 2001. The inception date for Class C shares of the Fund was October 19, 2001; the inception date for Advisor Class shares was April 17, 2000. 71 OTHER QUOTATIONS, COMPARISONS AND GENERAL INFORMATION. The foregoing computation methods are prescribed for advertising and other communications subject to SEC Rule 482. Communications not subject to this rule may contain a number of different measures of performance, computation methods and assumptions, including but not limited to: historical total returns; results of actual or hypothetical investments; changes in dividends, distributions or share values; or any graphic illustration of such data. These data may cover any period of the Fund's existence and may or may not include the impact of sales charges, taxes or other factors. Performance quotations for the Fund will vary from time to time depending on market conditions, the composition of the Fund's portfolio and operating expenses of the Fund. These factors and possible differences in the methods used in calculating performance quotations should be considered when comparing performance information regarding the Fund's shares with information published for other investment companies and other investment vehicles. Performance quotations should also be considered relative to changes in the value of the Fund's shares and the risks associated with the Fund's investment objectives and policies. At any time in the future, performance quotations may be higher or lower than past performance quotations and there can be no assurance that any historical performance quotation will continue in the future. The Fund may also cite endorsements or use for comparison its performance rankings and listings reported in such newspapers or business or consumer publications as, among others: AAII Journal, Barron's, Boston Business Journal, Boston Globe, Boston Herald, Business Week, Consumer's Digest, Consumer Guide Publications, Changing Times, Financial Planning, Financial World, Forbes, Fortune, Growth Fund Guide, Houston Post, Institutional Investor, International Fund Monitor, Investor's Daily, Los Angeles Times, Medical Economics, Miami Herald, Money Mutual Fund Forecaster, Mutual Fund Letter, Mutual Fund Source Book, Mutual Fund Values, National Underwriter, Nelson's Directory of Investment Managers, New York Times, Newsweek, No Load Fund Investor, No Load Fund* X, Oakland Tribune, Pension World, Pensions and Investment Age, Personal Investor, Rugg and Steele, Time, U.S. News and World Report, USA Today, The Wall Street Journal, and Washington Post. FINANCIAL STATEMENTS The Fund's Schedule of Investments as of December 31, 2001, Statement of Assets and Liabilities as of December 31, 2001, Statement of Operations for the fiscal year ended December 31, 2001, Statement of Changes in Net Assets for the period from April 17, 2000 (commencement) through December 31, 2000 and the fiscal year ended December 31, 2001, Financial Highlights, Notes to Financial Statements, and Report of Independent Certified Public Accountants, which are included in the Fund's December 31, 2001 Annual Report to shareholders, are incorporated by reference into this SAI. 72 APPENDIX A DESCRIPTION OF STANDARD & POOR'S RATINGS SERVICES ("S&P") AND MOODY'S INVESTORS SERVICE, INC. ("MOODY'S") CORPORATE BOND AND COMMERCIAL PAPER RATINGS [From Moody's Rating Definitions, www.moodys.com, December 2000, and "Standard & Poor's Municipal Ratings Handbook," September 2000 Issue (McGraw-Hill, New York, 2000).] MOODY'S: (a) CORPORATE BONDS. AAA Bonds which are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edged." Interest payments are protected by a large or by an 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. Aa Bonds which are rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high-grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risk appear somewhat larger than the Aaa securities. A Bonds which are rated A 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 some time in the future. Baa Bonds which are rated Baa are considered as 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. Ba Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered as 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. B Bonds which are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. Caa 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. Ca 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. 73 C 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. Moody's short-term issuer ratings are opinions of the ability of issuers to honor senior financial obligations and contracts. These obligations have an original maturity not exceeding one year, unless explicitly noted. Moody's employs the following three designations, all judged to be investment grade, to indicate the relative repayment ability of rated issuers: Issuers rated Prime-1 (or supporting institutions) have a superior ability for repayment of senior short-term debt obligations. Prime-1 repayment ability will often be evidenced by many of the following characteristics: leading market positions in well-established industries; high rates of return on funds employed; conservative capitalization structure with moderate reliance on debt and ample asset protection; broad margins in earnings coverage of fixed financial charges and high internal cash generation; well-established access to a range of financial markets and assured sources of alternate liquidity. Issuers rated Prime-2 (or supporting institutions) have a strong ability for repayment of senior short-term debt obligations. This will normally be evidenced by many of the characteristics cited above but to a lesser degree. Earnings trends and coverage ratios, while sound, may be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained. Issuers rated Prime-3 (or supporting institutions) have an acceptable ability for repayment of senior short-term obligations. The effect of industry characteristics and market compositions may be more pronounced. Variability in earnings and profitability may result in changes in the level of debt protection measurements and may require relatively high financial leverage. Adequate alternate liquidity is maintained. Issuers rated Not Prime do not fall within any of the Prime rating categories. S&P: (a) LONG-TERM ISSUE CREDIT RATINGS. Issue credit ratings are based in varying degrees on the following considerations: o Likelihood of payment -- capacity and willingness of the obligor to meet its financial commitment on an obligation in accordance with the terms of the obligation; o Nature of and provisions of the obligation; and o Protection afforded by, and relative position of, the obligation in the event of bankruptcy, reorganization, or other arrangement under the laws of bankruptcy and other laws affecting creditors' rights. 74 The issue ratings definitions are expressed in terms of default risk. As such, they pertain to senior obligations of an entity. Junior obligations are typically rated lower than senior obligations, to reflect the lower priority in bankruptcy, as noted above. AAA An obligation rated `AAA' has the highest rating assigned by S&P. The obligor's capacity to meet its financial commitment on the obligation is extremely strong. AA An obligation rated `AA' differs from the highest rated obligations only in small degree. The obligor's capacity to meet its financial commitment on the obligation is very strong. A An obligation rated `A' is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher-rated categories. However, the obligor's capacity to meet its financial commitment on the obligation is still strong. BBB An obligation rated `BBB' exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation. BB, B, CCC, CC, AND C Obligations rated `BB', `B', `CCC', `CC', and `C' are regarded as having significant speculative characteristics. `BB' indicates the least degree of speculation and `C' the highest. While such obligations will likely have some quality and protective characteristics, these may be outweighed by large uncertainties or major exposures to adverse conditions. BB An obligation rated `BB' is less vulnerable to nonpayment than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions, which could lead to the obligor's inadequate capacity to meet its financial commitment on the obligation. B An obligation rated `B' is more vulnerable to nonpayment than obligations rated `BB,' but the obligor currently has the capacity to meet its financial commitment on the obligation. Adverse business, financial, or economic conditions will likely impair the obligor's capacity or willingness to meet its financial commitment on the obligation. CCC An obligation rated `CCC' is currently vulnerable to nonpayment and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation. In the event of adverse business, financial, or economic conditions, the obligor is not likely to have the capacity to meet its financial commitment on the obligation. CC An obligation rated `CC' is currently highly vulnerable to nonpayment. C The `C' rating may be used to cover a situation where a bankruptcy petition has been filed or similar action has been taken, but payments on this obligation are being continued. D An obligation rated `D' is in payment default. The `D' rating category is used when payments on an obligation are not made on the date due even if the applicable grace period has not expired, unless S&P believes that 75 such payments will be made during such grace period. The `D' rating also will be used upon the filing of a bankruptcy petition or the taking of a similar action if payments on an obligation are jeopardized. (b) COMMERCIAL PAPER. An S&P commercial paper rating is a current assessment of the likelihood of timely payment of debt having an original maturity of no more than 365 days. Ratings are graded into several categories, ranging from `A' for the highest-quality obligations to `D' for the lowest. These categories are as follows: A-1 This designation 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. A-2 Capacity for timely payment on issues with this designation is satisfactory. However, the relative degree of safety is not as high as for issues designated `A-1.' A-3 Issues carrying this designation have an adequate capacity for timely payment. They are, however, more vulnerable to the adverse effects of changes in circumstances than obligations carrying the higher designations. B Issues rated `B' are regarded as having only speculative capacity for timely payment. C This rating is assigned to short-term debt obligations with a doubtful capacity for payment. D 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. 76 IVY DEVELOPING MARKETS FUND IVY EUROPEAN OPPORTUNITIES FUND IVY GLOBAL FUND IVY GLOBAL NATURAL RESOURCES FUND IVY GLOBAL SCIENCE & TECHNOLOGY FUND IVY INTERNATIONAL SMALL COMPANIES FUND IVY INTERNATIONAL VALUE FUND IVY PACIFIC OPPORTUNITIES FUND series of IVY FUND 925 South Federal Highway, Suite 600 Boca Raton, Florida 33432 STATEMENT OF ADDITIONAL INFORMATION -------------- April 30, 2002 Ivy Fund (the "Trust") is an open-end management investment company that currently consists of sixteen portfolios, each of which is diversified. This Statement of Additional Information ("SAI") relates to the Class A, B, C and Advisor Class shares of the eight Funds listed above, and to the Class I shares of Ivy European Opportunities Fund, Ivy Global Science & Technology Fund, Ivy International Small Companies Fund, and Ivy International Value Fund (each a "Fund" and, collectively, the "Funds"). The other eight portfolios of the Trust are described in separate prospectuses and SAIs. This SAI is not a prospectus and should be read in conjunction with the prospectus for the Funds dated April 30, 2002, as may be supplemented from time to time (the "Prospectus"), which may be obtained upon request and without charge from the Trust at the Distributor's address and telephone number printed below. Each Fund's Annual Report to shareholders, dated December 31, 2001 (each an "Annual Report"), is incorporated by reference into this SAI. Each Fund's Annual Report may be obtained without charge from the Distributor. INVESTMENT MANAGER Ivy Management, Inc. ("IMI") 925 South Federal Highway, Suite 600 Boca Raton, Florida 33432 Telephone: (800) 777-6472 DISTRIBUTOR Ivy Mackenzie Distributors, Inc. ("IMDI") 925 South Federal Highway, Suite 600 Boca Raton, Florida 33432 Telephone: (800) 456-5111 INVESTMENT ADVISOR (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
PAGE ---- GENERAL INFORMATION...............................................................................................1 INVESTMENT OBJECTIVES, STRATEGIES AND RESTRICTIONS................................................................1 IVY DEVELOPING MARKETS FUND..............................................................................2 IVY EUROPEAN OPPORTUNITIES FUND..........................................................................5 IVY GLOBAL FUND..........................................................................................8 IVY GLOBAL NATURAL RESOURCES FUND.......................................................................11 IVY GLOBAL SCIENCE & TECHNOLOGY FUND....................................................................14 IVY INTERNATIONAL SMALL COMPANIES FUND .................................................................17 IVY INTERNATIONAL VALUE FUND............................................................................20 IVY PACIFIC OPPORTUNITIES FUND..........................................................................23 RISK CONSIDERATIONS..............................................................................................26 EQUITY SECURITIES.......................................................................................26 CONVERTIBLE SECURITIES..................................................................................27 SMALL COMPANIES.........................................................................................27 INITIAL PUBLIC OFFERINGS................................................................................28 NATURAL RESOURCES AND PHYSICAL COMMODITIES..............................................................28 DEBT SECURITIES.........................................................................................29 ILLIQUID SECURITIES.....................................................................................32 FOREIGN SECURITIES......................................................................................33 DEPOSITORY RECEIPTS.....................................................................................34 EMERGING MARKETS........................................................................................34 SECURITIES ISSUED IN PACIFIC REGION COUNTRIES...........................................................35 FOREIGN SOVEREIGN DEBT OBLIGATIONS......................................................................36 BRADY BONDS.............................................................................................37 FOREIGN CURRENCIES......................................................................................37 FOREIGN CURRENCY EXCHANGE TRANSACTIONS..................................................................38 OTHER INVESTMENT COMPANIES..............................................................................39 REPURCHASE AGREEMENTS...................................................................................39 BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS.......................................................39 COMMERCIAL PAPER........................................................................................40 BORROWING...............................................................................................40 WARRANTS................................................................................................40 REAL ESTATE INVESTMENT TRUSTS (REITs)...................................................................41 OPTIONS TRANSACTIONS....................................................................................42 FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS......................................................44 SECURITIES INDEX FUTURES CONTRACTS......................................................................47 COMBINED TRANSACTIONS...................................................................................49 LENDING OF PORTFOLIO SECURITIES.........................................................................49 PORTFOLIO TURNOVER...............................................................................................50 TRUSTEES AND OFFICERS............................................................................................50 PRINCIPAL HOLDERS OF SECURITIES..................................................................................55 INVESTMENT ADVISORY AND OTHER SERVICES...........................................................................62 BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES....................................................62 DISTRIBUTION SERVICES...................................................................................66
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PAGE ---- CUSTODIAN...............................................................................................76 FUND ACCOUNTING SERVICES................................................................................76 TRANSFER AGENT AND DIVIDEND PAYING AGENT................................................................77 ADMINISTRATOR...........................................................................................77 AUDITORS................................................................................................78 BROKERAGE ALLOCATION.............................................................................................78 CAPITALIZATION AND VOTING RIGHTS.................................................................................80 SPECIAL RIGHTS AND PRIVILEGES....................................................................................82 AUTOMATIC INVESTMENT METHOD.............................................................................82 EXCHANGE OF SHARES......................................................................................83 CONTINGENT DEFERRED SALES CHARGE SHARES.................................................................84 LETTER OF INTENT........................................................................................86 RETIREMENT PLANS........................................................................................87 REINVESTMENT PRIVILEGE..................................................................................90 RIGHTS OF ACCUMULATION..................................................................................91 SYSTEMATIC WITHDRAWAL PLAN..............................................................................91 GROUP SYSTEMATIC INVESTMENT PROGRAM.....................................................................92 REDEMPTIONS......................................................................................................93 CONVERSION OF CLASS B SHARES.....................................................................................95 NET ASSET VALUE..................................................................................................95 TAXATION.........................................................................................................97 OPTIONS, FUTURES AND FOREIGN CURRENCY FORWARD CONTRACTS.................................................98 CURRENCY FLUCTUATIONS -- "SECTION 988" GAINS OR LOSSES..................................................99 INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES......................................................99 DEBT SECURITIES ACQUIRED AT A DISCOUNT.................................................................100 DISTRIBUTIONS..........................................................................................101 DISPOSITION OF SHARES..................................................................................101 FOREIGN WITHHOLDING TAXES..............................................................................102 BACKUP WITHHOLDING.....................................................................................103 PERFORMANCE INFORMATION.........................................................................................103 FINANCIAL STATEMENTS............................................................................................135 APPENDIX A......................................................................................................136
ii 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 Pacific Opportunities Fund commenced operations (Class A and Class B shares) on October 22, 1993; the inception dates for the Fund's Class C and Advisor Class shares were April 30, 1996 and February 10, 1998, respectively. Ivy Developing Markets Fund commenced operations (Class A and Class B shares) on November 1, 1994; the inception dates for the Fund's Class C and Advisor Class shares were April 30, 1996 and April 30, 1998, respectively. Ivy European Opportunities Fund commenced operations on May 3, 1999 (all Classes). Ivy Global Fund commenced operations (Class A shares) on April 18, 1991; the inception dates for the Fund's Class B, Class C and Advisor Class shares were April 1, 1994, April 30, 1996 and April 30, 1998, respectively. Ivy Global Natural Resources Fund and Ivy International Small Companies Fund commenced operations on January 1, 1997 (Class A, Class B and Class C shares); the inception dates for the Funds' Advisor Class shares were April 8, 1999 and July 1, 1999, respectively. Ivy Global Science & Technology Fund commenced operations on July 22, 1996 (Class A, Class B and Class C shares); the inception date for the Fund's Advisor Class shares was April 15, 1998. Ivy International Value Fund commenced operations on May 13, 1997 (Class A, Class B and Class C shares); the inception date for the Fund's Advisor Class shares was February 23, 1998. Each Fund is governed by a Board of Trustees (the "Board"), responsible for supervision and management of the Fund. Descriptions in this SAI of a particular investment practice or technique in which any Fund may engage or a financial instrument which any Fund may purchase are meant to describe the spectrum of investments that IMI, in its discretion, might, but is not required to, use in managing each Fund's portfolio assets. For example, IMI may, in its discretion, at any time employ a given practice, technique or instrument for one or more funds but not for all funds advised by it. It is also possible that certain types of financial instruments or investment techniques described herein may not be available, permissible, economically feasible or effective for their intended purposes in some or all markets, in which case a Fund would not use them. Investors should also be aware that certain practices, techniques, or instruments could, regardless of their relative importance in a Fund's overall investment strategy, from time to time have a material impact on that Fund's performance. INVESTMENT OBJECTIVES, STRATEGIES AND RESTRICTIONS Each Fund has its own investment objectives and policies, which are described in the Prospectus under the captions "Summary" and "Additional Information About Strategies and Risks." Descriptions of each Fund's policies, strategies and investment restrictions, as well as additional information regarding the characteristics and risks associated with each Fund's investment techniques, are set forth below. Whenever an investment objective, policy or restriction set forth in the Prospectus or this SAI states a maximum percentage of assets that may be invested in any security or other asset or describes a policy regarding quality standards, such percentage limitation or standards 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 DEVELOPING MARKETS FUND Ivy Developing Markets Fund's principal objective is long-term growth. Consideration of current income is secondary to this principal objective. In pursuing its objective, the Fund invests primarily in the equity securities of companies that IMI believes will benefit from the economic development and growth of emerging markets. The Fund considers countries having emerging markets to be those that (i) are generally considered to be "developing" or "emerging" by the World Bank and the International Finance Corporation, or (ii) are classified by the United Nations (or otherwise regarded by their authorities) as "emerging." Under normal market conditions, the Fund invests at least 80% of its net assets, plus any borrowings for investment purposes, in equity securities (including common stock, preferred stock and securities convertible into common stock) 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 companies that are located in, or expected to profit from, countries whose markets are generally viewed as "developing" or "emerging" by the World Bank and the International Finance Corporation, or classified as "emerging" by the United Nations. The Fund normally invests its assets in the securities of issuers located in at least three emerging market countries, and may invest 25% or more of its total assets in the securities of issuers located in any one country. IMI's determination as to whether a company qualifies as an Emerging Market growth company is based primarily on information contained in financial statements, reports, analyses and other pertinent information (some of which may be obtained directly from the company). For purposes of capital appreciation, Ivy Developing Markets Fund may invest up to 35% of its total assets in (i) debt securities of government or corporate issuers in emerging market countries, (ii) equity and debt securities of issuers in developed countries (including the United States), and (iii) cash or cash equivalents such as bank obligations (including certificates of deposit and bankers' acceptances), commercial paper, short-term notes and repurchase agreements. For temporary defensive purposes, the Fund may invest without limit in such instruments. The Fund may also invest in zero coupon bonds and purchase securities on a "when-issued" or firm commitment basis. The Fund will not invest more than 20% of its total assets in debt securities rated Ba or lower by Moody's or BB or lower by S&P, or if unrated, considered by IMI to be of comparable quality (commonly referred to as "high yield" or "junk" bonds). The Fund will not invest in debt securities rated less than C by either Moody's or S&P. For temporary or emergency purposes, the Fund may borrow from banks in accordance with the provisions of the Investment Company Act of 1940, as amended, (the "1940 Act"), but may not purchase securities at any time during which the value of the Fund's outstanding loans exceeds 10% of the value of the Fund's total assets. The Fund may engage in foreign currency exchange 2 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 DEVELOPING MARKETS FUND Ivy Developing Markets Fund's investment objectives as set forth in the "Summary" section of the Prospectus, together with the investment restrictions set forth below, are fundamental policies of the Fund and may not be changed without the approval of a majority (as defined in the 1940 Act) of the outstanding voting shares of the Fund. The Fund has adopted the following fundamental investment restrictions: (i) The Fund has elected to be classified as a diversified series of an open-end investment company. (ii) The Fund will not borrow money, except as permitted under the 1940 Act, 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 1940 Act, 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 3 instruments or interests in indebtedness in accordance with the Fund's investment objective and policies may be deemed to be loans. (viii) The Fund will not concentrate its investments in a particular industry, as the term "concentrate" is interpreted in connection with the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. ADDITIONAL RESTRICTIONS FOR IVY DEVELOPING MARKETS FUND Unless otherwise indicated, Ivy Developing Markets Fund has adopted the following additional restrictions, which are not fundamental and which may be changed without shareholder approval to the extent permitted by applicable law, regulation or regulatory policy. Under these restrictions, the Fund may not: (i) invest in oil, gas or other mineral leases or exploration or development programs; (ii) invest in companies for the purpose of exercising control of management; (iii) invest more than 5% of its total assets in warrants, valued at the lower of cost or market, or more than 2% of its total assets in warrants, so valued, which are not listed on either the New York or American Stock Exchanges; (iv) purchase securities of other investment companies, except in connection with a merger, consolidation or sale of assets, and except that it may purchase shares of other investment companies subject to such restrictions as may be imposed by the Investment Company Act of 1940 and rules thereunder; (v) invest more than 15% of its net assets taken at market value at the time of investment in "illiquid securities." Illiquid securities may include securities subject to legal or contractual restrictions on resale (including private placements), repurchase agreements maturing in more than seven days, certain options traded over the counter that the Fund has purchased, securities being used to cover certain options that the Fund has written, securities for which market quotations are not readily available, or other securities which legally or in IMI's opinion, subject to the Board's supervision, may be deemed illiquid, but shall not include any instrument that, due to the existence of a trading market, to the Fund's compliance with certain conditions intended to provide liquidity, or to other factors, is liquid; (vi) borrow money, except for temporary or emergency purposes. The Fund may not purchase securities at any time during which the 4 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 except for short sales "against the box"; 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 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 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 subadvisor, Henderson Investment Management Limited ("Henderson"), will invest the Fund's assets in the securities of European companies, including those companies operating in the emerging markets of Europe and small capitalization companies operating in the developed markets of Europe. The Fund may also invest in larger capitalization European companies and European companies which have been subject to special circumstances, e.g., privatized companies or companies which provide exceptional value. Although the majority of the Fund's assets will be invested in equity securities, the Fund may also invest in cash, short-term or long-term fixed income securities issued by corporations and governments of Europe if considered appropriate in relation to the then current economic or market conditions in any country. Investments made by the Fund may include securities issued pursuant to initial public offerings ("IPO"). 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 80% of its net assets, plus the amount of any borrowings for investment purposes, in equity securities (including common stock, preferred stock and securities convertible into common stock) of European companies, which include (a) 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); (b) small and mid-capitalization companies in the more developed markets of Europe; and (c) companies operating in Europe's emerging markets. The Fund may engage in short-term trading. The Fund may also invest in sponsored or unsponsored ADRs, EDRs, GDRs, ADSs, EDSs and GDSs. The Fund does not expect to concentrate its investments in any particular industry. 5 The Fund may invest up to 35% of its net assets in debt securities, but will not invest more than 20% of its net assets in debt securities rated Ba or below by Moody's or BB or below by S&P or, if unrated, considered by Henderson to be of comparable quality (commonly referred to as "high yield" or "junk" bonds). The Fund will not invest in debt securities rated less than C by either Moody's or S&P. The Fund may purchase Brady Bonds and other sovereign debt of countries that have restructured or are in the process of restructuring their sovereign debt. The Fund may also purchase securities on a "when-issued" or firm commitment basis, engage in foreign currency exchange transactions and enter into forward foreign currency contracts. In addition, the Fund may invest up to 5% of its net assets in zero coupon bonds. For temporary defensive purposes or when Henderson believes that circumstances warrant, the Fund may invest without limit in U.S. Government securities, investment grade debt securities (i.e., those rated Baa or higher by Moody's or BBB or higher by S&P or, if unrated, considered by Henderson to be of comparable quality), warrants, and cash or cash equivalents such as domestic or foreign bank obligations (including certificates of deposit, time deposits and bankers' acceptances), short-term notes, repurchase agreements, and domestic or foreign commercial paper. The Fund may borrow money in accordance with the provisions of the 1940 Act. The Fund may also invest in other investment companies in accordance with the provisions of the 1940 Act, and may invest up to 15% of its net assets in illiquid securities. For hedging purposes, the Fund may purchase put and call options on securities and stock indices, provided the premium paid for such options does not exceed 5% of the Fund's net assets. The Fund may also sell covered put options with respect to up to 10% of the value of its net assets, and may write covered call options so long as not more than 25% of the Fund's net assets are subject to being purchased upon the exercise of the calls. For hedging purposes only, the Fund may engage in transactions in (and options on) stock index, interest rate and foreign currency futures contracts, provided that the Fund's equivalent exposure in such contracts does not exceed 15% of its total assets. The Fund may also write or buy straddles or spreads. INVESTMENT RESTRICTIONS FOR IVY EUROPEAN OPPORTUNITIES FUND Ivy European Opportunities Fund's investment objective, as set forth in the Prospectus under "Investment Objective and Policies," and the investment restrictions set forth below are fundamental policies of the Fund and may not be changed with respect to the approval of a majority (as defined in the 1940 Act) of the outstanding voting shares of the Fund. The Fund has adopted the following fundamental investment restrictions: (i) The Fund has elected to be classified as a diversified series of an open-end investment company. (ii) The Fund will not borrow money, except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. 6 (iii) The Fund will not issue senior securities, except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. (iv) The Fund will not engage in the business of underwriting securities issued by others, except to the extent that the Fund may be deemed to be an underwriter in connection with the disposition of portfolio securities. (v) The Fund will not purchase or sell real estate (which term does not include securities of companies that deal in real estate or mortgages or investments secured by real estate or interests therein), except that the Fund may hold and sell real estate acquired as a result of the Fund's ownership of securities. (vi) The Fund will not purchase physical commodities or contracts relating to physical commodities, although the Fund may invest in commodities futures contracts and options thereon to the extent permitted by the Prospectus and this SAI. (vii) The Fund will not make loans to other persons, except (a) loans of portfolio securities, and (b) to the extent that entry into repurchase agreements and the purchase of debt instruments or interests in indebtedness in accordance with the Fund's investment objective and policies may be deemed to be loans. (viii) The Fund will not concentrate its investments in a particular industry, as the term "concentrate" is interpreted in connection with the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. ADDITIONAL RESTRICTIONS FOR IVY EUROPEAN OPPORTUNITIES FUND Ivy European Opportunities Fund has adopted the following additional restrictions, which are not fundamental and which may be changed without shareholder approval, to the extent permitted by applicable law, regulation or regulatory policy. Under these restrictions, the Fund may not: (i) invest more than 15% of its net assets taken at market value at the time of investment in "illiquid securities." Illiquid securities may include securities subject to legal or contractual restrictions on resale (including private placements), repurchase agreements maturing in more than seven days, certain options traded over the counter that the Fund has purchased, securities being used to cover certain options that the Fund has written, securities for which market quotations are not readily available, or other securities which legally or in the subadvisor's opinion, subject to the Board's supervision, may be deemed illiquid, but shall not include any instrument that, due to the existence of a trading market or to other factors, is liquid; 7 (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 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 subadvisor 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 up to 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 8 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 securities and 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 are 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 1940 Act, 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 1940 Act, 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 9 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 1940 Act, as interpreted or modified by regulatory authority having jurisdiction, from time to time. ADDITIONAL RESTRICTIONS FOR IVY GLOBAL FUND Ivy Global Fund has adopted the following additional restrictions, which are not fundamental and which may be changed without shareholder approval, to the extent permitted by applicable law, regulation or regulatory policy. Under these restrictions, the Fund may not: (i) purchase or sell real estate limited partnership interests; (ii) purchase or sell interests in oil, gas or mineral leases (other than securities of companies that invest in or sponsor such programs); (iii) invest in oil, gas and/or mineral exploration or development programs; (iv) purchase securities on margin, except such short-term credits as are necessary for the clearance of transactions, but the Fund may make margin deposits in connection with transactions in options, futures and options on futures; (v) make investments in securities for the purpose of exercising control over or management of the issuer; (vi) participate on a joint or a joint and several basis in any trading account in securities. The "bunching" of orders of the Fund and of other accounts under the investment management of IMI for the sale or purchase of portfolio securities shall not be considered participation in a joint securities trading account; 10 (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 U.S. 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 of the 1940 Act and rules thereunder. 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 80% of its net assets, plus the amount of any borrowings for investment purposes, in the equity securities (including common stock, preferred stock and securities convertible into common stock) of companies of any size 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. The Fund's investment advisor is MFC. 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 11 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. 12 (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 1940 Act, as interpreted or modified by regulatory authority having jurisdiction, from time to time. ADDITIONAL RESTRICTIONS FOR IVY GLOBAL NATURAL RESOURCES FUND Ivy Global Natural Resources Fund has adopted the following additional restrictions, which are not fundamental and which may be changed without shareholder approval, to the extent permitted by applicable law, regulation or regulatory policy. Under these restrictions, the Fund may not: (i) invest more than 15% of its net assets taken at market value at the time of investment in "illiquid securities." Illiquid securities may include securities subject to legal or contractual restrictions on resale (including private placements), repurchase agreements maturing in more than seven days, certain options traded over the counter that the Fund has purchased, securities being used to cover certain options that the Fund has written, securities for which market quotations are not readily available, or other securities which legally or in IMI's opinion, subject to the Board's supervision, may be deemed illiquid, but shall not include any instrument that, due to the existence of a trading market, to the Fund's compliance with certain conditions intended to provide liquidity, or to other factors, is liquid; (ii) purchase securities of other investment companies, except in connection with a merger, consolidation or sale of assets, and except that it may purchase shares of other investment companies subject to such restrictions as may be imposed by the 1940 Act and rules thereunder; (iii) purchase or sell interests in oil, gas or mineral leases (other than securities of companies that invest in or sponsor such programs); (iv) invest in interests in oil, gas and/or mineral exploration or development programs; (v) sell securities short, except for short sales "against the box;" (vi) borrow money, except for temporary or emergency purposes. The Fund may not purchase securities at any time during which the value of the Fund's outstanding loans exceeds 10% of the value of the Fund's total assets; 13 (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 advisor 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 80% of its net assets, plus the amount of any borrowings for investment purposes, in the equity securities (including common, preferred stock and securities convertible into common stock) of companies throughout the world that are expected to profit 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 14 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 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 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 1940 Act, 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 1940 Act, as interpreted or modified by regulatory authority having jurisdiction, from time to time. 15 (iv) The Fund will not engage in the business of underwriting securities issued by others, except to the extent that the Fund may be deemed to be an underwriter in connection with the disposition of portfolio securities. (v) The Fund will not purchase or sell real estate (which term does not include securities of companies that deal in real estate or mortgages or investments secured by real estate or interests therein), except that the Fund may hold and sell real estate acquired as a result of the Fund's ownership of securities. (vi) The Fund will not purchase physical commodities or contracts relating to physical commodities, although the Fund may invest in commodities futures contracts and options thereon to the extent permitted by the Prospectus and this SAI. (vii) The Fund will not make loans to other persons, except (a) loans of portfolio securities, and (b) to the extent that entry into repurchase agreements and the purchase of debt instruments or interests in indebtedness in accordance with the Fund's investment objective and policies may be deemed to be loans. (viii) The Fund will not concentrate its investments in a particular industry, as the term "concentrate" is interpreted in connection with the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. ADDITIONAL RESTRICTIONS FOR IVY GLOBAL SCIENCE & TECHNOLOGY FUND Ivy Global Science & Technology Fund has adopted the following additional restrictions, which are not fundamental and which may be changed without shareholder approval to the extent permitted by applicable law, regulation or regulatory policy. Under these restrictions, the Fund may not: (i) invest in oil, gas or other mineral leases or exploration or development programs; (ii) invest in companies for the purpose of exercising control or management; (iii) invest more than 5% of its total assets in warrants, valued at the lower of cost or market, or more than 2% of its total assets in warrants, so valued, which are not listed on either the New York or American Stock Exchanges; (iv) invest more than 15% of its net assets taken at market value at the time of investment in "illiquid securities." Illiquid securities may include securities subject to legal or contractual restrictions on resale (including private placements), repurchase agreements maturing in more than seven days, certain options traded over the counter that the Fund 16 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 in readily marketable securities of companies that invest in real estate or interests therein, including real estate investment trusts. 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's sub-advisor, Henderson Investment Management Limited ("Henderson") will invest at least 80% of the Fund's net assets, plus the amount of any borrowings for investment purposes, in the equity securities (including common stock, preferred stock and securities convertible into common stocks) of foreign issuers having total market capitalization of less than $2 billion at initial purchase. 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 17 do not necessarily move in concert with the U.S. market. The factors that Henderson 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. Individual securities are selected based largely on prospects for earnings growth. The Fund may purchase securities issued pursuant to IPOs. The Fund may engage in short-term trading. 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 Henderson to be of comparable quality (commonly referred to as "high yield" or "junk" bonds). The Fund will not invest in debt securities rated less than C by either Moody's or S&P. 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 are 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 1940 Act, 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 1940 Act, as interpreted or modified by regulatory authority having jurisdiction, from time to time. 18 (iv) The Fund will not engage in the business of underwriting securities issued by others, except to the extent that the Fund may be deemed to be an underwriter in connection with the disposition of portfolio securities. (v) The Fund will not purchase or sell real estate (which term does not include securities of companies that deal in real estate or mortgages or investments secured by real estate or interests therein), except that the Fund may hold and sell real estate acquired as a result of the Fund's ownership of securities. (vi) The Fund will not purchase physical commodities or contracts relating to physical commodities, although the Fund may invest in commodities futures contracts and options thereon to the extent permitted by the Prospectus and this SAI. (vii) The Fund will not make loans to other persons, except (a) loans of portfolio securities, and (b) to the extent that entry into repurchase agreements and the purchase of debt instruments or interests in indebtedness in accordance with the Fund's investment objective and policies may be deemed to be loans. (viii) The Fund will not concentrate its investments in a particular industry, as the term "concentrate" is interpreted in connection with the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. ADDITIONAL RESTRICTIONS FOR IVY INTERNATIONAL SMALL COMPANIES FUND Ivy International Small Companies Fund has adopted the following additional restrictions, which are not fundamental and which may be changed without shareholder approval, to the extent permitted by applicable law, regulation or regulatory policy. Under these restrictions, the Fund may not: (i) purchase or sell real estate limited partnership interests; (ii) purchase or sell interests in oil, gas and mineral leases (other than securities of companies that invest in or sponsor such programs); (iii) invest in oil, gas and/or mineral exploration or development programs; (iv) invest more than 15% of its net assets taken at market value at the time of the investment in "illiquid securities." Illiquid securities may include securities subject to legal or contractual restrictions on resale (including private placements), repurchase agreements maturing in more than seven days, certain options traded over the counter that the Fund has purchased, securities being used to cover certain options that the Fund has written, securities for which market quotations are not readily available, or other securities 19 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 advisor 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 INTERNATIONAL VALUE FUND Ivy International Value Fund's principal investment 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 20 with established records. Individual securities are selected based on value indicators, such as a low price-earnings ratio, and are reviewed for fundamental financial strength. Companies in which investments are made will generally have at least $1 billion in capitalization and a solid history of operations. When economic or market conditions warrant, the Fund may invest without limit in U.S. Government securities, investment-grade debt securities (i.e., those rated Baa or higher by Moody's or BBB or higher by S&P, or if unrated, considered by IMI to be of comparable quality), preferred stocks, sponsored or unsponsored ADRs, GDRs, ADSs and GDSs, warrants, or cash or cash equivalents such as bank obligations (including certificates of deposit and bankers' acceptances), commercial paper, short-term notes and repurchase agreements. For temporary or emergency purposes, the Fund may borrow up to 10% of the value of its total assets from banks. The Fund may also purchase securities on a "when-issued" or firm commitment basis, and may engage in foreign currency exchange transactions and enter into forward foreign currency contracts. The Fund may also invest in other investment companies in accordance with the provisions of the 1940 Act and up to 15% of its net assets in illiquid securities. The Fund may purchase put and call options on securities and stock indices, provided the premium paid for such options does not exceed 5% of the Fund's net assets. The Fund may also sell covered put options with respect to up to 10% of the value of its net assets, and may write covered call options so long as not more than 25% of the Fund's net assets are subject to being purchased upon the exercise of the calls. For hedging purposes only, the Fund may engage in transactions in (and options on) stock index and foreign currency futures contracts, provided that the Fund's equivalent exposure in such contracts does not exceed 15% of its total assets. INVESTMENT RESTRICTIONS FOR IVY INTERNATIONAL VALUE FUND Ivy International Value Fund's investment objectives as set forth in the "Summary" section of the Prospectus, together with the investment restrictions set forth below, are fundamental policies of the Fund and may not be changed without the approval of a majority of the outstanding voting shares of the Fund. The Fund has adopted the following fundamental investment restrictions: (i) The Fund has elected to be classified as a diversified series of an open-end investment company. (ii) The Fund will not borrow money, except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. (iii) The Fund will not issue senior securities, except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. (iv) The Fund will not engage in the business of underwriting securities issued by others, except to the extent that the Fund may be deemed to be an underwriter in connection with the disposition of portfolio securities. (v) The Fund will not purchase or sell real estate (which term does not include securities of companies that deal in real estate or mortgages or investments secured by real estate or 21 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 1940 Act, as interpreted or modified by regulatory authority having jurisdiction, from time to time. ADDITIONAL RESTRICTIONS FOR IVY INTERNATIONAL VALUE FUND Ivy International Value Fund has adopted the following additional restrictions, which are not fundamental and which may be changed without shareholder approval, to the extent permitted by applicable law, regulation or regulatory policy. Under these restrictions, the Fund may not: (i) invest in oil, gas or other mineral leases or exploration or development programs; (ii) invest in companies for the purpose of exercising control of management; (iii) invest more than 5% of its total assets in warrants, valued at the lower of cost or market, or more than 2% of its total assets in warrants, so valued, which are not listed on either the New York or American Stock Exchanges; (iv) sell securities short, except for short sales "against the box;" (v) borrow amounts in excess of 10% of its total assets, taken at the lower of cost or market value, and then only from banks as a temporary measure for emergency purposes. (vi) purchase from or sell to any of its officers or trustees, or firms of which any of them are members or which they control, any securities (other than capital stock of the Fund), but 22 such persons or firms may act as brokers for the Fund for customary commissions to the extent permitted by the 1940 Act; (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, 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. Ivy International Value Fund will continue to interpret fundamental investment restriction (v) above to prohibit investment in real estate limited partnership interests; this restriction shall not, however, prohibit investment in readily marketable securities of companies that invest in real estate or interests therein, including real estate investment trusts. Under the Investment Company Act of 1940, the Fund is permitted, subject to its investment restrictions, to borrow money only from banks. The Trust has no current intention of borrowing amounts in excess of 5% of the Fund's assets. IVY PACIFIC OPPORTUNITIES FUND The Fund's principal investment objective is long-term capital growth. Consideration of current income is secondary to this principal objective. Under normal circumstances the Fund invests at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in the equity securities (including common stock, preferred stock and securities convertible into common stock) of companies such as those whose securities are traded mainly on markets in the Pacific region, which for purposes of this SAI is defined to include Australia, Bangladesh, Brunai, China, Hong Kong, India, Indonesia, Malaysia, New Zealand, Pakistan, the Philippines, Singapore, Sri Lanka, South Korea, Taiwan, Thailand and Vietnam. Securities of Pacific region issuers include: (a) securities of companies organized under the laws of a Pacific region country or whose principal securities trading market is in the Pacific region; (b) securities that are issued or guaranteed by the government of a Pacific region country, its agencies or instrumentalities, political subdivisions or the country's central bank; (c) securities of a company, wherever organized, where at least 50% of the company's non-current assets, capitalization, gross revenue or profit in any one of the two most recent fiscal years represents (directly or indirectly through subsidiaries) assets or activities located in the Pacific region; and (d) any of the preceding types of securities in the form of depository shares. The Fund may participate in markets throughout the Pacific region, and it is expected that the Fund will be invested at all times in at least three Pacific region countries. Although it is permitted to, the Fund does not currently anticipate investing in Japan. As a fundamental policy, the Fund does not concentrate its investments in any particular industry. The Fund may invest up to 35% of its assets in investment-grade debt securities (i.e., those rated in the four highest rating categories used by Moody's or S&P of government or corporate issuers in emerging market countries, 23 equity securities and investment-grade debt securities of issuers in developed countries (including the United States), warrants, and cash or cash equivalents, such as bank obligations (including certificates of deposit and bankers' acceptances), commercial paper, short-term notes and repurchase agreements. For temporary defensive purposes, the Fund may invest without limit in such instruments. The Fund may also invest up to 5% of its net assets in zero coupon bonds, and in debt securities rated Ba or below by Moody's or BB or below by S&P, or if unrated, are considered by IMI to be of comparable quality (commonly referred to as "high yield" or "junk" bonds). The Fund will not invest in debt securities rated less than C by either Moody's or S&P. For temporary or emergency purposes, the Fund may borrow from banks in accordance with the provisions of the 1940 Act, but may not purchase securities at any time during which the value of the Fund's outstanding loans exceeds 10% of the value of the Fund's total assets. The Fund may invest in sponsored or unsponsored American Depository Receipts ("ADRs"), Global Depository Receipts ("GDRs"), American Depository Shares ("ADSs), and Global Depository Shares ("GDSs), warrants, and securities issued on a "when-issued" or firm commitment basis, and may engage in foreign currency exchange transactions and enter into forward foreign currency contracts. The Fund may also invest in other investment companies in accordance with the provisions of the 1940 Act, and up to 15% of its net assets in illiquid securities. The Fund may purchase put and call options on securities and stock indices, provided the premium paid for such options does not exceed 5% of the Fund's net assets. The Fund may also sell covered put options with respect to up to 10% of the value of its net assets, and may write covered call options so long as not more than 25% of the Fund's net assets are subject to being purchased upon the exercise of the calls. The Fund may write or buy straddles or spreads. For hedging purposes only, the Fund may engage in transactions in stock index and foreign currency futures contracts, provided that the Fund's equivalent exposure in such contracts does not exceed 15% of its total assets. INVESTMENT RESTRICTIONS FOR IVY PACIFIC OPPORTUNITIES FUND Ivy Pacific Opportunities Fund's investment objectives as set forth in the "Summary" section of the Prospectus, together with the investment restrictions set forth below, are fundamental policies of the Fund and may not be changed without the approval of a majority (as defined in the 1940 Act) of the outstanding voting shares of the Fund. The Fund has adopted the following fundamental investment restrictions: (i) The Fund has elected to be classified as a diversified series of an open-end investment company. (ii) The Fund will not borrow money, except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. (iii) The Fund will not issue senior securities, except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. 24 (iv) The Fund will not engage in the business of underwriting securities issued by others, except to the extent that the Fund may be deemed to be an underwriter in connection with the disposition of portfolio securities. (v) The Fund will not purchase or sell real estate (which term does not include securities of companies that deal in real estate or mortgages or investments secured by real estate or interests therein), except that the Fund may hold and sell real estate acquired as a result of the Fund's ownership of securities. (vi) The Fund will not purchase physical commodities or contracts relating to physical commodities, although the Fund may invest in commodities futures contracts and options thereon to the extent permitted by the Prospectus and this SAI. (vii) The Fund will not make loans to other persons, except (a) loans of portfolio securities, and (b) to the extent that entry into repurchase agreements and the purchase of debt instruments or interests in indebtedness in accordance with the Fund's investment objective and policies may be deemed to be loans. (viii) The Fund will not concentrate its investments in a particular industry, as the term "concentrate" is interpreted in connection with the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. ADDITIONAL RESTRICTIONS FOR IVY PACIFIC OPPORTUNITIES FUND Ivy Pacific Opportunities Fund has adopted the following additional restrictions, which are not fundamental and which may be changed without shareholder approval, to the extent permitted by applicable law, regulation or regulatory policy. Under these restrictions, the Fund may not: (i) invest in oil, gas or other mineral leases or exploration or development programs; (ii) invest in companies for the purpose of exercising control of management; (iii) invest more than 5% of its total assets in warrants, valued at the lower of cost or market, or more than 2% of its total assets in warrants, so valued, which are not listed on either the New York or American Stock Exchanges; (iv) purchase securities of other investment companies, except in connection with a merger, consolidation or sale of assets, and except that it may purchase shares of other investment companies subject to such restrictions as may be imposed by the Investment Company Act of 1940 and rules thereunder; 25 (v) invest more than 15% of its net assets taken at market value at the time of the investment in "illiquid securities." Illiquid securities may include securities subject to legal or contractual restrictions on resale (including private placements), repurchase agreements maturing in more than seven days, certain options traded over the counter that the Fund has purchased, securities being used to cover certain options that the Fund has written, securities for which market quotations are not readily available, or other securities which legally or in IMI's opinion, subject to the Board's supervision, may be deemed illiquid, but shall not include any instrument that, due to the existence of a trading market, to the Fund's compliance with certain conditions intended to provide liquidity, or to other factors, is liquid; (vi) borrow money, except for temporary purposes. The Fund may not purchase securities at any time during which the value of the Fund's outstanding loans exceeds 10% of the value of the Fund's total assets; (vii) purchase securities on margin, except such short-term credits as are necessary for the clearance of transactions, but the Fund may make margin deposits in connection with transactions in options, futures and options on futures; (viii) participate on a joint or a joint and several basis in any trading account in securities. The "bunching" of orders of the Fund and of other accounts under the investment management of the Fund's investment advisor for the sale or purchase of portfolio securities shall not be considered participation in a joint securities trading account; (ix) sell securities short, except for short sales "against the box"; or (x) purchase from or sell to any of its officers or trustees, or firms of which any of them are members or which they control, any securities (other than capital stock of the Fund), but such persons or firms may act as brokers for the Fund for customary commissions to the extent permitted by the Investment Company Act of 1940. RISK CONSIDERATIONS EQUITY SECURITIES Equity securities can be issued by companies to raise cash; all equity securities represent a proportionate ownership interest in a company. As a result, the value of equity securities rises and falls with a company's success or failure. The market value of equity securities can fluctuate significantly, with smaller companies being particularly susceptible to price swings. Transaction costs in smaller company stocks may also be higher than those of larger companies. 26 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 27 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 28 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.) 29 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, 30 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 31 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. Certain of the Funds use such investment techniques in order to secure what is considered to be an advantageous price and yield to a Fund and not for purposes of leveraging the Fund's assets. In either instance, a 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 32 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. 33 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. 34 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 1940 Act, with respect to the custody of each Fund's cash and securities, each Fund's investment in such countries may be limited or may be required to be effected through intermediaries. The risk of loss through governmental confiscation may be increased in such countries. SECURITIES ISSUED IN PACIFIC REGION COUNTRIES Certain Pacific region countries in which Ivy Pacific Opportunities Fund is likely to invest are developing countries, and may be in the initial stages of their industrialization cycle. The economic structures of developing 35 countries generally are less diverse and mature than in the United States, and their political systems may be relatively unstable. Historically, markets of developing countries have been more volatile than the markets of developed countries, yet such markets often have provided higher rates of return to investors. Investing in securities of issuers in Pacific region countries involves certain considerations not typically associated with investing in securities issued in the United States or in other developed countries, including (i) restrictions on foreign investment and on repatriation of capital invested in Asian countries, (ii) currency fluctuations, (iii) the cost of converting foreign currency into United States dollars, (iv) potential price volatility and lesser liquidity of shares traded on Pacific region securities markets and (v) political and economic risks, including the risk of nationalization or expropriation of assets and the risk of war. Certain Pacific region countries may be more vulnerable to the ebb and flow of international trade and to trade barriers and other protectionist or retaliatory measures. Investments in countries that have recently opened their capital markets and that appear to have relaxed their central planning requirement, as well as in countries that have privatized some of their state-owned industries, should be regarded as speculative. The settlement period of securities transactions in foreign markets in general may be longer than in domestic markets, and such delays may be of particular concern in developing countries. For example, the possibility of political upheaval and the dependence on foreign economic assistance may be greater in developing countries than in developed countries, either one of which may increase settlement delays. Securities exchanges, issuers and broker-dealers in some Pacific region countries are subject to less regulatory scrutiny than in the United States. In addition, due to the limited size of the markets for Pacific region securities, the prices for such securities may be more vulnerable to adverse publicity, investors' perceptions or traders' positions or strategies, which could cause a decrease not only in the value but also in the liquidity of a Fund's investments. FOREIGN SOVEREIGN DEBT OBLIGATIONS Investment in sovereign debt can involve a high degree of risk. The governmental entity that controls the repayment of sovereign debt may not be able or willing to repay the principal and/or interest when due in accordance with the terms of such debt. A governmental entity's willingness or ability to repay principal and interest due in a timely manner may be affected by, among other factors, its cash flow situation, the extent of its foreign reserves, the availability of sufficient foreign exchange on the date a payment is due, the relative size of the debt service burden to the economy as a whole, the governmental entity's policy towards the International Monetary Fund, and the political constraints to which a governmental entity may be subject. Governmental entities may also be dependent on expected disbursements from foreign governments, multilateral agencies and others abroad to reduce principal and interest arrearages on their debt. The commitment on the part of these governments, agencies and others to make such disbursements may be conditioned on a governmental entity's implementation of economic reforms and/or economic performance and the timely service of such debtor's obligations. Failure to implement such reforms, achieve such levels of economic performance or repay 36 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 37 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. 38 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 39 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 40 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 1940 Act. By investing in REITs indirectly through certain Funds, a shareholder will bear not only his or her proportionate share of the expenses of each 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, 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 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 41 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 advisor 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 42 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. 43 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 44 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 45 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. 46 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 47 delivery of the actual securities making up the index will take place. Instead, settlement in cash must occur upon the termination of the contract, with the settlement being the difference between the contract price and the actual level of the stock index at the expiration of the contract. For example, if a Fund enters into a futures contract to buy 500 units of the S&P 500 Index at a specified future date at a contract price of $150 and the S&P 500 Index is at $154 on that future date, the Fund will gain $2,000 (500 units x gain of $4). If a Fund enters into a futures contract to sell 500 units of the stock index at a specified future date at a contract price of $150 and the S&P 500 Index is at $154 on that future date, the Fund will lose $2,000 (500 units x loss of $4). Each Fund's success in using hedging techniques depends, among other things, on IMI's ability to predict correctly the direction and volatility of price movements in the futures and options markets as well as in the securities markets and to select the proper type, time and duration of hedges. The skills necessary for successful use of hedges are different from those used in the selection of individual stocks. Each Fund's ability to hedge effectively all or a portion of its securities through transactions in index futures (and therefore the extent of its gain or loss on such transactions) depends on the degree to which price movements in the underlying index correlate with price movements in the Fund's securities. Inasmuch as such securities will not duplicate the components of an index, the correlation probably will not be perfect. Consequently, each Fund will bear the risk that the prices of the securities being hedged will not move in the same amount as the hedging instrument. This risk will increase as the composition of the Fund's portfolio diverges from the composition of the hedging instrument. Although each Fund intends to establish positions in these instruments only when there appears to be an active market, there is no assurance that a liquid market will exist at a time when a Fund seeks to close a particular option or futures position. Trading could be interrupted, for example, because of supply and demand imbalances arising from a lack of either buyers or sellers. In addition, the futures exchanges may suspend trading after the price has risen or fallen more than the maximum amount specified by the exchange. In some cases, a Fund may experience losses as a result of its inability to close out a position, and it may have to liquidate other investments to meet its cash needs. Although some index futures contracts call for making or taking delivery of the underlying securities, generally these obligations are closed out prior to delivery by offsetting purchases or sales of matching futures contracts (same exchange, underlying security or index, and delivery month). If an offsetting purchase price is less than the original sale price, a Fund generally realizes a capital gain, or if it is more, the Fund generally realizes a capital loss. Conversely, if an offsetting sale price is more than the original purchase price, a Fund generally realizes a capital gain, or if it is less, the Fund generally realizes a capital loss. The transaction costs must also be included in these calculations. Each Fund will only enter into index futures contracts or futures options that are standardized and traded on a U.S. or foreign exchange or board of trade, or similar entity, or quoted on an automated quotation system. Each Fund will use futures contracts and related options only for "bona fide hedging" purposes, as such term is defined in applicable regulations of the CFTC. 48 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 an 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. LENDING OF PORTFOLIO SECURITIES To enhance the return on its portfolio, each Fund has entered into a securities lending program that is operated by a securities lending agent. Under the program, a Fund may lend securities in its portfolio (subject to a limit of 33 1/3% of the Fund's total assets) to certain securities firms and financial institutions, provided that each loan is secured by collateral having a market value at least equal to 100% of the market value of the loaned securities, either in the form of cash (including U.S. dollar and non-U.S. dollar currency) or securities issued or fully guaranteed by the United States government or any agency or instrumentality thereof. Pursuant to an agreement with the Fund, the lending agent will indemnify the Fund against borrower default. Each loan is terminable on demand, and the Fund will receive any interest or dividends paid on the loaned securities. The Fund may use or invest any cash collateral at its own risk and for its own benefit. The Fund will pay the borrower a predetermined fee or rebate for each loan of securities. Under the program, the Fund may terminate a loan at any time in order to exercise voting rights with respect to a material event affecting the issuer of loaned securities. The risks in lending portfolio securities, as with other extensions of credit, consist of, among other things, the possibility of loss to the Fund due to: (i) the delay or default by a borrower of its obligation to return the loaned securities or (ii) a loss of rights in the collateral should a borrower fail financially. 49 PORTFOLIO TURNOVER Each Fund purchases securities that are believed by IMI to have above average potential for capital appreciation. Securities are disposed of in situations where it is believed that potential for such appreciation has lessened or that other securities have a greater potential. Therefore, each Fund may purchase and sell securities without regard to the length of time the security is to be, or has been, held. A change in securities held by a Fund is known as "portfolio turnover" and may involve the payment by the Fund of dealer markup or underwriting commission and other transaction costs on the sale of securities, as well as on the reinvestment of the proceeds in other securities. Each Fund's portfolio turnover rate is calculated by dividing the lesser of purchases or sales of portfolio securities for the most recently completed fiscal year by the monthly average of the value of the portfolio securities owned by the Fund during that year. For purposes of determining each Fund's portfolio turnover rate, all securities whose maturities at the time of acquisition were one year or less are excluded. The portfolio turnover rate for Ivy Developing Markets Fund was significantly lower in 2001 than it was in 2000 because 2000 experienced an infusion of assets as a result of the merger of Ivy South America Fund into Ivy Developing Markets Fund and portfolio trading activity in 2000 was heavy as compared to 2001, due in part, to realign the merged portfolio. The portfolio turnover rate for Ivy Global Science and Technology Fund was significantly higher in 2001 than it was in 2000 because of the decrease in assets compounded by the increase in portfolio trading activity in 2001 compared to 2000. 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. 50 The non-Independent Trustees (as defined below) and Executive Officers of the Trust, their business addresses and principal occupations during the past five years are:
- ----------------------- -------------- ----------- ------------------------------------------ ----------- ------------ Name, Position(s) Term of Principal Other Address, Held Office and Occupation(s) Number of Directorships And Age with Length of During Past 5 Portfolios Held by Fund Time Years in Fund Trustee Served (1) Complex Overseen by Trustee - ----------------------- -------------- ----------- ------------------------------------------ ----------- ------------ James W. Broadfoot (2) Trustee 6 years President and Chief Investment Officer 16 __ 925 South Federal Hwy. and -- US Equities of IMI; Director, Senior Suite 600 President Vice President of Mackenzie Investment Boca Raton, FL 33432 of Ivy Management Inc.; Director of Ivy Age: 59 Fund Mackenzie Distributors, Inc.; Director of Ivy Mackenzie Services Corp. - ----------------------- -------------- ----------- ------------------------------------------ ----------- ------------ Keith J. Carlson (2) 8 years Director, Chairman and Senior Vice 16 __ 925 South Federal Hwy. Trustee President of IMI; Director, President Suite 600 and and Chief Executive Officer of Mackenzie Boca Raton, FL 33432 Chairman Investment Management Inc. and Ivy Age: 45 of Ivy Mackenzie Distributors, Inc.; Director, Fund President and Chairman of Ivy Mackenzie Services Corp. - ----------------------- -------------- ----------- ------------------------------------------ ----------- ------------ Paula Wolfe 4 years Compliance Manager of Mackenzie 16 __ 925 South Federal Hwy. Secretary Investment Management Inc.; Assistant Suite 600 Secretary of Ivy Fund ; Secretary of Ivy Boca Raton, FL 33432 Mackenzie Distributors, Inc.; Secretary Age: 40 of Ivy Mackenzie Services Corp. - ----------------------- -------------- ----------- ------------------------------------------ ----------- ------------ Beverly J. Yanowitch 1 year Vice President, Chief Financial Officer 16 __ 925 South Federal Hwy. Treasurer and Treasurer of Mackenzie Investment Suite 600 of Ivy Management, Inc.; Vice Present and Boca Raton, FL 33432 Fund Treasurer of IMI; Senior Vice President Age: 52 and Treasurer of Ivy Mackenzie Distributors, Inc. and Ivy Mackenzie Services Corp. - ----------------------- -------------- ----------- ------------------------------------------ ----------- ------------
(1) Each Trustee and Officer serves an indefinite term, until he or she sooner dies, resigns, is removed, or becomes disqualified. (2) Deemed to be an "interested person" of the Trust, as defined in the 1940 Act, by virtue of his or her employment by MIMI or IMI. 51 The Trustees who are not "interested persons" of the Trust within the meaning of Section 2(a)(19) of the 1940 Act ("Independent Trustees"), their business addresses and principal occupations during the past five years are:
- --------------------------- -------------- ----------- ------------------------------------------ ----------- ------------ Name, Position(s) Term of Principal Number of Other Address, Held with Office and Occupation(s) Portfolios Directorships And Age Fund Length of During Past 5 in Fund Held by Time Years Complex Trustee Served (1) Overseen by Trustee - --------------------------- -------------- ----------- ------------------------------------------ ----------- ------------ John S. Anderegg, Jr. Trustee 35 years Chairman Emeritus, Dynamics Research 16 -- c/o Dynamics Research Corp.; (Defense Contractor) Corp. 60 Concord Street Wilmington, MA 01810 Age: 78 - --------------------------- -------------- ----------- ------------------------------------------ ----------- ------------ Stanley Channick Trustee 27 years Chairman, Scott Management Company; 16 -- 20234 Valley Forge Circle President, The Channick Group; President King of Prussia, PA 19406 and CEO, The Whitestone Corporation Age: 78 (Retired) (2) - --------------------------- -------------- ----------- ------------------------------------------ ----------- ------------ Dr. Roy J. Glauber Trustee 41 years Professor of Physics, Harvard University 16 -- Lyman Laboratory of Physics Harvard University Cambridge, MA 02138 Age: 76 - --------------------------- -------------- ----------- ------------------------------------------ ----------- ------------ Joseph G. Rosenthal Trustee 10 years Chartered Accountant. Rosenthal & 16 -- 925 South Federal Highway Katkauskas (Accountants) Suite 600 Boca Raton, FL 33432 Age: 67 - --------------------------- -------------- ----------- ------------------------------------------ ----------- ------------ Richard N. Silverman Trustee 29 years President, Van Leer USA (Retired) (3); 16 Trustee of 925 South Federal Highway President, Hysil (Retired) (4) Boston Suite 600 Ballet, Boca Raton, FL 33432 Member Age: 78 Charitable Foundation Board and Newton Wellesley Hospital - --------------------------- -------------- ----------- ------------------------------------------ ----------- ------------ James Brendan Swan Trustee 10 years President, Airspray International Inc. 16 -- 925 South Federal Highway (5) Suite 600 Boca Raton, FL 33432 Age: 71 - --------------------------- -------------- ----------- ------------------------------------------ ----------- ------------ Edward M. Tighe Trustee 3 years Chairmand and CEO of JBE Technology 16 Director 925 South Federal Highway Group, Inc. (6) President of Global of Suite 600 Mutual Fund Services Inc.; President & Hansberger Boca Raton, FL 33432 CEO of Global Technology Institutional Age: 59 Funds & Global Funds Ltd. - --------------------------- -------------- ----------- ------------------------------------------ ----------- ------------
(1) Each Trustee and Officer serves an indefinite term, until he or she sooner dies, resigns, is removed, or becomes disqualified. (2) Scott Management Co., The Channick Group and The Whitestone Corporation are consultants to insurance companies and agencies in the area of mass marketing and worksite payroll deduction marketing. (3) Manufacturer of packing materials. (4) Gift wrapping business. (5) Manufacturer of aerosol dispensing systems. (6) Telecommunications and computer network consulting. The Board has an Audit Committee, an Investment Review Committee, a Valuation Committee, and a Corporate Governance Committee. The function of the Audit Committee is to assist the Board in fulfilling its responsibilities to shareholders of the Fund relating to accounting and reporting, internal controls and the adequacy of auditing relative thereto. The Audit Committee currently consists of Joseph G. Rosenthal, Edward M. Tighe and J. Brendan Swan. During the last year, the Audit Committee held 4 meetings. 52 The function of the Investment Review Committee is to consider the Fund's investment processes, policies and risks, and the overall performance of the Fund. The Investment Review Committee currently consists of Edward M. Tighe, James W. Broadfoot, Keith J. Carlson, Stanley Channick, Joseph G. Rosenthal and Richard N. Silverman. During the last year, the Investment Review Committee held 4 meetings. The function of the Valuation Committee is to consider the valuation of portfolio securities which may be difficult to price. The Valuation Committee currently consists of Roy J. Glauber, John S. Anderegg, Jr. and James W. Broadfoot. During the last year, the Valuation Committee held 4 meetings. The function of the Corporate Governance Committee is to consider the responsibilities and actions of the Board of Trustees. The Corporate Governance Committee currently consists of Stanley Channick, Joseph G. Rosenthal, J. Brendan Swan, Keith J. Carlson and Richard N. Silverman. During the last year, the Corporate Governance Committee held 4 meetings. COMPENSATION TABLE IVY FUND (FISCAL YEAR ENDED DECEMBER 31, 2001)
- ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- TOTAL COMPENSATION AGGREGATE PENSION OR RETIREMENT ESTIMATED ANNUAL FROM TRUST AND FUND COMPENSATION FROM BENEFITS ACCRUED AS BENEFITS UPON COMPLEX PAID TO NAME, POSITION TRUST PART OF FUND EXPENSES RETIREMENT TRUSTEES* - ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- John S. Anderegg, Jr. (Trustee) $25,000 N/A N/A $25,000 - ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- James W. Broadfoot (Trustee and President) $0 N/A N/A $0 - ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- Keith J. Carlson (Trustee and Chairman) $0 N/A N/A $0 - ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- Stanley Channick (Trustee) $25,000 N/A N/A $25,000 - ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- Roy J. Glauber (Trustee) $25,000 N/A N/A $25,000 - ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- Joseph G. Rosenthal (Trustee) $25,000 N/A N/A $25,000 - ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- Richard N. Silverman (Trustee) $25,000 N/A N/A $25,000 - ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- J. Brendan Swan (Trustee) $25,000 N/A N/A $25,000 - ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- Edward M. Tighe (Trustee) $25,000 N/A N/A $25,000 - ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- Paula Wolfe (Assistant Secretary) $0 N/A N/A $0 - ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- Beverly J. Yanowitch (Treasurer) $0 N/A N/A $0 - ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
* The Fund complex consists of Ivy Fund. 53 As of April 4, 2002, 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 sixteen Ivy funds that are series of the Trust, except that the Officers and Trustees of the Trust as a group owned 1.97%, 4.34%, 18.71% and 8.87% of Ivy Cundill Global Value Fund, Ivy Global Science & Technology Fund, Ivy Growth Fund and Ivy US Emerging Growth Fund Advisor Class shares, respectively. The following table sets forth the dollar range of shares of the Fund held directly or indirectly by the Trustees:
DOLLAR RANGE OF DOLLAR RANGE OF EQUITY DOLLAR RANGE OF EQUITY SECURITIES IN EQUITY SECURITIES DOLLAR RANGE OF SECURITIES IN IVY EUROPEAN DOLLAR RANGE OF IN IVY GLOBAL EQUITY SECURITIES IN IVY DEVELOPING OPPORTUNITIES EQUITY SECURITIES NATURAL RESOURCES IVY GLOBAL SCIENCE & NAME OF TRUSTEE MARKET FUND FUND IN IVY GLOBAL FUND FUND TECHNOLOGY FUND - --------------- -------------- ------------ ------------------ ----------------- ------------------- John S. Anderegg, Jr $ -- $ -- $ -- $ -- $ -- James W. Broadfoot -- 62,182 -- -- -- Keith J. Carlson -- -- -- -- -- Stanley Channick -- -- -- -- -- Dr. Roy J. Glauber -- 277,673 -- -- 6,407 Joseph G. Rosenthal -- -- -- -- -- Richard N. Silverman 7,205 82,444 -- -- 7,512 J. Brendan Swan -- -- -- -- -- Edward M. Tighe -- -- -- -- --
54
DOLLAR RANGE OF DOLLAR RANGE OF EQUITY EQUITY SECURITIES DOLLAR RANGE OF SECURITIES IN IVY IN IVY EQUITY SECURITIES AGGREGATE DOLLAR RANGE IN ALL FUNDS INTERNATIONAL SMALL INTERNATIONAL IN IVY PACIFIC OVERSEEN BY THE TRUSTEE IN THE IVY NAME OF TRUSTEE COMPANIES FUND VALUE FUND OPPORTUNITIES FUND FUND FAMILY - --------------- ------------------------ ------------------- -------------------- ----------------------------------- John S. Anderegg, Jr $ -- $ -- $ -- $144,781 James W. Broadfoot -- -- -- 404,680 Keith J. Carlson -- -- -- 140 Stanley Channick -- -- -- 55,485 Dr. Roy J. Glauber -- -- -- 371,607 Joseph G. Rosenthal -- -- -- -- Richard N. Silverman -- -- 7,940 158,140 J. Brendan Swan -- -- -- -- Edward M. Tighe -- -- -- 21,306
PERSONAL INVESTMENTS BY EMPLOYEES OF IMI, IMDI, HENDERSON, MFC AND THE TRUST. IMI, IMDI and the Trust have adopted a Code of Ethics and Business Conduct Policy, MFC has adopted a Business Conduct Policy for Officers, Directors and Access Persons and Henderson has incorporated a code of ethics into its Compliance and Procedures Manual (the "Codes of Ethics") which are each designed to identify and address certain conflicts of interest between personal investment activities and the interests of investment advisory clients such as each Fund, in compliance with Rule 17j-1 under the 1940 Act. The Codes of Ethics permit personnel of IMI, IMDI, Henderson, MFC and the Trust subject to the Codes of Ethics to engage in personal securities transactions, including with respect to securities held by one or more Funds, subject to certain requirements and restrictions. PRINCIPAL HOLDERS OF SECURITIES SHARE OWNERSHIP To the knowledge of the Trust as of April 4, 2002, no shareholder owned beneficially or of record 5% or more of any Fund's outstanding shares of any class, with the following exceptions: CLASS A Of the outstanding Class A shares of: IVY CUNDILL GLOBAL VALUE FUND, Raymond James & Assoc Inc CSDN Kyle M Payne IRA, 221 Sylvan Glen Drive, South Bend, IN 46615, owned of record 2,762.486 shares (8.08%), and John M Elkowitz Jr., 41 Smith Road, Denville, NJ 07834, owned of record 2598.811 shares (7.60%), and William L. Tepas Sep IRA, 48 Oakview Dr., Amherst, NY 14221, owned of record 2,479.669 (7.25%), and Katherine 55 E. Sayre, Separate Property, PO Box 2224, Canyon Lake, TX 78130, owned of record 2,444.495 shares (7.15%), and Evelyn Dolins,Cust FBO: Sarah Laura Dolins UGMA/PA, 6 Jean Lo Way, York, PA 17402, owned of record 1,803.413 shares (5.27%), Jeanette C Arnone, 14 Lions Street, East Strousberg, PA 18301, owned of record 1,709.474 shares (5.00%); IVY EUROPEAN OPPORTUNITIES FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 303,064.982 shares (14.05%), and Charles Schwab & Co. Inc. Reinvest Account, Attn: Mutual Fund Dept., 101 Montgomery Street, San Francisco, CA 94104, owned of record 162,633.605 shares (7.54%); IVY GLOBAL NATURAL RESOURCES FUND, Carn & Co. #93030213 Wacker Salaried SVGS Plan Act42300001285000000 Attn: Mutual Funds Star , P.O. Box 96211 Washington, DC 20090-6211,owned of record 67,907.258 shares (5.53%), and Charles Schwab & Co. Inc. Reinvest Account, Attn: Mutual Fund Dept., 101 Montgomery Street, San Francisco, CA 94104, owned of record 194,730.641 shares (15.86%), and Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 77,836.226 shares (6.34%), and Deutsche Bank Securities Inc. FBO: 235-73733-11, PO Box 1346, Baltimore, MD 21203, VA 21203, owned of record 75,131.480 shares (6.12%); IVY GLOBAL SCIENCE & TECHNOLOGY FUND, Donaldson Lufkin Jenrette Securities Corporation Inc., P.O. Box 2052, Jersey City, NJ 07303-9998, owned of record 46,068.538 shares (5.04%),BBH & Co, Cust FBO: Lifetime Achievement Fund, 525 Washington Blvd, Jersey City, NJ 07310, owned of record 56,657.224 shares (6.20%), and Securities Trust Co. as Trustee FBO: Local 104 Supplemental Pension Plan, 2390 East Camelback Road Ste. 240, Phoenix, AZ 85016, owned of record 48,831.395 shares (5.34%); IVY INTERNATIONAL FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd Floor, Jacksonville, FL 32246, owned of record 2,594,179.817 (26.85%), and Charles Schwab & Co. Inc. Reinvest Account, Attn: Mutual Fund Dept., 101 Montgomery Street, San Francisco, CA 94104, owned of record 1,275,845.774 shares (13.20%); IVY INTERNATIONAL SMALL COMPANIES FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 43,468.854 shares (11.02%); IVY INTERNATIONAL VALUE FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246 owned of record 487,739.415 shares (38.73%); IVY PACIFIC OPPORTUNITIES FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 76,218.797 shares (8.30%); and IVY US EMERGING GROWTH FUND, F & Co. Inc. Cust FBO 401 K Plan, Attn: Cathy Laich ADM, 300 River Place - Suite 4000, Detroit, MI 48207, owned of record 158,123.679 shares (7.75%). 56 CLASS B Of the outstanding Class B shares of: IVY BOND FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 1,065,008.211 shares (47.74%); IVY CUNDILL GLOBAL VALUE FUND, Raymond James & Assoc Inc FAO: Katherine P. Ralston & James W. Ralston JT/WROS, 609 Hwy 466, Lady Lake, FL 32159, owned of record 835.491 shares (24.27%), Catherine Kawula, 1900 West Alpha Court, Lecanto, FL 34461-8435, owned of record 639.631 shares (18.58%), IBT Cust Ira Fbo: Phyllis W Monahan, 15 B Swan Cedar Glen West, Manchester, NJ 08759, owned of record 453.697 shares (13.18%), Lawrence J Mccarthy, 14 Sarian Drive, Nepune, NJ 07753, owned of record 448.060 shares (13.02%), Phyllis Monahan, Cedar Glenn West, 15 B Swan, Manchester, NJ 08759, owned of records 428.207 shares (12.44%), Dorothy V Hosonitz, 223 Goodmans Crossing, Clark, NJ 07066-2754, owned of record 323.276 shares (9.39%), IBT Cust IRA FBO: Candace Pignatello, 162 Newark Ave, Bloomfield, NJ 07003, owned of record 312.929 shares (9.09%); IVY DEVELOPING MARKETS FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 98,627.609 shares (26.97%); IVY EUROPEAN OPPORTUNITIES FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 583,670.050 shares (25.48%); IVY GLOBAL FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 51,540.966 shares (18.67%); IVY GLOBAL NATURAL RESOURCES FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 68,342.843 shares (11.37%) and Rede & Co, 4380 SW Macadam Suite 450, Portland, OR 97201, owned of record 42,666.000 shares (7.10 %); IVY GLOBAL SCIENCE & TECHNOLOGY FUND, Merrill Lynch Pierce Fenner & Smith Inc. Mutual Fund Operations - Service Team, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 87,925.353 shares (10.74%); IVY GROWTH FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 73,155.436 shares (15.56%); IVY INTERNATIONAL FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 2,577,317.424 shares (42.60%); 57 IVY INTERNATIONAL SMALL COMPANIES FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 109,860.158 shares (31.02%); IVY INTERNATIONAL VALUE FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 2,723,623.738 shares (56.89%); IVY PACIFIC OPPORTUNITIES FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 126,191.785 shares (23.07%); IVY US BLUE CHIP FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 322,620.577 shares (15.95%); and IVY US EMERGING GROWTH FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 256,476.943 shares (20.44%). CLASS C Of the outstanding Class C shares of: IVY BOND FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 146,700.086 shares (62.45%); IVY DEVELOPING MARKETS FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL 32246, owned of record 31,175.141 shares (32.28%), and Donaldson Lufkin Jenrette Securities Corp Inc, PO Box 2052, Jersey City, NJ 07303-9998, owed of record 7,301.270 shares (7.56%); IVY EUROPEAN OPPORTUNITIES FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL 32246, owned of record 728,807.904 shares (42.93%); IVY GLOBAL FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL 32246, owned of record 4,365.729 shares (25.71%), IBT CUST 403(B) FBO Mattie A Allen, 755 Selma PL., San Diego, CA 92114-1711, owned of record 2,891.025 shares (17.03%), Salomon Smith Barney Inc., 00157417165, 333 West 34th St. - 3rd Floor, New York, NY 10001, owned of record 2,256.265 shares (13.29%), Salomon Smith Barney Inc., 00141860273, 333 West 34th St 3rd "Floor., New York, NY 10001, owned of record 1,256.132 shares (7.39%), Salomon Smith Barney Inc., 00121066732, 333 West 34th St. - 3rd Floor, New York, NY 10001, owned of record 1,177.856 shares (6.93%), and Smith Barney Inc. 00107866133, 388 Greenwich Street, New York, NY 10013, owned of record shares 1,041.015 (6.13%), Smith Barney Inc., 00112701249, 388 Greenwich Street, New York, NY 10013, owned of record 982.067 shares (5.78%); 58 IVY GLOBAL NATURAL RESOURCES FUND, Salomon Smith Barney Inc., 00150805236, 333 West 34th St 3rd Fl., New York, NY 10001, owned of record 12,049.188 shares (5.02%), Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL 32246, owned of record 29,288.072 shares (12.20%), US Bandcorp Piper Jaffray A/C #5882-0411, U S Bancorp Center, 800 Nicollet Mall, Minneapolis, MN 55402 owned of record 15,698.587 shares (6.54%); IVY GLOBAL SCIENCE & TECHNOLOGY FUND, Merrill Lynch Pierce Fenner & Smith Inc. Mutual Fund Operations - Service Team, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 32,904.764 shares (15.82%); IVY GROWTH FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL 32246, owned of record 2,359.140 shares (9.02%), First Presbyterian Church of McAlester, a Non Profit Corporation, PO Box 1550, 222 E Washington, McAlester, OK 74502-1550, owned of record 3,806.649 shares (14.56%), Mary Ann Ash & Robert R. Ash JT -Ten, 1119 Rundle Street, Scranton, PA 18504, owned of record 2,302.853 shares (8.81%), Salomon Smith Barney Inc. #00121013039, 333 West 34th Street 3rd Floor, New York, NY 10001, owned of record 1,743.389 shares (6.67%), Fiduciary Trust Co. of NH Cust 403(B) FBO: Jack L. Ewen, 278 Southside Drive, Oneonta, NY 13820, owned of record 1,630.943 shares (6.24%), Fiduciary Trust Co of NH Cust IRA FBO: Roland Wise, 45 Fordham, Buffalo, NY 14216, owned of record 1,629.655 shares (6.23%); IVY INTERNATIONAL FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL 32246, owned of record 723,518.558 shares (62.10%); IVY INTERNATIONAL SMALL COMPANIES FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL 32246, owned of record 162,385.988 shares (63.89%); IVY INTERNATIONAL VALUE FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL 32246, owned of record 976,744.805 shares (59.95%); IVY MONEY MARKET FUND, Robert J Laws & Katherine A Laws JT ten, PO Box 723, Ramona, CA 92065, owned of record 43,871.340 shares (11.84%), First Trust Corp Cust IRA FBO: Suzanne Helen Anderson U/A/D 10-31-95 #135129-0001, PO Box 173301, Denver, CO 80217-3301, owned of record 35,317.650 shares (9.53%), IBT Cust IRA FBO: Betty J. Carson, 1987 Higgins Lane, El Centro, CA 92243, owned of record 27,781.690 shares (7.50%), Kenneth S. Hansen, 302 Lakeshore Dr, Lakeside, IA 50588-7660, owned of record 24,316.970 shares (6.56%), and Anthony L. Bassano & Marie E. Bassano Ttees of the Anthony & Marie Bassano Trust U/A/D 05-25-99, 8934 Bari Court, Port Richey, FL 34668, owned of record 18,780.970 shares (5.07%); 59 IVY PACIFIC OPPORTUNITIES FUND, Merrill Lynch Pierce Fenner & Smith for the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr E., 3rd FL, Jacksonville, FL 32246, owned of record 25,760.540 shares (21.47%); IVY US BLUE CHIP FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL 32246, owned of record 35,609.358 shares (31.31%); and IVY US EMERGING GROWTH FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL 32246, owned of record 52,859.279 shares (29.60%), and First Clearing Corp, A/C 3109-0705, Robert Feinberg and Harriet Feinberg JTWROS, 1824 Byberry Road, Bensalem, PA 19020-4455, owned of record 9,162.445 shares (5.13%). CLASS I Of the outstanding Class I shares of: IVY EUROPEAN OPPORTUNITIES FUND, NFSC FEBO # RAS-469041 NFSC/FMTC IRA FBO Charles Peavy, 2025 Eagle Nest Bluff, Lawrenceville, GA 30244, owned of record 642.383 shares (100%); and IVY INTERNATIONAL FUND, Harleysville Mutual Ins Co/Equity, 355 Maple Ave, Harleysville, PA 19438, owned of record 284,051.014 shares (35.68%), Vanguard Fiduciary Trust Company FBO Ivy Funds, PO Box 2900, Valley Forge, PA 19482, owned of record 197,455.576 shares (24.80%), Liz Claiborne Foundation, One Claiborne Ave, N Bergen, NJ 07047, owned of record 102,444.806 shares (12.86), David & Co, PO Box 188, Murfreesboro, TN 37133-0188, owned of record 89,730.410 shares (11.27%), Lynspen and Company , P.O. Box 830804, Birmingham, AL 35283, owned of record 43,905.578 Shares (5.51%). ADVISOR CLASS Of the outstanding Advisor Class shares of: IVY BOND FUND, NFSC FEBO # 279-055662 C/James Ferris/Bro, B Yanowitch/J Broadfoot TTES U/A 01/01/98, 925 South Federal Highway, Suite 600, Boca Raton, FL 33432-6143, owned of record 14,093.040 shares (61.31%), LPL Financial Services, 9785 Towne Centre Drive, San Diego, CA 92121-1968, owned of record 8,890.147 shares (38.68%); IVY CUNDILL GLOBAL VALUE FUND, Mackenzie Investment Mgmt Inc., Attn: Bev Yanowitch, 925 South Federal Highway, Suite 600, Boca Raton, FL 33432, owned of record 57,756.571 shares (56.61%), Peter Cundill Holdings Ltd., 1100 Melville St., Ste. 200, Vancouver BC V6E 4A6, owned of record 37,266.358 shares (36.52%); IVY PACIFIC OPPORTUNITIES FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL 32246, owned of record 518.000 shares (8.94%), Donaldson Lufkin Jenrette Securities Corporation Inc, PO Box 2052, Jersey City, 60 NJ 07303-9998 owned of record 4,512.894 shares (77.93%), and Donaldson Lufkin Jenrette Securities Corporation Inc, PO Box 2052, Jersey City, NJ 07303-9998 owned of record 748.503 shares (12.92%); IVY DEVELOPING MARKETS FUND, NFSC FEBO # 279-055662 C/James Ferris/Bro, B Yanowitch/J Broadfoot TTES U/A 01/01/98, 925 South Federal Highway, Suite 600, Boca Raton, FL 33432-6143, owned of record 8,970.050 shares (98.36%); IVY EUROPEAN OPPORTUNITIES FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL 32246, owned of record 325,841.346 shares (51.60%), Donaldson Lufkin Jenrette Securities Corporation Inc, PO Box 2052, Jersey City, NJ 07303-9998 owned of record 75,318.881 shares (11.92%); and Donaldson Lufkin Jenrette Securities Corporation Inc, PO Box 2052, Jersey City, NJ 07303-9998 owned of record 62,497.356 shares (9.89%); IVY GLOBAL FUND, NFSC FEBO # 279-055662 C/James Ferris/Bro, B Yanowitch/J Broadfoot TTES U/A 01/01/98 925 South Federal Highway, Suite 600, Boca Raton, FL 33432-6143, owned of record 6,680.157 shares (61.83%), and Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr E., 3rd FL, Jacksonville, FL 32246, owned of record 3,768.327 shares (34.88%); IVY GLOBAL NATURAL RESOURCES FUND, FTC & Co Account #00055 Datalynx , PO Box 173736, Denver, Co 80217-3736, owned of record 122,047.343 (27.25%), FTC & Co Attn Datalynx #118, PO Box 173736, Denver, Co 80217-3736, owned of record 96,748.874 (21.60%), FTC & Co Attn Datalynx #464, PO Box 173736, Denver, Co 80217-3736, owned of record 80,663.486 (18.01%), FTC & Co Attn Datalynx #00315, PO Box 173736, Denver, Co 80217-3736, owned of record 51,401.961 (11.47%), and FTC & Co Attn Datalynx #00328, PO Box 173736, Denver, Co 80217-3736, owned of record 51,256.969 (11.44%); IVY GLOBAL SCIENCE & TECHNOLOGY FUND, NFSC FEBO # 279-055662 C/James Ferris/Bro, B Yanowitch/J Broadfoot TTES U/A 01/01/98, 925 South Federal Highway, Suite 600, Boca Raton, FL 33432-6143 owned of record 13,236.316 shares (53.55%), and Robert Chapin & Michelle Broadfoot TTEE Of The Nella Manes Trust U/A/D 04-09-92, 117 Thatch Palm Cove, Boca Raton, FL 33432, owned of record 3,321.388 shares (13.43%); IVY GROWTH FUND, NFSC FEBO # 279-055662 C/James Ferris/Bro, B Yanowitch/J Broadfoot TTES U/A 01/01/98, 925 South Federal Highway, Suite 600, Boca Raton, FL 33432-6143, owned of record 17,040.218 shares (39.12%) and Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL 32246, owned of record 17,322.097 shares (39.77%), and James Broadfoot, 117 Thatch Palm Cove, Boca Raton, Fl 33432, owned of record 8,150.114 shares (18.71%); IVY INTERNATIONAL FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL 32246, owned of record 249.377 shares (100%); IVY INTERNATIONAL GROWTH FUND, Mackenzie Investment Mgmt Inc., Attn: Bev Yanowitch, 925 South Federal Highway, Suite 600, Boca Raton, FL 33432, owned of record 51,214.386 shares (99.88%); 61 IVY INTERNATIONAL SMALL COMPANIES FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL 32246, owned of record 94,687.863 shares (93.04%); NFSC FEBO # 279-055662, C/James Ferris/Bro, B Yanowitch/J Broadfoot TTES U/A 01/01/98, 925 South Federal Highway, Suite 600, Boca Raton, FL 33432-6143, owned of record 6,190.702 shares (6.08%), IVY INTERNATIONAL VALUE FUND, Charles Schwab & Co Inc., Reinvest Account, Attn: Mutual Fund Dept, 101 Montgomery Street, San Francisco, CA 94104, owned of record 1,535.769 shares (5.98%), Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr E., 3rd FL, Jacksonville, FL 32246, owned of record 1,792.768 shares (6.98%), NFSC FEBO # 279-055662, C/James Ferris/Bro, B Yanowitch/J Broadfoot TTES U/A 01/01/98, 925 South Federal Highway, Suite 600, Boca Raton, FL 33432-6143, owned of record 7,001.558 shares (27.26%), Donaldson Lufkin Jenrette Securities Corporation Inc., PO Box 2052, Jersey City, NJ 07303-2052, owned of record 2,062.330 shares (8.03%), LPL Financial Services A/C #3383-3796, 9785 Towne Centre Drive, San Diego, CA 92121-1968, owned of record 2,503.224 shares (9.74%), LPL Financial Services A/C #1572-6093, 9785 Towne Centre Drive, San Diego, CA 92121-1968, owned of record 3,218.761 shares (12.53%), LPL Financial Services A/C #1982-6979, 9785 Towne Centre Drive, San Diego, CA 92121-1968, owned of record 1,900.057 shares (7.39%), and LPL Financial Services A/C #7105-6816, 9785 Towne Centre Drive, San Diego, CA 92121-1968, owned of record 1,310.281 shares (5.10%); IVY US BLUE CHIP FUND, Mackenzie Investment Management Inc., Attn: Bev Yanowitch, 925 South Federal Highway, Suite 600, Boca Raton, FL 33432, owned of record 51,179.697 shares (54.41%), NFSC FEBO # 279-055662 C/James Ferris/Bro, B Yanowitch/J Broadfoot TTES U/A 01/01/98, 925 South Federal Highway, Suite 600, Boca Raton, FL 33432-6143, owned of record 38,299.532 shares (40.72%); and IVY US EMERGING GROWTH FUND, NFSC FEBO # 279-055662 C/James Ferris/Bro, B Yanowitch/J Broadfoot TTES U/A 01/01/98, 925 South Federal Highway, Suite 600, Boca Raton, FL 33432-6143, owned of record 26,549.906 shares (56.61%), Charles Schwab & Co. Inc. Reinvest Account, Attn: Mutual Fund Dept., 101 Montgomery Street, San Francisco, CA 94104, owned of record 4,850.696 shares (10.34%), and James W Broadfoot, 117 Thatch Palm Cove, Boca Raton, FL 33432, owned of record 2,393.086 shares (5.10%). INVESTMENT ADVISORY AND OTHER SERVICES BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES IMI provides both business management and investment advisory services to the Funds, with the exception of Ivy Global Natural Resources Fund, for which IMI acts solely as manager. IMI is a wholly-owned subsidiary of Mackenzie Investment Management Inc. ("MIMI"), 925 South Federal Highway, Suite 600, Boca Raton, Florida 33432. MIMI, a Delaware corporation, has approximately 15% of its 62 outstanding common stock listed for trading on the Toronto Stock Exchange ("TSE"). IMI is an indirect subsidiary of Mackenzie Financial Corporation ("MFC"), 150 Bloor Street West, Suite 400, Toronto, Ontario, Canada M5S3B5. MFC is a wholly-owned Subsidiary of Investors Group Inc. ("IGI"), One Canada Centre, 447 Portage Avenue, Winnipeg, Manitoba, Canada R3C3B6. MFC is a corporation organized under the laws of Ontario. MFC is registered in Ontario as a mutual fund dealer and provides investment advisory services for Ivy Global Natural Resources Fund. IMI also currently acts as manager and investment advisor to the other series of Ivy Fund. Henderson Investment Management Limited ("Henderson"), 4 Broadgate, London, England EC2M 2DA, serves as subadvisor to Ivy European Opportunities Fund and Ivy International Small Companies Fund. For its services, Henderson receives a fee from IMI that is equal, on an annual basis, to 0.22% of each Fund's average net assets. Henderson is a wholly owned subsidiary of Henderson plc, located at the same address as Henderson. Henderson plc is a wholly owned subsidiary of AMP Limited, an Australian life insurance and financial services company located at AMP Building, 24th Floor, 33 Alfred Street, Sydney, New South Wales 2000 Australia. From February 1, 1999 to November 6, 2000, Henderson served as subadvisor with respect to 50% of the net assets of Ivy International Small Companies Fund. Since November 7, 2000, Henderson has served as subadvisor with respect to 100% of the net assets of Ivy International Small Companies Fund. For its services, Henderson receives a fee from IMI that is equal, on an annual basis, to 0.22% of that portion of the Fund's assets that Henderson manages. Ivy Global Natural Resources Fund pays IMI a monthly fee for providing business management services at an annual rate of 0.50% of the Fund's average net assets. For investment advisory services, Ivy Global Natural Resources Fund pays MFC, through IMI, a monthly fee at an annual rate of 0.50% of its average net assets. During the fiscal years ended December 31, 1999, 2000 and 2001, Ivy Global Natural Resources Fund paid IMI fees of $35,984, $42,385 and $62,113, respectively. During the fiscal years ended December 31, 1999, 2000 and 2001, IMI reimbursed Fund expenses in the amount of $170,530, $190,682 and $181,477, respectively. During the fiscal years ended December 31, 1999, 2000 and 2001, the Fund paid MFC fees of $35,984, $42,385 and $62,113, respectively. 63 Ivy European Opportunities Fund pays IMI a monthly fee for providing business management and investment advisory services at an annual rate of 1.00% of the first $250 million I-n average net assets, 0.85% on the next $250 million in average net assets, and 0.75% on average net assets over $500 million. 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, 1999, 2000 and 2001, Ivy Developing Markets Fund paid IMI fees of $152,772, $147,842 and $69,023, respectively. During the fiscal years ended December 31, 1999, 2000 and 2001, IMI reimbursed Fund expenses of $149,367, $204,372 and $148,768, respectively. During the period from commencement (May 3, 1999) through December 31, 1999 and the fiscal years ended December 31, 2000, Ivy European Opportunities Fund paid IMI fees of $27,735, $1,937,417 and $1,325,025, respectively. During the same periods, IMI reimbursed Fund expenses in the amount of $107,722, $0 and $19,587, respectively. During the same periods, IMI paid subadvisory fees to Henderson in the amount of $14,286, $361,694 and $291,013, respectively. During the fiscal years ended December 31, 1999, 2000 and 2001, Ivy Global Fund paid IMI fees of $202,715, $163,977 and $97,794, respectively. During the same periods, IMI reimbursed Fund expenses in the amount of $120,751, $153,851 and $202,092, respectively. During the fiscal years ended December 31, 1999, 2000 and 2001, Ivy Global Science & Technology Fund paid IMI fees of $466,093, $1,119,519 and $415,731, respectively. During the same periods, IMI reimbursed Fund expenses in the amount of $0, $0 and $106,670, respectively. During the fiscal years ended December 31, 1999, 2000 and 2001, Ivy International Small Companies Fund paid IMI fees of $28,729, $109,655, and $172,723, respectively. During the same periods, IMI reimbursed Fund expenses in the amount of $178,983, $167,518 and $156,893, respectively. During the period from February 1, 2000 to December 31, 2000 and the fiscal years ended December 31, 2000 and 2001, IMI paid subadvisory fees to Henderson in the amount of $5,451, $14,394 and $37,923, respectively. During the fiscal years ended December 31, 1999, 2000 and 2001, Ivy International Value Fund paid IMI fees of $1,533,107, $1,496,637 and $965,448, respectively. During the same periods, IMI reimbursed Fund expenses in the amount of $226,984, $274,726 and $369,480, respectively. During the fiscal years ended December 31, 1999, 2000 and 2001, Ivy Pacific Opportunities Fund paid IMI fees of $191,792, $183,267 and $131,439, respectively. During the fiscal years ended December 31, 1999, 2000 and 2001, IMI reimbursed Fund expenses of $125,910, $172,025 and $178,508, 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. 64 With respect to all Funds, IMI currently limits each Fund's total operating expenses (excluding Rule 12b-1 fees, interest, taxes, brokerage commissions, litigation, class-specific expenses, indemnification expenses, and extraordinary expenses) to an annual rate of 1.95% (1.50% in the case of Ivy International Value Fund) of that Fund's average net assets, which may lower each Fund's expenses and increase its yield. The Agreements may be terminated with respect to a 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 (as defined in the 1940 Act), on 60 days' written notice to IMI, or by IMI on 60 days' written notice to the Trust. Each Agreement provides that it will terminate automatically in the event of its assignment (as defined in the 1940 Act). In approving the investment advisory agreement, the Board considered a number of factors, including: (1) fee and performance information of each Fund relative to funds with similar objectives; (2) the profitability to IMI, and to MFC in the case of Ivy Global Natural Resources Fund, from its relationship with each Fund, both individually and from all of the series of the Trust, as applicable; (3) the manner in which expenses are allocated among all series of the Trust and their different classes of shares; (4) the performance and expenses of each Fund relative to comparable funds; (5) the nature and quality of the services historically provided by IMI, and MFC in the case of Ivy Global Natural Resources Fund, including information regarding advisory services and compliance records; (6) the professional qualifications of the personnel providing advisory services to each Fund; and (7) management's soft dollar practices and the use of soft dollars in connection with the Funds, as described under "Brokerage Allocation," below. Based upon their review and consideration of the factors described above, and such other factors and information it considered relevant, the Board recognized that IMI, and MFC in the case of Ivy Global Natural Resources Fund, is deemed to owe a fiduciary duty to each Fund and approved the investment advisory agreement. In approving the subadvisory agreement, the Board considered (1) the fees paid by Ivy European Opportunities Fund and Ivy International Small Companies Fund and the terms of the business management and investment advisory agreement between the Funds and IMI and the subadvisory agreement between IMI and Henderson; (2) the services that IMI performs under the management agreement and the investment advisory services that Henderson performs for the Funds under the subadvisory agreement; and (3) that IMI continues to be ultimately responsible for Henderson's compliance with each Fund's investment objective and policies and applicable securities laws, and is also responsible for the selection of the subadviser and monitoring its performance, as well as the overall success or failure of each Fund. Based upon their review and consideration of the factors described above, and such other factors and information it considered relevant, the Board recognized that Henderson is deemed to owe a fiduciary duty to each Fund and approved the subadvisory agreement. 65 DISTRIBUTION SERVICES IMDI, a wholly owned subsidiary of MIMI, serves as the exclusive distributor of each Fund's shares pursuant to an Amended and Restated Distribution Agreement with the Trust dated March 16, 1999, as amended from time to time (the "Distribution Agreement"). IMDI distributes shares of each Fund through broker-dealers who are members of the National Association of Securities Dealers, Inc. and who have executed dealer agreements with IMDI. IMDI distributes shares of each Fund on a continuous basis, but reserves the right to suspend or discontinue distribution on that basis. IMDI is not obligated to sell any specific amount of Fund shares. Each Fund has authorized IMDI to accept on its behalf purchase and redemption orders. IMDI is also authorized to designate other intermediaries to accept purchase and redemption orders on each Fund's behalf. Each Fund will be deemed to have received a purchase or redemption order when an authorized intermediary or, if applicable, an intermediary's authorized designee, accepts the order. Client orders will be priced at each Fund's net asset value next computed after an authorized intermediary or the intermediary's authorized designee accepts them. Pursuant to the Distribution Agreement, IMDI is entitled to deduct a commission on all Class A Fund shares sold equal to the difference, if any, between the public offering price, as set forth in each Fund's then-current prospectus, and the net asset value on which such price is based. Out of that commission, IMDI may reallow to dealers such concession as IMDI may determine from time to time. In addition, IMDI is entitled to deduct a CDSC on the redemption of Class A shares sold without an initial sales charge and Class B and Class C shares, in accordance with, and in the manner set forth in, the Prospectus. Under the Distribution Agreement, each Fund bears, among other expenses, the expenses of registering and qualifying its shares for sale under Federal and state securities laws and preparing and distributing to existing shareholders periodic reports, proxy materials and prospectuses. During the fiscal years ended December 31, 1999, 2000, and 2001, IMDI received from sales of Class A shares of Ivy Developing Markets Fund $15,886, $4,060 and $1,571, respectively, in sales commissions, of which $2,205, $498 and $247, respectively, was retained after dealer allowances. During the fiscal year ended December 31, 2001, IMI on behalf of IMDI received $12,592 in CDSCs on redemptions of Class B shares of Ivy Developing Markets Fund. During the fiscal year ended December 31, 2001, IMI on behalf of IMDI received $139 in CDSCs on redemptions of Class C shares of Ivy Developing Markets Fund. During the fiscal years ended December 31, 2000 and 2001, IMDI received from sales of Class A shares of Ivy European Opportunities Fund $2,617,198 and $47,617, respectively in sales commissions, of which $301,849 and $7,323, respectively, was retained after dealer allowances. During the fiscal year ended December 31, 2001, IMI on behalf of IMDI received $142,123 in CDSCs on redemptions of Class B shares of Ivy European Opportunities Fund. During the fiscal year ended December 31, 2001, IMI on behalf of IMDI received $89,504 in CDSCs on redemptions of Class C shares of Ivy European Opportunities Fund. 66 During the fiscal years ended December 31, 1999, 2000, and 2001, IMDI received from sales of Class A shares of Ivy Global Fund $8,985, $7,354 and $2,842, respectively, in sales commissions, of which $1,782, $1,131 and $452, respectively, was retained after dealer allowances. During the fiscal year ended December 31, 2001, IMI on behalf of IMDI received $9,085 in CDSCs on redemptions of Class B shares of Ivy Global Fund. During the fiscal year ended December 31, 2001, IMI on behalf of IMDI received $8 in CDSCs on redemptions of Class C shares of Ivy Global Fund. During the fiscal years ended December 31, 1999, 2000, and 2001, IMDI received from sales of Class A shares of Ivy Global Natural Resources Fund $5,378, $7,913 and $57,517, respectively, in sales commissions, of which $596, $858 and $8,048, respectively, was retained after dealer allowances. During the fiscal year ended December 31, 2000, IMI on behalf of IMDI received $7,107 in CDSCs on redemptions of Class B shares of Ivy Global Natural Resources Fund. During the fiscal year ended December 31, 2001, IMI on behalf of IMDI received $23,425 in CDSCs on redemptions of Class C shares of Ivy Global Natural Resources Fund. During the fiscal years ended December 31, 1999, 2000, and 2001, IMDI received from sales of Class A shares of Ivy Global Science & Technology Fund $117,902, $404,324 and $71,362, respectively, in sales commissions, of which $14,767, $54,216 and $10,413, respectively, was retained after dealer allowances. During the fiscal year ended December 31, 2001, IMI on behalf of IMDI received $23,360 in CDSCs on redemptions of Class B shares of Ivy Global Science & Technology Fund. During the fiscal year ended December 31, 2001, IMI on behalf of IMDI received $4,974 in CDSCs on redemptions of Class C shares of Ivy Global Science & Technology Fund. During the fiscal years ended December 31, 1999, 2000, and 2001, IMDI received from sales of Class A shares of Ivy International Small Companies Fund $2,271, $140,497 and $12,188, respectively, in sales commissions, of which $268, $17,200 and $2,017, respectively, was retained after dealer allowances. During the fiscal year ended December 31, 2001, IMI on behalf of IMDI received $9,996 in CDSCs on redemptions of Class B shares of Ivy International Small Companies Fund. During the fiscal year ended December 31, 2001, IMI on behalf of IMDI received $4,352 in CDSCs on redemptions of Class C shares of Ivy International Small Companies Fund. During the fiscal years ended December 31, 1999, 2000, and 2001, IMDI received from sales of Class A shares of Ivy International Value Fund $189,094, $82,407 and $6,229, respectively, in sales commissions, of which $17,300, $3,791 and $883, respectively, was retained after dealer allowances. During the fiscal year ended December 31, 2001, IMI on behalf of IMDI received $115,406 in CDSCs on redemptions of Class B shares of Ivy International Value Fund. During the fiscal year ended December 31, 2001, IMI on behalf of IMDI received $48,813 in CDSCs on redemptions of Class C shares of Ivy International Value Fund. During the fiscal years ended December 31, 1999, 2000, and 2001, IMDI received from sales of Class A shares of Ivy Pacific Opportunities Fund $24,061, $25,351 and $4,599, respectively, in sales commissions, of which $3,501, $4,040 and $674, respectively, was retained after dealer allowances. During the fiscal 67 year ended December 31, 2001, IMI on behalf of IMDI received $12,328 in CDSCs on redemptions of Class B shares of Ivy Pacific Opportunities Fund. During the fiscal year ended December 31, 2001, IMI on behalf of IMDI received $149 in CDSCs on redemption of Class C shares of Ivy Pacific Opportunities Fund. The Distribution Agreement will continue in effect for successive one-year periods, provided that such continuance is specifically approved at least annually by the vote of a majority of the Independent Trustees, cast in person at a meeting called for that purpose and by the vote of either a majority of the entire Board or a majority of the outstanding voting securities of each Fund. The Distribution Agreement may be terminated with respect to any Fund at any time, without payment of any penalty, by IMDI on 60 days' written notice to the Fund or by a Fund by vote of either a majority of the outstanding voting securities of the Fund or a majority of the Independent Trustees on 60 days' written notice to IMDI. The Distribution Agreement shall terminate automatically in the event of its assignment. PAYMENTS TO DEALERS: MIMI on behalf of IMDI currently intends to pay to dealers a sales commission of 4% of the sale price of Class B shares they have sold, and MIMI or one of its subsidiaries will receive the entire amount of the CDSC paid by shareholders on the redemption of Class B shares to finance the 4% commission and related marketing expenses. With respect to Class C shares, MIMI on behalf of IMDI currently intends to pay to dealers a sales commission of 1% of the sale price of Class C shares that they have sold, a portion of which is to compensate the dealers for providing Class C shareholder account services during the first year of investment. MIMI or one of its subsidiaries will receive the entire amount of the CDSC paid by shareholders on the redemption of Class C shares to finance the 1% commission and related marketing expenses. 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 68 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 then current Independent Trustees. 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 advisors, 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 69 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. MIMI on behalf of 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, 2001, Ivy Developing Markets Fund paid IMDI $7,061 pursuant to its Class A plan. During the fiscal year ended December 31, 2001 Ivy Developing Markets Fund paid IMDI $31,620 pursuant to its 70 Class B plan. During the fiscal year ended December 31, 2001, the Fund paid IMDI $8,239 pursuant to its Class C plan. During the fiscal year ended December 31, 2001, MIMI or IMDI expended the following amounts in marketing Class A shares of Ivy Developing Markets Fund: advertising, $20; printing and mailing of prospectuses to persons other than current shareholders, $2,796; compensation to underwriters $0; compensation to dealers, $2,638; compensation to sales personnel, $6,258; interest, carrying or other financing charges $0; seminars and meetings, $659; travel and entertainment, $1,004; general and administrative, $512; telephone, $155; and occupancy and equipment rental, $1,040. During the fiscal year ended December 31, 2001, MIMI or IMDI expended the following amounts in marketing Class B shares of Ivy Developing Markets Fund: advertising, $29; printing and mailing of prospectuses to persons other than current shareholders, $3,075; compensation to underwriters $0; compensation to dealers, $5,288; compensation to sales personnel, $6,839; interest, carrying or other financing charges $0; seminars and meetings, $1,322; travel and entertainment, $1,096; general and administrative, $613; telephone, $171; and occupancy and equipment rental, $1,116. During the fiscal year ended December 31, 2001, MIMI or IMDI expended the following amounts in marketing Class C shares of Ivy Developing Markets Fund: advertising, $0; printing and mailing of prospectuses to persons other than current shareholders, $869; compensation to underwriters $0; compensation to dealers, $549; compensation to sales personnel, $1,716; interest, carrying or other financing charges $0; seminars and meetings, $137; travel and entertainment, $280; general and administrative, $80; telephone, $43; and occupancy and equipment rental, $299. During the fiscal year ended December 31, 2001, Ivy European Opportunities Fund paid IMDI $104,539 pursuant to its Class A plan. During the fiscal year ended December 31, 2001 Ivy European Opportunities Fund paid IMDI $432,930 pursuant to its Class B plan. During the fiscal year ended December 31, 2001, the Fund paid IMDI $339,094 pursuant to its Class C plan. During the fiscal year ended December 31, 2001, MIMI or IMDI expended the following amounts in marketing Class A shares of Ivy European Opportunities Fund: advertising, $0; printing and mailing of prospectuses to persons other than current shareholders, $14,495; compensation to underwriters $0; compensation to dealers, $36,963; compensation to sales personnel, $101,921; interest, carrying or other financing charges $0; seminars and meetings, $9,241; travel and entertainment, $16,165; general and administrative, $11,514; telephone, $2,567; and occupancy and equipment rental, $16,080. During the fiscal year ended December 31, 2001, MIMI or IMDI expended the following amounts in marketing Class B shares of Ivy European Opportunities Fund: advertising, $0; printing and mailing of prospectuses to persons other than current shareholders, $15,620; compensation to underwriters $0; compensation to dealers, $395,843; compensation to sales personnel, $106,624; interest, carrying or other financing charges $0; seminars and meetings, $98,961; travel and entertainment, $16,832; general and administrative, $12,872; telephone, $2,689; and occupancy and equipment rental, $16,667. 71 During the fiscal year ended December 31, 2001, MIMI or IMDI expended the following amounts in marketing Class C shares of Ivy European Opportunities Fund: advertising, $34; printing and mailing of prospectuses to persons other than current shareholders, $10,513; compensation to underwriters $0; compensation to dealers, $198,114; compensation to sales personnel, $80,937; interest, carrying or other financing charges $0; seminars and meetings, $49,528; travel and entertainment, $12,934; general and administrative, $7,832; telephone, $2,029; and occupancy and equipment rental, $13,077. During the fiscal year ended December 31, 2001, Ivy Global Fund paid IMDI $15,628 pursuant to its Class A plan. During the fiscal year ended December 31, 2001 Ivy Global Fund paid IMDI $32,503 pursuant to its Class B plan. During the fiscal year ended December 31, 2001, the Fund paid IMDI $1,494 pursuant to its Class C plan. During the fiscal year ended December 31, 2001, MIMI or IMDI expended the following amounts in marketing Class A shares of Ivy Global Fund: advertising, $51; printing and mailing of prospectuses to persons other than current shareholders, $3,317; compensation to underwriters $0; compensation to dealers, $5,639; compensation to sales personnel, $14,098; interest, carrying or other financing charges $0; seminars and meetings, $1,410; travel and entertainment, $2,223; general and administrative, $1,639; telephone, $353; and occupancy and equipment rental, $2,235. During the fiscal year ended December 31, 2001, MIMI or IMDI expended the following amounts in marketing Class B shares of Ivy Global Fund: advertising, $19; printing and mailing of prospectuses to persons other than current shareholders, $1,787; compensation to underwriters $0; compensation to dealers, $3,986; compensation to sales personnel, $7,153; interest, carrying or other financing charges $0; seminars and meetings, $997; travel and entertainment, $1,137; general and administrative, $758; telephone, $180; and occupancy and equipment rental, $1,142. During the fiscal year ended December 31, 2001, MIMI or IMDI expended the following amounts in marketing Class C shares of Ivy Global Fund: advertising, $2; printing and mailing of prospectuses to persons other than current shareholders, $77; compensation to underwriters $0; compensation to dealers, $206; compensation to sales personnel, $347; interest, carrying or other financing charges $0; seminars and meetings, $51; travel and entertainment, $54; general and administrative, $47; telephone, $9; and occupancy and equipment rental, $54. During the fiscal year ended December 31, 2001, Ivy Global Natural Resources Fund paid IMDI $18,254 pursuant to its Class A plan. During the fiscal year ended December 31, 2001, Ivy Global Natural Resources Fund paid IMDI $37,137 pursuant to its Class B plan. During the fiscal year ended December 31, 2001, the Fund paid IMDI $12,166 pursuant to its Class C plan. During the fiscal year ended December 31, 2001, MIMI or IMDI expended the following amounts in marketing Class A shares of Ivy Global Natural Resources Fund: advertising, $26,828; printing and mailing of prospectuses to persons other than current shareholders, $10,814; compensation to underwriters $0; compensation to dealers, $6,939; compensation to sales personnel, $17,948; 72 interest, carrying or other financing charges $0; seminars and meetings, $1,735; travel and entertainment, $2,754; general and administrative, $2,782; telephone, $452; and occupancy and equipment rental, $2,740. During the fiscal year ended December 31, 2001, MIMI or IMDI expended the following amounts in marketing Class B shares of Ivy Global Natural Resources Fund: advertising, $12,104; printing and mailing of prospectuses to persons other than current shareholders, $5,524; compensation to underwriters $0; compensation to dealers, $8,030; compensation to sales personnel, $9,184; interest, carrying or other financing charges $0; seminars and meetings, $2,008; travel and entertainment, $1,408; general and administrative, $1,435; telephone, $231; and occupancy and equipment rental, $1,402. During the fiscal year ended December 31, 2001, MIMI or IMDI expended the following amounts in marketing Class C shares of Ivy Global Natural Resources Fund: advertising, $4,281; printing and mailing of prospectuses to persons other than current shareholders, $1,889; compensation to underwriters $0; compensation to dealers, $16,498; compensation to sales personnel, $3,181; interest, carrying or other financing charges $0; seminars and meetings, $4,124; travel and entertainment, $482; general and administrative, $522; telephone, $80; and occupancy and equipment rental, $489. During the fiscal year ended December 31, 2001, Ivy Global Science & Technology Fund paid IMDI $47,804 pursuant to its Class A plan. During the fiscal year ended December 31, 2001 Ivy Global Science & Technology Fund paid IMDI $169,819 pursuant to its Class B plan. During the fiscal year ended December 31, 2001, the Fund paid IMDI $49,653 pursuant to its Class C plan. During the fiscal year ended December 31, 2001, MIMI or IMDI expended the following amounts in marketing Class A shares of Ivy Global Science & Technology Fund: advertising, $0; printing and mailing of prospectuses to persons other than current shareholders, $6,290; compensation to underwriters $0; compensation to dealers, $15,856; compensation to sales personnel, $39,474; interest, carrying or other financing charges $0; seminars and meetings, $3,963; travel and entertainment, $6,410; general and administrative, $2,352; telephone, $979; and occupancy and equipment rental, $6,720. During the fiscal year ended December 31, 2001, MIMI or IMDI expended the following amounts in marketing Class B shares of Ivy Global Science & Technology Fund: advertising, $0; printing and mailing of prospectuses to persons other than current shareholders, $5,571; compensation to underwriters $0; compensation to dealers, $94,583; compensation to sales personnel, $35,182; interest, carrying or other financing charges $0; seminars and meetings, $23,646; travel and entertainment, $5,716; general and administrative, $2,053; telephone, $872; and occupancy and equipment rental, $6,002. During the fiscal year ended December 31, 2001, MIMI or IMDI expended the following amounts in marketing Class C shares of Ivy Global Science & Technology Fund: advertising, $0; printing and mailing of prospectuses to persons other than current shareholders, $1,429; compensation to underwriters $0; compensation to dealers, $20,253; compensation to sales personnel, $9,615; 73 interest, carrying or other financing charges $0; seminars and meetings, $5,064; travel and entertainment, $1,604; general and administrative, $52; telephone, $236; and occupancy and equipment rental, $1,744. During the fiscal year ended December 31, 2001, Ivy International Small Companies Fund paid IMDI $15,933 pursuant to its Class A plan. During the fiscal year ended December 31, 2001, Ivy International Small Companies Fund paid IMDI $46,573 pursuant to its Class B plan. During the fiscal year ended December 31, 2001, the Fund paid IMDI $33,872 pursuant to its Class C plan. During the fiscal year ended December 31, 2001, MIMI or IMDI expended the following amounts in marketing Class A shares of Ivy International Small Companies Fund: advertising, $0; printing and mailing of prospectuses to persons other than current shareholders, $3,531; compensation to underwriters $0; compensation to dealers, $5,520; compensation to sales personnel, $17,053; interest, carrying or other financing charges $0; seminars and meetings, $1,380; travel and entertainment, $2,660; general and administrative, $2,726; telephone, $437; and occupancy and equipment rental, $2,477. During the fiscal year ended December 31, 2001, MIMI or IMDI expended the following amounts in marketing Class B shares of Ivy International Small Companies Fund: advertising, $119; printing and mailing of prospectuses to persons other than current shareholders, $2,334; compensation to underwriters $0; compensation to dealers, $20,354; compensation to sales personnel, $12,810; interest, carrying or other financing charges $0; seminars and meetings, $5,088; travel and entertainment, $1,988; general and administrative, $2,025; telephone, $327; and occupancy and equipment rental, $1,890. During the fiscal year ended December 31, 2001, MIMI or IMDI expended the following amounts in marketing Class C shares of Ivy International Small Companies Fund: advertising, $18; printing and mailing of prospectuses to persons other than current shareholders, $1,802; compensation to underwriters $0; compensation to dealers, $24,950; compensation to sales personnel, $9,237; interest, carrying or other financing charges $0; seminars and meetings, $6,238; travel and entertainment, $1,436; general and administrative, $1,479; telephone, $236; and occupancy and equipment rental, $1,353. During the fiscal year ended December 31, 2001, Ivy International Value Fund paid IMDI $44,179 pursuant to its Class A plan. During the fiscal year ended December 31, 2001, Ivy International Value Fund paid IMDI $575,744 pursuant to its Class B plan. During the fiscal year ended December 31, 2001, the Fund paid IMDI $208,026 pursuant to its Class C plan. During the fiscal year ended December 31, 2001, MIMI or IMDI expended the following amounts in marketing Class A shares of Ivy International Value Fund: advertising, $114; printing and mailing of prospectuses to persons other than current shareholders, $5,300; compensation to underwriters, $0; compensation to dealers, $15,700; compensation to sales personnel, $39,199; interest, carrying or other financing documents $0; seminars and meetings, $3,925; $0 travel and entertainment, $6,204; general and administrative, $4,517; telephone, $987; and occupancy and equipment rental, $6,179. During the fiscal year ended December 31, 2001, MIMI or IMDI expended the following amounts in marketing Class B shares of Ivy International Value Fund: advertising, $454; printing and mailing of prospectuses to persons other than current shareholders, $17,716; compensation to underwriters $0; compensation to dealers, $87,838; compensation to sales personnel, $129,372; interest, carrying or other financing charges $0; seminars and meetings, $21,960; travel and entertainment, $20,339; general and administrative, $16,168; telephone, $3,258; and occupancy and equipment rental, $20,208. 74 During the fiscal year ended December 31, 2001, MIMI or IMDI expended the following amounts in marketing Class C shares of Ivy International Value Fund: advertising, $87; printing and mailing of prospectuses to persons other than current shareholders, $6,131; compensation to underwriters $0; compensation to dealers, $47,727; compensation to sales personnel, $46,074; interest, carrying or other financing charges $0; seminars and meetings, $11,932; travel and entertainment, $7,282; general and administrative, $5,280; telephone, $1,157; and occupancy and equipment rental, $7,299. During the fiscal year ended December 31, 2001, Ivy Pacific Opportunities Fund paid IMDI $17,367 pursuant to its Class A plan. During the fiscal year ended December 31, 2001 Ivy Pacific Opportunities Fund paid IMDI $50,033 pursuant to its Class B plan. During the fiscal year ended December 31, 2001, the Fund paid IMDI $11,412 pursuant to its Class C plan. During the fiscal year ended December 31, 2001, MIMI or IMDI expended the following amounts in marketing Class A shares of Ivy Pacific Opportunities Fund: advertising, $43; printing and mailing of prospectuses to persons other than current shareholders, $3,168; compensation to underwriters $0; compensation to dealers, $6,203; compensation to sales personnel, $15,166; interest, carrying or other financing charges $0; seminars and meetings, $1,551; travel and entertainment, $2,411; general and administrative, $1,521; telephone, $380; and occupancy and equipment rental, $2,456. During the fiscal year ended December 31, 2001, MIMI or IMDI expended the following amounts in marketing Class B shares of Ivy Pacific Opportunities Fund: advertising, $44; printing and mailing of prospectuses to persons other than current shareholders, $2,349; compensation to underwriters $0; compensation to dealers, $15,011; compensation to sales personnel, $10,982; interest, carrying or other financing charges $0; seminars and meetings, $3,752; travel and entertainment, $1,742; general and administrative, $1,207; telephone, $276; and occupancy and equipment rental, $1,748. During the fiscal year ended December 31, 2001, MIMI or IMDI expended the following amounts in marketing Class C shares of Ivy Pacific Opportunities Fund: advertising, $2; printing and mailing of prospectuses to persons other than current shareholders, $521; compensation to underwriters $0; compensation to dealers, $2,118; compensation to sales personnel, $2,440; interest, carrying or other financing charges $0; seminars and meetings, $529; travel and entertainment, $391; general and administrative, $210; telephone, $60; and occupancy and equipment rental, $401. 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 75 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, 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, 2001, Ivy Developing Markets Fund paid MIMI $21,247 under the agreement. During the fiscal year ended December 31, 2001, Ivy European Opportunities Fund paid MIMI $114,180 under the agreement. During the fiscal year ended December 31, 2001, Ivy Global Fund paid MIMI $27,521 under the agreement. During the fiscal year ended December 31, 2001, Ivy Global Natural Resources Fund paid MIMI $31,713 under the agreement. During the fiscal year ended December 31, 2001, Ivy Global Science & Technology Fund paid MIMI $60,681 under the agreement. During the fiscal year ended December 31, 2001, Ivy International Small Companies Fund paid MIMI $37,413 under the agreement. 76 During the fiscal year ended December 31, 2001, Ivy International Value Fund paid MIMI $104,458 under the agreement. During the fiscal year ended December 31, 2001, Ivy Pacific Opportunities Fund paid MIMI $33,955 under the agreement. TRANSFER AGENT AND DIVIDEND PAYING AGENT Pursuant to a Transfer Agency Services Agreement,PFPC Global Fund Services, Inc. ("PFPC"), a Massachusetts corporation, located at 4400 Computer Drive, Westborough, MA 01581 is the transfer agent for each Fund. Under the Agreement, each Fund pays a monthly fee at an annual rate of $17.00 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 $3.60 per account that is closed plus certain out-of-pocket expenses. Such fees and expenses for the fiscal year ended December 31, 2001 for Ivy Developing Markets Fund totaled $45,994. Such fees and expenses for the fiscal year ended December 31, 2001 for Ivy European Opportunities Fund totaled $484,781. Such fees and expenses for the fiscal year ended December 31, 2001 for Ivy Global Fund totaled $38,368. Such fees and expenses for the fiscal year ended December 31, 2001 for Ivy Global Natural Resources Fund totaled $77,647. Such fees and expenses for the fiscal year ended December 31, 2001 for Ivy Global Science & Technology Fund totaled $208,832. Such fees and expenses for the fiscal year ended December 31, 2001 for Ivy International Small Companies Fund totaled $60,883. Such fees and expenses for the fiscal year ended December 31, 2001 for Ivy International Value Fund totaled $330,799. Such fees and expenses for the fiscal year ended December 31, 2001 for Ivy Pacific Opportunities Fund totaled $75,437. 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 PFPC if the individual accounts that comprise the omnibus account were opened by their beneficial owners directly. PFPC 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 the Class I shares. Such fees for the fiscal year 77 ended December 31, 2001 for Ivy Developing Markets Fund totaled $6,902. Such fees for the fiscal year ended December 31, 2001 for Ivy European Opportunities Fund totaled $132,508. Such fees for the fiscal year ended December 31, 2001 for Ivy Global Fund totaled $9,779. Such fees for the fiscal year ended December 31, 2001 for Ivy Global Natural Resources Fund totaled $12,423. Such fees for the fiscal year ended December 31, 2001 for Ivy Global Science & Technology Fund totaled $32,215. Such fees for the fiscal year ended December 31, 2001 for Ivy International Small Companies Fund totaled $17,272. Such fees for the fiscal year ended December 31, 2001 for Ivy International Value Fund totaled $96,545. Such fees for the fiscal year ended December 31, 2001 for Ivy Pacific Opportunities Fund totaled $13,144. Outside of providing administrative services to the Trust, as described above, MIMI may also act on behalf of IMDI in paying commissions to broker-dealers with respect to sales of Class B and Class C shares of each Fund. AUDITORS PricewaterhouseCoopers LLP, located at 200 E. Las Olas Blvd., Ste. 1700, Ft. Lauderdale, Florida, 33301, has been selected as independent certified public accountants for the Trust. The audit services performed by PricewaterhouseCoopers LLP include audits of the annual financial statements of each of the funds of the Trust. Other services provided principally relate to filings with the SEC and the preparation of the Funds' tax returns. BROKERAGE ALLOCATION Subject to the overall supervision of the President and the Board, IMI, Henderson (for Ivy European Opportunities Fund and Ivy International Small Companies Fund), or MFC (for Ivy Global Natural Resources Fund) (the "Advisors"), place orders for the purchase and sale of each Fund's portfolio securities. Purchases and sales of securities on a securities exchange are effected through brokers who charge a commission for their services. Purchases and sales of debt securities are usually principal transactions and therefore, brokerage commissions are usually not required to be paid by the Funds for such purchases and sales (although the price paid generally includes undisclosed compensation to the dealer). The prices paid to underwriters of newly-issued securities usually include a concession paid by the issuer to the underwriter, and purchases of after-market securities from dealers normally reflect the spread between the bid and asked prices. In connection with OTC transactions, the Advisors attempt to deal directly with the principal market makers, except in those circumstances where the Advisors believe that a better price and execution are available elsewhere. The Advisors select broker-dealers to execute transactions and evaluate the reasonableness of commissions on the basis of quality, quantity, and the nature of the firms' professional services. Commissions to be charged and the rendering of investment services, including statistical, research, and counseling services by brokerage firms, are factors to be considered in the placing of brokerage business. The types of research services provided by brokers may include general economic and industry data, and information on securities of specific companies. Research services furnished by brokers through whom the Trust effects securities transactions may be used by the Advisors in 78 servicing all of their accounts. In addition, not all of these services may be used by the Advisors in connection with the services they provide to the Funds or the Trust. The Advisors may consider sales of shares of Ivy funds as a factor in the selection of broker-dealers and may select broker-dealers who provide them with research services. The Advisors may choose broker-dealers that provide the Advisors with research services and may cause a client to pay such broker-dealers commissions which exceed those other broker-dealers may have charged, if the Advisors view the commissions as reasonable in relation to the value of the brokerage and/or research services. The Advisors will not, however, seek to execute brokerage transactions other than at the best price and execution, taking into account all relevant factors such as price, promptness of execution and other advantages to clients, including a determination that the commission paid is reasonable in relation to the value of the brokerage and/or research services. During the fiscal years ended December 31, 1999 and 2000, Ivy Developing Markets Fund paid brokerage commissions of $70,916 and $85,023, respectively. For the fiscal year ended December 31, 2001, Ivy Developing Markets Fund paid a total of $21,551 in brokerage commissions with respect to portfolio transactions aggregating $5,425,069. Of such amount, $0 in brokerage commissions with respect to portfolio transactions aggregating $0 was placed with broker-dealers who provided research services. During the period from commencement of operations (May 3, 1999) through December 31, 1999 and the fiscal year ended December 31,2000, Ivy European Opportunities Fund paid brokerage commissions of $36,908 and $963,629, respectively. For the fiscal year ended December 31, 2001, Ivy European Opportunities Fund paid a total of $378,774 in brokerage commissions with respect to portfolio transactions aggregating $208,796,436. Of such amount, $6,025 in brokerage commissions with respect to portfolio transactions aggregating $3,366,461 was placed with broker-dealers who provided research services. During the fiscal years ended December 31, 1999 and 2000, Ivy Global Fund paid brokerage commissions of $83,384 and $79,124, respectively. For the fiscal year ended December 31, 2001, Ivy Global Fund paid a total of $30,347 in brokerage commissions with respect to portfolio transactions aggregating $17,953,436. Of such amount, $9,044 in brokerage commissions with respect to portfolio transactions aggregating $6,445,582 was placed with broker-dealers who provided research services. During the fiscal years ended December 31, 1999 and 2000, Ivy Global Natural Resources Fund paid brokerage commissions of $78,249 and $74,204, respectively. For the fiscal year ended December 31, 2001, Ivy Global Natural Resources Fund paid a total of $122,750 in brokerage commissions with respect to portfolio transactions aggregating $43,730,449. Of such amount, $58,449 in brokerage commissions with respect to portfolio transactions aggregating $25,883,170 was placed with broker-dealers who provided research services. During the fiscal years ended December 31, 1999 and 2000, Ivy Global Science & Technology Fund paid brokerage commissions of $106,161 and $227,942, respectively. For the fiscal year ended December 31, 2001, Ivy Global Science & Technology Fund paid a total of $251,805 in brokerage commissions with respect 79 to portfolio transactions aggregating $108,431,244. Of such amount, $244,791 in brokerage commissions with respect to portfolio transactions aggregating $101,479,003 was placed with broker-dealers who provided research services. During the fiscal years ended December 31, 1999 and 2000, Ivy International Small Companies Fund paid brokerage commissions of $15,777 and $89,221, respectively. For the fiscal year ended December 31, 2001, Ivy International Small Companies Fund paid a total of $83,331 in brokerage commissions with respect to portfolio transactions aggregating $39,173,995. Of such amount, $428 in brokerage commissions with respect to portfolio transactions aggregating $229,261 was placed with broker-dealers who provided research services. During the fiscal years ended December 31, 1999 and 2000, Ivy International Value Fund paid brokerage commissions of $224,332 and $356,738, respectively. For the fiscal year ended December 31, 2001, Ivy International Value Fund paid a total of $224,446 in brokerage commissions with respect to portfolio transactions aggregating $100,129,817. Of such amount, $0 in brokerage commissions with respect to portfolio transactions aggregating $0 was placed with broker-dealers who provided research services. During the fiscal years ended December 31, 1999 and 2000, Ivy Pacific Opportunities Fund paid brokerage commissions of $55,717 and $170,281, respectively. For the fiscal year ended December 31, 2001, Ivy Pacific Opportunities Fund paid a total of $108,170 in brokerage commissions with respect to portfolio transactions aggregating $26,142,676. Of such amount, $0 in brokerage commissions with respect to portfolio transactions aggregating $0 was placed with broker-dealers who provided research services. Brokerage commissions vary from year to year in accordance with the extent to which a particular Fund is more or less actively traded. Each Fund may, under some circumstances, accept securities in lieu of cash as payment for Fund shares. Each Fund will accept securities only to increase its holdings in a portfolio security or to take a new portfolio position in a security that the Advisors deem to be a desirable investment for each Fund. While no minimum has been established, it is expected that each Fund will not accept securities having an aggregate value of less than $1 million. The Trust may reject in whole or in part any or all offers to pay for any Fund shares with securities and may discontinue accepting securities as payment for any Fund shares at any time without notice. The Trust will value accepted securities in the manner and at the same time provided for valuing portfolio securities of each Fund, and each Fund'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 80 each class of each Fund are fully paid, non-assessable, redeemable and fully transferable. No class of shares of any Fund has preemptive rights or subscription rights. The Declaration of Trust of the Trust permits the Trustees to create separate series or portfolios and to divide any series or portfolio into one or more classes. The Trustees have authorized sixteen series, each of which represents a fund. The Trustees have further authorized the issuance of Class A, Class B, and Class C shares for Ivy Money Market Fund, and Class A, Class B, Class C and Advisor Class shares for Ivy Bond Fund, Ivy Cundill Global Value Fund, Ivy Developing Markets Fund, Ivy European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund, Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy International Fund, Ivy International Growth Fund, Ivy International Small Companies Fund, Ivy International Value Fund, Ivy Pacific Opportunities Fund, Ivy US Blue Chip Fund and Ivy US Emerging Growth Fund, as well as Class I shares for Ivy Bond Fund, Ivy Cundill Global Value Fund, Ivy European Opportunities Fund, Ivy Global Science & Technology Fund, Ivy International Fund, Ivy International Growth Fund, Ivy International Small Companies Fund, Ivy International Value Fund and Ivy US Blue Chip Fund. Under the Declaration of Trust, the Trustees may terminate any Fund without shareholder approval. This might occur, for example, if a Fund does not reach or fails to maintain an economically viable size. Shareholders have the right to vote for the election of Trustees of the Trust and on any and all matters on which they may be entitled to vote by law or by the provisions of the Trust's By-Laws. The Trust is not required to hold a regular annual meeting of shareholders, and it does not intend to do so. Shares of each class of each Fund entitle their holders to one vote per share (with proportionate voting for fractional shares). Shareholders of each Fund are entitled to vote alone on matters that only affect that Fund. All classes of shares of each Fund will vote together, except with respect to the distribution plan applicable to the Fund's Class A, Class B or Class C shares or when a class vote is required by the 1940 Act. On matters relating to all funds of the Trust, but affecting the funds differently, separate votes by the shareholders of each fund are required. Approval of an investment advisory agreement and a change in fundamental policies would be regarded as matters requiring separate voting by the shareholders of each fund of the Trust. If the Trustees determine that a matter does not affect the interests of a Fund, then the shareholders of that Fund will not be entitled to vote on that matter. Matters that affect the Trust in general, such as ratification of the selection of independent certified public accountants, will be voted upon collectively by the shareholders of all funds of the Trust. As used in this SAI and the Prospectus, the phrase "majority vote of the outstanding shares" of a Fund means the vote of the lesser of: (1) 67% of the shares of that Fund (or of the Trust) present at a meeting if the holders of more than 50% of the outstanding shares are present in person or by proxy; or (2) more than 50% of the outstanding shares of that Fund (or of the Trust). With respect to the submission to shareholder vote of a matter requiring separate voting by a Fund, the matter shall have been effectively acted upon with respect to that Fund if a majority of the outstanding voting securities of the Fund votes for the approval of the matter, notwithstanding that: (1) the matter has not been approved by a majority of the outstanding voting securities of any other fund of the Trust; or (2) the matter has not been approved by a majority of the outstanding voting securities of the Trust. 81 The Declaration of Trust provides that the holders of not less than two-thirds of the outstanding shares of the Trust may remove a person serving as trustee either by declaration in writing or at a meeting called for such purpose. The Trustees are required to call a meeting for the purpose of considering the removal of a person serving as Trustee if requested in writing to do so by the holders of not less than 10% of the outstanding shares of the Trust. Shareholders will be assisted in communicating with other shareholders in connection with the removal of a Trustee as if Section 26(c) of the Act were applicable. The Trust's shares do not have cumulative voting rights and accordingly the holders of more than 50% of the outstanding shares could elect the entire Board, in which case the holders of the remaining shares would not be able to elect any Trustees. Under Massachusetts law, the Trust's shareholders could, under certain circumstances, be held personally liable for the obligations of the Trust. However, the Declaration of Trust disclaims liability of the shareholders, Trustees or officers of the Trust for acts or obligations of the Trust, which are binding only on the assets and property of the Trust, and requires that notice of the disclaimer be given in each contract or obligation entered into or executed by the Trust or its Trustees. The Declaration of Trust provides for indemnification out of Fund property for all loss and expense of any shareholder of any Fund held personally liable for the obligations of that Fund. The risk of a shareholder of the Trust incurring financial loss on account of shareholder liability is limited to circumstances in which the Trust itself would be unable to meet its obligations and, thus, should be considered remote. No series of the Trust is liable for the obligations of any other series of the Trust. SPECIAL RIGHTS AND PRIVILEGES The Trust offers, and (except as noted below) bears the cost of providing, to investors the following rights and privileges. The Trust reserves the right to amend or terminate any one or more of these rights and privileges. Notice of amendments to or terminations of rights and privileges will be provided to shareholders in accordance with applicable law. Certain of the rights and privileges described below refer to funds, other than the Funds, whose shares are also distributed by IMDI. These funds are: Ivy Bond Fund, Ivy Cundill Global Value Fund, Ivy Growth Fund, Ivy International Fund, Ivy International Growth Fund, Ivy Money Market Fund, Ivy US Blue Chip Fund and Ivy US Emerging Growth Fund (the other eight series of the Trust). Shareholders should obtain a current prospectus before exercising any right or privilege that may relate to these funds. AUTOMATIC INVESTMENT METHOD The Automatic Investment Method, which enables a Fund shareholder to have specified amounts automatically drawn each month from his or her bank for investment in Fund shares, is available for all classes of shares, except Class I. The minimum initial and subsequent investment under this method is $50 per month, $250 for Advisor Class shares (except in the case of a tax qualified 82 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 PFPC of telephone instructions or written notice. See "Automatic Investment Method" in the Prospectus. To begin the plan, complete Sections 8 and 9 of the Account Application. EXCHANGE OF SHARES As described in the Prospectus, shareholders of each Fund have an exchange privilege with other Ivy funds. Before effecting an exchange, shareholders of a Fund should obtain and read the currently effective prospectus for the Ivy fund into which the exchange is to be made. A 2% redemption fee or short-term trading fee will be imposed on redemptions and exchanges of Class A shares of each Fund made within 30 days of purchase. In addition, a 2% redemption fee or short-term trading fee will be imposed on redemptions and exchanges of Class B, C and Advisor Class shares of Ivy Developing Markets Fund and Ivy Pacific Opportunities Fund. These fees will be retained by the Fund. See "Redemptions" below. 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 PFPC of telephone instructions by PFPC or a properly executed request. Exchanges, whether written or telephonic, must be received by PFPC 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" below. 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 advisor regarding the tax consequences of an exchange transaction. INITIAL SALES CHARGE SHARES. Generally, 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 83 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). In certain short-term transactions, Class A shares of each Fund, and Class B, C and Advisor Class shares of Ivy Developing Markets Fund and Ivy Pacific Opportunities Fund, may be subject to a fee upon redemption or exchange. See "REDEMPTIONS' below. 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. 84 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 Bond Fund, Ivy Cundill Global Value Fund, Ivy Developing Markets Fund, Ivy European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund, Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy International Fund, Ivy International Growth Fund, Ivy International Small Companies Fund, Ivy International Value Fund, Ivy Pacific Opportunities Fund, Ivy US Blue Chip Fund and Ivy US Emerging Growth Fund. CONTINGENT DEFERRED SALES CHARGE AS A PERCENTAGE YEAR SINCE PURCHASE OF DOLLAR AMOUNT SUBJECT TO CHARGE - ------------------- ------------------------------------------------ First 5% Second 4% Third 3% Fourth 3% Fifth 2% Sixth 1% Seventh and thereafter 0% CLASS C: Class C shareholders may exchange their Class C shares ("outstanding Class C shares") for Class C shares of another Ivy fund ("new Class C shares") on the basis of the relative net asset value per Class C share, without the payment of any CDSC that would otherwise be due upon redemption. (Class C shares are subject to a CDSC of 1.00% if redeemed within one year of the date of purchase.) CLASS I AND ADVISOR CLASS: Subject to the restrictions set forth in the following paragraph, Class I and Advisor Class shareholders may exchange their outstanding shares for the same class of 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; $10,000 in the case of Advisor Class). 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; $10,00 in the case of Advisor Class). 85 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 PFPC of telephone instructions by PFPC or a properly executed request. Exchanges, whether written or telephonic, must be received by PFPC 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 advisor 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 Bond Fund, Ivy Cundill Global Value Fund, Ivy Developing Markets Fund, Ivy European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund, Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy International Fund, Ivy International Growth Fund, Ivy International Small Companies Fund, Ivy International Value Fund, Ivy Pacific Opportunities Fund, Ivy US Blue Chip Fund and Ivy US Emerging Growth Fund (and shares that have been exchanged into Ivy Money Market Fund from any of the other funds in the Ivy Funds) held of record by him or her as of the date of his or her Letter of Intent. During the term of the Letter of Intent, the Transfer Agent will hold Class A shares representing 5% of the indicated amount (less any accumulation credit value) in escrow. The escrowed Class A shares will be released when the full indicated amount has been purchased. If the full indicated amount is not purchased during the term of the Letter of Intent, the investor is required to pay IMDI an amount equal to the difference between the dollar amount of sales charge that he or she has paid and that which he or she would have paid on his or her aggregate purchases if the total of such purchases had been made at a single time. Such payment will be 86 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 PFPC, 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, for years 2002 through 2004, an eligible individual may contribute up to the lesser of $3,000 ($3,500 if 50 or older) 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 $3,000 ($3,500 if 50 or older) per year, the maximum potential contribution is $6,000 ($7,000 if 50 or older) 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 $6,000 ($7,000 if 50 or older), a contribution of up to $3,000 ($3,500 if 50 or older) may be made to each spouse's IRA. Rollover contributions are not subject to these limits. 87 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 $3,000 ($3,500 if 50 or older) per year to a Roth IRA for years 2002 through 2004. 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 $6,000 ($7,000 if 50 or older) per year ($3,000 per IRA) ($3,500 if 50 or older). 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 $3,000 ($3,500 if 50 or older). 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. 88 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 PFPC. 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 $40,000 or 100% of compensation or earned income to a money purchase pension plan or to a profit sharing plan each year on behalf of each participant. To be deductible, total contributions to a money purchase plan or profit sharing plan 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 $200,000 for benefits accruing in plan years beginning after 2001, 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 severance from employment. 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) 89 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 one or more Funds in conjunction with such an arrangement. The special application for a 403(b)(7) Account is available from PFPC. Distributions from the 403(b)(7) Account may be made only following death, disability, severance from employment, 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 $40,000 or 25% 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 $7,000 for 2002 (as increased for 2003 through 2005 and indexed thereafter). 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 90 will be made at the net asset value next determined after receipt by PFPC 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, PFPC 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 PFPC of a written election to have his or her shares withdrawn periodically ($250 minimum distribution amount in the case of Advisor Class shares), accompanied by a surrender to PFPC 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 Class A, B or C shareholder must have at least $5,000 in his or her account; an Advisor Class shareholder must have at least $10,000 in his or her account. A Withdrawal Plan may not be established if the investor is currently participating in the Automatic Investment Method. A Withdrawal Plan may involve the depletion of a shareholder's principal, depending on the amount withdrawn. A redemption under a Withdrawal Plan is a taxable event. Shareholders contemplating participating in a Withdrawal Plan should consult their tax advisors. 91 Additional investments made by investors participating in a Withdrawal Plan must equal at least $1,000 each for Class A, B or C shareholders and at least $250 for Advisor Class shareholders 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 PFPC. If all shares held by the investor are liquidated at any time, participation in the Withdrawal Plan will terminate automatically. The Trust or PFPC 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) 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"); 92 (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 PFPC, less any applicable CDSC or redemption fee. Unless a shareholder requests that the proceeds of any redemption be wired to his or her bank account, payment for shares tendered for redemption is made by check within seven days after tender in proper form, except that the Trust reserves the right to suspend the right of redemption or to postpone the date of payment upon redemption beyond seven days, (i) for any period during which the Exchange is closed (other than customary weekend and holiday closings) or during which trading on the Exchange is restricted, (ii) for any period during which an emergency exists as determined by the SEC as a result of which disposal of securities owned by a Fund is not reasonably practicable or it is not reasonably practicable for a Fund to fairly determine the value of its net assets, or (iii) for such other periods as the SEC may by order permit for the protection of shareholders of any Fund. Under unusual circumstances, when the Board deems it in the best interest of a Fund's shareholders, the Fund may make payment for shares repurchased or redeemed in whole or in part in securities of that Fund taken at current values. If any such redemption in kind is to be made, each Fund may make an election pursuant to Rule 18f-1 under the 1940 Act. This will require the particular Fund to redeem with cash at a shareholder's election in any case where the redemption involves less than $250,000 (or 1% of that Fund's net asset 93 value at the beginning of each 90-day period during which such redemptions are in effect, if that amount is less than $250,000). Should payment be made in securities, the redeeming shareholder may incur brokerage costs in converting such securities to cash. The Trust may redeem those accounts of shareholders who have maintained an investment, including sales charges paid, of less than $1000 in any Fund for a period of more than 12 months for Class A, B, C or I shareholders; $10,000 or less for Advisor Class shareholders 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 for Class A, B, C and I shareholders and $10,000 balance for Advisor Class shareholders 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 certain retirement plans or accounts who wish to avoid tax consequences must "rollover" any sum so redeemed into another eligible 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. Class A shares of each Fund; and Class B, C and Advisor Class shares of Ivy Developing Markets Fund and Ivy Pacific Opportunities Fund, held for less than 30 days are redeemable at a price equal to 98% of the then current net asset value per share. This 2% discount, also referred to in the Prospectus and this statement of additional information as a redemption fee, exchange fee or short-term trading fee, directly affects the amount that a shareholder who is subject to the discount receives upon exchange or redemption. It is intended to encourage long-term investment in the Fund, to avoid transaction and other expenses caused by early redemptions and to facilitate portfolio management. The fee is not a deferred sales charge, is not a commission paid to IMI or its subsidiaries, and does not benefit IMI in any way. The Fund reserves the right to modify the terms of or terminate this fee at any time. 94 The redemption discount generally be waived for any redemption of Class A shares (a) Class A shares purchased through certain retirement and educational plans, including 401(k) plans, 403(b) plans, 457 plans, Keogh accounts, Profit Sharing and Money Purchase Pension Plans and 529 plans, (b) purchased through the reinvestment of dividends or capital gains distributions paid by the Fund, (c) due to the death of the registered shareholder of a Fund account, or, due to the death of all registered shareholders of a Fund account with more than one registered shareholder, (i.e., joint tenant account), upon receipt by PFPC of appropriate written instructions and documentation satisfactory to the PFPC, or (d) by the Fund upon exercise of its right to liquidate accounts (i) falling below the minimum account size by reason of shareholder redemptions or (ii) when the shareholder has failed to provide tax identification information. However, if shares are purchased for a retirement plan account through a broker, financial institution or recordkeeper maintaining an omnibus account for the shares, these waivers may not apply. (Before purchasing shares, please check with your account representative concerning the availability of the fee waivers.) In addition, these waivers do not apply to IRA and SEP-IRA accounts. For this purpose and without regard to the shares actually redeemed, shares will be treated as redeemed as follows: first, reinvestment shares; second, purchased shares held 30 days or more; and third, purchased shares held for less than 30 days. Finally, if a redeeming shareholder acquires shares through a transfer from another shareholder, the applicability of the discount, if any, will be determined by reference to the date the shares were originally purchased, and not from the date of transfer between shareholders. 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 95 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 market 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 the time as of which such rate is determined by an approved pricing source. 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 asked price, in the case of a written option, and the last bid price, in the case of a purchased option. An OTC traded option is valued at the last asked 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. IMI will monitor for significant events that may call into question the reliability of market quotations. Such events may include situations relating to a single security in a market sector, significant fluctuations in U.S. or foreign markets, natural disasters, armed conflicts, governmental actions or other developments not tied directly to the securities markets. 96 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 PFPC 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 advisor 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. 97 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 98 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 before the end of the 30th day after the close of a Fund's taxable year, if the position is held throughout the 60-day period beginning on the date the transaction is closed and certain other 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" 99 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. 100 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 101 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 102 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 advisors. 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 30% ("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 advisors 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 103 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, Class I (where applicable) and Advisor Class 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. 104 IVY DEVELOPING MARKETS FUND STANDARDIZED RETURN[*]
- -------------------------------------------------------------------------------------------------------- CLASS A[1] CLASS B[2] CLASS C[3] ADVISOR CLASS[4] - -------------------------- ----------------- ------------------ ------------------ --------------------- Year ended December 31, 2001: (10.00)% (10.71)% (6.92)% (5.07)% - -------------------------- ----------------- ------------------ ------------------ --------------------- Return after taxes on distributions *** (9.74)% N/A N/A N/A - -------------------------- ----------------- ------------------ ------------------ --------------------- Return after taxes on distributions and sale of fund shares *** (8.57)% N/A N/A N/A - -------------------------- ----------------- ------------------ ------------------ --------------------- Five years ended December 31, 2001 (8.39)% (8.53)% (8.13)% N/A - -------------------------- ----------------- ------------------ ------------------ --------------------- Return after taxes on distributions *** (8.58)% N/A N/A N/A - -------------------------- ----------------- ------------------ ------------------ --------------------- Return after taxes on distributions and sale of fund shares *** (6.86)% N/A N/A N/A - -------------------------- ----------------- ------------------ ------------------ --------------------- Inception [#] to year ended December 31, 2001[8]: (5.55)% (5.60)% (6.92)% (3.87)% - -------------------------- ----------------- ------------------ ------------------ --------------------- Return after taxes on distributions *** (5.74)% N/A N/A N/A - -------------------------- ----------------- ------------------ ------------------ --------------------- Return after taxes on distributions and sale of fund shares *** (4.49)% N/A N/A N/A - --------------------------------------------------------------------------------------------------------
105 NON-STANDARDIZED RETURN[**]
- -------------------------- ----------------- ------------------ ------------------ --------------------- CLASS A[5] CLASS B[6] CLASS C[7] ADVISOR CLASS[4] - -------------------------- ----------------- ------------------ ------------------ --------------------- Year ended December 31, 2001: (4.50)% (6.01)% (5.98)% (5.07)% - -------------------------- ----------------- ------------------ ------------------ --------------------- Five years ended December 31, 2001 (7.30)% (8.16)% (8.13)% N/A - -------------------------- ----------------- ------------------ ------------------ --------------------- Inception [#] to year ended December 31, 2001[8]: (4.77)% (5.60)% (6.92)% (3.87)% - -------------------------- ----------------- ------------------ ------------------ ---------------------
[*] 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. [***] After-tax returns are calculated using the historical highest individual federal marginal income tax rates. State and local tax rates are not included in the tax effect. [#] 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. The inception date for Advisor Class shares was April 30, 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, 2001 and the one year and five year periods ended December 31, 2001 would have been (7.19)%, (11.93)%, and (9.57)%, 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, 2001 and the one year and five year periods ended December 31, 2001 would have been (7.23)%, (12.69)%, and (9.73)%, respectively. [3] The Standardized Return figures for the Class C shares reflect expense reimbursement. Without expense reimbursement, the Standardized Return 106 for Class C shares for the period from inception through December 31, 2001 and the one year and five year periods ended December 31, 2001 would have been (8.10)%, (8.97)% and (9.43)%, respectively. [4] The Standardized Return figures for the Advisor Class shares reflect expense reimbursement. Without expense reimbursement, the Standardized Return for Advisor Class shares for the period from inception through December 31, 2001 and the one year ended December 31, 2001 would have been (5.40)% and (7.25)%, respectively. (Since the inception date for Advisor Class shares was April 30, 1998, there were no outstanding Advisor Class shares for the duration of the five year period ended December 31, 2001.) Advisor Class shares are not subject to an initial sales charge or a CDSC; therefore the Standardized and Non-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, 2001 and the one year and five year periods ended December 31, 2001 would have been (6.41)%, (6.55)%, and (8.50)%, 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, 2001 and the one year and five year periods ended December 31, 2001 would have been (7.23)%, (8.09)%, and (9.36)%, 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, 2001 and the one year and five year periods ended December 31, 2001 would have been (8.10)%, (8.05)% and (9.43)%, respectively. [8] The total return for a period less than a full year is calculated on an aggregate basis and is not annualized. 107 IVY EUROPEAN OPPORTUNITIES FUND STANDARDIZED RETURN[*]
- ----------------------------------------------------------------------------------------------------------------------- CLASS A[1] CLASS B[2] CLASS C[3] CLASS I[4] ADVISOR CLASS[5] - ----------------------- ------------------- -------------------- ------------------ ----------------- ----------------- Year ended December 31, 2001: (25.22)% (25.28)% (22.12)% (20.46)% (20.44)% - ----------------------- ------------------- -------------------- ------------------ ----------------- ----------------- Return after taxes on distributions *** (25.30)% N/A N/A N/A N/A - ----------------------- ------------------- -------------------- ------------------ ----------------- ----------------- Return after taxes on distributions and sale of Fund shares *** (11.16)% N/A N/A N/A N/A - ----------------------- ------------------- -------------------- ------------------ ----------------- ----------------- Inception [#] to year ended December 31, 2001[9]: 40.40% 42.05% 10.41% (28.07)% 43.97% - ----------------------- ------------------- -------------------- ------------------ ----------------- ----------------- Return after taxes on distributions *** 39.68% N/A N/A N/A N/A - ----------------------- ------------------- -------------------- ------------------ ----------------- ----------------- Return after taxes on distributions and sale of Fund shares *** 33.03% N/A N/A N/A N/A - -----------------------------------------------------------------------------------------------------------------------
108 NON-STANDARDIZED RETURN[**]
- ----------------------------------------------------------------------------------------------------------------------- CLASS A[6] CLASS B[7] CLASS C[8] CLASS I[4] ADVISOR CLASS[5] - ----------------------- ------------------- -------------------- ------------------ ----------------- ----------------- Year ended December 31, 2001: (20.66)% (21.35)% (21.33)% (20.46)% (20.44)% - ----------------------- ------------------- -------------------- ------------------ ----------------- ----------------- Inception [#] to year ended December 31, 2001[9]: 43.56% 42.79% 10.41% (28.07)% 43.97% - ----------------------- ------------------- -------------------- ------------------ ----------------- -----------------
[*] 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. [***] After-tax returns are calculated using the historical highest individual federal marginal income tax rates. State and local tax rates are not included in the tax effect. [#] The inception date for the Fund (Class A shares) was May 4, 1999 (performance is calculated based on the date the Fund first became available for sale to the public, May 5, 1999). The inception dates for Class B, Class C, Class I and Advisor Class were May 24, 1999, October 24, 1999, March 16, 2000 and May 3, 1999, 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, 2001 and the one year ended December 31, 2001 would have been 40.21% and (25.22)%, 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, 2001 and the one year period ended December 31, 2001 would have been 41.89% and (25.28)%, respectively. [3] The Standardized Return figures for the Class C shares reflect expense reimbursement. Without expense reimbursement, the Standardized Return for Class C shares for the period from inception through December 31, 2001 and the one year period ended December 31, 2001 would have been 10.27% and (22.12)%, respectively. [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 Standardized Return figures for the Advisor Class shares reflect expense reimbursement. Without expense reimbursement, the Standardized Return for Advisor Class shares for the period from inception through December 31, 2001 and the one year period ended December 31, 2001 would have been 43.58% 109 and (20.44)% respectively. (Since the inception date for Advisor Class shares was May 3, 1999, there were no outstanding Advisor Class shares for the duration of the five year period ended December 31, 2000.) Advisor Class shares are not subject to an initial sales charge or a CDSC; therefore the Standardized and Non-Standardized Return figures are identical. [6] 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, 2001 and the one year period ended December 31, 2001 would have been 43.37% and (20.66)%, respectively. [7] 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, 2001 and the one year period ended December 31, 2001 would have been 42.54% and (21.35)%, respectively. [8] 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, 2001 and the one year period ended December 31, 2001 would have been 10.27% and (21.33)%, respectively. [9] The total return for a period less than a full year is calculated on an aggregate basis and is not annualized. 110 IVY GLOBAL FUND STANDARDIZED RETURN[*]
- --------------------------------------------------------------------------------------------------------- CLASS A[1] CLASS B[2] CLASS C[3] ADVISOR CLASS[4] - ------------------------- ----------------- ------------------ ------------------ ----------------------- Year ended December 31, 2001 (22.41)% (22.89)% (19.74)% (17.99)% - ------------------------- ----------------- ------------------ ------------------ ----------------------- Return after taxes on distributions *** (22.41)% N/A N/A N/A - ------------------------- ----------------- ------------------ ------------------ ----------------------- Return after taxes on distributions and sale of Fund shares *** (15.27)% N/A N/A N/A - ------------------------- ----------------- ------------------ ------------------ ----------------------- Five years ended December 31, 2001 (3.57)% (3.63)% (3.49)% N/A - ------------------------- ----------------- ------------------ ------------------ ----------------------- Return after taxes on distributions *** (4.70)% N/A N/A N/A - ------------------------- ----------------- ------------------ ------------------ ----------------------- Return after taxes on distributions and sale of Fund shares *** (2.41)% N/A N/A N/A - ------------------------- ----------------- ------------------ ------------------ ----------------------- Ten years ended December 31, 2001 3.27% N/A N/A N/A - ------------------------- ----------------- ------------------ ------------------ ----------------------- Return after taxes on distributions *** 1.80% N/A N/A N/A - ------------------------- ----------------- ------------------ ------------------ ----------------------- Return after taxes on distributions and sale of Fund shares *** 2.35% N/A N/A N/A - ------------------------- ----------------- ------------------ ------------------ -----------------------
111 NON-STANDARDIZED RETURN[**]
- --------------------------------------------------------------------------------------------------------- CLASS A[5] CLASS B[6] CLASS C[7] ADVISOR CLASS[4] - ------------------------- ----------------- ------------------ ------------------ ----------------------- Year ended December 31, 2001 (18.06)% (18.83)% (18.93)% (17.99)% - ------------------------- ----------------- ------------------ ------------------ ----------------------- Five years ended December 31, 2001 (2.42)% (3.24)% (3.49)% N/A - ------------------------- ----------------- ------------------ ------------------ ----------------------- Ten years ended December 31, 2001 3.88% N/A N/A N/A - ------------------------- ----------------- ------------------ ------------------ ----------------------- Inception [#] to year ended December 31, 2001[8]: 4.31% 0.87% (2.57)% (5.70)% - ------------------------- ----------------- ------------------ ------------------ -----------------------
[*] 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. [***] After-tax returns are calculated using the historical highest individual federal marginal income tax rates. State and local tax rates are not included in the tax effect. [#] 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. The inception date for Advisor Class shares was April 30, 1998. Until December 31, 1994, Mackenzie Investment Management Inc. served as investment advisor to the Fund. 112 [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, 2001 and the one, five and ten year periods ended December 31, 2001 would have been 2.88%, (22.41)%, (4.39)% and 2.68%, 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, 2001 and the one and five year periods ended December 31, 2001 would have been 0.28%, (24.59)% and (4.44)%, respectively. [3] The Standardized Return figures for the Class C shares reflect expense reimbursement. Without expense reimbursement, the Standardized Return for Class C shares for the period from inception through December 31, 2001 and the one year and five year periods ended December 31, 2001 would have been (3.32)%, (21.48)% and (4.34)%, 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, 2000.) [4] The Standardized Return figures for the Advisor Class shares reflect expense reimbursement. Without expense reimbursement, the Standardized Return for Advisor Class shares for the period from inception through December 31, 2001 and the one year period ended December 31, 2001 would have been (7.13)% and (19.71)%, respectively. (Since the inception date for Advisor Class shares was April 30, 1998, there were no outstanding Advisor Class shares for the duration of the five year period ended December 31, 2001.) Advisor Class shares are not subject to an initial sales charge or a CDSC; therefore the Standardized and Non-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, 2001 and the one, five and ten year periods ended December 31, 2001 would have been 3.46%, (19.80)%, (3.25)% and 3.29%, 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, 2001 and the one and five year periods ended December 31, 2001 would have been 0.28%, (20.62)% and (4.05)%, 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, 2001 and the one and five year periods ended December 31, 2001 would have been (3.32)%, (20.68)% and (4.34)%, 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, 2001.) [8] The total return for a period less than a full year is calculated on an aggregate basis and is not annualized. 113 IVY GLOBAL NATURAL RESOURCES FUND STANDARDIZED RETURN[*]
- -------------------------------------------------------------------------------------------------------- CLASS A[1] CLASS B[2] CLASS C[3] ADVISOR CLASS[4] - ------------------------- ----------------- ------------------ ------------------ ---------------------- Year ended December 31, 2001: 8.76% 9.73% 13.61% 15.71% - ------------------------- ----------------- ------------------ ------------------ ---------------------- Return after taxes on distributions *** 8.24% N/A N/A N/A - ------------------------- ----------------- ------------------ ------------------ ---------------------- Return after taxes on distributions and sale of Fund shares *** 3.10% N/A N/A N/A - ------------------------- ----------------- ------------------ ------------------ ---------------------- Inception [#] to year ended December 31, 2001[8]: 4.95% 5.04% 5.16% 19.32% - ------------------------- ----------------- ------------------ ------------------ ---------------------- Return after taxes on distributions *** 3.76% N/A N/A N/A - ------------------------- ----------------- ------------------ ------------------ ---------------------- Return after taxes on distributions and sale of Fund shares *** 3.31% N/A N/A N/A - --------------------------------------------------------------------------------------------------------
114 NON-STANDARDIZED RETURN[**]
- -------------------------------------------------------------------------------------------------------- CLASS A[5] CLASS B[6] CLASS C[7] ADVISOR CLASS[4] - ------------------------- ----------------- ------------------ ------------------ ---------------------- Year ended December 31, 2001: 15.39% 14.73% 14.61% 15.71% - ------------------------- ----------------- ------------------ ------------------ ---------------------- Inception [#] to year ended December 31, 2001[8]: 6.20% 5.52% 5.16% 19.32% - ------------------------- ----------------- ------------------ ------------------ ----------------------
[*] 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. [***] After-tax returns are calculated using the historical highest individual federal marginal income tax rates. State and local tax rates are not included in the tax effect. [#] The inception date for Class A, B and C shares was January 1, 1997. The inception date for Advisor Class shares was April 8, 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, 2001 and the one year period ended December 31, 2001 would have been 2.66% and 7.12%, 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, 2001 and the one year period ended December 31, 2001 would have been 2.87% and 8.15%, 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, 2001 and the one year period ended December 31, 2001 would have been 2.55% and 11.95%, respectively. [4] The Standardized Return figures for the Advisor Class shares reflect expense reimbursement. Without expense reimbursement, the Standardized Return for Advisor Class shares for the period from inception through December 115 31, 2001 and the one year period ended December 31, 2001 would have been 16.36% and 13.98%, respectively. (Since the inception date for Advisor Class shares was April 8, 1999, there were no outstanding Advisor Class shares for the duration of the five year period ended December 31, 2001.) Advisor Class shares are not subject to an initial sales charge or a CDSC; therefore the Standardized and Non-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, 2001 and the one year period ended December 31, 2001 would have been 3.88% and 13.66%, 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, 2001 and the one year period ended December 31, 2001 would have been 3.35% and 13.08%, 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, 2001 and the one year period ended December 31, 2001 would have been 2.55% and 12.94%, respectively. [8] The total return for a period less than a full year is calculated on an aggregate basis and is not annualized. 116 IVY GLOBAL SCIENCE & TECHNOLOGY FUND STANDARDIZED RETURN[*]
- ----------------------------------------------------------------------------------------------------------------------- CLASS A[1] CLASS B[2] CLASS C[3] CLASS I[4] ADVISOR CLASS[5] - ---------------------------- -------------- ------------------ ------------------ ------------------ ------------------ Year ended December 31, 2001 (54.43)% (54.41)% (52.54)% N/A (51.56)% - ---------------------------- -------------- ------------------ ------------------ ------------------ ------------------ Return after taxes on distributions *** (54.43)% N/A N/A N/A N/A - ---------------------------- -------------- ------------------ ------------------ ------------------ ------------------ Return after taxes on distributions and sale of Fund shares *** 1.17% N/A N/A N/A N/A - ---------------------------- -------------- ------------------ ------------------ ------------------ ------------------ Five years ended December 31, 2001 (3.59)% (3.58)% (3.16)% N/A N/A - ---------------------------- -------------- ------------------ ------------------ ------------------ ------------------ Return after taxes on distributions *** (3.91)% N/A N/A N/A N/A - ---------------------------- -------------- ------------------ ------------------ ------------------ ------------------ Return after taxes on distributions and sale of Fund shares *** (1.95)% N/A N/A N/A N/A - ---------------------------- -------------- ------------------ ------------------ ------------------ ------------------ Inception [#] to year ended December 31, 2001: [9] 5.93% 6.22% 6.43% N/A (8.45)% - ---------------------------- -------------- ------------------ ------------------ ------------------ ------------------ Return after taxes on distributions *** 5.60% N/A N/A N/A N/A - ---------------------------- -------------- ------------------ ------------------ ------------------ ------------------ Return after taxes on distributions and sale of Fund shares *** 5.25% N/A N/A N/A N/A - ---------------------------- -------------- ------------------ ------------------ ------------------ ------------------
117 NON-STANDARDIZED RETURN[**]
- ----------------------------------------------------------------------------------------------------------------------- CLASS A[6] CLASS B[7] CLASS C[8] CLASS I[4] ADVISOR CLASS[5] - ------------------------- ----------------- ------------------ ------------------ ------------------ ------------------ Year ended December 31, 2001 (51.65)% (52.01)% (52.06)% N/A (51.56)% - ------------------------- ----------------- ------------------ ------------------ ------------------ ------------------ Five years ended December 31, 2001 (2.44)% (3.19)% (3.16)% N/A N/A - ------------------------- ----------------- ------------------ ------------------ ------------------ ------------------ Inception [#] to year ended December 31, 2001: [9] 7.09% 6.36% 6.43% N/A (8.45)% - ------------------------- ----------------- ------------------ ------------------ ------------------ ------------------
[*] 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 and Advisor Class 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. [***] After-tax returns are calculated using the historical highest individual federal marginal income tax rates. State and local tax rates are not included in the tax effect. [#] The inception date for the Fund (and Class A, Class B, Class C and Class I shares of the Fund) was July 22, 1996. The inception date for Advisor Class shares was April 15, 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, 2001 and the one and five year periods ended December 31, 2001 would have been 5.84%, (54.56)% and (3.64)%, 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, 2001 and the one and five year periods ended December 31, 2001 would have been 6.15%, (54.55)% and (3.64)%, respectively. [3] The Standardized Return figures for the Class C shares reflect expense reimbursement. Without expense reimbursement, the Standardized Return for Class C shares for the period from inception through December 31, 2001 and the one and five year periods ended December 31, 2001 would have been 6.28%, (52.68)% and (3.28)%, respectively. 118 [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 Standardized Return figures for the Advisor Class shares reflect expense reimbursement. Without expense reimbursement, the Standardized Return for Advisor Class shares for the period from inception through December 31, 2001 and the one year period ended December 31, 2001 would have been (8.52)% and (51.70)%, respectively. (Since the inception date for Advisor Class shares was April 15, 1998, there were no outstanding Advisor Class shares for the duration of the five year period ended December 31, 2001.) Advisor Class shares are not subject to an initial sales charge or a CDSC; therefore the Standardized and Non-Standardized Return figures are identical. [6] 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, 2001 and the one and five year periods ended December 31, 2001 would have been 6.05%, (51.79)% and (3.86)%, respectively. [7] 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, 2001 and the one and five year periods ended December 31, 2001 would have been 6.29%, (52.16)% and (3.25)%, respectively. [8] 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, 2001 and the one and five year periods ended December 31, 2001 would have been 6.28%, (52.20)% and (3.28)%, respectively. [9] The total return for a period less than a full year is calculated on an aggregate basis and is not annualized. 119 IVY INTERNATIONAL SMALL COMPANIES FUND STANDARDIZED RETURN[*]
- ------------------------------------------------------------------------------------------------------------------- CLASS A[1] CLASS B[2] CLASS C[3] CLASS I[4] ADVISOR CLASS[5] - ----------------------- ----------------- ------------------ ------------------ ----------------- ----------------- Year ended December 31, 2001 (39.36)% (39.28)% (36.76)% N/A (35.44)% - ----------------------- ----------------- ------------------ ------------------ ----------------- ----------------- Return after taxes on distributions *** (39.27)% N/A N/A N/A N/A - ----------------------- ----------------- ------------------ ------------------ ----------------- ----------------- Return after taxes on distributions and sale of Fund shares *** (21.52)% N/A N/A N/A N/A - ----------------------- ----------------- ------------------ ------------------ ----------------- ----------------- Inception [#] to year ended December 31, 2001[9]: (3.97)% (3.93)% (3.50)% N/A (6.03)% - ----------------------- ----------------- ------------------ ------------------ ----------------- ----------------- Return after taxes on distributions *** (4.12)% N/A N/A N/A N/A - ----------------------- ----------------- ------------------ ------------------ ----------------- ----------------- Return after taxes on distributions and sale of Fund shares *** (3.22)% N/A N/A N/A N/A - ----------------------- ----------------- ------------------ ------------------ ----------------- -----------------
120 NON-STANDARDIZED RETURN[**]
- ------------------------------------------------------------------------------------------------------------------- CLASS A[6] CLASS B[7] CLASS C[8] CLASS I[4] ADVISOR CLASS[5] - ----------------------- ----------------- ------------------ ------------------ ----------------- ----------------- Year ended December 31, 2001 (35.66)% (36.09)% (36.13)% N/A (35.44)% - ----------------------- ----------------- ------------------ ------------------ ----------------- ----------------- Inception [#] to year ended December 31, 2001[9]: (2.82)% (3.53)% (3.50)% N/A (6.03)% - ----------------------- ----------------- ------------------ ------------------ ----------------- -----------------
[*] 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. [***] After-tax returns are calculated using the historical highest individual federal marginal income tax rates. State and local tax rates are not included in the tax effect. [#] 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. The inception date for Advisor Class shares was July 1, 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, 2001 and the one year period ended December 31, 2001 would have been (6.67)% and (39.96)%, respectively. [2] The Standardized Return figures for the Class B shares reflect expense reimbursement. Without expense reimbursement, the Standardized Return for Class B shares for the period from inception through December 31, 2001 and the one year period ended December 31, 2001 would have been (6.51)% and (39.90)%, 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, 2001 and the one year period ended December 31, 2001 would have been (6.35)% and (37.40)%, 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 Standardized Return figures for the Advisor Class shares reflect expense reimbursement. Without expense reimbursement, the Standardized Return for Advisor Class shares for the period from inception through December 31, 2001 and the one year period ended December 31, 2001 would have been (8.38)% 121 and (36.07)%, respectively. (Since the inception date for Advisor Class shares was July 1, 1999, there were no outstanding Advisor Class shares for the duration of the five year period ended December 31, 2001.) Advisor Class shares are not subject to an initial sales charge or a CDSC; therefore the Standardized and Non-Standardized Return figures are identical. [6] 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, 2001 and the one year period ended December 31, 2001 would have been (5.54)% and (36.29)%, respectively. [7] 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, 2001 and the one year period ended December 31, 2001 would have been (6.13)% and (36.73)%, respectively. [8] 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, 2001 and the one year period ended December 31, 2001 would have been (6.35)% and (36.76)%, respectively. [9] The total return for a period less than a full year is calculated on an aggregate basis and is not annualized. 122 IVY INTERNATIONAL VALUE FUND STANDARDIZED RETURN[*]
- -------------------------------------------------------------------------------------------------------------------- CLASS A[1] CLASS B[2] CLASS C[3] CLASS I[4] ADVISOR CLASS[5] - ----------------------- ----------------- ------------------ ------------------ ------------------ ----------------- Year ended December 31, 2001 (21.94)% (21.94)% (18.65)% N/A (16.96)% - ----------------------- ----------------- ------------------ ------------------ ------------------ ----------------- Return after taxes on distributions *** (21.79)% N/A N/A N/A N/A - ----------------------- ----------------- ------------------ ------------------ ------------------ ----------------- Return after taxes on distributions and sale of Fund shares *** (14.33)% N/A N/A N/A N/A - ----------------------- ----------------- ------------------ ------------------ ------------------ ----------------- Inception [#] to year ended December 31, 2001[9]: (2.60)% (2.53)% (2.11)% N/A (0.25)% - ----------------------- ----------------- ------------------ ------------------ ------------------ ----------------- Return after taxes on distributions *** (2.62)% N/A N/A N/A N/A - ----------------------- ----------------- ------------------ ------------------ ------------------ ----------------- Return after taxes on distributions and sale of Fund shares *** (2.22)% N/A N/A N/A N/A - ----------------------- ----------------- ------------------ ------------------ ------------------ -----------------
123 NON-STANDARDIZED RETURN[**]
- -------------------------------------------------------------------------------------------------------------------- CLASS A[6] CLASS B[7] CLASS C[8] CLASS I[4] ADVISOR CLASS[5] - ----------------------- ----------------- ------------------ ------------------ ------------------ ----------------- Year ended December 31, 2001 (17.17)% (17.83)% (17.83)% N/A (16.96)% - ----------------------- ----------------- ------------------ ------------------ ------------------ ----------------- Inception [#] to year ended December 31, 2001[9]: (1.35)% (2.10)% (2.11)% N/A (0.25)% - ----------------------- ----------------- ------------------ ------------------ ------------------ -----------------
[*] 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 and Advisor Class 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. [***] After-tax returns are calculated using the historical highest individual federal marginal income tax rates. State and local tax rates are not included in the tax effect. [#] The inception date for the Fund (and Class A, Class B, Class C and Class I shares of the Fund) was May 13, 1997; the inception date for Advisor Class shares was February 23, 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, 2001 and the one year period ended December 31, 2001 would have been (2.79)% and (22.27)%, 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, 2001 and the one year period ended December 31, 2001 would have been (2.73)% and (22.28)%, respectively. [3] The Standardized Return figures for the Class C shares reflect expense reimbursement. Without expense reimbursement, the Standardized Return for Class C shares for the period from inception through December 31, 2001 and the one year period ended December 31, 2001 would have been (2.31)% and (19.01)%, 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. 124 [5] The Standardized Return figures for the Advisor Class shares reflect expense reimbursement. Without expense reimbursement, the Standardized Return for Advisor Class shares for the period from inception through December 31, 2001 and the one year period ended December 31, 2001 would have been (0.57)% and (17.32)%, respectively. (Since the inception date for Advisor Class shares was February 23, 1998, there were no outstanding Advisor Class shares for the duration of the five year period ended December 31, 2001.) Advisor Class shares are not subject to an initial sales charge or a CDSC; therefore the Standardized and Non-Standardized Return figures are identical. [6] 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, 2001 and the one year period ended December 31, 2001 would have been (1.55)% and (17.53)%, respectively. [7] 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, 2001 and the one year period ended December 31, 2001 would have been (2.30)% and (18.19)%, respectively. [8] 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, 2001 and the one year period ended December 31, 2001 would have been (2.31)% and (18.19)%, respectively. [9] The total return for a period less than a full year is calculated on an aggregate basis and is not annualized. 125 IVY PACIFIC OPPORTUNITIES FUND STANDARDIZED RETURN[*]
- -------------------------------------------------------------------------------------------------------- CLASS A[1] CLASS B[2] CLASS C[3] ADVISOR CLASS[4] - ------------------------- ----------------- ------------------ ------------------ ---------------------- Year ended December 31, 2001 (14.50)% (14.84)% (11.15)% (9.58)% - ------------------------- ----------------- ------------------ ------------------ ---------------------- Return after taxes on distributions *** (14.56)% N/A N/A N/A - ------------------------- ----------------- ------------------ ------------------ ---------------------- Return after taxes on distributions and sale of Fund shares *** (11.82)% N/A N/A N/A - ------------------------- ----------------- ------------------ ------------------ ---------------------- Five years ended December 31, 2001 (8.66)% (8.72)% (8.28)% N/A - ------------------------- ----------------- ------------------ ------------------ ---------------------- Return after taxes on distributions *** (8.87)% N/A N/A N/A - ------------------------- ----------------- ------------------ ------------------ ---------------------- Return after taxes on distributions and sale of Fund shares *** (7.08)% N/A N/A N/A - ------------------------- ----------------- ------------------ ------------------ ---------------------- Inception [#] to year ended December 31, 2001[8]: (4.66)% (4.74)% (5.86)% (3.68)% - ------------------------- ----------------- ------------------ ------------------ ---------------------- Return after taxes on distributions *** (4.92)% - ------------------------- ----------------- ------------------ ------------------ ---------------------- Return after taxes on distributions and sale of Fund shares *** (3.81)% N/A N/A N/A - --------------------------------------------------------------------------------------------------------
126 NON-STANDARDIZED RETURN[**]
- -------------------------------------------------------------------------------------------------------- CLASS A[5] CLASS B[6] CLASS C[7] ADVISOR CLASS[4] - ------------------------- ----------------- ------------------ --------------------- ------------------- Year ended December 31, 2001 (9.29)% (10.36)% (10.25)% (9.58)% - ------------------------- ----------------- ------------------ --------------------- ------------------- Five years ended December 31, 2001 (7.57)% (8.35)% (8.28)% N/A - ------------------------- ----------------- ------------------ --------------------- ------------------- Inception [#] to year ended December 31, 2001[8]: (3.97)% (4.74)% (5.86)% (3.68)% - ------------------------- ----------------- ------------------ --------------------- -------------------
[*] 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. [***] After-tax returns are calculated using the historical highest individual federal marginal income tax rates. State and local tax rates are not included in the tax effect. [#] 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. The Inception date for Advisor Class shares was February 10, 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, 2001 and the one year and five year periods ended December 31, 2001 would have been (5.29)%, (15.70)%, and (9.37)%, respectively. [2] The Standardized Return figures for the Class B shares reflect expense reimbursement. Without expense reimbursement, the Standardized Return for Class B shares for the period from inception through December 31, 2001 and 127 the one year and five year periods ended December 31, 2001 would have been (5.56)%, (16.05)%, and (9.41)%, 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, 2001 and the one year period ended December 31, 2001 would have been (6.48)% and (12.41)%, 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, 2001.) [4] The Standardized Return figures for the Advisor Class shares reflect expense reimbursement. Without expense reimbursement, the Standardized Return for Advisor Class shares for the period from inception through December 31, 2001 and the one year period ended December 31, 2001 would have been (4.32)% and (10.86)%, respectively. (Since the inception date for Advisor Class shares was February 10, 1998, there were no outstanding Advisor Class shares for the duration of the five year period ended December 31, 2001.) Advisor Class shares are not subject to an initial sales charge or a CDSC; therefore the Standardized and Non-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, 2001 and the one year and five year periods ended December 31, 2001 would have been (4.60)%, (10.55)%, and (8.29)%, 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, 2001 and the one year and five year periods ended December 31, 2001 would have been (5.56)%, (11.63)% and (9.04)%, 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, 2001 and the one year period ended December 31, 2001 would have been (6.48)% and (11.52)%, 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, 2001.) [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 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 128 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 DEVELOPING MARKETS FUND The following table summarizes the calculation of Cumulative Total Return for the periods indicated through December 31, 2001, assuming the maximum 5.75% sales charge has been assessed.
ONE YEAR FIVE YEARS SINCE INCEPTION[*] -------- ---------- ------------------ Class A (10.00)% (35.49)% (33.60)% Class B (10.71)% (35.96)% (33.84)% Class C (6.92)% (34.56)% (33.43)% Advisor Class (5.07)% N/A (13.49)%
The following table summarizes the calculation of Cumulative Total Return for the periods indicated through December 31, 2001, assuming the maximum 5.75% sales charge has not been assessed.
ONE YEAR FIVE YEARS SINCE INCEPTION[*] -------- ---------- ------------------ Class A (4.50)% (31.56)% (29.55)% Class B (6.01)% (34.66)% (33.84)% Class C (5.98)% (34.56)% (33.43)% Advisor Class (5.07)% N/A (13.49)%
- --------------------------- [*] 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; the inception date for Advisor Class shares was April 30, 1998. 129 IVY EUROPEAN OPPORTUNITIES FUND The following table summarizes the calculation of Cumulative Total Return for the periods indicated through December 31, 2001, assuming the maximum 5.75% sales charge has been assessed. ONE YEAR SINCE INCEPTION[*] -------- ------------------ Class A (25.22)% 146.61% Class B (25.28)% 149.95% Class C (22.12)% 24.17% Class I (20.46)% (44.64)% Advisor Class (20.44)% 164.99% The following table summarizes the calculation of Cumulative Total Return for the periods indicated through December 31, 2001, assuming the maximum 5.75% sales charge has not been assessed. ONE YEAR SINCE INCEPTION[*] -------- ------------------ Class A (20.67)% 161.66% Class B (21.35)% 152.95% Class C (21.32)% 24.17% Class I (20.46)% (44.64)% Advisor Class (20.44)% 164.99% - --------------------------- [*] The inception date for Class A shares was May 4, 1999; the inception date for Class B shares was May 24, 1999; the inception date for Class C shares was October 24,1999; the inception date for Class I shares was March 16, 2000; the inception date for Advisor Class shares was May 3, 1999. IVY GLOBAL FUND The following table summarizes the calculation of Cumulative Total Return for the periods indicated through December 31, 2001, assuming the maximum 5.75% sales charge has been assessed.
ONE YEAR FIVE YEARS SINCE INCEPTION -------- ---------- --------------- Class A (22.77)% (16.63)% 48.03% Class B (22.89)% (16.87)% 6.91% Class C (19.74)% (16.28)% (13.71)% Advisor Class (17.99)% N/A (19.40)%
The following table summarizes the calculation of Cumulative Total Return for the periods indicated through December 31, 2001, assuming the maximum 5.75% sales charge has not been assessed. 130
ONE YEAR FIVE YEARS SINCE INCEPTION[*] -------- ---------- ------------------ Class A (18.06)% (11.54)% 57.06% Class B (18.83)% (15.17)% 6.91% Class C (18.93)% (16.28)% (13.71)% Advisor Class (17.99)% N/A (19.40)%
- --------------------------- [*] The inception date for the Class A shares of the Fund was April 18, 1991; the inception date for Class B shares of the Fund was April 1, 1994; the inception date for Class C shares of the Fund was April 30, 1996; the inception date for Advisor Class shares was April 30, 1998. Until December 31, 1994, Mackenzie Investment Management Inc. served as investment advisor 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, 2001, assuming the maximum 5.75% sales charge has been assessed.
ONE YEAR SINCE INCEPTION[*] -------- ------------------ Class A 8.76% 27.28% Class B 9.73% 27.78% Class C 13.61% 28.58% Advisor Class 15.71% 62.08%
The following table summarizes the calculation of Cumulative Total Return for Ivy Global Natural Resources Fund for the periods indicated through December 31, 2001, assuming the maximum 5.75% sales charge has not been assessed.
ONE YEAR SINCE INCEPTION[*] -------- ------------------ Class A 15.40% 35.04% Class B 14.73% 30.78% Class C 14.62% 28.58% Advisor Class 15.71% 62.08%
- --------------------------- [*] The inception date for the Fund's Class A, B and C shares was January 1, 1997; the inception date for the Fund's Advisor Class shares was April 8, 1999. 131 IVY GLOBAL SCIENCE & TECHNOLOGY FUND The following table summarizes the calculation of Cumulative Total Return for the periods indicated through December 31, 2001, assuming the maximum 5.75% sales charge has been assessed.
ONE YEAR FIVE YEARS SINCE INCEPTION[*] -------- ---------- ------------------ Class A (54.43)% (16.70)% 36.90% Class B (54.41)% (16.68)% 38.94% Class C (52.54)% (14.83)% 40.40% Class I** N/A N/A N/A Advisor Class (51.56)% N/A (27.96)%
The following table summarizes the calculation of Cumulative Total Return for the periods indicated through December 31, 2001, assuming the maximum 5.75% sales charge has not been assessed.
ONE YEAR FIVE YEARS SINCE INCEPTION[*] -------- ---------- ------------------ Class A (51.65)% (11.61)% 45.25% Class B (52.01)% (14.97)% 38.94% Class C (52.06)% (14.83)% 40.40% Class I** N/A N/A N/A Advisor Class (51.56)% N/A (27.96)%
- --------------------------- [*] The inception date for the Fund (Class A, Class B, Class C and I shares) was July 22, 1996; the inception date for Advisor Class shares was April 15, 1998. [**] There were no Class I shares outstanding for the periods indicated. IVY INTERNATIONAL SMALL COMPANIES FUND The following table summarizes the calculation of Cumulative Total Return for the periods indicated through December 31, 2001, assuming the maximum 5.75% sales charge has been assessed.
ONE YEAR SINCE INCEPTION [*] -------- ------------------- Class A (39.36)% (18.30)% Class B (39.28)% (18.13)% Class C (36.76)% (16.33)% Class I** N/A N/A Advisor Class (35.44)% (14.41)%
132 The following table summarizes the calculation of Cumulative Total Return for the periods indicated through December 31, 2001, assuming the maximum 5.75% sales charge has not been assessed.
ONE YEAR SINCE INCEPTION [*] -------- ------------------- Class A (35.65)% (13.32)% Class B (36.09)% (16.46)% Class C (36.13)% (16.33)% Class I** N/A N/A Advisor Class (35.44)% (14.41)%
- --------------------------- [*] The inception date for the Fund (Class A, Class B, Class C and Class I shares) was January 1, 1997; the inception date for the Fund's Advisor Class shares was July 1, 1999. [**] There were no Class I shares outstanding for the periods indicated. IVY INTERNATIONAL VALUE FUND The following table summarizes the calculation of Cumulative Total Return for the periods indicated through December 31, 2001, assuming the maximum 5.75% sales charge has been assessed.
ONE YEAR SINCE INCEPTION [*] -------- ------------------- Class A (21.94)% (11.49)% Class B (21.94)% (11.19)% Class C (18.65)% (9.43)% Class I** N/A N/A Advisor Class (17.03)% (0.96)%
The following table summarizes the calculation of Cumulative Total Return for the periods indicated through December 31, 2001, assuming the maximum 5.75% sales charge has not been assessed.
ONE YEAR SINCE INCEPTION [*] -------- ------------------- Class A (17.17)% (6.09)% Class B (17.84)% (9.38)% Class C (17.84)% (9.43)% Class I** N/A N/A Advisor Class (17.03)% (0.96)%
- --------------------------- [*] The inception date for the Fund (Class A, Class B, Class C and Class I shares) was May 13, 1997; the inception date for Advisor Class shares was February 23, 1998. [**] There were no Class I shares outstanding for the periods indicated. 133 IVY PACIFIC OPPORTUNITIES FUND The following table summarizes the calculation of Cumulative Total Return for the periods indicated through December 31, 2001, assuming the maximum 5.75% sales charge has been assessed.
ONE YEAR FIVE YEARS SINCE INCEPTION[*] -------- ---------- ------------------ Class A (14.50)% (8.66)% (32.38)% Class B (14.84)% (8.72)% (32.81)% Class C (11.15)% (8.28)% (29.00)% Advisor Class (9.58)% N/A (13.57)%
The following table summarizes the calculation of Cumulative Total Return for the periods indicated through December 31, 2001, assuming the maximum 5.75% sales charge has not been assessed.
ONE YEAR FIVE YEARS SINCE INCEPTION[*] -------- ---------- ------------------ Class A (9.29)% (7.57)% (28.25)% Class B (10.35)% (8.35)% (32.81)% Class C (10.25)% (8.28)% (29.00)% Advisor Class (9.58)% N/A (13.57)%
- --------------------------- [*] 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. The inception date for Advisor Class shares was February 10, 1998. OTHER QUOTATIONS, COMPARISONS AND GENERAL INFORMATION. The foregoing computation methods are prescribed for advertising and other communications subject to SEC Rule 482. Communications not subject to this rule may contain a number of different measures of performance, computation methods and assumptions, including but not limited to: historical total returns; results of actual or hypothetical investments; changes in dividends, distributions or share values; or any graphic illustration of such data. These data may cover any period of the Trust's existence and may or may not include the impact of sales charges, taxes or other factors. Performance quotations for each Fund will vary from time to time depending on market conditions, the composition of that Fund's portfolio and operating expenses of that Fund. These factors and possible differences in the methods used in calculating performance quotations should be considered when comparing performance information regarding a Fund's shares with information published for other investment companies and other investment vehicles. Performance quotations should also be considered relative to changes in the value of each Fund's shares and the risks associated with each Fund's investment objectives and policies. At any time in the future, performance quotations may be higher or lower than past performance quotations and there can be no 134 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 Schedule of Investments as of December 31, 2001, Statement of Assets and Liabilities as of December 31, 2001, Statement of Operations for the fiscal year ended December 31, 2001, Statement of Changes in Net Assets for the fiscal years ended December 31, 2001 and 2000, Financial Highlights, Notes to Financial Statements, and Report of Independent Certified Public Accountants, which are included in each Fund's December 31, 2001 Annual Report to shareholders, are incorporated by reference into this SAI. 135 APPENDIX A DESCRIPTION OF STANDARD & POOR'S RATINGS SERVICES ("S&P") AND MOODY'S INVESTORS SERVICE, INC. ("MOODY'S") CORPORATE BOND AND COMMERCIAL PAPER RATINGS [From Moody's Rating Definitions, www.moodys.com, December 2000, and "Standard & Poor's Municipal Ratings Handbook," September 2000 Issue (McGraw-Hill, New York, 2000).] MOODY'S: (a) CORPORATE BONDS. Aaa Bonds which are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edged." Interest payments are protected by a large or by an 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. Aa Bonds which are rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high-grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risk appear somewhat larger than the Aaa securities. A Bonds which are rated A 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 some time in the future. Baa Bonds which are rated Baa are considered as 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. Ba Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered as 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. B Bonds which are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. Caa 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. Ca 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. 136 C 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. Moody's short-term issuer ratings are opinions of the ability of issuers to honor senior financial obligations and contracts. These obligations have an original maturity not exceeding one year, unless explicitly noted. Moody's employs the following three designations, all judged to be investment grade, to indicate the relative repayment ability of rated issuers: Issuers rated Prime-1 (or supporting institutions) have a superior ability for repayment of senior short-term debt obligations. Prime-1 repayment ability will often be evidenced by many of the following characteristics: leading market positions in well-established industries; high rates of return on funds employed; conservative capitalization structure with moderate reliance on debt and ample asset protection; broad margins in earnings coverage of fixed financial charges and high internal cash generation; well-established access to a range of financial markets and assured sources of alternate liquidity. Issuers rated Prime-2 (or supporting institutions) have a strong ability for repayment of senior short-term debt obligations. This will normally be evidenced by many of the characteristics cited above but to a lesser degree. Earnings trends and coverage ratios, while sound, may be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained. Issuers rated Prime-3 (or supporting institutions) have an acceptable ability for repayment of senior short-term obligations. The effect of industry characteristics and market compositions may be more pronounced. Variability in earnings and profitability may result in changes in the level of debt protection measurements and may require relatively high financial leverage. Adequate alternate liquidity is maintained. Issuers rated Not Prime do not fall within any of the Prime rating categories. S&P: (a) LONG-TERM ISSUE CREDIT RATINGS. Issue credit ratings are based in varying degrees on the following considerations: o Likelihood of payment -- capacity and willingness of the obligor to meet its financial commitment on an obligation in accordance with the terms of the obligation; o Nature of and provisions of the obligation; and o Protection afforded by, and relative position of, the obligation in the event of bankruptcy, reorganization, or other arrangement under the laws of bankruptcy and other laws affecting creditors' rights. 137 The issue ratings definitions are expressed in terms of default risk. As such, they pertain to senior obligations of an entity. Junior obligations are typically rated lower than senior obligations, to reflect the lower priority in bankruptcy, as noted above. AAA An obligation rated `AAA' has the highest rating assigned by S&P. The obligor's capacity to meet its financial commitment on the obligation is extremely strong. AA An obligation rated `AA' differs from the highest rated obligations only in small degree. The obligor's capacity to meet its financial commitment on the obligation is very strong. A An obligation rated `A' is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher-rated categories. However, the obligor's capacity to meet its financial commitment on the obligation is still strong. BBB An obligation rated `BBB' exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation. BB, B, CCC, CC, AND C Obligations rated `BB', `B', `CCC', `CC', and `C' are regarded as having significant speculative characteristics. `BB' indicates the least degree of speculation and `C' the highest. While such obligations will likely have some quality and protective characteristics, these may be outweighed by large uncertainties or major exposures to adverse conditions. BB An obligation rated `BB' is less vulnerable to nonpayment than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions, which could lead to the obligor's inadequate capacity to meet its financial commitment on the obligation. B An obligation rated `B' is more vulnerable to nonpayment than obligations rated `BB,' but the obligor currently has the capacity to meet its financial commitment on the obligation. Adverse business, financial, or economic conditions will likely impair the obligor's capacity or willingness to meet its financial commitment on the obligation. CCC An obligation rated `CCC' is currently vulnerable to nonpayment and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation. In the event of adverse business, financial, or economic conditions, the obligor is not likely to have the capacity to meet its financial commitment on the obligation. CC An obligation rated `CC' is currently highly vulnerable to nonpayment. C The `C' rating may be used to cover a situation where a bankruptcy petition has been filed or similar action has been taken, but payments on this obligation are being continued. D An obligation rated `D' is in payment default. The `D' rating category is used when payments on an obligation are not made on the date due 138 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 or the taking of a similar action if payments on an obligation are jeopardized. (b) COMMERCIAL PAPER. An S&P commercial paper rating is a current assessment of the likelihood of timely payment of debt having an original maturity of no more than 365 days. Ratings are graded into several categories, ranging from `A' for the highest-quality obligations to `D' for the lowest. These categories are as follows: A-1 This designation 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. A-2 Capacity for timely payment on issues with this designation is satisfactory. However, the relative degree of safety is not as high as for issues designated `A-1.' A-3 Issues carrying this designation have an adequate capacity for timely payment. They are, however, more vulnerable to the adverse effects of changes in circumstances than obligations carrying the higher designations. B Issues rated `B' are regarded as having only speculative capacity for timely payment. C This rating is assigned to short-term debt obligations with a doubtful capacity for payment. D 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. 139 IVY INTERNATIONAL FUND a series of IVY FUND 925 South Federal Highway, Suite 600 Boca Raton, Florida 33432 STATEMENT OF ADDITIONAL INFORMATION ----------- April 30, 2002 Ivy Fund (the "Trust") is an open-end management investment company that currently consists of sixteen fully managed portfolios, each of which is diversified. This Statement of Additional Information ("SAI") relates to the Class A, B, C, I and Advisor Class shares of Ivy International Fund (the "Fund"). The other fifteen portfolios of the Trust are described in separate prospectuses and SAIs. This SAI is not a prospectus and should be read in conjunction with the prospectus for the Fund dated April 30, 2002, as supplemented from time to time (the "Prospectus"), which may be obtained upon request and without charge from the Trust at the Distributor's address and telephone number printed below. The Fund's Annual Report to shareholders, dated December 31, 2001 ( the "Annual Report"), is incorporated by reference into this SAI. The Annual Report may be obtained without charge from the Distributor. INVESTMENT MANAGER Ivy Management, Inc. ("IMI") 925 South Federal Highway, Suite 600 Boca Raton, Florida 33432 Telephone: (800) 777-6472 DISTRIBUTOR Ivy Mackenzie Distributors, Inc. ("IMDI") 925 South Federal Highway,Suite 600 Boca Raton, Florida 33432 Telephone: (800) 456-5111 TABLE OF CONTENTS
PAGE ---- GENERAL INFORMATION...............................................................................................1 INVESTMENT OBJECTIVES, STRATEGIES AND RISKS.......................................................................1 EQUITY SECURITIES........................................................................................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 LENDING OF PORTFOLIO SECURITIES.........................................................................20 INVESTMENT RESTRICTIONS..........................................................................................21 PORTFOLIO TURNOVER...............................................................................................23 TRUSTEES AND OFFICERS............................................................................................23 SHARE OWNERSHIP..................................................................................................26 CLASS A.................................................................................................26 CLASS B.................................................................................................27 CLASS C.................................................................................................29 ADVISOR CLASS...........................................................................................31 INVESTMENT ADVISORY AND OTHER SERVICES...........................................................................34 BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES....................................................34 DISTRIBUTION SERVICES...................................................................................36 CUSTODIAN...............................................................................................40 FUND ACCOUNTING SERVICES................................................................................41 TRANSFER AGENT AND DIVIDEND PAYING AGENT................................................................41 ADMINISTRATOR...........................................................................................41 AUDITORS................................................................................................42 BROKERAGE ALLOCATION.............................................................................................42 CAPITALIZATION AND VOTING RIGHTS.................................................................................43 SPECIAL RIGHTS AND PRIVILEGES....................................................................................45 AUTOMATIC INVESTMENT METHOD.............................................................................45 EXCHANGE OF SHARES......................................................................................45 LETTER OF INTENT........................................................................................48 RETIREMENT PLANS........................................................................................49
i
PAGE ---- REINVESTMENT PRIVILEGE..................................................................................52 RIGHTS OF ACCUMULATION..................................................................................53 SYSTEMATIC WITHDRAWAL PLAN..............................................................................53 GROUP SYSTEMATIC INVESTMENT PROGRAM.....................................................................54 REDEMPTIONS......................................................................................................55 CONVERSION OF CLASS B SHARES.....................................................................................57 NET ASSET VALUE..................................................................................................57 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
ii 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 30, 1986. The inception date for Class B shares was October 22, 1993. The inception date for Class C shares was April 30, 1996. The inception date for Class I shares was October 6, 1994. The inception date for Advisor Class shares was August 31, 2000. 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. 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. IMI 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. IMI seeks to identify healthy foreign economies, and then searches out growing industries and corporations, focusing on companies with established records. Individual securities are selected on the basis of various indicators, such as earnings, cash flow, assets, long-term growth potential and quality of management, 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 IMI to be of comparable quality), preferred stocks, sponsored or unsponsored ADRs, GDRs, ADSs and GDSs, warrants, or cash or cash equivalents such as bank obligations (including certificates of deposit and bankers' acceptances), commercial paper, short-term notes and repurchase agreements. For temporary or emergency purposes, the Fund may borrow up to 10% of the value of its total assets from banks. The Fund may also purchase securities on a "when-issued" or firm commitment basis, and may engage in foreign currency exchange transactions and enter into forward foreign currency contracts. The Fund may also invest up to 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 2 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. 3 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 4 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). 5 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. 6 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 7 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 8 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 9 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. 10 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 11 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 advisor 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. 12 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. 13 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 14 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. 15 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 16 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 17 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 18 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 19 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. LENDING OF PORTFOLIO SECURITIES To enhance the return on its portfolio, the Fund has entered into a securities lending program that is operated by a securities lending agent. Under the program, the Fund may lend securities in its portfolio (subject to a limit of 33 1/3% of the Fund's total assets) to certain securities firms and financial institutions, provided that each loan is secured by collateral having a market value at least equal to 100% of the market value of the loaned securities, either in the form of cash (including U.S. dollar and non-U.S. dollar currency) or securities issued or fully guaranteed by the United States government or any agency or instrumentality thereof. Pursuant to an agreement with the Fund, the lending agent will indemnify the Fund against borrower default. Each loan is terminable on demand, and the Fund will receive any interest or dividends paid on the loaned securities. The Fund may use or invest any cash collateral at its own risk and for its own benefit. The Fund will pay the borrower a predetermined fee or rebate for each loan of securities. Under the program, the Fund may 20 terminate a loan at any time in order to exercise voting rights with respect to a material event affecting the issuer of loaned securities. The risks in lending portfolio securities, as with other extensions of credit, consist of, among other things, the possibility of loss to the Fund due to: (i) the delay or default by a borrower of its obligation to return the loaned securities or (ii) a loss of rights in the collateral should a borrower fail financially. 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. 21 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, 22 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. The portfolio turnover rate for Ivy International Fund was significantly lower in 2001 than it was in 2000 because 2000 experienced a higher level of portfolio activity related to the internalization of the portfolio management of the Fund which had been sub-advised by an unrelated third party in 1999. TRUSTEES AND OFFICERS The 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 non-Independent Trustees (as defined below) and Executive Officers of the Trust, their business addresses and principal occupations during the past five years are:
- ------------------------- -------------- ------------ --------------------------------------- ------------- ------------- Number of Term of Portfolios Other Office and Principal in Fund Directorships Name, Position(s) Length of Occupation(s) Complex Held Address, Held with Time During Past 5 Overseen by by And Age Fund Served (1) Years Trustee Trustee - ------------------------- -------------- ------------ --------------------------------------- ------------- ------------- James W. Broadfoot (2) Trustee and 6 years President and Chief Investment 16 __ 925 South Federal Hwy. President of Officer -- US Equities of IMI; Boca Raton, FL 33432 Ivy Fund Director, Senior Vice President of Age: 59 Mackenzie Investment Management Inc.; Director of Ivy Mackenzie Distributors, Inc.; Director of Ivy Mackenzie Services Corp. - ------------------------- -------------- ------------ --------------------------------------- ------------- ------------- Keith J. Carlson (2) 8 years Director, Chairman and Senior Vice 16 __ 925 South Federal Hwy. Trustee and President of IMI; Director, President Suite 600 Chairman of and Chief Executive Officer of Boca Raton, FL 33432 Ivy Fund Mackenzie Investment Management Inc. Age: 45 and Ivy Mackenzie Distributors, Inc.; Director, President and Chairman of Ivy Mackenzie Services Corp. - ------------------------- -------------- ------------ --------------------------------------- ------------- ------------- Paula Wolfe 4 years Compliance Manager of Mackenzie 16 __ 925 South Federal Hwy. Secretary Investment Management Inc.; Assistant Suite 600 Secretary of Ivy Fund ; Secretary of Boca Raton, FL 33432 Ivy Mackenzie Distributors, Inc.; Age: 40 Secretary of Ivy Mackenzie Services Corp. - ------------------------- -------------- ------------ --------------------------------------- ------------- ------------- Beverly J. Yanowitch 1 year Vice President, Chief Financial 16 __ 925 South Federal Hwy. Treasurer of Officer and Treasurer of Mackenzie Suite 600 Ivy Fund Investment Management, Inc.; Vice Boca Raton, FL 33432 Present and Treasurer of IMI; Senior Age: 52 Vice President and Treasurer of Ivy Mackenzie Distributors, Inc. and Ivy Mackenzie Services Corp. - ------------------------- -------------- ------------ --------------------------------------- ------------- -------------
23 (1) Each Trustee and Officer serves an indefinite term, until he or she sooner dies, resigns, is removed, or becomes disqualified. (2) Deemed to be an "interested person" of the Trust, as defined in the 1940 Act, by virtue of his or her employment by MIMI or IMI. The Trustees who are not "interested persons" of the Trust within the meaning of Section 2(a)(19) of the 1940 Act ("Independent Trustees"), their business addresses and principal occupations during the past five years are:
- ------------------------- -------------- ------------ --------------------------------------- ------------- ------------- Number of Term of Portfolios Other Office and Principal in Fund Directorships Name, Position(s) Length of Occupation(s) Complex Held Address, Held with Time During Past 5 Overseen by by And Age Fund Served (1) Years Trustee Trustee - ------------------------- -------------- ------------ --------------------------------------- ------------- ------------- John S. Anderegg, Jr. 35 years Chairman Emeritus, Dynamics 16 __ c/o Dynamics Research Corp. Trustee Research Corp.; (Defense Contractor) 60 Concord Street Wilmington, MA 01810 Age: 78 - ----------------------------- ------------- -------------- ------------------------------------- ----------- ------------ Stanley Channick 27 years Chairman, Scott Management Company; 16 __ 20234 Valley Forge Circle Trustee President, The Channick Group; King of Prussia, PA 19406 President and CEO, The Whitestone Age: 78 Corporation (Retired) (2) - ----------------------------- ------------- -------------- ------------------------------------- ----------- ------------ Dr. Roy J. Glauber 41 years Professor of Physics, Harvard 16 __ Lyman Laboratory of Physics Trustee University Harvard University Cambridge, MA 02138 Age: 76 - ----------------------------- ------------- -------------- ------------------------------------- ----------- ------------ Joseph G. Rosenthal 10 years Chartered Accountant. Rosenthal & 16 __ 925 South Federal Highway Trustee Katkauskas (Accountants) Suite 600 Boca Raton, FL 33432 Age: 67 - ----------------------------- ------------- -------------- ------------------------------------- ----------- ------------ Richard N. Silverman 29 years President, Van Leer USA (Retired) 16 Trustee of 925 South Federal Highway Trustee (3); President, Hysil (Retired) (4) Boston Suite 600 Ballet, Boca Raton, FL 33432 Member Age: 78 Charitable Foundation Board and Newton Wellesley Hospital - ----------------------------- ------------- -------------- ------------------------------------- ----------- ------------ James Brendan Swan 10 years President, Airspray International 16 __ 925 South Federal Highway Trustee Inc. (5) Suite 600 Boca Raton, FL 33432 Age: 71 - ----------------------------- ------------- -------------- ------------------------------------- ----------- ------------ Edward M. Tighe 3 years Chairman and CEO of JBE Technology 16 Director 925 South Federal Highway Trustee Group, Inc. (6) President of Global of Suite 600 Mutual Fund Services Inc.; Hansberger Boca Raton, FL 33432 President & CEO of Global Institutional Age: 59 Technology Funds & Global Funds Ltd. - ----------------------------- ------------- -------------- ------------------------------------- ----------- ------------
24 (1) Each Trustee and Officer serves an indefinite term, until he or she sooner dies, resigns, is removed, or becomes disqualified. (2) Scott Management Co., The Channick Group and The Whitestone Corporation are consultants to insurance companies and agencies in the area of mass marketing and worksite payroll deduction marketing. (3) Manufacturer of packing materials. (4) Gift wrapping business. (5) Manufacturer of aerosol dispensing systems. (6) Telecommunications and computer network consulting. The Board has an Audit Committee, an Investment Review Committee, a Valuation Committee, and a Corporate Governance Committee. The function of the Audit Committee is to assist the Board in fulfilling its responsibilities to shareholders of the Fund relating to accounting and reporting, internal controls and the adequacy of auditing relative thereto. The Audit Committee currently consists of Joseph G. Rosenthal, Edward M. Tighe and J. Brendan Swan. During the last year, the Audit Committee held 4 meetings. The function of the Investment Review Committee is to consider the Fund's investment processes, policies and risks, and the overall performance of the Fund. The Investment Review Committee currently consists of Edward M. Tighe, James W. Broadfoot, Keith J. Carlson, Stanley Channick, Joseph G. Rosenthal and Richard N. Silverman. During the last year, the Investment Review Committee held 4 meetings. The function of the Valuation Committee is to consider the valuation of portfolio securities which may be difficult to price. The Valuation Committee currently consists of Roy J. Glauber, John S. Anderegg, Jr. and James W. Broadfoot. During the last year, the Valuation Committee held 4 meetings. The function of the Corporate Governance Committee is to consider the responsibilities and actions of the Board of Trustees. The Corporate Governance Committee currently consists of Stanley Channick, Joseph G. Rosenthal, J. Brendan Swan, Keith J. Carlson and Richard N. Silverman. During the last year, the Corporate Governance Committee held 4 meetings. COMPENSATION TABLE IVY FUND (FISCAL YEAR ENDED DECEMBER 31, 2001)
- ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- TOTAL COMPENSATION AGGREGATE PENSION OR RETIREMENT ESTIMATED ANNUAL FROM TRUST AND FUND COMPENSATION FROM BENEFITS ACCRUED AS BENEFITS UPON COMPLEX PAID TO NAME, POSITION TRUST PART OF FUND EXPENSES RETIREMENT TRUSTEES* - ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- John S. Anderegg, Jr. $25,000 N/A N/A $25,000 (Trustee) - ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- James W. Broadfoot $0 N/A N/A $0 (Trustee and President) - ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- Keith J. Carlson $0 N/A N/A $0 (Trustee and Chairman) - ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- Stanley Channick $25,000 N/A N/A $25,000 (Trustee) - ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- Roy J. Glauber $25,000 N/A N/A $25,000 (Trustee) - ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- Joseph G. Rosenthal $25,000 N/A N/A $25,000 (Trustee) - ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- Richard N. Silverman $25,000 N/A N/A $25,000 (Trustee) - ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- J. Brendan Swan $25,000 N/A N/A $25,000 (Trustee) - ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- Edward M. Tighe $25,000 N/A N/A $25,000 (Trustee) - ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- Paula Wolfe $0 N/A N/A $0 (Assistant Secretary) - ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- Beverly J. Yanowitch $0 N/A N/A $0 (Treasurer) - ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
* The Fund complex consists of Ivy Fund. 25 SHARE OWNERSHIP To the knowledge of the Trust as of April 4, 2002, no shareholder owned beneficially or of record 5% or more of any Fund's outstanding shares of any class, with the following exceptions: CLASS A Of the outstanding Class A shares of: IVY CUNDILL GLOBAL VALUE FUND, Raymond James & Assoc Inc CSDN Kyle M Payne IRA, 221 Sylvan Glen Drive, South Bend, IN 46615, owned of record 2,762.486 shares (8.08%), and John M Elkowitz Jr., 41 Smith Road, Denville, NJ 07834, owned of record 2598.811 shares (7.60%), and William L. Tepas Sep IRA, 48 Oakview Dr., Amherst, NY 14221, owned of record 2,479.669 (7.25%), and Katherine E. Sayre, Separate Property, PO Box 2224, Canyon Lake, TX 78130, owned of record 2,444.495 shares (7.15%), and Evelyn Dolins,Cust FBO: Sarah Laura Dolins UGMA/PA, 6 Jean Lo Way, York, PA 17402, owned of record 1,803.413 shares (5.27%), Jeanette C Arnone, 14 Lions Street, East Strousberg, PA 18301, owned of record 1,709.474 shares (5.00%); IVY EUROPEAN OPPORTUNITIES FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 303,064.982 shares (14.05%), and Charles Schwab & Co. Inc. Reinvest Account, Attn: Mutual Fund Dept., 101 Montgomery Street, San Francisco, CA 94104, owned of record 162,633.605 shares (7.54%); 26 IVY GLOBAL NATURAL RESOURCES FUND, Carn & Co. #93030213 Wacker Salaried SVGS Plan Act42300001285000000 Attn: Mutual Funds Star , P.O. Box 96211 Washington, DC 20090-6211,owned of record 67,907.258 shares (5.53%), and Charles Schwab & Co. Inc. Reinvest Account, Attn: Mutual Fund Dept., 101 Montgomery Street, San Francisco, CA 94104, owned of record 194,730.641 shares (15.86%), and Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 77,836.226 shares (6.34%), and Deutsche Bank Securities Inc. FBO: 235-73733-11, PO Box 1346, Baltimore, MD 21203, VA 21203, owned of record 75,131.480 shares (6.12%); IVY GLOBAL SCIENCE & TECHNOLOGY FUND, Donaldson Lufkin Jenrette Securities Corporation Inc., P.O. Box 2052, Jersey City, NJ 07303-9998, owned of record 46,068.538 shares (5.04%),BBH & Co, Cust FBO: Lifetime Achievement Fund, 525 Washington Blvd, Jersey City, NJ 07310, owned of record 56,657.224 shares (6.20%), and Securities Trust Co. as Trustee FBO: Local 104 Supplemental Pension Plan, 2390 East Camelback Road Ste. 240, Phoenix, AZ 85016, owned of record 48,831.395 shares (5.34%); IVY INTERNATIONAL FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd Floor, Jacksonville, FL 32246, owned of record 2,594,179.817 (26.85%), and Charles Schwab & Co. Inc. Reinvest Account, Attn: Mutual Fund Dept., 101 Montgomery Street, San Francisco, CA 94104, owned of record 1,275,845.774 shares (13.20%); IVY INTERNATIONAL SMALL COMPANIES FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 43,468.854 shares (11.02%); IVY INTERNATIONAL VALUE FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246 owned of record 487,739.415 shares (38.73%); IVY PACIFIC OPPORTUNITIES FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 76,218.797 shares (8.30%); and IVY US EMERGING GROWTH FUND, F & Co. Inc. Cust FBO 401 K Plan, Attn: Cathy Laich ADM, 300 River Place - Suite 4000, Detroit, MI 48207, owned of record 158,123.679 shares (7.75%). CLASS B Of the outstanding Class B shares of: IVY BOND FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 1,065,008.211 shares (47.74%); 27 IVY DEVELOPING MARKETS FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 98,627.609 shares (26.97%); IVY EUROPEAN OPPORTUNITIES FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 583,670.050 shares (25.48%); IVY GLOBAL FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 51,540.966 shares (18.67%); IVY GLOBAL NATURAL RESOURCES FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 68,342.843 shares (11.37%) and Rede & Co, 4380 SW Macadam Suite 450, Portland, OR 97201, owned of record 42,666.000 shares (7.10 %); IVY GLOBAL SCIENCE & TECHNOLOGY FUND, Merrill Lynch Pierce Fenner & Smith Inc. Mutual Fund Operations - Service Team, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 87,925.353 shares (10.74%); IVY GROWTH FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 73,155.436 shares (15.56%); IVY INTERNATIONAL FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 2,577,317.424 shares (42.60%); IVY INTERNATIONAL SMALL COMPANIES FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 109,860.158 shares (31.02%); IVY INTERNATIONAL VALUE FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 2,723,623.738 shares (56.89%); IVY PACIFIC OPPORTUNITIES FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 126,191.785 shares (23.07%); IVY US BLUE CHIP FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 322,620.577 shares (15.95%); and IVY US EMERGING GROWTH FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 256,476.943 shares (20.44%). 28 CLASS C Of the outstanding Class C shares of: IVY BOND FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 146,700.086 shares (62.45%); IVY CUNDILL GLOBAL VALUE FUND, Raymond James & Assoc Inc FAO: Katherine P. Ralston & James W. Ralston JT/WROS, 609 Hwy 466, Lady Lake, FL 32159, owned of record 835.491 shares (24.27%), Catherine Kawula, 1900 West Alpha Court, Lecanto, FL 34461-8435, owned of record 639.631 shares (18.58%), IBT Cust Ira Fbo: Phyllis W Monahan, 15 B Swan Cedar Glen West, Manchester, NJ 08759, owned of record 453.697 shares (13.18%), Lawrence J Mccarthy, 14 Sarian Drive, Nepune, NJ 07753, owned of record 448.060 shares (13.02%), Phyllis Monahan, Cedar Glenn West, 15 B Swan, Manchester, NJ 08759, owned of records 428.207 shares (12.44%), Dorothy V Hosonitz, 223 Goodmans Crossing, Clark, NJ 07066-2754, owned of record 323.276 shares (9.39%), IBT Cust IRA FBO: Candace Pignatello, 162 Newark Ave, Bloomfield, NJ 07003, owned of record 312.929 shares (9.09%); IVY DEVELOPING MARKETS FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL 32246, owned of record 31,175.141 shares (32.28%), and Donaldson Lufkin Jenrette Securities Corp Inc, PO Box 2052, Jersey City, NJ 07303-9998, owed of record 7,301.270 shares (7.56%); IVY EUROPEAN OPPORTUNITIES FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL 32246, owned of record 728,807.904 shares (42.93%); IVY GLOBAL FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL 32246, owned of record 4,365.729 shares (25.71%), IBT CUST 403(B) FBO Mattie A Allen, 755 Selma PL., San Diego, CA 92114-1711, owned of record 2,891.025 shares (17.03%), Salomon Smith Barney Inc., 00157417165, 333 West 34th St. - 3rd Floor, New York, NY 10001, owned of record 2,256.265 shares (13.29%), Salomon Smith Barney Inc., 00141860273, 333 West 34th St 3rd "Floor., New York, NY 10001, owned of record 1,256.132 shares (7.39%), Salomon Smith Barney Inc., 00121066732, 333 West 34th St. - 3rd Floor, New York, NY 10001, owned of record 1,177.856 shares (6.93%), and Smith Barney Inc. 00107866133, 388 Greenwich Street, New York, NY 10013, owned of record shares 1,041.015 (6.13%), Smith Barney Inc., 00112701249, 388 Greenwich Street, New York, NY 10013, owned of record 982.067 shares (5.78%); IVY GLOBAL NATURAL RESOURCES FUND, Salomon Smith Barney Inc., 00150805236, 333 West 34th St 3rd Fl., New York, NY 10001, owned of record 12,049.188 shares (5.02%), Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL 32246, owned of record 29,288.072 shares (12.20%), US Bandcorp Piper Jaffray A/C #5882-0411, U S Bancorp Center, 800 Nicollet Mall, Minneapolis, MN 55402 owned of record 15,698.587 shares (6.54%); 29 IVY GLOBAL SCIENCE & TECHNOLOGY FUND, Merrill Lynch Pierce Fenner & Smith Inc. Mutual Fund Operations - Service Team, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 32,904.764 shares (15.82%); IVY GROWTH FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL 32246, owned of record 2,359.140 shares (9.02%), First Presbyterian Church of McAlester, a Non Profit Corporation, PO Box 1550, 222 E Washington, McAlester, OK 74502-1550, owned of record 3,806.649 shares (14.56%), Mary Ann Ash & Robert R. Ash JT -Ten, 1119 Rundle Street, Scranton, PA 18504, owned of record 2,302.853 shares (8.81%), Salomon Smith Barney Inc. #00121013039, 333 West 34th Street 3rd Floor, New York, NY 10001, owned of record 1,743.389 shares (6.67%), Fiduciary Trust Co. of NH Cust 403(B) FBO: Jack L. Ewen, 278 Southside Drive, Oneonta, NY 13820, owned of record 1,630.943 shares (6.24%), Fiduciary Trust Co of NH Cust IRA FBO: Roland Wise, 45 Fordham, Buffalo, NY 14216, owned of record 1,629.655 shares (6.23%); IVY INTERNATIONAL FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL 32246, owned of record 723,518.558 shares (62.10%); IVY INTERNATIONAL SMALL COMPANIES FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL 32246, owned of record 162,385.988 shares (63.89%); IVY INTERNATIONAL VALUE FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL 32246, owned of record 976,744.805 shares (59.95%); IVY MONEY MARKET FUND, Robert J Laws & Katherine A Laws JT ten, PO Box 723, Ramona, CA 92065, owned of record 43,871.340 shares (11.84%), First Trust Corp Cust IRA FBO: Suzanne Helen Anderson U/A/D 10-31-95 #135129-0001, PO Box 173301, Denver, CO 80217-3301, owned of record 35,317.650 shares (9.53%), IBT Cust IRA FBO: Betty J. Carson, 1987 Higgins Lane, El Centro, CA 92243, owned of record 27,781.690 shares (7.50%), Kenneth S. Hansen, 302 Lakeshore Dr, Lakeside, IA 50588-7660, owned of record 24,316.970 shares (6.56%), and Anthony L. Bassano & Marie E. Bassano Ttees of the Anthony & Marie Bassano Trust U/A/D 05-25-99, 8934 Bari Court, Port Richey, FL 34668, owned of record 18,780.970 shares (5.07%); IVY PACIFIC OPPORTUNITIES FUND, Merrill Lynch Pierce Fenner & Smith for the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr E., 3rd FL, Jacksonville, FL 32246, owned of record 25,760.540 shares (21.47%); IVY US BLUE CHIP FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL 32246, owned of record 35,609.358 shares (31.31%); and IVY US EMERGING GROWTH FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL 32246, owned of record 52,859.279 30 shares (29.60%), and First Clearing Corp, A/C 3109-0705, Robert Feinberg and Harriet Feinberg JTWROS, 1824 Byberry Road, Bensalem, PA 19020-4455, owned of record 9,162.445 shares (5.13%). CLASS I Of the outstanding Class I shares of: IVY EUROPEAN OPPORTUNITIES FUND, NFSC FEBO # RAS-469041 NFSC/FMTC IRA FBO Charles Peavy, 2025 Eagle Nest Bluff, Lawrenceville, GA 30244, owned of record 642.383 shares (100%); and IVY INTERNATIONAL FUND, Harleysville Mutual Ins Co/Equity, 355 Maple Ave, Harleysville, PA 19438, owned of record 284,051.014 shares (35.68%), Vanguard Fiduciary Trust Company FBO Ivy Funds, PO Box 2900, Valley Forge, PA 19482, owned of record 197,455.576 shares (24.80%), Liz Claiborne Foundation, One Claiborne Ave, N Bergen, NJ 07047, owned of record 102,444.806 shares (12.86), David & Co, PO Box 188, Murfreesboro, TN 37133-0188, owned of record 89,730.410 shares (11.27%), Lynspen and Company , P.O. Box 830804, Birmingham, AL 35283, owned of record 43,905.578 Shares (5.51%). ADVISOR CLASS Of the outstanding Advisor Class shares of: IVY BOND FUND, NFSC FEBO # 279-055662 C/James Ferris/Bro, B Yanowitch/J Broadfoot TTES U/A 01/01/98, 925 South Federal Highway, Suite 600, Boca Raton, FL 33432-6143, owned of record 14,093.040 shares (61.31%), LPL Financial Services, 9785 Towne Centre Drive, San Diego, CA 92121-1968, owned of record 8,890.147 shares (38.68%); IVY CUNDILL GLOBAL VALUE FUND, Mackenzie Investment Mgmt Inc., Attn: Bev Yanowitch, 925 South Federal Highway, Suite 600, Boca Raton, FL 33432, owned of record 57,756.571 shares (56.61%), Peter Cundill Holdings Ltd., 1100 Melville St., Ste. 200, Vancouver BC V6E 4A6, owned of record 37,266.358 shares (36.52%); IVY DEVELOPING MARKETS FUND, NFSC FEBO # 279-055662 C/James Ferris/Bro, B Yanowitch/J Broadfoot TTES U/A 01/01/98, 925 South Federal Highway, Suite 600, Boca Raton, FL 33432-6143, owned of record 8,970.050 shares (98.36%); IVY EUROPEAN OPPORTUNITIES FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL 32246, owned of record 325,841.346 shares (51.60%), Donaldson Lufkin Jenrette Securities Corporation Inc, PO Box 2052, Jersey City, NJ 07303-9998 owned of record 75,318.881 shares (11.92%); and Donaldson Lufkin Jenrette Securities Corporation Inc, PO Box 2052, Jersey City, NJ 07303-9998 owned of record 62,497.356 shares (9.89%); 31 IVY GLOBAL FUND, NFSC FEBO # 279-055662 C/James Ferris/Bro, B Yanowitch/J Broadfoot TTES U/A 01/01/98 925 South Federal Highway, Suite 600, Boca Raton, FL 33432-6143, owned of record 6,680.157 shares (61.83%), and Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr E., 3rd FL, Jacksonville, FL 32246, owned of record 3,768.327 shares (34.88%); IVY GLOBAL NATURAL RESOURCES FUND, FTC & Co Account #00055 Datalynx , PO Box 173736, Denver, Co 80217-3736, owned of record 122,047.343 (27.25%), FTC & Co Attn Datalynx #118, PO Box 173736, Denver, Co 80217-3736, owned of record 96,748.874 (21.60%), FTC & Co Attn Datalynx #464, PO Box 173736, Denver, Co 80217-3736, owned of record 80,663.486 (18.01%), FTC & Co Attn Datalynx #00315, PO Box 173736, Denver, Co 80217-3736, owned of record 51,401.961 (11.47%), and FTC & Co Attn Datalynx #00328, PO Box 173736, Denver, Co 80217-3736, owned of record 51,256.969 (11.44%), IVY GLOBAL SCIENCE & TECHNOLOGY FUND, NFSC FEBO # 279-055662 C/James Ferris/Bro, B Yanowitch/J Broadfoot TTES U/A 01/01/98, 925 South Federal Highway, Suite 600, Boca Raton, FL 33432-6143 owned of record 13,236.316 shares (53.55%), and Robert Chapin & Michelle Broadfoot TTEE Of The Nella Manes Trust U/A/D 04-09-92, 117 Thatch Palm Cove, Boca Raton, FL 33432, owned of record 3,321.388 shares (13.43%); IVY GROWTH FUND, NFSC FEBO # 279-055662 C/James Ferris/Bro, B Yanowitch/J Broadfoot TTES U/A 01/01/98, 925 South Federal Highway, Suite 600, Boca Raton, FL 33432-6143, owned of record 17,040.218 shares (39.12%) and Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL 32246, owned of record 17,322.097 shares (39.77%), and James Broadfoot, 117 Thatch Palm Cove, Boca Raton, Fl 33432, owned of record 8,150.114 shares (18.71%); IVY INTERNATIONAL FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL 32246, owned of record 249.377 shares (100%); IVY INTERNATIONAL GROWTH FUND, Mackenzie Investment Mgmt Inc., Attn: Bev Yanowitch, 925 South Federal Highway, Suite 600, Boca Raton, FL 33432, owned of record 51,214.386 shares (99.88%); IVY INTERNATIONAL SMALL COMPANIES FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL 32246, owned of record 94,687.863 shares (93.04%); NFSC FEBO # 279-055662, C/James Ferris/Bro, B Yanowitch/J Broadfoot TTES U/A 01/01/98, 925 South Federal Highway, Suite 600, Boca Raton, FL 33432-6143, owned of record 6,190.702 shares (6.08%); IVY INTERNATIONAL VALUE FUND, Charles Schwab & Co Inc., Reinvest Account, Attn: Mutual Fund Dept, 101 Montgomery Street, San Francisco, CA 94104, owned of record 1,535.769 shares (5.98%), Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr E., 3rd FL, Jacksonville, FL 32246, owned of record 1,792.768 32 shares (6.98%), NFSC FEBO # 279-055662, C/James Ferris/Bro, B Yanowitch/J Broadfoot TTES U/A 01/01/98, 925 South Federal Highway, Suite 600, Boca Raton, FL 33432-6143, owned of record 7,001.558 shares (27.26%), Donaldson Lufkin Jenrette Securities Corporation Inc., PO Box 2052, Jersey City, NJ 07303-2052, owned of record 2,062.330 shares (8.03%), LPL Financial Services A/C #3383-3796, 9785 Towne Centre Drive, San Diego, CA 92121-1968, owned of record 2,503.224 shares (9.74%), LPL Financial Services A/C #1572-6093, 9785 Towne Centre Drive, San Diego, CA 92121-1968, owned of record 3,218.761 shares (12.53%), LPL Financial Services A/C #1982-6979, 9785 Towne Centre Drive, San Diego, CA 92121-1968, owned of record 1,900.057 shares (7.39%), and LPL Financial Services A/C #7105-6816, 9785 Towne Centre Drive, San Diego, CA 92121-1968, owned of record 1,310.281 shares (5.10%); IVY PACIFIC OPPORTUNITIES FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL 32246, owned of record 518.000 shares (8.94%), Donaldson Lufkin Jenrette Securities Corporation Inc, PO Box 2052, Jersey City, NJ 07303-9998 owned of record 4,512.894 shares (77.93%), and Donaldson Lufkin Jenrette Securities Corporation Inc, PO Box 2052, Jersey City, NJ 07303-9998 owned of record 748.503 shares (12.92%); IVY US BLUE CHIP FUND, Mackenzie Investment Management Inc., Attn: Bev Yanowitch, 925 South Federal Highway, Suite 600, Boca Raton, FL 33432, owned of record 51,179.697 shares (54.41%), NFSC FEBO # 279-055662 C/James Ferris/Bro, B Yanowitch/J Broadfoot TTES U/A 01/01/98, 925 South Federal Highway, Suite 600, Boca Raton, FL 33432-6143, owned of record 38,299.532 shares (40.72%); and IVY US EMERGING GROWTH FUND, NFSC FEBO # 279-055662 C/James Ferris/Bro, B Yanowitch/J Broadfoot TTES U/A 01/01/98, 925 South Federal Highway, Suite 600, Boca Raton, FL 33432-6143, owned of record 26,549.906 shares (56.61%), Charles Schwab & Co. Inc. Reinvest Account, Attn: Mutual Fund Dept., 101 Montgomery Street, San Francisco, CA 94104, owned of record 4,850.696 shares (10.34%), and James W Broadfoot, 117 Thatch Palm Cove, Boca Raton, FL 33432, owned of record 2,393.086 shares (5.10%). As of April 4, 2002, 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 sixteen Ivy funds that are series of the Trust, except that the Officers and Trustees of the Trust as a group owned 1.97%, 4.34%, 18.71% and 8.87% of Ivy Cundill Global Value Fund, Ivy Global Science & Technology Fund, Ivy Growth Fund and Ivy US Emerging Growth Fund Advisor Class shares, respectively. 33 The following table sets forth the dollar range of shares of the Fund held directly or indirectly by the Trustees:
DOLLAR RANGE OF AGGREGATE DOLLAR RANGE IN ALL FUNDS EQUITY SECURITIES OVERSEEN BY THE TRUSTEE IN THE IVY NAME OF TRUSTEE IN THE FUND FUND FAMILY - --------------- ----------- ----------- John S. Anderegg, Jr $ -- $144,781 James W. Broadfoot -- 404,680 Keith J. Carlson -- 140 Stanley Channick -- 55,485 Dr. Roy J. Glauber 28,059 371,607 Joseph G. Rosenthal -- -- Richard N. Silverman 33,663 158,140 J. Brendan Swan -- -- Edward M. Tighe -- 21,306
PERSONAL INVESTMENTS BY EMPLOYEES OF IMI, IMDI AND THE TRUST. IMI, IMDI and the Trust have adopted a Code of Ethics and Business Conduct Policy (the "Code of Ethics"), which is designed to identify and address certain conflicts of interest between personal investment activities and the interests of investment advisory clients such as each Fund, in compliance with Rule 17j-1 under the 1940 Act. The Code of Ethics permits personnel of IMI, IMDI and the Trust subject to the Code of Ethics to engage in personal securities transactions, including with respect to securities held by one or more Funds, subject to certain requirements and restrictions. INVESTMENT ADVISORY AND OTHER SERVICES BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES IMI, which provides business management and investment advisory services to the Fund, is a wholly-owned subsidiary of Mackenzie Investment Management Inc. ("MIMI"), 925 South Federal Highway, Suite 600, Boca Raton, Florida 33432. MIMI, a Delaware corporation, has approximately 15% of its outstanding common stock listed for trading on the Toronto Stock Exchange ("TSE"). IMI is an indirect subsidiary of Mackenzie Financial Corporation ("MFC"), 150 Bloor Street West, Suite 400, Toronto, Ontario, Canada M5S3B5. MFC is a wholly-owned subsidiary of Investors Group Inc. ("IGI"), One Canada Centre, 447 Portage Avenue, Winnipeg, Manitoba, Canada R3C3B6. MFC is a corporation organized under the laws of Ontario. MFC is registered in Ontario as a mutual fund dealer and advises Ivy Global Natural Resources Fund, a separate series of Ivy Fund. IMI also currently acts as both manager and investment advisor to the other series of Ivy Fund, with the exception of Ivy Global Natural Resources Fund, for which IMI acts solely as manager. 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 34 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 its services at an annual rate of 1.00% of the first $2 billion of the Fund's average net assets, 0.90% of the next $500 million in average net assets, 0.80% of the next $500 million in average net assets and 0.70% of average net assets over $3 billion. For the fiscal years ended December 31, 1999, 2000 and 2001, the Fund paid IMI fees of $23,577,176, $16,525,495 and $6,834,910, respectively. During the same periods, IMI reimbursed Fund expenses in the amount of $0, $0 and $400,000, 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 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. In approving the investment advisory agreement, the Board considered a number of factors, including: (1) fee and performance information of the Fund relative to funds with similar objectives; (2) the profitability to IMI from its relationship with the Fund, both individually and from all of the series of the Trust, as applicable; (3) the manner in which expenses are allocated among all series of the Trust and their different classes of shares; (4) the performance 35 and expenses of the Fund relative to comparable funds; (5) the nature and quality of the services historically provided by IMI, including information regarding advisory services and compliance records; (6) the professional qualifications of the personnel providing advisory services to the Fund; and (7) management's soft dollar practices and the use of soft dollars in connection with the Fund, as described under "Brokerage Allocation," below. Based upon their review and consideration of the factors described above, and such other factors and information it considered relevant, the Board recognized that IMI is deemed to owe a fiduciary duty to the Fund and approved the investment advisory agreement. 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 years ended December 31, 1999, 2000, and 2001, IMDI received from sales of Class A shares of the Fund $83,199, $188,180 and $46,028, respectively, in sales commissions, of which $26,294, $18,789 and $7,817, 36 respectively, was retained after dealer allowances. During the fiscal year ended December 31, 2001, IMI on behalf of IMDI received $399,229 in CDSCs on redemptions of Class B shares of the Fund. During the fiscal year ended December 31, 2001, IMI on behalf of IMDI received $58,887 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. PAYMENTS TO DEALERS: MIMI on behalf of IMDI currently intends to pay to dealers a sales commission of 4% of the sale price of Class B shares they have sold, and MIMI or one of its subsidiaries will receive the entire amount of the CDSC paid by shareholders on the redemption of Class B shares to finance the 4% commission and related marketing expenses. With respect to Class C shares, MIMI on behalf of IMDI currently intends to pay to dealers a sales commission of 1% of the sale price of Class C shares that they have sold, a portion of which is to compensate the dealers for providing Class C shareholder account services during the first year of investment. MIMI or one of its subsidiaries will receive the entire amount of the CDSC paid by shareholders on the redemption of Class C shares to finance the 1% commission and related marketing expenses. 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 37 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 then current Independent Trustees. 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 advisors, 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 38 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. MIMI on behalf of 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, 2001, the Fund paid IMDI $937,442 pursuant to its Class A plan. During the fiscal year ended December 31, 2001 the Fund paid IMDI $1,874,335 pursuant to its Class B plan. During the fiscal year ended December 31, 2001, the Fund paid IMDI $372,427 pursuant to its Class C plan. 39 During the fiscal year ended December 31, 2001, MIMI or IMDI expended the following amounts in marketing Class A shares of the Fund: advertising $5,367; printing and mailing of prospectuses to persons other than current shareholders, $151,170; compensation to underwriters $0; compensation to dealers, $418,579; compensation to sales personnel $1,131,755; interest, carrying or other financing charges $0; seminars and meetings, $104,645; travel and entertainment, $180,440; general and administrative, $129,310; telephone, $28,661; and occupancy and equipment rental, $175,881. During the fiscal year ended December 31, 2001, MIMI or IMDI expended the following amounts in marketing Class B shares of the Fund: advertising $0; printing and mailing of prospectuses to persons other than current shareholders, $50,534; compensation to underwriters $0; compensation to dealers, $148,535; compensation to sales personnel $400,503; interest, carrying or other financing charges $0; seminars and meetings, $37,134; travel and entertainment, $64,050; general and administrative, $36,200; telephone, $10,004; and occupancy and equipment rental, $65,549. During the fiscal year ended December 31, 2001, MIMI or IMDI expended the following amounts in marketing Class C shares of the Fund: advertising $0; printing and mailing of prospectuses to persons other than current shareholders, $9,640; compensation to underwriters $0; compensation to dealers, $82,270; compensation to sales personnel $78,153; interest, carrying or other financing charges $0; seminars and meetings, $20,567; travel and entertainment, $12,593; general and administrative, $5,796; telephone, $1,944; and occupancy and equipment rental, $13,077. 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. 40 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, 2001, the Fund paid MIMI $221,732 under the agreement. TRANSFER AGENT AND DIVIDEND PAYING AGENT Pursuant to a Transfer Agency Services Agreement, PFPC Global Fund Services, Inc. ("PFPC"), a Massachusetts corporation, located at 4400 Computer Drive, Westborough, MA 01581is the transfer agent for the Fund. Under the Agreement, the Fund pays a monthly fee at an annual rate of $17.00 for each open Class A, Class B, Class C and Advisor Class account. The Fund pays $10.25 per open Class I account. In addition, the Fund pays a monthly fee at an annual rate of $3.60 per account that is closed plus certain out-of-pocket expenses. Such fees and expenses for the fiscal year ended December 31, 2001 for the Fund totaled $1,642,161. 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 PFPC if the individual accounts that comprise the omnibus account were opened by their beneficial owners directly. PFPC 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, 2001 for the Fund totaled $663,676. 41 Outside of providing administrative services to the Trust, as described above, MIMI may also act on behalf of IMDI in paying commissions to broker-dealers with respect to sales of Class B and Class C shares of the Fund. AUDITORS PricewaterhouseCoopers LLP, independent certified public accountants located at 200 E. Las Olas Blvd., Ste. 1700, Ft. Lauderdale, Florida, 33301, has been selected as auditors for the Trust. The audit services performed by PricewaterhouseCoopers LLP, include audits of the annual financial statements of each of the funds of the Trust. Other services provided principally relate to filings with the SEC and the preparation of the funds' tax returns. BROKERAGE ALLOCATION Subject to the overall supervision of the President and the Board, IMI places orders for the purchase and sale of the Fund's portfolio securities. Purchases and sales of securities on a securities exchange are effected through brokers who charge a commission for their services. Purchases and sales of debt securities are usually principal transactions and therefore brokerage commissions are usually not required to be paid by the Fund for such purchases and sales (although the price paid generally includes undisclosed compensation to the dealer). The prices paid to underwriters of newly-issued securities usually include a concession paid by the issuer to the underwriter, and purchases of after-market securities from dealers normally reflect the spread between the bid and asked prices. In connection with OTC transactions, IMI attempts to deal directly with the principal market makers, except in those circumstances where IMI believes that a better price and execution are available elsewhere. IMI selects broker-dealers to execute transactions and evaluates the reasonableness of commissions on the basis of quality, quantity, and the nature of the firms' professional services. Commissions to be charged and the rendering of investment services, including statistical, research, and counseling services by brokerage firms, are factors to be considered in the placing of brokerage business. The types of research services provided by brokers may include general economic and industry data, and information on securities of specific companies. Research services furnished by brokers through whom the Trust effects securities transactions may be used by IMI in servicing all of its accounts. In addition, not all of these services may be used by IMI in connection with the services it provides to the Fund or the Trust. IMI may consider sales of shares of Ivy funds as a factor in the selection of broker-dealers and may select broker-dealers who provide it with research services. IMI may choose broker-dealers that provide IMI with research services and may cause a client to pay such broker-dealers commissions which exceed those other broker-dealers may have charged, if IMI views the commissions as reasonable in relation to the value of the brokerage and/or research services. IMI will not, however, seek to execute brokerage transactions other than at the best price and execution, taking into account all relevant factors such as price, promptness of execution and other advantages to clients, including a determination that the commission paid is reasonable in relation to the value of the brokerage and/or research services. During the fiscal years ended December 31, 1999 and 2000, the Fund paid brokerage commissions of $1,354,491 and $5,059,929, respectively. For the fiscal year ended December 31, 2001, the Fund paid a total of $2,109,321 in brokerage 42 commissions with respect to portfolio transactions aggregating $857,197,706. Of such amount, $30,069 in brokerage commissions with respect to portfolio transactions aggregating $12,796,503 was placed with broker-dealers who provided research services. Brokerage commissions vary from year to year in accordance with the extent to which the Fund is more or less actively traded. The Fund may, under some circumstances, accept securities in lieu of cash as payment for Fund shares. The Fund will accept securities only to increase its holdings in a portfolio security or to take a new portfolio position in a security that IMI deems to be a desirable investment for the Fund. While no minimum has been established, it is expected that the Fund will not accept securities having an aggregate value of less than $1 million. The Trust may reject in whole or in part any or all offers to pay for 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 without shareholder approval. This might occur, for example, if a Fund does not reach or fails to maintain an economically viable size. The Trustees have authorized sixteen series, each of which represents a fund. The Trustees have further authorized the issuance of Class A, Class B, and Class C shares for Ivy Money Market Fund and Class A, Class B, Class C and Advisor Class shares for the Fund, Ivy Cundill Global Value Fund, Ivy Bond Fund, Ivy Cundill Global Value Fund, Ivy Developing Markets Fund, Ivy European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund, Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy International Growth Fund, Ivy International Small Companies Fund, Ivy International Value Fund, Ivy Pacific Opportunities Fund, Ivy US Blue Chip Fund and Ivy US Emerging Growth Fund, as well as Class I shares for the Fund, Ivy Cundill Global Value Fund, Ivy Bond Fund, Ivy European Opportunities Fund, Ivy Global Science & Technology Fund, Ivy International Growth Fund, Ivy International Small Companies Fund, Ivy International Value Fund and Ivy US Blue Chip Fund. Shareholders have the right to vote for the election of Trustees of the Trust and on any and all matters on which they may be entitled to vote by law or by the provisions of the Trust's By-Laws. The Trust is not required to hold a regular annual meeting of shareholders, and it does not intend to do so. Shares 43 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 44 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 Bond Fund, Ivy Cundill Global Value Fund, Ivy Developing Markets Fund, Ivy European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund, Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy International Growth Fund, Ivy International Small Companies Fund, Ivy International Value Fund, Ivy Money Market Fund, Ivy Pacific Opportunities Fund, Ivy US Blue Chip Fund and Ivy US Emerging Growth Fund (the other fifteen series of the Trust). Shareholders should obtain a current prospectus before exercising any right or privilege that may relate to these funds. AUTOMATIC INVESTMENT METHOD The Automatic Investment Method, which enables a Fund shareholder to have specified amounts automatically drawn each month from his or her bank for investment in Fund shares, is available for all classes of shares, except Class I. The minimum initial and subsequent investment under this method is $50 per month, $250 for Advisor Class shares, (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 PFPC of telephone instructions or written notice. See "Automatic Investment Method" in the Prospectus. To begin the plan, complete Sections 8 and 9 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. A 2% redemption fee or short-term trading fee will be imposed on redemptions and exchanges of Class A shares of the Fund made within 30 days of purchase. This fee will be retained by the Fund. See "Redemptions" below. INITIAL SALES CHARGE SHARES. Generally, 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. 45 (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). In certain short-term transactions, Class A shares also may be subject to a fee upon redemption or exchange. See "REDEMPTIONS" below. 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 46 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 Bond Fund, Ivy Cundill Global Value Fund, Ivy Developing Markets Fund, Ivy European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund, Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy International Fund, Ivy International Growth Fund, Ivy International Small Companies Fund, Ivy International Value Fund, Ivy Pacific Opportunities Fund, Ivy US Blue Chip Fund and Ivy US Emerging Growth Fund: CONTINGENT DEFERRED SALES CHARGE AS A PERCENTAGE YEAR SINCE PURCHASE OF DOLLAR AMOUNT SUBJECT TO CHARGE - ------------------- ------------------------------------------------- First 5% Second 4% Third 3% Fourth 3% Fifth 2% Sixth 1% Seventh and thereafter 0% CLASS C: Class C shareholders may exchange their Class C shares ("outstanding Class C shares") for Class C shares of another Ivy fund ("new Class C shares") on the basis of the relative net asset value per Class C share, without the payment of any CDSC that would otherwise be due upon redemption. (Class C shares are subject to a CDSC of 1.00% if redeemed within one year of the date of purchase.) CLASS I AND ADVISOR CLASS: Subject to the restrictions set forth in the following paragraph, Class I and Advisor Class shareholders may exchange their outstanding shares for the same class of 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; $10,000 in the case of Advisor Class 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; $10,000 in the case of Advisor Class 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 PFPC of telephone instructions by PFPC or a properly executed request. Exchanges, whether written or telephonic, must be received by PFPC by 47 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 advisor 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 Bond Fund, Ivy Cundill Global Value Fund, Ivy Developing Markets Fund, Ivy European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund, Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy International Fund, Ivy International Growth Fund, Ivy International Small Companies Fund, Ivy International Value Fund, Ivy Pacific Opportunities Fund, Ivy US Blue Chip Fund and Ivy US Emerging Growth Fund (and shares that have been exchanged into Ivy Money Market Fund from any of the other funds in the Ivy funds) held of record by him or her as of the date of his or her Letter of Intent. During the term of the Letter of Intent, the Transfer Agent will hold Class A shares representing 5% of the indicated amount (less any accumulation credit value) in escrow. The escrowed Class A shares will be released when the full indicated amount has been purchased. If the full indicated amount is not purchased during the term of the Letter of Intent, the investor is required to pay IMDI an amount equal to the difference between the dollar amount of sales charge that he or she has paid and that which he or she would have paid on his or her aggregate purchases if the total of such purchases had been made at a single time. Such payment will be made by an automatic liquidation of Class A shares in the escrow account. A Letter of Intent does not obligate the investor to buy or the Trust to sell the indicated amount of Class A shares, and the investor should read carefully all the provisions of such letter before signing. 48 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 PFPC, 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, for years 2002 through 2004, an eligible individual may contribute up to the lesser of $3,000 ($3,500 if 50 or older) 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 $3,000 ($3,500 if 50 or older) per year, the maximum potential contribution is $6,000 ($7,000 if 50 or older) 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 $6,000 ($7,000 if 50 or older), a contribution of up to $3,000 ($3,500 if 50 or older) 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, 49 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 $3,000 ($3,500 if 50 or older) per year to a Roth IRA for years 2002 through 2004. 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 $6,000 ($7,000 if 50 or older) per year ($3,000 per IRA) ($3,500 per IRA if 50 or older). 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 $3,000 ($3,500 if 50 or older). 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. 50 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 PFPC. 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 $40,000 or 100% of compensation or earned income to a money purchase pension plan or to a profit sharing plan each year on behalf of each participant. To be deductible, total contributions to a money purchase plan or profit sharing plan 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 $200,000 for benefits accruing in plan years beginning after 2001, 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 severance from employment. 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 51 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 PFPC. Distributions from the 403(b)(7) Account may be made only following death, disability, severance from employment, 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 $40,000 or 25% 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 $7,000 for 2002 (as increased for 2003 through 2005 and indexed thereafter). 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 52 redemption. This privilege may be exercised only once. The reinvestment will be made at the net asset value next determined after receipt by PFPC 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, PFPC 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 PFPC of a written election to have his or her shares withdrawn periodically, accompanied by a surrender to PFPC 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 advisors. Additional investments made by investors participating in a Withdrawal Plan must equal at least $1,000 each, $250 each in the case of Advisor class 53 shares, 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 PFPC. If all shares held by the investor are liquidated at any time, participation in the Withdrawal Plan will terminate automatically. The Trust or PFPC 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 54 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 PFPC, less any applicable CDSC or redemption fee. 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. Under unusual circumstances, when the Board deems it in the best interest of a Fund's shareholders, the Fund may make payment for shares repurchased or redeemed in whole or in part in securities of that Fund taken at current values. If any such redemption in kind is to be made, each Fund may make an election pursuant to Rule 18f-1 under the 1940 Act. This will require the particular Fund to redeem with cash at a shareholder's election in any case where the redemption involves less than $250,000 (or 1% of that Fund's net asset value at the beginning of each 90-day period during which such redemptions are in effect, if that amount is less than $250,000). Should payment be made in securities, the redeeming shareholder may incur brokerage costs in converting such securities to cash. 55 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 ($10,000 in the case of Advisor Class shares) 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 ($10,000 in the case of Advisor Class shares) 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 certain retirement plans or accounts who wish to avoid tax consequences must "rollover" any sum so redeemed into another eligible 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. Class A shares of the Fund held for less than 30 days are redeemable at a price equal to 98% of the then current net asset value per share. This 2% discount, also referred to in the Prospectus and this statement of additional information as a redemption fee, exchange fee or short-term trading fee, directly affects the amount that a shareholder who is subject to the discount receives upon exchange or redemption. It is intended to encourage long-term investment in the Fund, to avoid transaction and other expenses caused by early redemptions and to facilitate portfolio management. The fee is not a deferred sales charge, is not a commission paid to IMI or its subsidiaries, and does not benefit IMI in any way. The Fund reserves the right to modify the terms of or terminate this fee at any time. The redemption discount generally be waived for any redemption of Class A shares (a) Class A shares purchased through certain retirement and educational plans, including 401(k) plans, 403(b) plans, 457 plans, Keogh accounts, Profit Sharing and Money Purchase Pension Plans and 529 plans, (b) purchased through 56 the reinvestment of dividends or capital gains distributions paid by the Fund, (c) due to the death of the registered shareholder of a Fund account, or, due to the death of all registered shareholders of a Fund account with more than one registered shareholder, (i.e., joint tenant account), upon receipt by PFPC of appropriate written instructions and documentation satisfactory to the PFPC, or (d) by the Fund upon exercise of its right to liquidate accounts (i) falling below the minimum account size by reason of shareholder redemptions or (ii) when the shareholder has failed to provide tax identification information. However, if Class A shares are purchased for a retirement plan account through a broker, financial institution or recordkeeper maintaining an omnibus account for the shares, these waivers may not apply. (Before purchasing Class A shares, please check with your account representative concerning the availability of the fee waivers.) In addition, these waivers do not apply to IRA and SEP-IRA accounts. For this purpose and without regard to the Class A shares actually redeemed, Class A shares will be treated as redeemed as follows: first, reinvestment shares; second, purchased shares held 30 days or more; and third, purchased shares held for less than 30 days. Finally, if a redeeming shareholder acquires Class A shares through a transfer from another shareholder, the applicability of the discount, if any, will be determined by reference to the date the Class A shares were originally purchased, and not from the date of transfer between shareholders. 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 57 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 market 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 the time as of which such rate is determined by an approved pricing source. 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 asked price, in the case of a written option, and the last bid price, in the case of a purchased option. An OTC traded option is valued at the last asked 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. IMI will monitor for significant events that may call into question the reliability of market quotations. Such events may include situations relating to a single security in a market sector, significant fluctuations in U.S. or foreign markets, natural disasters, armed conflicts, governmental actions or other developments not tied directly to the securities markets. 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, 58 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 PFPC 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 advisor 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 59 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. 60 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 before the end of the 30th day after the close of the Fund's taxable year, if the position is held throughout the 60-day period beginning on the date the transaction is closed and certain other 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 61 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 62 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. 63 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 64 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 advisors. 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 30% ("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 advisors 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. 65 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, Class I and Advisor Class 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. 66 STANDARDIZED RETURN[*]
CLASS A[1] CLASS B[2] CLASS C[3] CLASS I[4] ADVISOR CLASS[4] ---------- ---------- ---------- ---------- ---------------- Year ended December 31, 2001 (25.57)% (25.79)% (22.62)% (20.87)% (21.26)% Return after taxes on distributions *** (25.40)% N/A N/A N/A N/A Return after taxes on distributions and sale of Fund shares *** (6.08)% N/A N/A N/A N/A Five years ended December 31, 2001 (2.45)% (2.53)% (2.12)% (0.91)% N/A Return after taxes on distributions *** (4.08)% N/A N/A N/A N/A Return after taxes on distributions and sale of Fund shares *** (4.35)% N/A N/A N/A N/A Ten years ended December 31, 2001 6.27% Return after taxes on distributions *** 4.92% N/A N/A N/A N/A Return after taxes on distributions and sale of Fund shares *** 8.52% N/A N/A N/A N/A
67 NON-STANDARDIZED RETURN[**]
CLASS A[5] CLASS B[6] CLASS C[7] CLASS I[4] ADVISOR CLASS[4] ---------- ---------- ---------- ---------- ---------------- Year ended December 31, 2001 (21.03)% (21.88)% (21.84)% (20.87)% (21.26)% Five years ended December 31, 2001 (1.29)% (2.14)% (2.12)% (0.91)% N/A Ten years ended December 31, 2001 6.91% N/A N/A N/A N/A Inception [#] to year ended December 31, 2001[8]: 9.88% 3.43% 0.02% 4.42% (24.10)%
[*] 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 Standardized Return Figures. [**] The Non-Standardized Return figures do not reflect the deduction of any initial sales charge or CDSC. [***] After-tax returns are calculated using the historical highest individual federal marginal income tax rates. State and local tax rates are not included in the tax effect. [#] The inception date for the Fund (Class A shares) was April 30, 1986. The inception date for Class B shares was October 22, 1993. The inception date for Class C shares was April 30, 1996. The inception date for Class I shares was October 6, 1994. The inception date for Advisor Class shares was August 31, 2000. [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, 2001 and the one, five and ten year periods ended December 31, 2001 would have been 9.46%, (25.61)%, (2.46)%, and 6.26%, respectively. 68 [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, 2001 and the one and five year periods ended December 31, 2001 would have been 3.43%, (25.82)% and (2.54)%, respectively. [3] The Standardized Return figures for the Class C shares reflect expense reimbursement. Without expense reimbursement, the Standardized Return for Class C shares for the period from inception through December 31, 2001 and the one and five year periods ended December 31, 2001 would have been 0.01%, (22.66)% and (2.13)%, respectively. [4] Class I and Advisor Class shares are not subject to an initial sales charge or a CDSC; therefore the Non-Standardized and Standardized Return figures are identical. Without expense reimbursement, the Standardized and Non-Standardized Return for Advisor Class shares for the period from inception through December 31, 2001 and the one year period ended December 31, 2001 would have been (24.15)% and (21.33)%, respectively. Without expense reimbursement, the Standardized and Non-Standardized Return for Class I shares for the period from inception through December 31, 2001 and the one and five year period ended December 31, 2001 would have been 4.41%, (20.91)% and (0.92)%, respectively. [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, 2001 and the one, five and ten year periods ended December 31, 2001 would have been 9.87%, (21.07)%, (1.30)%, and 6.90%, 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, 2001 and the one and five year periods ended December 31, 2001 would have been 3.43%, (21.92)%, and (2.15)%, 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, 2001 and the one and five year periods ended December 31, 2001 would have been 0.01%, (21.88)%, and (2.13)%, 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): 69 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, 2001, assuming the maximum 5.75% sales charge has been assessed.
ONE YEAR FIVE YEARS TEN YEARS SINCE INCEPTION [*] -------- ---------- --------- ------------------- Class A (25.57)% (11.67)% 83.78% 313.24% Class B (25.79)% (12.04)% N/A 31.87% Class C (22.62)% (10.18)% N/A 0.11% Class I (20.87)% (4.45)% N/A 42.54% Advisor Class (21.26)% N/A N/A (30.78)%
The following table summarizes the calculation of Cumulative Total Return for the periods indicated through December 31, 2001, assuming the maximum 5.75% sales charge has not been assessed.
ONE YEAR FIVE YEARS TEN YEARS SINCE INCEPTION [*] -------- ---------- --------- ------------------- Class A (21.03)% (6.28)% 94.99% 338.45% Class B (21.88)% (10.25)% N/A 31.87% Class C (21.84)% (10.18)% N/A 0.11% Class I (20.87)% (4.45)% N/A 42.54% Advisor Class (21.26)% N/A N/A (30.78)%
- --------------------------- [*] The inception date for the Fund (Class A shares) was April 30, 1986. The inception date for Class B shares was October 22, 1993. The inception date for Class C shares was April 30, 1996. The inception date for Class I shares was October 6, 1994. The inception date for Advisor Class shares was August 31, 2000. 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. 70 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 Schedule of Investments as of December 31, 2001, Statement of Assets and Liabilities as of December 31, 2001, Statement of Operations for the fiscal year ended December 31, 2001, Statement of Changes in Net Assets for the fiscal years ended December 31, 2001 and 2000, Financial Highlights, Notes to Financial Statements, and Report of Independent Accountants, which are included in the Fund's December 31, 2001 Annual Report to shareholders, are incorporated by reference into this SAI. 71 APPENDIX A DESCRIPTION OF STANDARD & POOR'S RATINGS SERVICES ("S&P") AND MOODY'S INVESTORS SERVICE, INC. ("MOODY'S") CORPORATE BOND AND COMMERCIAL PAPER RATINGS [From Moody's Rating Definitions, www.moodys.com, December 2000, and "Standard & Poor's Municipal Ratings Handbook," September 2000 Issue (McGraw-Hill, New York, 2000).] MOODY'S: (a) CORPORATE BONDS. Aaa Bonds which are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edged." Interest payments are protected by a large or by an 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. Aa Bonds which are rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high-grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risk appear somewhat larger than the Aaa securities. A Bonds which are rated A 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 some time in the future. Baa Bonds which are rated Baa are considered as 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. Ba Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered as 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. B Bonds which are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. Caa 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. Ca 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. 72 C 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. Moody's short-term issuer ratings are opinions of the ability of issuers to honor senior financial obligations and contracts. These obligations have an original maturity not exceeding one year, unless explicitly noted. Moody's employs the following three designations, all judged to be investment grade, to indicate the relative repayment ability of rated issuers: Issuers rated Prime-1 (or supporting institutions) have a superior ability for repayment of senior short-term debt obligations. Prime-1 repayment ability will often be evidenced by many of the following characteristics: leading market positions in well-established industries; high rates of return on funds employed; conservative capitalization structure with moderate reliance on debt and ample asset protection; broad margins in earnings coverage of fixed financial charges and high internal cash generation; well-established access to a range of financial markets and assured sources of alternate liquidity. Issuers rated Prime-2 (or supporting institutions) have a strong ability for repayment of senior short-term debt obligations. This will normally be evidenced by many of the characteristics cited above but to a lesser degree. Earnings trends and coverage ratios, while sound, may be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained. Issuers rated Prime-3 (or supporting institutions) have an acceptable ability for repayment of senior short-term obligations. The effect of industry characteristics and market compositions may be more pronounced. Variability in earnings and profitability may result in changes in the level of debt protection measurements and may require relatively high financial leverage. Adequate alternate liquidity is maintained. Issuers rated Not Prime do not fall within any of the Prime rating categories. S&P: (a) LONG-TERM ISSUE CREDIT RATINGS. Issue credit ratings are based in varying degrees on the following considerations: o Likelihood of payment -- capacity and willingness of the obligor to meet its financial commitment on an obligation in accordance with the terms of the obligation; o Nature of and provisions of the obligation; and o Protection afforded by, and relative position of, the obligation in the event of bankruptcy, reorganization, or other arrangement under the laws of bankruptcy and other laws affecting creditors' rights. 73 The issue ratings definitions are expressed in terms of default risk. As such, they pertain to senior obligations of an entity. Junior obligations are typically rated lower than senior obligations, to reflect the lower priority in bankruptcy, as noted above. AAA An obligation rated `AAA' has the highest rating assigned by S&P. The obligor's capacity to meet its financial commitment on the obligation is extremely strong. AA An obligation rated `AA' differs from the highest rated obligations only in small degree. The obligor's capacity to meet its financial commitment on the obligation is very strong. A An obligation rated `A' is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher-rated categories. However, the obligor's capacity to meet its financial commitment on the obligation is still strong. BBB An obligation rated `BBB' exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation. BB, B, CCC, CC, AND C Obligations rated `BB', `B', `CCC', `CC', and `C' are regarded as having significant speculative characteristics. `BB' indicates the least degree of speculation and `C' the highest. While such obligations will likely have some quality and protective characteristics, these may be outweighed by large uncertainties or major exposures to adverse conditions. BB An obligation rated `BB' is less vulnerable to nonpayment than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions, which could lead to the obligor's inadequate capacity to meet its financial commitment on the obligation. B An obligation rated `B' is more vulnerable to nonpayment than obligations rated `BB,' but the obligor currently has the capacity to meet its financial commitment on the obligation. Adverse business, financial, or economic conditions will likely impair the obligor's capacity or willingness to meet its financial commitment on the obligation. CCC An obligation rated `CCC' is currently vulnerable to nonpayment and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation. In the event of adverse business, financial, or economic conditions, the obligor is not likely to have the capacity to meet its financial commitment on the obligation. CC An obligation rated `CC' is currently highly vulnerable to nonpayment. C The `C' rating may be used to cover a situation where a bankruptcy petition has been filed or similar action has been taken, but payments on this obligation are being continued. D An obligation rated `D' is in payment default. The `D' rating category is used when payments on an obligation are not made on the date due even if the applicable grace period has not expired, unless S&P believes that 74 such payments will be made during such grace period. The `D' rating also will be used upon the filing of a bankruptcy petition or the taking of a similar action if payments on an obligation are jeopardized. (b) COMMERCIAL PAPER. An S&P commercial paper rating is a current assessment of the likelihood of timely payment of debt having an original maturity of no more than 365 days. Ratings are graded into several categories, ranging from `A' for the highest-quality obligations to `D' for the lowest. These categories are as follows: A-1 This designation 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. A-2 Capacity for timely payment on issues with this designation is satisfactory. However, the relative degree of safety is not as high as for issues designated `A-1.' A-3 Issues carrying this designation have an adequate capacity for timely payment. They are, however, more vulnerable to the adverse effects of changes in circumstances than obligations carrying the higher designations. B Issues rated `B' are regarded as having only speculative capacity for timely payment. C This rating is assigned to short-term debt obligations with a doubtful capacity for payment. D 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. 75 IVY INTERNATIONAL GROWTH FUND series of IVY FUND 925 South Federal Highway, Suite 600 Boca Raton, Florida 33432 STATEMENT OF ADDITIONAL INFORMATION ----------- April 30, 2002 Ivy Fund (the "Trust") is an open-end management investment company that currently consists of sixteen portfolios, each of which is diversified. This Statement of Additional Information ("SAI") relates to the Class A, B, C, I and Advisor Class shares of Ivy International Growth Fund (the "Fund"). The other fifteen portfolios of the Trust are described in separate prospectuses and SAIs. This SAI is not a prospectus and should be read in conjunction with the prospectus for the Fund dated April 30, 2002, as may be supplemented from time to time (the "Prospectus"), which may be obtained upon request and without charge from the Trust at the Distributor's address and telephone number printed below. The Fund's Annual Report to shareholders, dated December 31, 2001 (the "Annual Report"), is incorporated by reference into this SAI. The Annual Report may be obtained without charge from the Distributor. INVESTMENT MANAGER Ivy Management, Inc. ("IMI") 925 South Federal Highway, Suite 600 Boca Raton, Florida 33432 Telephone: (800) 777-6472 DISTRIBUTOR Ivy Mackenzie Distributors, Inc. ("IMDI") 925 South Federal Highway, Suite 600 Boca Raton, Florida 33432 Telephone: (800) 456-5111 TABLE OF CONTENTS
PAGE ---- GENERAL INFORMATION...............................................................................................1 INVESTMENT OBJECTIVES, STRATEGIES AND RISKS.......................................................................1 EQUITY SECURITIES........................................................................................4 CONVERTIBLE SECURITIES...................................................................................4 SMALL- AND MEDIUM-SIZED COMPANIES........................................................................5 DEBT SECURITIES..........................................................................................5 IN GENERAL......................................................................................5 INVESTMENT-GRADE DEBT SECURITIES................................................................5 U.S. GOVERNMENT SECURITIES......................................................................5 ZERO COUPON BONDS...............................................................................6 FIRM COMMITMENT AGREEMENTS AND "WHEN-ISSUED" SECURITIES.............................................................................7 ILLIQUID SECURITIES......................................................................................7 FOREIGN SECURITIES.......................................................................................8 DEPOSITORY RECEIPTS......................................................................................9 EMERGING MARKETS.........................................................................................9 FOREIGN CURRENCIES......................................................................................10 FOREIGN CURRENCY EXCHANGE TRANSACTIONS..................................................................11 INVESTMENT CONCENTRATION................................................................................12 OTHER INVESTMENT COMPANIES..............................................................................12 REPURCHASE AGREEMENTS...................................................................................12 BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS.......................................................13 COMMERCIAL PAPER........................................................................................13 BORROWING...............................................................................................13 WARRANTS................................................................................................13 OPTIONS TRANSACTIONS....................................................................................14 IN GENERAL.....................................................................................14 WRITING OPTIONS ON INDIVIDUAL SECURITIES.......................................................15 PURCHASING OPTIONS ON INDIVIDUAL SECURITIES....................................................15 PURCHASING AND WRITING OPTIONS ON SECURITIES INDICES...........................................16 RISKS OF OPTIONS TRANSACTIONS..................................................................16 FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS......................................................17 IN GENERAL.....................................................................................17 FOREIGN CURRENCY FUTURES CONTRACTS AND RELATED OPTIONS.......................................................................19 RISKS ASSOCIATED WITH FUTURES AND RELATED OPTIONS..............................................20 SECURITIES INDEX FUTURES CONTRACTS.............................................................21 RISKS OF SECURITIES INDEX FUTURES..............................................................21 COMBINED TRANSACTIONS..........................................................................22 PORTFOLIO TURNOVER...............................................................................................23 MANAGEMENT OF THE FUND...........................................................................................23 TRUSTEES AND OFFICERS...................................................................................23 PERSONAL INVESTMENTS BY EMPLOYEES OF IMI................................................................28
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PAGE ---- INVESTMENT ADVISORY AND OTHER SERVICES...........................................................................36 BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES....................................................36 INVESTMENT MANAGER......................................................................................36 TERM AND TERMINATION OF ADVISORY AGREEMENT AND SUBADVISORY AGREEMENT..........................................................................? DISTRIBUTION SERVICES...................................................................................37 RULE 18F-3 PLAN................................................................................39 RULE 12B-1 DISTRIBUTION PLANS..................................................................39 CUSTODIAN...............................................................................................41 FUND ACCOUNTING SERVICES................................................................................41 TRANSFER AGENT AND DIVIDEND PAYING AGENT................................................................42 ADMINISTRATOR...........................................................................................42 AUDITORS.........................................................................................................42 BROKERAGE ALLOCATION.............................................................................................42 CAPITALIZATION AND VOTING RIGHTS.................................................................................44 SPECIAL RIGHTS AND PRIVILEGES....................................................................................45 AUTOMATIC INVESTMENT METHOD.............................................................................46 EXCHANGE OF SHARES......................................................................................46 INITIAL SALES CHARGE SHARES....................................................................46 CONTINGENT DEFERRED SALES CHARGE SHARES.................................................................47 CLASS A........................................................................................47 CLASS B........................................................................................47 CLASS C........................................................................................48 CLASS I........................................................................................48 ALL CLASSES....................................................................................48 LETTER OF INTENT........................................................................................49 RETIREMENT PLANS........................................................................................49 INDIVIDUAL RETIREMENT ACCOUNTS.................................................................50 ROTH IRAs......................................................................................51 QUALIFIED PLANS................................................................................52 DEFERRED COMPENSATION FOR PUBLIC SCHOOLS AND CHARITABLE ORGANIZATIONS ("403(B)(7) ACCOUNT")....53 SIMPLIFIED EMPLOYEE PENSION ("SEP") IRAs.......................................................53 SIMPLE PLANS...................................................................................53 REINVESTMENT PRIVILEGE..................................................................................53 REDUCED SALES CHARGES AND RIGHTS OF ACCUMULATION........................................................54 SYSTEMATIC WITHDRAWAL PLAN..............................................................................54 GROUP SYSTEMATIC INVESTMENT PROGRAM.....................................................................55 REDEMPTIONS......................................................................................................56 CONVERSION OF CLASS B SHARES.....................................................................................58 NET ASSET VALUE..................................................................................................58 TAXATION.........................................................................................................60 OPTIONS, FUTURES AND FOREIGN CURRENCY FORWARD CONTRACTS.................................................61 CURRENCY FLUCTUATIONS -- "SECTION 988" GAINS OR LOSSES..................................................62 INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES......................................................62 DEBT SECURITIES ACQUIRED AT A DISCOUNT..................................................................63
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PAGE ---- DISTRIBUTIONS...........................................................................................64 DISPOSITION OF SHARES...................................................................................64 FOREIGN WITHHOLDING TAXES...............................................................................65 BACKUP WITHHOLDING......................................................................................66 PERFORMANCE INFORMATION..........................................................................................66 AVERAGE ANNUAL TOTAL RETURN....................................................................67 CUMULATIVE TOTAL RETURN........................................................................68 OTHER QUOTATIONS, COMPARISONS AND GENERAL INFORMATION...................................................................68 FINANCIAL STATEMENTS.............................................................................................69 APPENDIX A.......................................................................................................70 APPENDIX B.......................................................................................................?
iii GENERAL INFORMATION The Fund is organized as a separate, diversified portfolio of the Trust, an open-end management investment company organized as a Massachusetts business trust on December 21, 1983. The Fund commenced operations on December 29, 2000. Descriptions in this SAI of a particular investment practice or technique in which the Fund may engage or a financial instrument which the Fund may purchase are meant to describe the spectrum of investments that IMI, in its discretion, might, but is not required to, use in managing the Fund's portfolio assets. For example, IMI may, in its discretion, employ a given practice, technique for one or more funds but not for all funds advised by it. It is also possible that certain types of financial instruments or investment techniques described herein may not be available, permissible, economically feasible or effective for their intended purposes in some or all markets, in which case the Fund would not use them. Investors should also be aware that certain practices, techniques, or instruments could, regardless of their relative importance in the Fund's overall investment strategy, from time to time have a material impact on the Fund's performance. INVESTMENT OBJECTIVES, STRATEGIES AND RISKS The Fund has its own investment objectives and policies, which are described in the Prospectus under the captions "Summary" and "Additional Information About Strategies and Risks." Descriptions of the Fund's policies, strategies and investment restrictions, as well as additional information regarding the characteristics and risks associated with the Fund's investment techniques, are set forth below. Whenever an investment objective, policy or restriction set forth in the Prospectus or this SAI states a maximum percentage of assets that may be invested in any security or other asset or describes a policy regarding quality standards, such percentage limitation or standard shall, unless otherwise indicated, apply to the Fund only at the time a transaction is entered into. Accordingly, if a percentage limitation is adhered to at the time of investment, a later increase or decrease in the percentage which results from circumstances not involving any affirmative action by the Fund, such as a change in market conditions or a change in the Fund's asset level or other circumstances beyond the Fund's control, will not be considered a violation. The Fund's principal objective is long-term capital growth 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 may not achieve its investment objective during the time that these temporary defensive investments are made. 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 growth indicators, such as earnings, cash flow, assets and long-term growth potential, 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 THE FUND The Fund's investment objectives as set forth in the "Summary" section of the Prospectus, together with the investment restrictions set forth below, are fundamental policies of the Fund and may not be changed without the approval of a majority of the outstanding voting shares of the Fund. The Fund has adopted the following fundamental investment restrictions: (i) The Fund has elected to be classified as a diversified series of an open-end investment company. (ii) The Fund will not borrow money, except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. (iii) The Fund will not issue senior securities, except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. (iv) The Fund will not engage in the business of underwriting securities issued by others, except to the extent that the Fund may be deemed to be an underwriter in connection with the disposition of portfolio securities. 2 (v) The Fund will not purchase or sell real estate (which term does not include securities of companies that deal in real estate or mortgages or investments secured by real estate or interests therein), except that the Fund may hold and sell real estate acquired as a result of the Fund's ownership of securities. (vi) The Fund will not purchase physical commodities or contracts relating to physical commodities, although the Fund may invest in commodities futures contracts and options thereon to the extent permitted by the Prospectus and this SAI. (vii) The Fund will not make loans to other persons, except (a) loans of portfolio securities, and (b) to the extent that entry into repurchase agreements and the purchase of debt instruments or interests in indebtedness in accordance with the Fund's investment objective and policies may be deemed to be loans. (viii) The Fund will not concentrate its investments in a particular industry, as the term "concentrate" is interpreted in connection with the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. ADDITIONAL RESTRICTIONS FOR THE FUND 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) sell securities short, except for short sales "against the box;" (ii) 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; (iii) 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 (iv) purchase the securities of any other open-end investment company, 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. 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. 3 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. EQUITY SECURITIES Equity securities can be issued by companies to raise cash; all equity securities shares represent a proportionate ownership interest in a company. As a result, the value of equity securities rises and falls with a company's success or failure. The market value of equity securities can fluctuate significantly, with smaller companies being particularly susceptible to price swings. Transaction costs in smaller company stocks may also be higher than those of larger companies. CONVERTIBLE SECURITIES The convertible securities in which the Fund may invest include corporate bonds, notes, debentures, preferred stock and other securities that may be converted or exchanged at a stated or determinable exchange ratio into underlying shares of equity securities. Investments in convertible securities can provide income through interest and dividend payments as well as an opportunity for capital appreciation by virtue of their conversion or exchange features. Because convertible securities can be converted into equity securities, their values will normally vary in some proportion with those of the underlying equity securities. Convertible securities usually provide a higher yield than the underlying equity, however, so that the price decline of a convertible security may sometimes be less substantial than that of the underlying equity security. The exchange ratio for any particular convertible security may be adjusted from time to time due to stock splits, dividends, spin-offs, other corporate distributions or scheduled changes in the exchange ratio. Convertible debt securities and convertible preferred stocks, until converted, have general characteristics similar to both debt and equity securities. Although to a lesser extent than with debt securities generally, the market value of convertible securities tends to decline as interest rates increase and, conversely, tends to increase as interest rates decline. In addition, because of the conversion or exchange feature, the market value of convertible securities typically changes as the market value of the underlying equity securities changes, and, therefore, also tends to follow movements in the general market for equity securities. When the market price of the underlying equity securities increases, the price of a convertible security tends to rise as a reflection of the value of the underlying equity securities, although typically not as much as the price of the underlying equity securities. While no securities investments are without risk, investments in convertible securities generally entail less risk than investments in equity securities of the same issuer. As debt securities, convertible securities are investments that provide for a stream of income. Like all debt securities, there can be no assurance of income or principal payments because the issuers of the convertible securities may default on their obligations. Convertible securities generally offer lower yields than non-convertible securities of similar quality because of their conversion or exchange features. 4 Convertible securities generally are subordinated to other similar but non-convertible securities of the same issuer, although convertible bonds, as corporate debt obligations, are senior in right of payment to all equity securities, and convertible preferred stock is senior to common stock, of the same issuer. However, convertible bonds and convertible preferred stock typically have lower coupon rates than similar non-convertible securities. Convertible securities may be issued as fixed income obligations that pay current income. SMALL- AND MEDIUM-SIZED COMPANIES Investing in smaller company stocks involves certain special considerations and risks that are not usually associated with investing in larger, more established companies. For example, the securities of small or new companies may be subject to more abrupt or erratic market movements because they tend to be thinly traded and are subject to a greater degree to changes in the issuer's earnings and prospects. Small companies also tend to have limited product lines, markets or financial resources. Transaction costs in smaller company stocks also may be higher than those of larger companies. DEBT SECURITIES IN GENERAL. Investment in debt securities involves both interest rate and credit risk. Generally, the value of debt instruments rises and falls inversely with fluctuations in interest rates. As interest rates decline, the value of debt securities generally increases. Conversely, rising interest rates tend to cause the value of debt securities to decrease. Bonds with longer maturities generally are more volatile than bonds with shorter maturities. The market value of debt securities also varies according to the relative financial condition of the issuer. In general, lower-quality bonds offer higher yields due to the increased risk that the issuer will be unable to meet its obligations on interest or principal payments at the time called for by the debt instrument. INVESTMENT-GRADE DEBT SECURITIES. Bonds rated Aaa by Moody's and AAA by S&P are judged to be of the best quality (i.e., capacity to pay interest and repay principal is extremely strong). Bonds rated Aa/AA are considered to be of high quality (i.e., capacity to pay interest and repay principal is very strong and differs from the highest rated issues only to a small degree). Bonds rated A are viewed as having many favorable investment attributes, but elements may be present that suggest a susceptibility to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories. Bonds rated Baa/BBB (considered by Moody's to be "medium grade" obligations) are considered to have an adequate capacity to pay interest and repay principal, but certain protective elements may be lacking (i.e., such bonds lack outstanding investment characteristics and have some speculative characteristics). The Fund may invest in debt securities that are given an investment-grade rating by Moody's or S&P, and may also invest in unrated debt securities that are considered by IMI to be of comparable quality. U.S. GOVERNMENT SECURITIES. U.S. Government securities are obligations of, or guaranteed by, the U.S. Government, its agencies or instrumentalities. Securities guaranteed by the U.S. Government include: (1) direct obligations of the U.S. Treasury (such as Treasury bills, notes, and bonds) and (2) Federal agency obligations guaranteed as to principal and interest by the U.S. Treasury (such as GNMA certificates, which are mortgage-backed securities). When such 5 securities are held to maturity, the payment of principal and interest is unconditionally guaranteed by the U.S. Government, and thus they are of the highest possible credit quality. U.S. Government securities that are not held to maturity are subject to variations in market value due to fluctuations in interest rates. Mortgage-backed securities are securities representing part ownership of a pool of mortgage loans. For example, GNMA certificates are such securities in which the timely payment of principal and interest is guaranteed by the full faith and credit of the U.S. Government. Although the mortgage loans in the pool will have maturities of up to 30 years, the actual average life of the loans typically will be substantially less because the mortgages will be subject to principal amortization and may be prepaid prior to maturity. Prepayment rates vary widely and may be affected by changes in market interest rates. In periods of falling interest rates, the rate of prepayment tends to increase, thereby shortening the actual average life of the security. Conversely, rising interest rates tend to decrease the rate of prepayments, thereby lengthening the actual average life of the security (and increasing the security's price volatility). Accordingly, it is not possible to predict accurately the average life of a particular pool. Reinvestment of prepayment may occur at higher or lower rates than the original yield on the certificates. Due to the prepayment feature and the need to reinvest prepayments of principal at current rates, mortgage-backed securities can be less effective than typical bonds of similar maturities at "locking in" yields during periods of declining interest rates, and may involve significantly greater price and yield volatility than traditional debt securities. Such securities may appreciate or decline in market value during periods of declining or rising interest rates, respectively. Securities issued by U.S. Government instrumentalities and certain Federal agencies are neither direct obligations of nor guaranteed by the U.S. Treasury; however, they involve Federal sponsorship in one way or another. Some are backed by specific types of collateral, some are supported by the issuer's right to borrow from the Treasury, some are supported by the discretionary authority of the Treasury to purchase certain obligations of the issuer, others are supported only by the credit of the issuing government agency or instrumentality. These agencies and instrumentalities include, but are not limited to, Federal Land Banks, Farmers Home Administration, Central Bank for Cooperatives, Federal Intermediate Credit Banks, Federal Home Loan Banks, Federal National Mortgage Association, Federal Home Loan Mortgage Association, and Student Loan Marketing Association. ZERO COUPON BONDS. Zero coupon bonds are debt obligations issued without any requirement for the periodic payment of interest. Zero coupon bonds are issued at a significant discount from face value. The discount approximates the total amount of interest the bonds would accrue and compound over the period until maturity at a rate of interest reflecting the market rate at the time of issuance. If the Fund holds zero coupon bonds in its portfolio, it would recognize income currently for Federal income tax purposes in the amount of the unpaid, accrued interest and generally would be required to distribute dividends representing such income to shareholders currently, even though funds representing such income would not have been received by the Fund. Cash to pay dividends representing unpaid, accrued interest may be obtained from, for example, sales proceeds of portfolio securities and Fund shares and from loan 6 proceeds. The potential sale of portfolio securities to pay cash distributions from income earned on zero coupon bonds may result in the Fund being forced to sell portfolio securities at a time when it might otherwise choose not to sell these securities and when the Fund might incur a capital loss on such sales. Because interest on zero coupon obligations is not distributed to the Fund on a current basis, but is in effect compounded, the value of the securities of this type is subject to greater fluctuations in response to changing interest rates than the value of debt obligations which distribute income regularly. FIRM COMMITMENT AGREEMENTS AND "WHEN-ISSUED" SECURITIES. New issues of certain debt securities are often offered on a "when-issued" basis, meaning the payment obligation and the interest rate are fixed at the time the buyer enters into the commitment, but delivery and payment for the securities normally take place after the date of the commitment to purchase. Firm commitment agreements call for the purchase of securities at an agreed-upon price on a specified future date. The Fund uses such investment techniques in order to secure what is considered to be an advantageous price and yield to the Fund and not for purposes of leveraging the Fund's assets. In either instance, the Fund will maintain in a segregated account with its Custodian cash or liquid securities equal (on a daily marked-to-market basis) to the amount of its commitment to purchase the underlying securities. ILLIQUID SECURITIES The Fund may purchase securities other than in the open market. While such purchases may often offer attractive opportunities for investment not otherwise available on the open market, the securities so purchased are often "restricted securities" or "not readily marketable" (i.e., they cannot be sold to the public without registration under the Securities Act of 1933, as amended (the "1933 Act"), or the availability of an exemption from registration (such as Rule 144A) or because they are subject to other legal or contractual delays in or restrictions on resale). This investment practice, therefore, could have the effect of increasing the level of illiquidity of the Fund. It is the Fund's policy that illiquid securities (including repurchase agreements of more than seven days duration, certain restricted securities, and other securities which are not readily marketable) may not constitute, at the time of purchase, more than 15% of the value of the Fund's net assets. The Trust's Board of Trustees has approved guidelines for use by IMI in determining whether a security is illiquid. Generally speaking, restricted securities may be sold (i) only to qualified institutional buyers; (ii) in a privately negotiated transaction to a limited number of purchasers; (iii) in limited quantities after they have been held for a specified period of time and other conditions are met pursuant to an exemption from registration; or (iv) in a public offering for which a registration statement is in effect under the 1933 Act. Issuers of restricted securities may not be subject to the disclosure and other investor protection requirements that would be applicable if their securities were publicly traded. If adverse market conditions were to develop during the period between the Fund's decision to sell a restricted or illiquid security and the point at which the Fund is permitted or able to sell such security, the Fund might obtain a price less favorable than the price that prevailed when it decided to sell. Where a registration statement is required for the resale of restricted securities, the Fund may be required to bear all or part of the registration expenses. The Fund may be deemed to be an "underwriter" for purposes of the 1933 Act when selling restricted securities to the public and, if so, could be liable to purchasers of such securities if the registration statement prepared by the issuer is materially inaccurate or misleading. 7 Since it is not possible to predict with assurance that the market for securities eligible for resale under Rule 144A will continue to be liquid, IMI will monitor such restricted securities subject to the supervision of the Board of Trustees. Among the factors IMI may consider in reaching liquidity decisions relating to Rule 144A securities are: (1) the frequency of trades and quotes for the security; (2) the number of dealers wishing to purchase or sell the security and the number of other potential purchasers; (3) dealer undertakings to make a market in the security; and (4) the nature of the security and the nature of the market for the security (i.e., the time needed to dispose of the security, the method of soliciting offers, and the mechanics of the transfer). FOREIGN SECURITIES The securities of foreign issuers in which the Fund may invest include non-U.S. dollar-denominated debt securities, Euro dollar securities, sponsored and unsponsored American Depository Receipts ("ADRs"), Global Depository Receipts ("GDRs") and related depository instruments, American Depository Shares ("ADSs"), Global Depository Shares ("GDSs"), and debt securities issued, assumed or guaranteed by foreign governments or political subdivisions or instrumentalities thereof. Shareholders should consider carefully the substantial risks involved in investing in securities issued by companies and governments of foreign nations, which are in addition to the usual risks inherent in the Fund's domestic investments. Although IMI intends to invest the Fund's assets only in nations that are generally considered to have relatively stable and friendly governments, there is the possibility of expropriation, nationalization, repatriation or confiscatory taxation, taxation on income earned in a foreign country and other foreign taxes, foreign exchange controls (which may include suspension of the ability to transfer currency from a given country), default on foreign government securities, political or social instability or diplomatic developments which could affect investments in securities of issuers in those nations. In addition, in many countries there is less publicly available information about issuers than is available for U.S. companies. Moreover, foreign companies are not generally subject to uniform accounting, auditing and financial reporting standards, and auditing practices and requirements may not be comparable to those applicable to U.S. companies. In many foreign countries, there is less governmental supervision and regulation of business and industry practices, stock exchanges, brokers, and listed companies than in the United States. Foreign securities transactions may also be subject to higher brokerage costs than domestic securities transactions. The foreign securities markets of many of the countries in which the Fund may invest may also be smaller, less liquid and subject to greater price volatility than those in the United States. In addition, the Fund may encounter difficulties or be unable to pursue legal remedies and obtain judgment in foreign courts. Foreign bond markets have different clearance and settlement procedures and in certain markets there have been times when settlements have been unable to keep pace with the volume of securities transactions, making it difficult to conduct such transactions. Delays in settlement could result in temporary periods when assets of the Fund are uninvested and no return is earned thereon. The inability of the Fund to make intended security purchases due to settlement problems could cause the Fund to miss attractive investment opportunities. Further, the inability to dispose of portfolio securities due to settlement problems could result either in losses to the Fund because of subsequent declines in the value of the portfolio security or, if the Fund has entered into 8 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 9 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 10 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. 11 Currency transactions are subject to risks different from those of other portfolio transactions. Because currency control is of great importance to the issuing governments and influences economic planning and policy, purchases and sales of currency and related instruments can be negatively affected by government exchange controls, blockages, and manipulations or exchange restrictions imposed by governments. These can result in losses to the Fund if it is unable to deliver or receive currency or funds in settlement of obligations and could also cause hedges it has entered into to be rendered useless, resulting in full currency exposure as well as incurring transactions costs. Buyers and sellers of currency futures are subject to the same risks that apply to the use of futures generally. Further, settlement of a currency futures contract for the purchase of most currencies must occur at a bank based in the issuing nation. Trading options on currency futures is relatively new, and the ability to establish and close out positions on such options is subject to the maintenance of a liquid market which may not always be available. Currency exchange rates may fluctuate based on factors extrinsic to that country's economy. INVESTMENT CONCENTRATION Although the Fund will not invest more than 25% of its total assets in any one industry and does not expect to focus its investments in a single country, it may at any given time have a significant percentage of its total assets in one or more market sectors and could have a substantial portion of its total assets invested in a particular country. If this were to occur, the Fund could experience a wider fluctuation in value than funds with more diversified portfolios. OTHER INVESTMENT COMPANIES The Fund may invest up to 10% of its total assets in the shares of other investment companies. As a shareholder of an investment company, the Fund would bear its ratable shares of the fund's expenses (which often include an asset-based management fee). The Fund could also lose money by investing in other investment companies, since the value of their respective investments and the income they generate will vary daily based on prevailing market conditions. REPURCHASE AGREEMENTS Repurchase agreements are contracts under which the Fund buys a money market instrument and obtains a simultaneous commitment from the seller to repurchase the instrument at a specified time and at an agreed-upon yield. Under guidelines approved by the Board, the Fund is permitted to enter into repurchase agreements only if the repurchase agreements are at least fully collateralized with U.S. Government securities or other securities that IMI has approved for use as collateral for repurchase agreements and the collateral must be marked-to-market daily. The Fund will enter into repurchase agreements only with banks and broker-dealers deemed to be creditworthy by IMI under the above-referenced guidelines. In the unlikely event of failure of the executing bank or broker-dealer, the Fund could experience some delay in obtaining direct ownership of the underlying collateral and might incur a loss if the value of the security should decline, as well as costs in disposing of the security. 12 BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS Certificates of deposit are negotiable certificates issued against funds deposited in a commercial bank for a definite period of time and earning a specified return. Bankers' acceptances are negotiable drafts or bills of exchange, normally drawn by an importer or exporter to pay for specific merchandise, which are "accepted" by a bank (meaning, in effect, that the bank unconditionally agrees to pay the face value of the instrument at maturity). In addition to investing in certificates of deposit and bankers' acceptances, the Fund may invest in time deposits in banks or savings and loan associations. Time deposits are generally similar to certificates of deposit, but are uncertificated. The Fund's investments in certificates of deposit, time deposits, and bankers' acceptance are limited to obligations of (i) banks having total assets in excess of $1 billion, (ii) U.S. banks which do not meet the $1 billion asset requirement, if the principal amount of such obligation is fully insured by the Federal Deposit Insurance Corporation (the "FDIC"), (iii) savings and loan association which have total assets in excess of $1 billion and which are members of the FDIC, and (iv) foreign banks if the obligation is, in IMI's opinion, of an investment quality comparable to other debt securities which may be purchased by the Fund. The Fund's investments in certificates of deposit of savings associations are limited to obligations of Federal and state-chartered institutions whose total assets exceed $1 billion and whose deposits are insured by the FDIC. COMMERCIAL PAPER Commercial paper represents short-term unsecured promissory notes issued in bearer form by bank holding companies, corporations and finance companies. The Fund may invest in commercial paper that is rated Prime-1 by Moody's or A-1 by S&P or, if not rated by Moody's or S&P, is issued by companies having an outstanding debt issue rated Aaa or Aa by Moody's or AAA or AA by S&P. BORROWING Borrowing may exaggerate the effect on the Fund's net asset value of any increase or decrease in the value of the Fund's portfolio securities. Money borrowed will be subject to interest costs (which may include commitment fees and/or the cost of maintaining minimum average balances). Although the principal of the Fund's borrowings will be fixed, the Fund's assets may change in value during the time a borrowing is outstanding, thus increasing exposure to capital risk. WARRANTS The holder of a warrant has the right, until the warrant expires, to purchase a given number of shares of a particular issuer at a specified price. Such investments can provide a greater potential for profit or loss than an equivalent investment in the underlying security. However, prices of warrants do not necessarily move in a tandem with the prices of the underlying securities, and are, therefore, considered speculative investments. Warrants pay no dividends and confer no rights other than a purchase option. Thus, if a warrant held by the Fund was not exercised by the date of its expiration, the Fund would lose the entire purchase price of the warrant. 13 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 obligations in an OTC transaction, the Fund would need to negotiate directly with the counterparty. The Fund will realize a gain (or a loss) on a closing purchase transaction with respect to a call or a put previously written by the Fund if the premium, plus commission costs, paid by the Fund to purchase the call or the put is less (or greater) than the premium, less commission costs, received by the Fund on the sale of the call or the put. A gain also will be realized if a call or a put that the Fund has written lapses unexercised, because the Fund would retain the premium. Any such gains (or losses) are considered short-term capital gains (or losses) for Federal income tax purposes. Net short-term capital gains, when distributed by the Fund, are taxable as ordinary income. See "Taxation." The Fund will realize a gain (or a loss) on a closing sale transaction with respect to a call or a put previously purchased by the Fund if the premium, less commission costs, received by the Fund on the sale of the call or the put is greater (or less) than the premium, plus commission costs, paid by the Fund to purchase the call or the put. If a put or a call expires unexercised, it will become worthless on the expiration date, and the Fund will realize a loss in the amount of the premium paid, plus commission costs. Any such gain or loss will be long-term or short-term gain or loss, depending upon the Fund's holding period for the option. Exchange-traded options generally have standardized terms and are issued by a regulated clearing organization (such as the Options Clearing Corporation), which, in effect, guarantees the completion of every 14 exchange-traded option transaction. In contrast, the terms of OTC options are negotiated by the Fund and its counterparty (usually a securities dealer or a financial institution) with no clearing organization guarantee. When the Fund purchases an OTC option, it relies on the party from whom it has purchased the option (the "counterparty") to make delivery of the instrument underlying the option. If the counterparty fails to do so, the Fund will lose any premium paid for the option, as well as any expected benefit of the transaction. Accordingly, IMI will assess the creditworthiness of each counterparty to determine the likelihood that the terms of the OTC option will be satisfied. WRITING OPTIONS ON INDIVIDUAL SECURITIES. The Fund may write (sell) covered call options on the Fund's securities in an attempt to realize a greater current return than would be realized on the securities alone. The Fund may also write covered call options to hedge a possible stock or bond market decline (only to the extent of the premium paid to the Fund for the options). In view of the investment objectives of the Fund, it generally would write call options only in circumstances where the investment advisor 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 15 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, 16 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 17 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 18 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 19 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 20 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 21 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 22 present in each of its component transactions. Although combined transactions are normally entered into based on IMI's judgment that the combined strategies will reduce risk or otherwise more effectively achieve the desired portfolio management goal, it is possible that the combination will instead increase such risks or hinder achievement of the management objective. PORTFOLIO TURNOVER The Fund purchases securities that are believed by IMI to have above average potential for capital appreciation. Securities are disposed of in situations where it is believed that potential for such appreciation has lessened or that other securities have a greater potential. Therefore, the Fund may purchase and sell securities without regard to the length of time the security is to be, or has been, held. A change in securities held by the Fund is known as "portfolio turnover" and may involve the payment by the Fund of dealer markup or underwriting commission and other transaction costs on the sale of securities, as well as on the reinvestment of the proceeds in other securities. The Fund's portfolio turnover rate is calculated by dividing the lesser of purchases or sales of portfolio securities for the most recently completed fiscal year by the monthly average of the value of the portfolio securities owned by the Fund during that year. For purposes of determining the Fund's portfolio turnover rate, all securities whose maturities at the time of acquisition were one year or less are excluded. MANAGEMENT OF THE FUND The business and affairs of the Fund are managed under the direction of the Trustees. Information about the Fund's investment manager and other service providers appears in the "Investment Advisory and Other Services" section, below. TRUSTEES AND OFFICERS The Board of Trustees of the Trust is responsible for the overall management of the Fund, including general supervision and review of the Fund's investment activities. The Board, in turn, elects the officers who are responsible for administering the Fund's day-to-day operations. 23 The non-Independent Trustees (as defined below) and Executive Officers of the Trust, their business addresses and principal occupations during the past five years are:
- ------------------------ -------------- ------------ --------------------------------------- ----------------- ------------- Name, Position(s) Term of Principal Number of Other Address, Held with Office and Occupation(s) Portfolios in Directorships And Age Fund Length of During Past 5 Fund Complex Held Time Years Overseen by by Served (1) Trustee Trustee - ------------------------ -------------- ------------ --------------------------------------- ----------------- ------------- James W. Broadfoot (2) Trustee and 6 years President and Chief Investment 16 __ 925 South Federal Hwy. President of Officer -- US Equities of IMI; Boca Raton, FL 33432 Ivy Fund Director, Senior Vice President of Age: 59 Mackenzie Investment Management Inc.; Director of Ivy Mackenzie Distributors, Inc.; Director of Ivy Mackenzie Services Corp. - ------------------------ -------------- ------------ --------------------------------------- ----------------- ------------- Keith J. Carlson (2) Trustee and 8 years Director, Chairman and Senior Vice 16 __ 925 South Federal Hwy. Chairman of President of IMI; Director, President Suite 600 Ivy Fund and Chief Executive Officer of Boca Raton, FL 33432 Mackenzie Investment Management Inc. Age: 45 and Ivy Mackenzie Distributors, Inc.; Director, President and Chairman of Ivy Mackenzie Services Corp. - ------------------------ -------------- ------------ --------------------------------------- ----------------- ------------- Paula Wolfe Secretary 4 years Compliance Manager of Mackenzie 16 __ 925 South Federal Hwy. Investment Management Inc.; Assistant Suite 600 Secretary of Ivy Fund ; Secretary of Boca Raton, FL 33432 Ivy Mackenzie Distributors, Inc.; Age: 40 Secretary of Ivy Mackenzie Services Corp. - ------------------------ -------------- ------------ --------------------------------------- ----------------- ------------- Beverly J. Yanowitch Treasurer of 1 year Vice President, Chief Financial 16 __ 925 South Federal Hwy. Ivy Fund Officer and Treasurer of Mackenzie Suite 600 Investment Management, Inc.; Vice Boca Raton, FL 33432 Present and Treasurer of IMI; Senior Age: 52 Vice President and Treasurer of Ivy Mackenzie Distributors, Inc. and Ivy Mackenzie Services Corp. - ------------------------ -------------- ------------ --------------------------------------- ----------------- -------------
(1) Each Trustee and Officer serves an indefinite term, until he or she sooner dies, resigns, is removed, or becomes disqualified. (2) Deemed to be an "interested person" of the Trust, as defined in the 1940 Act, by virtue of his or her employment by MIMI or IMI. 24 The Trustees who are not "interested persons" of the Trust within the meaning of Section 2(a)(19) of the 1940 Act ("Independent Trustees"), their business addresses and principal occupations during the past five years are:
- ------------------------ -------------- ------------ --------------------------------------- ----------------- ------------- Name, Position(s) Term of Principal Number of Other Address, Held with Office and Occupation(s) Portfolios in Directorships And Age Fund Length of During Past 5 Fund Complex Held by Time Years Overseen by Trustee Served (1) Trustee - ------------------------ -------------- ------------ --------------------------------------- ----------------- ------------- John S. Anderegg, Jr. Trustee 35 years Chairman Emeritus, Dynamics Research 16 -- c/o Dynamics Research Corp.; (Defense Contractor) Corp. 60 Concord Street Wilmington, MA 01810 Age: 78 - ------------------------ -------------- ------------ --------------------------------------- ----------------- ------------- Stanley Channick Trustee 27 years Chairman, Scott Management Company; 16 -- 20234 Valley Forge Circle President, The Channick Group; King of Prussia, PA President and CEO, The Whitestone 19406 Corporation (Retired) (2) Age: 78 - ------------------------ -------------- ------------ --------------------------------------- ----------------- ------------- Dr. Roy J. Glauber Trustee 41 years Professor of Physics, Harvard 16 -- Lyman Laboratory of University Physics Harvard University Cambridge, MA 02138 Age: 76 - ------------------------ -------------- ------------ --------------------------------------- ----------------- ------------- Joseph G. Rosenthal Trustee 10 years Chartered Accountant. Rosenthal & 16 -- 925 South Federal Katkauskas (Accountants) Highway Suite 600 Boca Raton, FL 33432 Age: 67 - ------------------------ -------------- ------------ --------------------------------------- ----------------- ------------- Richard N. Silverman Trustee 29 years President, Van Leer USA (Retired) 16 Trustee of 925 South Federal (3); President, Hysil (Retired) (4) Boston Highway Ballet, Suite 600 Member Boca Raton, FL 33432 Charitable Age: 78 Foundation Board and Newton Wellesley Hospital - ------------------------ -------------- ------------ --------------------------------------- ----------------- ------------- James Brendan Swan Trustee 10 years President, Airspray International 16 -- 925 South Federal Inc. (5) Highway Suite 600 Boca Raton, FL 33432 Age: 71 - ------------------------ -------------- ------------ --------------------------------------- ----------------- ------------- Edward M. Tighe Trustee 3 years Chairman and CEO of JBE Technology 16 Director of 925 South Federal Group, Inc. (6) President of Global Hansberger Highway Mutual Fund Services Inc.; President Institutional Suite 600 & CEO of Global Technology Funds & Boca Raton, FL 33432 Global Age: 59 Funds Ltd. - ------------------------ -------------- ------------ --------------------------------------- ----------------- -------------
(1) Each Trustee and Officer serves an indefinite term, until he or she sooner dies, resigns, is removed, or becomes disqualified. (2) Scott Management Co., The Channick Group and The Whitestone Corporation are consultants to insurance companies and agencies in the area of mass marketing and worksite payroll deduction marketing. (3) Manufacturer of packing materials. (4) Gift wrapping business. (5) Manufacturer of aerosol dispensing systems. (6) Telecommunications and computer network consulting. 25 The Board has an Audit Committee, an Investment Review Committee, a Valuation Committee, and a Corporate Governance Committee. The function of the Audit Committee is to assist the Board in fulfilling its responsibilities to shareholders of the Fund relating to accounting and reporting, internal controls and the adequacy of auditing relative thereto. The Audit Committee currently consists of Joseph G. Rosenthal, Edward M. Tighe and J. Brendan Swan. During the last year, the Audit Committee held 4 meetings. The function of the Investment Review Committee is to consider the Fund's investment processes, policies and risks, and the overall performance of the Fund. The Investment Review Committee currently consists of Edward M. Tighe, James W. Broadfoot, Keith J. Carlson, Stanley Channick, Joseph G. Rosenthal and Richard N. Silverman. During the last year, the Investment Review Committee held 4 meetings. The function of the Valuation Committee is to consider the valuation of portfolio securities which may be difficult to price. The Valuation Committee currently consists of Roy J. Glauber, John S. Anderegg, Jr. and James W. Broadfoot. During the last year, the Valuation Committee held 4 meetings. The function of the Corporate Governance Committee is to consider the responsibilities and actions of the Board of Trustees. The Corporate Governance Committee currently consists of Stanley Channick, Joseph G. Rosenthal, J. Brendan Swan, Keith J. Carlson and Richard N. Silverman. During the last year, the Corporate Governance Committee held 4 meetings. 26 COMPENSATION TABLE IVY FUND (FISCAL YEAR ENDED DECEMBER 31, 2001)
- ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- TOTAL COMPENSATION AGGREGATE PENSION OR RETIREMENT ESTIMATED ANNUAL FROM TRUST AND FUND COMPENSATION FROM BENEFITS ACCRUED AS BENEFITS UPON COMPLEX PAID TO NAME, POSITION TRUST PART OF FUND EXPENSES RETIREMENT TRUSTEES* - ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- John S. Anderegg, Jr. (Trustee) $25,000 N/A N/A $25,000 - ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- James W. Broadfoot (Trustee and President) 0 N/A N/A $0 - ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- Keith J. Carlson (Trustee and Chairman) $0 N/A N/A $0 - ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- Stanley Channick (Trustee) $25,000 N/A N/A $25,000 - ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- Roy J. Glauber (Trustee) $25,000 N/A N/A $25,000 - ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- Joseph G. Rosenthal (Trustee) $25,000 N/A N/A $25,000 - ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- Richard N. Silverman (Trustee) $25,000 N/A N/A $25,000 - ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- J. Brendan Swan (Trustee) $25,000 N/A N/A $25,000 - ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- Edward M. Tighe (Trustee) $25,000 N/A N/A $25,000 - ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- Paula Wolfe (Assistant Secretary) $0 N/A N/A $0 - ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- Beverly J. Yanowitch (Treasurer) $0 N/A N/A $0 - ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
* The Fund complex consists of Ivy Fund. As of April 4, 2002, 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 sixteen Ivy funds that are series of the Trust, except that the Officers and Trustees of the Trust as a group owned 1.97%, 4.34%, 18.71% and 8.87% of Ivy Cundill Global Value Fund, Ivy Global Science & Technology Fund, Ivy Growth Fund and Ivy US Emerging Growth Fund Advisor Class shares, respectively. 27 The following table sets forth the dollar range of shares of the Fund held directly or indirectly by the Trustees:
DOLLAR RANGE OF AGGREGATE DOLLAR RANGE IN ALL FUNDS EQUITY SECURITIES OVERSEEN BY THE TRUSTEE IN THE IVY NAME OF TRUSTEE IN THE FUND FUND FAMILY --------------- ----------------- -------------------------------------- John S. Anderegg, Jr $-- $144,781 James W. Broadfoot -- 404,680 Keith J. Carlson -- 140 Stanley Channick -- 55,485 Dr. Roy J. Glauber -- 371,607 Joseph G. Rosenthal -- -- Richard N. Silverman -- 158,140 J. Brendan Swan -- -- Edward M. Tighe -- 21,306
PERSONAL INVESTMENTS BY EMPLOYEES OF IMI, IMDI AND THE TRUST. IMI, IMDI and the Trust have adopted a Code of Ethics and Business Conduct Policy (the "Code of Ethics") which is designed to identify and address certain conflicts of interest between personal investment activities and the interests of investment advisory clients such as the Fund, in compliance with Rule 17j-1 under the 1940 Act. The Codes of Ethics permit personnel of IMI, IMDI and the Trust subject to the Codes of Ethics to engage in personal securities transactions, including with respect to securities held by the Fund, subject to certain requirements and restrictions. PRINCIPAL HOLDERS OF SECURITIES SHARE OWNERSHIP To the knowledge of the Trust as of April 4, 2002, no shareholder owned beneficially or of record 5% or more of any Fund's outstanding shares of any class, with the following exceptions: CLASS A Of the outstanding Class A shares of: IVY CUNDILL GLOBAL VALUE FUND, Raymond James & Assoc Inc CSDN Kyle M Payne IRA, 221 Sylvan Glen Drive, South Bend, IN 46615, owned of record 2,762.486 shares (8.08%), and John M Elkowitz Jr., 41 Smith Road, Denville, NJ 07834, owned of record 2598.811 shares (7.60%), and William L. Tepas Sep IRA, 48 Oakview Dr., Amherst, NY 14221, owned of record 2,479.669 (7.25%), and Katherine 28 E. Sayre, Separate Property, PO Box 2224, Canyon Lake, TX 78130, owned of record 2,444.495 shares (7.15%), and Evelyn Dolins,Cust FBO: Sarah Laura Dolins UGMA/PA, 6 Jean Lo Way, York, PA 17402, owned of record 1,803.413 shares (5.27%), Jeanette C Arnone, 14 Lions Street, East Strousberg, PA 18301, owned of record 1,709.474 shares (5.00%); IVY EUROPEAN OPPORTUNITIES FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 303,064.982 shares (14.05%), and Charles Schwab & Co. Inc. Reinvest Account, Attn: Mutual Fund Dept., 101 Montgomery Street, San Francisco, CA 94104, owned of record 162,633.605 shares (7.54%); IVY GLOBAL NATURAL RESOURCES FUND, Carn & Co. #93030213 Wacker Salaried SVGS Plan Act42300001285000000 Attn: Mutual Funds Star , P.O. Box 96211 Washington, DC 20090-6211,owned of record 67,907.258 shares (5.53%), and Charles Schwab & Co. Inc. Reinvest Account, Attn: Mutual Fund Dept., 101 Montgomery Street, San Francisco, CA 94104, owned of record 194,730.641 shares (15.86%), and Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 77,836.226 shares (6.34%), and Deutsche Bank Securities Inc. FBO: 235-73733-11, PO Box 1346, Baltimore, MD 21203, VA 21203, owned of record 75,131.480 shares (6.12%); IVY GLOBAL SCIENCE & TECHNOLOGY FUND, Donaldson Lufkin Jenrette Securities Corporation Inc., P.O. Box 2052, Jersey City, NJ 07303-9998, owned of record 46,068.538 shares (5.04%),BBH & Co, Cust FBO: Lifetime Achievement Fund, 525 Washington Blvd, Jersey City, NJ 07310, owned of record 56,657.224 shares (6.20%), and Securities Trust Co. as Trustee FBO: Local 104 Supplemental Pension Plan, 2390 East Camelback Road Ste. 240, Phoenix, AZ 85016, owned of record 48,831.395 shares (5.34%); IVY INTERNATIONAL FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd Floor, Jacksonville, FL 32246, owned of record 2,594,179.817 (26.85%), and Charles Schwab & Co. Inc. Reinvest Account, Attn: Mutual Fund Dept., 101 Montgomery Street, San Francisco, CA 94104, owned of record 1,275,845.774 shares (13.20%); IVY INTERNATIONAL SMALL COMPANIES FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 43,468.854 shares (11.02%); IVY INTERNATIONAL VALUE FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246 owned of record 487,739.415 shares (38.73%); IVY PACIFIC OPPORTUNITIES FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 76,218.797 shares (8.30%); and 29 IVY US EMERGING GROWTH FUND, F & Co. Inc. Cust FBO 401 K Plan, Attn: Cathy Laich ADM, 300 River Place - Suite 4000, Detroit, MI 48207, owned of record 158,123.679 shares (7.75%). CLASS B Of the outstanding Class B shares of: IVY BOND FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 1,065,008.211 shares (47.74%); IVY DEVELOPING MARKETS FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 98,627.609 shares (26.97%); IVY EUROPEAN OPPORTUNITIES FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 583,670.050 shares (25.48%); IVY GLOBAL FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 51,540.966 shares (18.67%); IVY GLOBAL NATURAL RESOURCES FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 68,342.843 shares (11.37%) and Rede & Co, 4380 SW Macadam Suite 450, Portland, OR 97201, owned of record 42,666.000 shares (7.10 %); IVY GLOBAL SCIENCE & TECHNOLOGY FUND, Merrill Lynch Pierce Fenner & Smith Inc. Mutual Fund Operations - Service Team, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 87,925.353 shares (10.74%); IVY GROWTH FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 73,155.436 shares (15.56%); IVY INTERNATIONAL FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 2,577,317.424 shares (42.60%); IVY INTERNATIONAL SMALL COMPANIES FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 109,860.158 shares (31.02%); IVY INTERNATIONAL VALUE FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 2,723,623.738 shares (56.89%); 30 IVY PACIFIC OPPORTUNITIES FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 126,191.785 shares (23.07%); IVY US BLUE CHIP FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 322,620.577 shares (15.95%); and IVY US EMERGING GROWTH FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 256,476.943 shares (20.44%). CLASS C Of the outstanding Class C shares of: IVY BOND FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 146,700.086 shares (62.45%); IVY CUNDILL GLOBAL VALUE FUND, Raymond James & Assoc Inc FAO: Katherine P. Ralston & James W. Ralston JT/WROS, 609 Hwy 466, Lady Lake, FL 32159, owned of record 835.491 shares (24.27%), Catherine Kawula, 1900 West Alpha Court, Lecanto, FL 34461-8435, owned of record 639.631 shares (18.58%), IBT Cust Ira Fbo: Phyllis W Monahan, 15 B Swan Cedar Glen West, Manchester, NJ 08759, owned of record 453.697 shares (13.18%), Lawrence J Mccarthy, 14 Sarian Drive, Nepune, NJ 07753, owned of record 448.060 shares (13.02%), Phyllis Monahan, Cedar Glenn West, 15 B Swan, Manchester, NJ 08759, owned of records 428.207 shares (12.44%), Dorothy V Hosonitz, 223 Goodmans Crossing, Clark, NJ 07066-2754, owned of record 323.276 shares (9.39%), IBT Cust IRA FBO: Candace Pignatello, 162 Newark Ave, Bloomfield, NJ 07003, owned of record 312.929 shares (9.09%); IVY DEVELOPING MARKETS FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL 32246, owned of record 31,175.141 shares (32.28%), and Donaldson Lufkin Jenrette Securities Corp Inc, PO Box 2052, Jersey City, NJ 07303-9998, owed of record 7,301.270 shares (7.56%); IVY EUROPEAN OPPORTUNITIES FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL 32246, owned of record 728,807.904 shares (42.93%); IVY GLOBAL FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL 32246, owned of record 4,365.729 shares (25.71%), IBT CUST 403(B) FBO Mattie A Allen, 755 Selma PL., San Diego, CA 92114-1711, owned of record 2,891.025 shares (17.03%), Salomon Smith Barney Inc., 00157417165, 333 West 34th St. - 3rd Floor, New York, NY 10001, owned of record 2,256.265 shares (13.29%), Salomon Smith Barney Inc., 00141860273, 333 West 34th St 3rd "Floor., 31 New York, NY 10001, owned of record 1,256.132 shares (7.39%), Salomon Smith Barney Inc., 00121066732, 333 West 34th St. - 3rd Floor, New York, NY 10001, owned of record 1,177.856 shares (6.93%), and Smith Barney Inc. 00107866133, 388 Greenwich Street, New York, NY 10013, owned of record shares 1,041.015 (6.13%), Smith Barney Inc., 00112701249, 388 Greenwich Street, New York, NY 10013, owned of record 982.067 shares (5.78%); IVY GLOBAL NATURAL RESOURCES FUND, Salomon Smith Barney Inc., 00150805236, 333 West 34th St 3rd Fl., New York, NY 10001, owned of record 12,049.188 shares (5.02%), Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL 32246, owned of record 29,288.072 shares (12.20%), US Bandcorp Piper Jaffray A/C #5882-0411, U S Bancorp Center, 800 Nicollet Mall, Minneapolis, MN 55402 owned of record 15,698.587 shares (6.54%); IVY GLOBAL SCIENCE & TECHNOLOGY FUND, Merrill Lynch Pierce Fenner & Smith Inc. Mutual Fund Operations - Service Team, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 32,904.764 shares (15.82%); IVY GROWTH FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL 32246, owned of record 2,359.140 shares (9.02%), First Presbyterian Church of McAlester, a Non Profit Corporation, PO Box 1550, 222 E Washington, McAlester, OK 74502-1550, owned of record 3,806.649 shares (14.56%), Mary Ann Ash & Robert R. Ash JT -Ten, 1119 Rundle Street, Scranton, PA 18504, owned of record 2,302.853 shares (8.81%), Salomon Smith Barney Inc. #00121013039, 333 West 34th Street 3rd Floor, New York, NY 10001, owned of record 1,743.389 shares (6.67%), Fiduciary Trust Co. of NH Cust 403(B) FBO: Jack L. Ewen, 278 Southside Drive, Oneonta, NY 13820, owned of record 1,630.943 shares (6.24%), Fiduciary Trust Co of NH Cust IRA FBO: Roland Wise, 45 Fordham, Buffalo, NY 14216, owned of record 1,629.655 shares (6.23%); IVY INTERNATIONAL FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL 32246, owned of record 723,518.558 shares (62.10%); IVY INTERNATIONAL SMALL COMPANIES FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL 32246, owned of record 162,385.988 shares (63.89%); IVY INTERNATIONAL VALUE FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL 32246, owned of record 976,744.805 shares (59.95%); IVY MONEY MARKET FUND, Robert J Laws & Katherine A Laws JT ten, PO Box 723, Ramona, CA 92065, owned of record 43,871.340 shares (11.84%), First Trust Corp Cust IRA FBO: Suzanne Helen Anderson U/A/D 10-31-95 #135129-0001, PO Box 173301, Denver, CO 80217-3301, owned of record 35,317.650 shares (9.53%), IBT Cust IRA FBO: Betty J. Carson, 1987 Higgins Lane, El Centro, CA 92243, owned of record 27,781.690 shares (7.50%), Kenneth S. Hansen, 302 32 Lakeshore Dr, Lakeside, IA 50588-7660, owned of record 24,316.970 shares (6.56%), and Anthony L. Bassano & Marie E. Bassano Ttees of the Anthony & Marie Bassano Trust U/A/D 05-25-99, 8934 Bari Court, Port Richey, FL 34668, owned of record 18,780.970 shares (5.07%); IVY PACIFIC OPPORTUNITIES FUND, Merrill Lynch Pierce Fenner & Smith for the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr E., 3rd FL, Jacksonville, FL 32246, owned of record 25,760.540 shares (21.47%); IVY US BLUE CHIP FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL 32246, owned of record 35,609.358 shares (31.31%); and IVY US EMERGING GROWTH FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL 32246, owned of record 52,859.279 shares (29.60%), and First Clearing Corp, A/C 3109-0705, Robert Feinberg and Harriet Feinberg JTWROS, 1824 Byberry Road, Bensalem, PA 19020-4455, owned of record 9,162.445 shares (5.13%). CLASS I Of the outstanding Class I shares of: IVY EUROPEAN OPPORTUNITIES FUND, NFSC FEBO # RAS-469041 NFSC/FMTC IRA FBO Charles Peavy, 2025 Eagle Nest Bluff, Lawrenceville, GA 30244, owned of record 642.383 shares (100%); and IVY INTERNATIONAL FUND, Harleysville Mutual Ins Co/Equity, 355 Maple Ave, Harleysville, PA 19438, owned of record 284,051.014 shares (35.68%), Vanguard Fiduciary Trust Company FBO Ivy Funds, PO Box 2900, Valley Forge, PA 19482, owned of record 197,455.576 shares (24.80%), Liz Claiborne Foundation, One Claiborne Ave, N Bergen, NJ 07047, owned of record 102,444.806 shares (12.86), David & Co, PO Box 188, Murfreesboro, TN 37133-0188, owned of record 89,730.410 shares (11.27%), Lynspen and Company , P.O. Box 830804, Birmingham, AL 35283, owned of record 43,905.578 Shares (5.51%). ADVISOR CLASS Of the outstanding Advisor Class shares of: IVY BOND FUND, NFSC FEBO # 279-055662 C/James Ferris/Bro, B Yanowitch/J Broadfoot TTES U/A 01/01/98, 925 South Federal Highway, Suite 600, Boca Raton, FL 33432-6143, owned of record 14,093.040 shares (61.31%), LPL Financial Services, 9785 Towne Centre Drive, San Diego, CA 92121-1968, owned of record 8,890.147 shares (38.68%); IVY CUNDILL GLOBAL VALUE FUND, Mackenzie Investment Mgmt Inc., Attn: Bev Yanowitch, 925 South Federal Highway, Suite 600, Boca Raton, FL 33432, owned of record 57,756.571 shares (56.61%), Peter Cundill Holdings Ltd., 1100 Melville St., Ste. 200, Vancouver BC V6E 4A6, owned of record 37,266.358 shares (36.52%); 33 IVY DEVELOPING MARKETS FUND, NFSC FEBO # 279-055662 C/James Ferris/Bro, B Yanowitch/J Broadfoot TTES U/A 01/01/98, 925 South Federal Highway, Suite 600, Boca Raton, FL 33432-6143, owned of record 8,970.050 shares (98.36%); IVY EUROPEAN OPPORTUNITIES FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL 32246, owned of record 325,841.346 shares (51.60%), Donaldson Lufkin Jenrette Securities Corporation Inc, PO Box 2052, Jersey City, NJ 07303-9998 owned of record 75,318.881 shares (11.92%); and Donaldson Lufkin Jenrette Securities Corporation Inc, PO Box 2052, Jersey City, NJ 07303-9998 owned of record 62,497.356 shares (9.89%); IVY GLOBAL FUND, NFSC FEBO # 279-055662 C/James Ferris/Bro, B Yanowitch/J Broadfoot TTES U/A 01/01/98 925 South Federal Highway, Suite 600, Boca Raton, FL 33432-6143, owned of record 6,680.157 shares (61.83%), and Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr E., 3rd FL, Jacksonville, FL 32246, owned of record 3,768.327 shares (34.88%); IVY GLOBAL NATURAL RESOURCES FUND, FTC & Co Account #00055 Datalynx , PO Box 173736, Denver, Co 80217-3736, owned of record 122,047.343 (27.25%), FTC & Co Attn Datalynx #118, PO Box 173736, Denver, Co 80217-3736, owned of record 96,748.874 (21.60%), FTC & Co Attn Datalynx #464, PO Box 173736, Denver, Co 80217-3736, owned of record 80,663.486 (18.01%), FTC & Co Attn Datalynx #00315, PO Box 173736, Denver, Co 80217-3736, owned of record 51,401.961 (11.47%), and FTC & Co Attn Datalynx #00328, PO Box 173736, Denver, Co 80217-3736, owned of record 51,256.969 (11.44%), IVY GLOBAL SCIENCE & TECHNOLOGY FUND, NFSC FEBO # 279-055662 C/James Ferris/Bro, B Yanowitch/J Broadfoot TTES U/A 01/01/98, 925 South Federal Highway, Suite 600, Boca Raton, FL 33432-6143 owned of record 13,236.316 shares (53.55%), and Robert Chapin & Michelle Broadfoot TTEE Of The Nella Manes Trust U/A/D 04-09-92, 117 Thatch Palm Cove, Boca Raton, FL 33432, owned of record 3,321.388 shares (13.43%); IVY GROWTH FUND, NFSC FEBO # 279-055662 C/James Ferris/Bro, B Yanowitch/J Broadfoot TTES U/A 01/01/98, 925 South Federal Highway, Suite 600, Boca Raton, FL 33432-6143, owned of record 17,040.218 shares (39.12%) and Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL 32246, owned of record 17,322.097 shares (39.77%), and James Broadfoot, 117 Thatch Palm Cove, Boca Raton, Fl 33432, owned of record 8,150.114 shares (18.71%); IVY INTERNATIONAL FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL 32246, owned of record 249.377 shares (100%); IVY INTERNATIONAL GROWTH FUND, Mackenzie Investment Mgmt Inc., Attn: Bev Yanowitch, 925 South Federal Highway, Suite 600, Boca Raton, FL 33432, owned of record 51,214.386 shares (99.88%); 34 IVY INTERNATIONAL SMALL COMPANIES FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL 32246, owned of record 94,687.863 shares (93.04%); NFSC FEBO # 279-055662, C/James Ferris/Bro, B Yanowitch/J Broadfoot TTES U/A 01/01/98, 925 South Federal Highway, Suite 600, Boca Raton, FL 33432-6143, owned of record 6,190.702 shares (6.08%); IVY INTERNATIONAL VALUE FUND, Charles Schwab & Co Inc., Reinvest Account, Attn: Mutual Fund Dept, 101 Montgomery Street, San Francisco, CA 94104, owned of record 1,535.769 shares (5.98%), Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr E., 3rd FL, Jacksonville, FL 32246, owned of record 1,792.768 shares (6.98%), NFSC FEBO # 279-055662, C/James Ferris/Bro, B Yanowitch/J Broadfoot TTES U/A 01/01/98, 925 South Federal Highway, Suite 600, Boca Raton, FL 33432-6143, owned of record 7,001.558 shares (27.26%), Donaldson Lufkin Jenrette Securities Corporation Inc., PO Box 2052, Jersey City, NJ 07303-2052, owned of record 2,062.330 shares (8.03%), LPL Financial Services A/C #3383-3796, 9785 Towne Centre Drive, San Diego, CA 92121-1968, owned of record 2,503.224 shares (9.74%), LPL Financial Services A/C #1572-6093, 9785 Towne Centre Drive, San Diego, CA 92121-1968, owned of record 3,218.761 shares (12.53%), LPL Financial Services A/C #1982-6979, 9785 Towne Centre Drive, San Diego, CA 92121-1968, owned of record 1,900.057 shares (7.39%), and LPL Financial Services A/C #7105-6816, 9785 Towne Centre Drive, San Diego, CA 92121-1968, owned of record 1,310.281 shares (5.10%); IVY PACIFIC OPPORTUNITIES FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL 32246, owned of record 518.000 shares (8.94%), Donaldson Lufkin Jenrette Securities Corporation Inc, PO Box 2052, Jersey City, NJ 07303-9998 owned of record 4,512.894 shares (77.93%), and Donaldson Lufkin Jenrette Securities Corporation Inc, PO Box 2052, Jersey City, NJ 07303-9998 owned of record 748.503 shares (12.92%); IVY US BLUE CHIP FUND, Mackenzie Investment Management Inc., Attn: Bev Yanowitch, 925 South Federal Highway, Suite 600, Boca Raton, FL 33432, owned of record 51,179.697 shares (54.41%), NFSC FEBO # 279-055662 C/James Ferris/Bro, B Yanowitch/J Broadfoot TTES U/A 01/01/98, 925 South Federal Highway, Suite 600, Boca Raton, FL 33432-6143, owned of record 38,299.532 shares (40.72%); and IVY US EMERGING GROWTH FUND, NFSC FEBO # 279-055662 C/James Ferris/Bro, B Yanowitch/J Broadfoot TTES U/A 01/01/98, 925 South Federal Highway, Suite 600, Boca Raton, FL 33432-6143, owned of record 26,549.906 shares (56.61%), Charles Schwab & Co. Inc. Reinvest Account, Attn: Mutual Fund Dept., 101 Montgomery Street, San Francisco, CA 94104, owned of record 4,850.696 shares (10.34%), and James W Broadfoot, 117 Thatch Palm Cove, Boca Raton, FL 33432, owned of record 2,393.086 shares (5.10%). 35 INVESTMENT ADVISORY AND OTHER SERVICES BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES INVESTMENT MANAGER IMI, which provides business management and investment advisory services to the Fund, is a wholly-owned subsidiary of Mackenzie Investment Management Inc. ("MIMI"), 925 South Federal Highway, Suite 600, Boca Raton, Florida 33432. MIMI, a Delaware corporation, has approximately 15% of its outstanding common stock listed for trading on the Toronto Stock Exchange ("TSE"). IMI is an indirect subsidiary of Mackenzie Financial Corporation ("MFC"), 150 Bloor Street West, Suite 400, Toronto, Ontario, Canada M5S3B5. MFC is a corporation organized under the laws of Ontario. MFC is a wholly-owned subsidiary of Investors Group Inc. ("IGI"), One Canada Centre, 447 Portage Avenue, Winnipeg, Manitoba, Canada R3C3B6. MFC is registered in Ontario as a mutual fund dealer and advises Ivy Global Natural Resources Fund, a separate series of Ivy Fund. IMI also currently acts as both manager and investment advisor to the other series of Ivy Fund, with the exception of Ivy Global Natural Resources Fund, for which IMI acts solely as manager. 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 Internal Revenue Code of 1986, as amended (the "Code"), relating to regulated investment companies, and subject to policy decisions adopted by the Trustees. Under the Agreement, IMI is also obligated to (1) coordinate with the Fund's Custodian and monitor the services it provides to the Fund; (2) coordinate with and monitor any other third parties furnishing services to the Fund; (3) provide the Fund with necessary office space, telephones and other communications facilities as needed; (4) provide the services of individuals competent to perform administrative and clerical functions that are not performed by employees or other agents engaged by the Fund or by IMI acting in some other capacity pursuant to a separate agreement or arrangements with the Fund; (5) maintain or supervise the maintenance by third parties of such books and records of the Fund as may be required by applicable Federal or state law; (6) authorize and permit IMI's directors, officers and employees who may be elected or appointed as trustees or officers of the Fund to serve in such capacities; and (7) take such other action with respect to the Fund, upon the approval of its trustees, as may be required by applicable law, including without limitation the rules and regulations of the Securities and Exchange Commission (the "SEC") and of state securities commissions and other regulatory agencies. The Fund pays IMI a fee for its services under the Agreement at an annual rate of 1.00% of the Fund's average net assets. From December 29, 2000 (commencement) through December 31, 2000 and the fiscal year ended December 31, 2001, the Fund paid IMI fees of $27 and $5,080, respectively. During the same period, IMI reimbursed Fund expenses in the amount of $12,109 and $124,118 respectively. Under the Agreement, the Trust is also responsible for the following expenses: (1) the fees and expenses of the Trust's Independent Trustees; (2) the salaries and expenses of any of the Trust's officers or employees who are not affiliated with IMI; (3) interest expenses; (4) taxes and governmental fees, including any original issue taxes or transfer taxes applicable to the sale or delivery of shares or certificates therefor; (5) brokerage commissions and other expenses incurred in acquiring or disposing of portfolio securities; (6) the expenses of registering and qualifying shares for sale with the SEC and with various state securities commissions; (7) accounting and legal costs; (8) insurance premiums; (9) fees and expenses of the Trust's Custodian and Transfer Agent and any related services; (10) expenses of obtaining quotations of portfolio securities and of pricing shares; (11) expenses of maintaining the Trust's legal existence and of shareholders' meetings; (12) expenses of preparation and distribution to existing shareholders of periodic reports, proxy materials and prospectuses; and (13) fees and expenses of membership in industry organizations. 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. 36 In approving the investment advisory agreement, the Board considered a number of factors, including: (1) fee and performance information of the Fund relative to funds with similar objectives; (2) the profitability to IMI from its relationship with the Fund, both individually and from all of the series of the Trust, as applicable; (3) the manner in which expenses are allocated among all series of the Trust and their different classes of shares; (4) the performance and expenses of the Fund relative to comparable funds; (5) the nature and quality of the services historically provided by IMI, including information regarding advisory services and compliance records; (6) the professional qualifications of the personnel providing advisory services to the Fund; and (7) management's soft dollar practices and the use of soft dollars in connection with the Fund, as described under "Brokerage Allocation," below. Based upon their review and consideration of the factors described above, and such other factors and information it considered relevant, the Board recognized that IMI is deemed to owe a fiduciary duty to the Fund and approved the investment advisory agreement. DISTRIBUTION SERVICES Ivy Mackenzie Distributors, Inc. ("IMDI"), a wholly owned subsidiary of MIMI, serves as the exclusive distributor of the Fund's shares pursuant to an Amended and Restated Distribution Agreement with the Trust dated March 16, 1999, as amended from time to time (the "Distribution Agreement"). IMDI distributes shares of the Fund through broker-dealers who are members of the National Association of Securities Dealers, Inc. and who have executed dealer agreements with IMDI. IMDI distributes shares of the Fund continuously, but reserves the right to suspend or discontinue distribution on that basis. IMDI is not obligated to sell any specific amount of Fund shares. 37 The Fund has authorized IMDI to accept purchase and redemption orders on its behalf. IMDI is also authorized to designate other intermediaries to accept purchase and redemption orders on the Fund's behalf. The Fund will be deemed to have received a purchase or redemption order when an authorized intermediary or, if applicable, an intermediary's authorized designee, accepts the order. Client orders will be priced at the Fund's Net Asset Value next computed after an authorized intermediary or the intermediary's authorized designee accepts them. Pursuant to the Distribution Agreement, IMDI is entitled to deduct a commission on all Class A shares sold equal to the difference, if any, between the public offering price, as set forth in the Fund's then-current prospectus, and the net asset value on which such price is based. Out of that commission, IMDI may reallow to dealers such concession as IMDI may determine from time to time. In addition, IMDI is entitled to deduct a CDSC on the redemption of Class A shares sold without an initial sales charge and Class B and Class C shares, in accordance with, and in the manner set forth in, the Prospectus. Under the Distribution Agreement, the Fund bears, among other expenses, the expenses of registering and qualifying its shares for sale under federal and state securities laws and preparing and distributing to existing shareholders periodic reports, proxy materials and prospectuses. As of the date of this SAI, MIMI on behalf of IMDI had not received any payments under the Distribution Agreement with respect to the Fund. The Distribution Agreement will continue in effect for successive one-year periods, provided that such continuance is specifically approved at least annually by the vote of a majority of the Independent Trustees, cast in person at a meeting called for that purpose and by the vote of either a majority of the entire Board or a majority of the outstanding voting securities of the Fund. The Distribution Agreement may be terminated with respect to the Fund at any time, without payment of any penalty, by IMDI on 60 days' written notice to the Fund or by the Fund by vote of either a majority of the outstanding voting securities of the Fund or a majority of the Independent Trustees on 60 days' written notice to IMDI. The Distribution Agreement shall terminate automatically in the event of its assignment. PAYMENTS TO DEALERS: MIMI on behalf of IMDI currently intends to pay to dealers a sales commission of 4% of the sale price of Class B shares they have sold, and MIMI or one of its subsidiaries will receive the entire amount of the CDSC paid by shareholders on the redemption of Class B shares to finance the 4% commission and related marketing expenses. With respect to Class C shares, MIMI on behalf of IMDI currently intends to pay to dealers a sales commission of 1% of the sale price of Class C shares that they have sold, a portion of which is to compensate the dealers for providing Class C shareholder account services during the first year of investment. MIMI or one of its subsidiaries will receive the entire amount of the CDSC paid by shareholders on the redemption of Class C shares to finance the 1% commission and related marketing expenses. 38 RULE 18F-3 PLAN. On February 23, 1995, the SEC adopted Rule 18f-3 under the 1940 Act, which permits a registered open-end investment company to issue multiple classes of shares in accordance with a written plan approved by the investment company's board of directors and filed with the SEC. At a meeting held on December 7, 2000, the Trustees adopted a Rule 18f-3 plan on behalf of the Fund. The key features of the Rule 18f-3 plan are as follows: (i) shares of each class of the Fund represent an equal pro rata interest in the Fund and generally have identical voting, dividend, liquidation, and other rights, preferences, powers, restrictions, limitations, qualifications, terms and conditions, except that each class bears certain class-specific expenses and has separate voting rights on certain matters that relate solely to that class or in which the interests of shareholders of one class differ from the interests of shareholders of another class; (ii) subject to certain limitations described in the Prospectus, shares of a particular class of the Fund may be exchanged for shares of the same class of another Ivy fund; and (iii) the Fund's Class B shares will convert automatically into Class A shares of the Fund after a period of eight years, based on the relative net asset value of such shares at the time of conversion. RULE 12B-1 DISTRIBUTION PLANS. The Trust has adopted on behalf of the Fund, in accordance with Rule 12b-1 under the 1940 Act, separate Rule 12b-1 distribution plans pertaining to the Fund's Class A, Class B and Class C shares (each, a "Plan"). In adopting each Plan, a majority of the Independent Trustees have concluded in accordance with the requirements of Rule 12b-1 that there is a reasonable likelihood that each Plan will benefit the Fund and its shareholders. The Trustees of the Trust believe that the Plans should result in greater sales and/or fewer redemptions of the Fund's shares, although it is impossible to know for certain the level of sales and redemptions of the Fund's shares in the absence of a Plan or under an alternative distribution arrangement. Under each Plan, the Fund pays to IMDI a service fee, accrued daily and paid monthly, at the annual rate of up to 0.25% of the average daily net assets attributable to its Class A, Class B or Class C shares, respectively. The services for which service fees may be paid include, among other things, advising clients or customers regarding the purchase, sale or retention of Fund shares, answering routine inquiries concerning the Fund and assisting shareholders in changing options or enrolling in specific plans. Pursuant to each Plan, service fee payments made out of or charged against the assets attributable to the Fund's Class A, Class B or Class C shares must be in reimbursement for services rendered for or on behalf of the affected class. The expenses not reimbursed in any one month may be reimbursed in a subsequent month. The Class A Plan does not provide for the payment of interest or carrying charges as distribution expenses. Under the Fund's Class B and Class C Plans, the Fund also pays IMDI a distribution fee, accrued daily and paid monthly, at the annual rate of 0.75% of the average daily net assets attributable to its Class B or Class C shares. IMDI may reallow to dealers all or a portion of the service and distribution fees as IMDI may determine from time to time. The distribution fees compensate IMDI for expenses incurred in connection with activities primarily intended to result in the sale of the Fund's Class B or Class C shares, including the printing of prospectuses and reports for persons other than existing shareholders and the preparation, printing and distribution of sales literature and advertising materials. Pursuant to each Class B and Class C Plan, IMDI may include interest, carrying or other finance charges in its calculation of distribution expenses, if not prohibited from doing so pursuant to an order of or a regulation adopted by the SEC. 39 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 of the Fund shall be committed to the discretion of the then current Independent Trustees.. 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 advisors, financial institutions and other entities for services rendered in the distribution of the Fund's shares. To qualify for such payments, shares may be subject to a minimum holding period. However, no such payments will be made to any dealer or broker or other party if at the end of each year the amount of shares held does not exceed a minimum amount. The minimum holding period and minimum level of holdings will be determined from time to time by IMDI. A report of the amount expended pursuant to each Plan, and the purposes for which such expenditures were incurred, must be made to the Board for its review at least quarterly. As of the date of this SAI, no payments had been made under the Plans with respect to the Fund. The Class B Plan and underwriting agreement permit IMDI to sell its right to receive distribution fees under the Class B Plan and CDSCs to third parties. MIMI on behalf of IMDI enters into such transactions to finance the payment of commissions to brokers at the time of sale and other distribution-related expenses. The Trust has agreed that the distribution fee will not be terminated or modified (including a modification by change in the rules relating to the conversion of Class B shares into shares of another class) for any reason (including a termination of the underwriting agreement) except: (i) to the extent required by a change in the 1940 Act, the rules or regulations under the 1940 Act, or the Conduct Rules of the NASD, in each case enacted, issued, or promulgated after March 16, 1999; (ii) on a basis which does not alter the amount of the distribution payments to IMDI computed with reference to Class B shares the date of original issuance of which occurred on or before December 31, 1998; (iii) in connection with a Complete Termination (as defined in the Class B Plan); or (iv) on a basis determined by the Board of Trustees acting in good faith, so long as (a) neither the Trust nor any successor trust or fund or any trust or fund acquiring a substantial 40 portion of the assets of the Trust (collectively, the "Affected Funds") nor the sponsors of the Affected Funds pay, directly or indirectly, as a fee, a trailer fee, or by way of reimbursement, any fee, however denominated, to any person for personal services, account maintenance services or other shareholder services rendered to the holder of Class B shares of the Affected Funds from and after the effective date of such modification or termination, and (b) the termination or modification of the distribution fee applies with equal effect to all outstanding Class B shares from time to time of all Affected Funds regardless of the date of issuance thereof. In the underwriting agreement, the Trust has also agreed that it will not take any action to waive or change any CDSC in respect of any Class B share the date of original issuance of which occurred on or before December 31, 1998, except as provided in the Trust's prospectus or statement of additional information, without the consent of IMDI and its transferees. Each Plan may be amended at any time with respect to the class of shares of the Fund to which the Plan relates by vote of the Trustees, including a majority of the Independent Trustees, cast in person at a meeting called for the purpose of considering such amendment. Each Plan may be terminated at any time with respect to the class of shares of the Fund to which the Plan relates, without payment of any penalty, by vote of a majority of the Independent Trustees, or by vote of a majority of the outstanding voting securities of that class. If the Distribution Agreement or any Plan is terminated (or not renewed) with respect to any of the Ivy funds (or class of shares thereof), each may continue in effect with respect to any other fund (or Class of shares thereof) as to which they have not been terminated (or have been renewed). CUSTODIAN Pursuant to a Custodian Agreement with the Trust, Brown Brothers Harriman & Co. (the "Custodian"), a private bank and member of the principal securities exchanges, located at 40 Water Street, Boston, Massachusetts 02109 (the "Custodian"), maintains custody of the Fund's assets. Rules adopted under the 1940 Act permit the Trust to maintain its foreign securities and cash in the custody of certain eligible foreign banks and securities depositories. Pursuant to those rules, the Custodian has entered into subcustodial agreements for the holding of the Fund's foreign securities. With respect to the Fund, the Custodian may receive, as partial payment for its services to the Fund, a portion of the Trust's brokerage business, subject to its ability to provide best price and execution. FUND ACCOUNTING SERVICES Pursuant to the Fund Accounting Services Agreement, MIMI provides certain accounting and pricing services for the Fund. As compensation for those services, the Fund pays MIMI a monthly fee plus out-of-pocket expenses as incurred. The monthly fee is based upon the net assets of the Fund at the preceding month end at the following rates: $1,250 when net assets are $10 million and under; $2,500 when net assets are over $10 million to $40 million; $5,000 when net assets are over $40 million to $75 million; and $6,500 when net assets are over $75 million. For the fiscal year ended December 31, 2001, the fund paid MIMI $18,013 under the Agreement. 41 TRANSFER AGENT AND DIVIDEND PAYING AGENT Pursuant to a Transfer Agency Services Agreement, PFPC Global Fund Services, Inc. ("PFPC"), a Massachusetts corporation, located at 4400 Computer Drive, Westborough, MA 01581, is the transfer agent for the Fund. Under the Agreement, the Fund pays a monthly fee at an annual rate of $17.00 for each open Class A, Class B, Class C and Advisor Class account. The Fund pays $10.25 per open Class I account. In addition, the Fund pays a monthly fee at an annual rate of $3.60 per account that is closed plus certain out-of-pocket expenses. As of the date of this SAI, no payments have been made by the Fund for transfer agency services. Certain broker-dealers that maintain shareholder accounts with the Fund through an omnibus account provide transfer agent and other shareholder-related services that would otherwise be provided by PFPC if the individual accounts that comprise the omnibus account were opened by their beneficial owners directly. PFPC 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). Such fees and expenses for the fund for fiscal year ended December 31,2001 for the fund to totaled $360. ADMINISTRATOR Pursuant to an Administrative Services Agreement, MIMI provides certain administrative services to the Fund. As compensation for these services, the Fund (except with respect to its Class I shares) pays MIMI a monthly fee at the annual rate of 0.10% of the Fund's average daily net assets. The Fund pays MIMI a monthly fee at the annual rate of 0.01% of its average daily net assets for Class I shares. Outside of providing administrative services to the Trust, as described above, MIMI may also act on behalf of IMDI in paying commissions to broker-dealers with respect to sales of Class B and Class C shares of the Fund. Such fees for the fiscal year ended December 31,2001 for the Fund totaled $508. AUDITORS PricewaterhouseCoopers LLP, independent certified public accountants, located at 200 E. Las Olas Blvd., Ste. 1700, Ft. Lauderdale, Florida 33301, has been selected as auditors for the Fund. The audit services performed by PricewaterhouseCoopers LLP include audits of the annual financial statements of the Fund. Other services provided principally relate to filings with the SEC and the preparation of the Fund's tax returns. BROKERAGE ALLOCATION Subject to the overall supervision of the President and the Board, IMI places orders for the purchase and sale of the Fund's portfolio securities. All portfolio transactions are effected at the best price and execution obtainable. Purchases and sales of debt securities are usually principal transactions and therefore, brokerage commissions are usually not required to be paid by the Fund for such purchases and sales (although the price paid generally includes undisclosed compensation to the dealer). The prices paid to underwriters of newly-issued securities usually include a concession paid by the issuer to the 42 underwriter, and purchases of after-market securities from dealers normally reflect the spread between the bid and asked prices. In connection with OTC transactions, IMI attempts to deal directly with the principal market makers, except in those circumstances where IMI believes that a better price and execution are available elsewhere. IMI selects broker-dealers to execute transactions and evaluates the reasonableness of commissions on the basis of quality, quantity, and the nature of the firms' professional services. Commissions to be charged and the rendering of investment services, including statistical, research, and counseling services by brokerage firms, are factors to be considered in the placing of brokerage business. The types of research services provided by brokers may include general economic and industry data, and information on securities of specific companies. Research services furnished by brokers through whom the Trust effects securities transactions may be used by IMI in servicing all of its accounts. In addition, not all of these services may be used by IMI in connection with the services it provides to the Fund or the Trust. IMI may consider sales of Ivy funds as a factor in the selection of broker-dealers and may select broker-dealers who provide it with research services. IMI may choose broker-dealers that provide it with research services and may cause a client to pay such broker-dealers commissions which exceed those other broker-dealers may have charged, if IMI views the commissions as reasonable in relation to the value of the brokerage and/or research services. IMI will not, however, seek to execute brokerage transactions other than at the best price and execution, taking into account all relevant factors such as price, promptness of execution and other advantages to clients, including a determination that the commission paid is reasonable in relation to the value of the brokerage and/or research services. During the period from commencement (December 29, 2000) through December 31, 2000, the Fund paid $1,352 in brokerage commissions. For the fiscal year ending December 31, 2001, the Fund paid a total of $5,773 in brokerage commissions with respect to portfolio transactions aggregating $2,451,365. Of such amount, $0 in brokerage commissions with respect to portfolio transactions aggregating $0 was placed with broker-dealers who provided research services. Brokerage commissions vary from year to year in accordance with the extent to which the Fund is more or less actively traded. The Fund may, under some circumstances, accept securities in lieu of cash as payment for Fund shares. The Fund will accept securities only to increase its holdings in a portfolio security or to take a new portfolio position in a security that IMI deems to be a desirable investment for the Fund. While no minimum has been established, it is expected that the Fund will not accept securities having an aggregate value of less than $1 million. The Trust may reject in whole or in part any or all offers to pay for Fund shares with securities and may discontinue accepting securities as payment for Fund shares at any time without notice. The Trust will value accepted securities in the manner and at the same time provided for valuing portfolio securities of the Fund, and the Fund shares will be sold for net asset value determined at the same time the accepted securities are valued. The Trust will only accept securities delivered in proper form and will not accept securities subject to legal restrictions on transfer. The acceptance of securities by the Trust must comply with the applicable laws of certain states. 43 CAPITALIZATION AND VOTING RIGHTS The capitalization of the Fund consists of an unlimited number of shares of beneficial interest (no par value per share). When issued, shares of each class of the Fund are fully paid, non-assessable, redeemable and fully transferable. No class of shares of the Fund has preemptive rights or subscription rights. The Declaration of Trust permits the Trustees to create separate series or portfolios and to divide any series or portfolio into one or more classes. Pursuant to the Declaration of Trust, the Trustees may terminate the Fund without shareholder approval. This might occur, for example, if the Fund does not reach an economically viable size. The Trustees have authorized sixteen series, each of which represents a fund. The Trustees have further authorized the issuance of Class A, Class B, and Class C shares for Ivy Money Market Fund and Class A, Class B, Class C and Advisor Class shares for Ivy International Growth Fund, Ivy Bond Fund, Ivy Cundill Global Value Fund, Ivy Developing Markets Fund, Ivy European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund, Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy International Fund, Ivy International Small Companies Fund, Ivy International Value Fund, Ivy Pacific Opportunities Fund, Ivy US Blue Chip Fund and Ivy US Emerging Growth Fund, as well as Class I shares for Ivy International Growth Fund, Ivy Bond Fund, Ivy Cundill Global Value Fund, Ivy European Opportunities Fund, Ivy Global Science & Technology Fund, Ivy International Fund, Ivy International Small Companies Fund, Ivy International Value Fund and Ivy US Blue Chip Fund. Shareholders have the right to vote for the election of Trustees of the Trust and on any and all matters on which they may be entitled to vote by law or by the provisions of the Trust's By-Laws. The Trust is not required to hold a regular annual meeting of shareholders, and it does not intend to do so. Shares of each class of the Fund entitle their holders to one vote per share (with proportionate voting for fractional shares). Shareholders of the Fund are entitled to vote alone on matters that only affect the Fund. All classes of shares of the Fund will vote together, except with respect to the distribution plan applicable to the Fund's Class A, Class B or Class C shares or when a class vote is required by the 1940 Act. On matters relating to all funds of the Trust, but affecting them differently, separate votes by the shareholders of the Fund are required. Approval of an investment advisory agreement and a change in fundamental policies would be regarded as matters requiring separate voting by the shareholders of the Fund of the Trust. If the Trustees of the Trust determine that a matter does not affect the interests of a particular fund, then the shareholders of that fund will not be entitled to vote on that matter. Matters that affect the Trust in general will be voted upon collectively by the shareholders of all funds of the Trust. As used in this SAI and the Prospectus, the phrase "majority vote of the outstanding shares" of the Fund means the vote of the lesser of: (1) 67% of the shares of the Fund (or of the Trust) present at a meeting if the holders of more than 50% of the outstanding shares are present in person or by proxy; or (2) more than 50% of the outstanding shares of the Fund (or of the Trust). 44 With respect to the submission to shareholder vote of a matter requiring separate voting by the Fund of the Trust, the matter shall have been effectively acted upon with respect to that fund if a majority of the outstanding voting securities of the fund votes for the approval of the matter, notwithstanding that: (1) the matter has not been approved by a majority of the outstanding voting securities of any other fund of the Trust; or (2) the matter has not been approved by a majority of the outstanding voting securities of the Trust. The Declaration of Trust provides that the holders of not less than two-thirds of the outstanding shares of the Trust may remove a person serving as trustee either by declaration in writing or at a meeting called for such purpose. The Trustees are required to call a meeting for the purpose of considering the removal of a person serving as Trustee if requested in writing to do so by the holders of not less than 10% of the outstanding shares of the Trust. Shareholders will be assisted in communicating with other shareholders in connection with the removal of a Trustee. The Trust's shares do not have cumulative voting rights and accordingly the holders of more than 50% of the outstanding shares could elect the entire Board, in which case the holders of the remaining shares would not be able to elect any Trustees. Under Massachusetts law, the Trust's shareholders could, under certain circumstances, be held personally liable for the obligations of the Trust. However, the Declaration of Trust disclaims liability of the shareholders, Trustees or officers of the Trust for acts or obligations of the Trust, which are binding only on the assets and property of the Trust, and requires that notice of the disclaimer be given in each contract or obligation entered into or executed by the Trust or its Trustees. The Declaration of Trust also provides for indemnification out of Fund property for all loss and expense of any shareholder of the Fund held personally liable for the obligations of the Fund. The risk of a shareholder of the Trust incurring financial loss on account of shareholder liability is limited to circumstances in which the Trust itself would be unable to meet its obligations and, thus, should be considered remote. No series of the Trust is liable for any other series of the Trust. SPECIAL RIGHTS AND PRIVILEGES Information as to how to purchase Fund shares is contained in the Prospectus. The Trust offers (and except as noted below) bears the cost of providing, to investors the following additional rights and privileges. The Trust reserves the right to amend or terminate any one or more of these rights and privileges. Notice of amendments to or terminations of rights and privileges will be provided to shareholders in accordance with applicable law. Certain of the rights and privileges described below refer to funds, other than the Fund, whose shares are also distributed by IMDI. These funds are: Ivy Bond Fund, Ivy Cundill Global Value Fund, Ivy Developing Markets Fund, Ivy European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund, Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy International Fund, Ivy International Small Companies Fund, Ivy International Value Fund, Ivy Money Market Fund, Ivy Pacific Opportunities Fund, Ivy US Blue Chip Fund and Ivy US Emerging Growth Fund (the other fifteen series of the Trust). Shareholders should obtain a current prospectus before exercising any right or privilege that may relate to these funds. 45 AUTOMATIC INVESTMENT METHOD The Automatic Investment Method, which enables the Fund shareholder to have specified amounts automatically drawn each month from his or her bank for investment in Fund shares, is available for all classes of shares except Class I. The minimum initial and subsequent investment under this method is $50 per month (except in the case of a tax qualified retirement plan for which the minimum initial and subsequent investment is $25 per month). A shareholder may terminate the Automatic Investment Method at any time upon delivery to PFPC of telephone instructions or written notice. To use this privilege, please complete Sections 8 and 9 of the Account Application that is included with the Prospectus. EXCHANGE OF SHARES As described in the Prospectus, shareholders of the Fund have an exchange privilege with other Ivy funds. 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. A 2% redemption fee or short-term trading fee will be imposed on redemptions and exchanges of Class A shares of the Fund made within 30 days of purchase. This fee will be retained by the Fund. See "Redemptions" below. INITIAL SALES CHARGE SHARES. Generally, 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.) In certain short-term transactions, Class A shares may also be subject to a fee upon redemption or exchange. See "REDEMPTIONS" below. Class A shareholders may also exchange their shares for shares of Ivy Money Market Fund (no initial sales charge will be assessed at the time of such an exchange). The Fund may, from time to time, waive the initial sales charge on its Class A shares sold to clients of The Legend Group and United Planners Financial Services of America, Inc. This privilege will apply on to Class A Shares of the Fund that are purchased using all or a portion of the proceeds obtained by such clients through redemptions of shares of a mutual fund (other than the Fund) on which a sales charge was paid (the "NAV transfer privilege"). Purchases eligible for the NAV transfer privilege must be made within 60 days of redemption from the other fund, and the Class A shares purchased are subject to a 1.00% CDSC on shares redeemed within the first year after purchase. The NAV transfer privilege also applies to Fund shares purchased directly by clients of such dealers as long as their accounts are linked to the dealer's master account. The normal service fee, as described in the "Initial Sales Charge Alternative - Class A Shares" section of the Prospectus, will be paid to those dealers in connection with these purchases. IMDI may from time to time pay a special cash incentive to The Legend Group or United Planners Financial Services of America, Inc. in 46 connection with sales of shares of the Fund by its registered representatives under the NAV transfer privilege. Additional information on sales charge reductions or waivers may be obtained from IMDI at the address listed on the cover of this Statement of Additional Information. CONTINGENT DEFERRED SALES CHARGE SHARES CLASS A: Class A shareholders may exchange their Class A shares that are subject to a contingent deferred sales charge ("CDSC"), as described in the Prospectus ("outstanding Class A shares"), for Class A shares of another Ivy fund ("new Class A shares") on the basis of the relative net asset value per Class A share, without the payment of any CDSC that would otherwise be due upon the redemption of the outstanding Class A shares. Class A shareholders of the Fund exercising the exchange privilege will continue to be subject to the Fund's CDSC period following an exchange if such period is longer than the CDSC period, if any, applicable to the new Class A shares. For purposes of computing the CDSC that may be payable upon the redemption of the new Class A shares, the holding period of the outstanding Class A shares is "tacked" onto the holding period of the new Class A shares. CLASS B: Class B shareholders may exchange their Class B shares ("outstanding Class B shares") for Class B shares of another Ivy fund ("new Class B shares") on the basis of the relative net asset value per Class B share, without the payment of any CDSC that would otherwise be due upon the redemption of the outstanding Class B shares. Class B shareholders of the Fund exercising the exchange privilege will continue to be subject to the Fund's CDSC schedule (or period) following an exchange if such schedule is higher (or such period is longer) than the CDSC schedule (or period) applicable to the new Class B shares. Class B shares of the Fund acquired through an exchange of Class B shares of another Ivy fund will be subject to the Fund's CDSC schedule (or period) if such schedule is higher (or such period is longer) than the CDSC schedule (or period) applicable to the Ivy fund from which the exchange was made. For purposes of both the conversion feature and computing the CDSC that may be payable upon the redemption of the new Class B shares (prior to conversion), the holding period of the outstanding Class B shares is "tacked" onto the holding period of the new Class B shares. The following CDSC table applies to Class B shares of the Ivy International Growth Fund, Ivy Bond Fund, Ivy Cundill Global Value Fund, Ivy Developing Markets Fund, Ivy European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund, Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy International Fund, Ivy International Small Companies Fund, Ivy International Value Fund, Ivy Pacific Opportunities Fund, Ivy US Blue Chip Fund and Ivy US Emerging Growth Fund. 47 CONTINGENT DEFERRED SALES CHARGE AS A PERCENTAGE YEAR SINCE PURCHASE OF DOLLAR AMOUNT SUBJECT TO CHARGE - ------------------- ------------------------------------------------- First 5% Second 4% Third 3% Fourth 3% Fifth 2% Sixth 1% Seventh and thereafter 0% CLASS C: Class C shareholders may exchange their Class C shares ("outstanding Class C shares") for Class C shares of another Ivy fund ("new Class C shares") on the basis of the relative net asset value per Class C share, without the payment of any CDSC that would otherwise be due upon redemption. (Class C shares are subject to a CDSC of 1.00% if redeemed within one year of the date of purchase.) CLASS I AND ADVISOR CLASS: Subject to the restrictions set forth in the following paragraph, Class I and Advisor Class shareholders may exchange their outstanding shares for the same class of 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; $10,000 in the case of Advisor Class). 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; $10,000 in the case of Advisor Class). 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 PFPC of telephone instructions by PFPC or a properly executed request. Exchanges, whether written or telephonic, must be received by PFPC 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." 48 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 advisor regarding the tax consequences of an exchange transaction. A 2% redemption fee or short-term trading fee will be imposed on redemptions and exchanges of Class A shares of the Fund made within 30 days of initial purchase. This fee will be retained by the Fund. See "Redemptions" below. LETTER OF INTENT Reduced sales charges apply to initial investments in Class A shares of the Fund made pursuant to a non-binding Letter of Intent. A Letter of Intent may be submitted by an individual, his or her spouse and children under the age of 21, or a trustee or other fiduciary of a single trust estate or single fiduciary account. (See the Account Application in the Prospectus.) Any investor may submit a Letter of Intent stating that he or she will invest, over a period of 13 months, at least $50,000 in Class A shares of the Fund. A Letter of Intent may be submitted at the time of an initial purchase of Class A shares of the Fund or within 90 days of the initial purchase, in which case the Letter of Intent will be backdated. A shareholder may include, as an accumulation credit, the value (at the applicable offering price) of all Class A shares of Ivy International Growth Fund, Ivy Bond Fund, Ivy Cundill Global Value Fund, Ivy Developing Markets Fund, Ivy European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund, Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy International Fund, Ivy International Small Companies Fund, Ivy International Value Fund, Ivy Pacific Opportunities Fund, Ivy US Blue Chip Fund and Ivy US Emerging Growth Fund (and shares that have been exchanged into Ivy Money Market Fund from any of the other funds in the Ivy funds) held of record by him or her as of the date of his or her Letter of Intent. During the term of the Letter of Intent, PFPC will hold Class A shares representing 5% of the indicated amount (less any accumulation credit value) in escrow. The escrowed Class A shares will be released when the full indicated amount has been purchased. If the full indicated amount is not purchased during the term of the Letter of Intent, the investor is required to pay IMDI an amount equal to the difference between the dollar amount of sales charge that he or she has paid and that which he or she would have paid on his or her aggregate purchases if the total of such purchases had been made at a single time. Such payment will be made by an automatic liquidation of Class A shares in the escrow account. A Letter of Intent does not obligate the investor to buy (or the Trust) to sell the indicated amount of Class A shares, and the investor should read carefully all the provisions of the letter before signing. RETIREMENT PLANS Shares of the Fund may be purchased in connection with several types of tax-deferred retirement plans. Shares of more than one fund distributed by IMDI may be purchased in a single application establishing a single account under the plan, and shares held in such an account may be exchanged among the Ivy funds in accordance with the terms of the applicable plan and the exchange privilege available to all shareholders. Initial and subsequent purchase payments in connection with tax-deferred retirement plans must be at least $25 per participant. 49 The following fees will be charged to individual shareholder accounts as described in the retirement prototype plan document: Retirement Plan New Account Fee no fee Retirement Plan Annual Maintenance Fee $10.00 per fund account For shareholders whose retirement accounts are diversified across several Ivy funds, the annual maintenance fee will be limited to not more than $20. The following discussion describes some aspects of the tax treatment of certain tax-deferred retirement plans under current Federal income tax law. State income tax consequences may vary. An individual considering the establishment of a retirement plan should consult with an attorney and/or an accountant with respect to the terms and tax aspects of the plan. INDIVIDUAL RETIREMENT ACCOUNTS: Shares of the Fund may be used as the funding medium for an Individual Retirement Account ("IRA"). Eligible individuals may establish an IRA by adopting a model custodial account available from PFPC, who may impose a charge for establishing the account. Individuals should consult their tax advisors before investing IRA assets in the Fund if that fund primarily distributes exempt-interest dividends. An individual who has not reached age 70-1/2 and who receives compensation or earned income is eligible to contribute to an IRA, whether or not he or she is an active participant in a retirement plan. An individual who receives a distribution from another IRA, a qualified retirement plan, a qualified annuity plan or a tax-sheltered annuity or custodial account ("403(b) plan") that qualifies for "rollover" treatment is also eligible to establish an IRA by rolling over the distribution either directly or within 60 days after its receipt. Tax advice should be obtained in connection with planning a rollover contribution to an IRA. In general, for years 2002 through 2004, an eligible individual may contribute up to the lesser of $3,000 ($3,500 if 50 or older) 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 $3,000 ($3,500 if 50 or older) per year, the maximum potential contribution is $6,000 ($7,000 if 50 or older) 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 $6,000 ($7,000 if 50 or older), a contribution of up to $3,000 ($3,500 if 50 or older) may be made to each spouse's IRA. Rollover contributions are not subject to these limits. An individual may deduct his or her annual contributions to an IRA in computing his or her Federal income tax within the limits described above, provided he or she (and his or her spouse, if they file a joint Federal income tax return) is not an active participant in a qualified retirement plan (such as a qualified corporate, sole proprietorship, or partnership pension, profit sharing, 401(k) or stock bonus plan), qualified annuity plan, 403(b) plan, simplified employee pension, or governmental plan. If he or she (or his or her spouse) is an active participant, whether the individual's contribution to an IRA is fully deductible, partially deductible or not deductible depends on (i) 50 adjusted gross income and (ii) whether it is the individual or the individual's spouse who is an active participant, in the case of married individuals filing jointly. Contributions may be made up to the maximum permissible amount even if they are not deductible. Rollover contributions are not includible in income for Federal income tax purposes and therefore are not deductible from it. Generally, earnings on an IRA are not subject to current Federal income tax until distributed. Distributions attributable to tax-deductible contributions and to IRA earnings are taxed as ordinary income. Distributions of non-deductible contributions are not subject to Federal income tax. There are special rules for determining what portion of any distribution is allocable to deductible and to non-deductible contributions. In general, distributions from an IRA to an individual before he or she reaches age 59-1/2 are subject to a nondeductible penalty tax equal to 10% of the taxable amount of the distribution. The 10% penalty tax does not apply to amounts withdrawn from an IRA after the individual reaches age 59-1/2, becomes disabled or dies, or if withdrawn in the form of substantially equal payments over the life or life expectancy of the individual and his or her designated beneficiary, if any, or rolled over into another IRA, amounts withdrawn and used to pay for deductible medical expenses, amounts withdrawn by certain unemployed individuals not in excess of amounts paid for certain health insurance premiums, amounts used to pay certain qualified higher education expenses, and amounts used within 120 days of the date the distribution is received to pay for certain first-time homebuyer expenses. Distributions must begin to be withdrawn not later than April 1 of the calendar year following the calendar year in which the individual reaches age 70-1/2. Failure to take certain minimum required distributions will result in the imposition of a 50% non-deductible penalty tax. ROTH IRAs: Shares of the Fund also may be used as the Funding medium for a Roth Individual Retirement Account ("Roth IRA"). A Roth IRA is similar in numerous ways to the regular (traditional) IRA, described above. Some of the primary differences are as follows. A single individual earning below $95,000 can contribute up to $3,000 ($3,500 if 50 or older) per year to a Roth IRA for years 2002 through 2004. 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 $6,000 per year ($7,000 if 50 or older) or($3,000 per IRA) ($3,500 if 50 or older). 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 $3,000 ($3,500 if 50 or older). 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 51 disability. All other distributions from a Roth IRA are taxable and subject to a 10% tax penalty unless an exception applies. Exceptions to the 10% penalty include: disability, deductible medical expenses, certain purchases of health insurance for an unemployed individual and qualified higher education expenses. An individual with an income of less than $100,000 (who is not married filing separately) can roll his or her existing IRA into a Roth IRA. However, the individual must pay taxes on the taxable amount in his or her traditional IRA. After 1998, all taxes on such a rollover will have to be paid in the tax year in which the rollover is made. QUALIFIED PLANS: For those self-employed individuals who wish to purchase shares of one or more Ivy funds through a qualified retirement plan, an Adoption Agreement and a Retirement Plan are available from PFPC. The Retirement Plan may be adopted as a profit sharing plan or a money purchase pension plan. A profit sharing plan permits an annual contribution to be made in an amount determined each year by the self-employed individual within certain limits prescribed by law. A money purchase pension plan requires annual contributions at the level specified in the Adoption Agreement. There is no set-up fee for qualified plans and the annual maintenance fee is $20.00 per account. In general, if a self-employed individual has any common law employees, employees who have met certain minimum age and service requirements must be covered by the Retirement Plan. A self-employed individual generally must contribute the same percentage of income for common law employees as for himself or herself. A self-employed individual may contribute up to the lesser of $40,000 or 100% of compensation or earned income to a money purchase pension plan or to a profit sharing plan each year on behalf of each participant. To be deductible, total contributions to a money purchase plan or profit sharing plan 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 $200,000 for benefits accruing in plan years beginning after 2001, with annual inflation adjustments). A self-employed individual's contributions to a retirement plan on his or her own behalf must be deducted in computing his or her earned income. Corporate employers may also adopt the Adoption Agreement and Retirement Plan for the benefit of their eligible employees. Similar contribution and deduction rules apply to corporate employers. Distributions from the Retirement Plan generally are made after a participant's severance from employment. 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. 52 DEFERRED COMPENSATION FOR PUBLIC SCHOOLS AND CHARITABLE ORGANIZATIONS ("403(B)(7) ACCOUNT"): Section 403(b)(7) of the Code permits public school systems and certain charitable organizations to use mutual fund shares held in a custodial account to fund deferred compensation arrangements with their employees. A custodial account agreement is available for those employers whose employees wish to purchase shares of the Fund in conjunction with such an arrangement. The special application for a 403(b)(7) Account is available from PFPC. Distributions from the 403(b)(7) Account may be made only following death, disability, severance from employment, 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 $40,000 or 25% 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 $7,000 for 2002 (as increased for 2003 through 2005 and indexed thereafter). Subject to certain limits, the employer will either match a portion of employee contributions, or will make a contribution equal to 2% of each employee's compensation without regard to the amount the employee contributes. An employer cannot maintain a SIMPLE Plan for its employees if any contributions or benefits are credited to those employees under any other qualified retirement plan maintained by the employer. REINVESTMENT PRIVILEGE Shareholders who have redeemed Class A shares of the Fund may reinvest all or a part of the proceeds of the redemption back into Class A shares of the same Fund at net asset value (without a sales charge) within 60 days from the date of redemption. This privilege may be exercised only once. The reinvestment will be made at the net asset value next determined after receipt by PFPC 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." 53 REDUCED SALES CHARGES AND RIGHTS OF ACCUMULATION A scale of reduced sales charges applies to any investment of $50,000 or more in Class A shares of the Fund. See "Initial Sales Charge Alternative -- Class A Shares" in the Prospectus. The reduced sales charge is applicable to investments made at one time by an individual, his or her spouse and children under the age of 21, or a trustee or other fiduciary of a single trust estate or single fiduciary account (including a pension, profit sharing or other employee benefit trust created pursuant to a plan qualified under Section 401 of the Code). "Rights of Accumulation" are also applicable to current purchases of all of the funds of Ivy Fund (except Ivy Money Market Fund) by any of the persons enumerated above where the aggregate quantity of Class A shares of the Fund and of any other investment company distributed by IMDI previously purchased or acquired and currently owned, determined at the higher of current offering price or amount invested, plus the Class A shares being purchased, amounts to $50,000 or more for all funds other than Ivy Bond Fund; or $100,000 or more for Ivy Bond Fund. At the time an investment takes place, PFPC 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 PFPC of a written election to have his or her shares withdrawn periodically, accompanied by a surrender to PFPC 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 Class A, B or C shareholder must have at least $5,000 in his or her account; an Advisor Class shareholder must have at least $10,000 in his or her account. A Withdrawal Plan may not be established if the investor is currently participating in the Automatic Investment Method. A Withdrawal Plan may involve the depletion of a shareholder's principal, depending on the amount withdrawn. A redemption under a Withdrawal Plan is a taxable event. Shareholders contemplating participating in a Withdrawal Plan should consult their tax advisors. Additional investments made by investors participating in a Withdrawal Plan must equal at least $1,000 each for Class A, B or C shareholders and at least $250 for Advisor Class shareholders, 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. 54 An investor may terminate his or her participation in the Withdrawal Plan at any time by delivering written notice to PFPC. If all shares held by the investor are liquidated at any time, participation in the Withdrawal Plan will terminate automatically. The Trust or PFPC may terminate the Withdrawal Plan option at any time after reasonable notice to shareholders. GROUP SYSTEMATIC INVESTMENT PROGRAM Shares of the Fund may be purchased in connection with investment programs established by employee or other groups using systematic payroll deductions or other systematic payment arrangements. The Fund does not itself organize, offer or administer any such programs. However, it may, depending upon the size of the program, waive the minimum initial and additional investment requirements for purchases by individuals in conjunction with programs organized and offered by others. Unless shares of the Fund are purchased in conjunction with IRAs (see "How to Buy Shares" in the Prospectus), such group systematic investment programs are not entitled to special tax benefits under the Code. The Fund reserves the right to refuse purchases at any time or suspend the offering of shares in connection with group systematic investment programs, and to restrict the offering of shareholder privileges, such as check writing, simplified redemptions and other optional privileges, to shareholders using group systematic investment programs. With respect to each shareholder account established on or after September 15, 1972 under a group systematic investment program, the Fund and IMI each currently charge a maintenance fee of $3.00 (or portion thereof) for each twelve-month period (or portion thereof) that the account is maintained. The Fund may collect such fee (and any fees due to IMI) through a deduction from distributions to the shareholders involved or by causing on the date the fee is assessed a redemption in each such shareholder account sufficient to pay such fee. The Fund reserves the right to change these fees from time to time without advance notice. Class A shares of the Fund are made available to Merrill Lynch Daily K Plan (the "Plan") participants at NAV without an initial sales charge if: (i) the Plan is recordkept on a daily valuation basis by Merrill Lynch and, on the date the Plan Sponsor signs the Merrill Lynch Recordkeeping Service Agreement, the Plan has $3 million or more in assets invested in broker/dealer funds not advised or managed by Merrill Lynch Asset Management, L.P. ("MLAM") that are made available pursuant to a Service Agreement between Merrill Lynch and the fund's principal underwriter or distributor and in funds advised or managed by MLAM (collectively, the "Applicable Investments"); (ii) the Plan is recordkept on a daily valuation basis by an independent recordkeeper whose services are provided through a contract or alliance arrangement with Merrill Lynch, and on the date the Plan Sponsor signs the Merrill Lynch Recordkeeping Service Agreement, the Plan has $3 million or more in assets, excluding money market funds, invested in Applicable Investments; or 55 (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 PFPC, less any applicable CDSC and redemption fee. Unless a shareholder requests that the proceeds of any redemption be wired to his or her bank account, payment for shares tendered for redemption is made by check within seven days after tender in proper form, except that the Fund reserves the right to suspend the right of redemption or to postpone the date of payment upon redemption beyond seven days (i) for any period during which the Exchange is closed (other than customary weekend and holiday closings) or during which trading on the Exchange is restricted, (ii) for any period during which an emergency exists as determined by the SEC as a result of which disposal of securities owned by the Fund is not reasonably practicable or it is not reasonably practicable for the Fund to fairly determine the value of its net assets, or (iii) for such other periods as the SEC may by order permit for the protection of shareholders of the Fund. Under unusual circumstances, when the Board deems it in the best interest of the Fund's shareholders, the Fund may make payment for shares repurchased or redeemed in whole or in part in securities of that Fund taken at current values. If any such redemption in kind is to be made, the Fund may make an election pursuant to Rule 18f-1 under the 1940 Act. This will require the Fund to redeem with cash at a shareholder's election in any case where the redemption involves less than $250,000 (or 1% of the Fund's net asset value at the beginning of each 90-day period during which such redemptions are in effect, if that amount is less than $250,000). Should payment be made in securities, the redeeming shareholder may incur brokerage costs in converting such securities to cash. The Trust may redeem those accounts of shareholders who have maintained an investment, including sales charges paid, of less than $1,000 in the Fund for a period of more than 12 months for Class A, B, C or I shareholders; $10,000 or less for Advisor Class shareholders 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 for Class A, B, C or I shareholders, and $10,000 balance for Advisor Class shareholders 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 56 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 certain retirement plans or accounts who wish to avoid tax consequences must "rollover" any sum so redeemed into another eligible plan within 60 days. The Trustees of the Trust may change the minimum account size. If a shareholder has given authorization for telephonic redemption privilege, shares can be redeemed and proceeds sent by Federal wire to a single previously designated bank account. The Fund may delay for up to seven days delivery of the proceeds of a wire redemption request of $250,000 or more if considered appropriate under then-current market conditions. The Trust reserves the right to change this minimum or to terminate the telephonic redemption privilege without prior notice. The Trust cannot be responsible for the efficiency of the Federal wire system of the shareholder's dealer of record or bank. The shareholder is responsible for any charges by the shareholder's bank. The Fund employs reasonable procedures that require personal identification prior to acting on redemption or exchange instructions communicated by telephone to confirm that such instructions are genuine. In the absence of such instructions, the Fund may be liable for any losses due to unauthorized or fraudulent telephone instructions. Class A shares of the Fund held for less than 30 days are redeemable at a price equal to 98% of the then current net asset value per share. This 2% discount, also referred to in the Prospectus and this statement of additional information as a redemption fee, exchange fee or short-term trading fee, directly affects the amount that a shareholder who is subject to the discount receives upon exchange or redemption. It is intended to encourage long-term investment in the Fund, to avoid transaction and other expenses caused by early redemptions and to facilitate portfolio management. The fee is not a deferred sales charge, is not a commission paid to IMI or its subsidiaries, and does not benefit IMI in any way. The Fund reserves the right to modify the terms of or terminate this fee at any time. The redemption discount generally be waived for any redemption of Class A shares (a) Class A shares purchased through certain retirement and educational plans, including 401(k) plans, 403(b) plans, 457 plans, Keogh accounts, Profit Sharing and Money Purchase Pension Plans and 529 plans, (b) purchased through the reinvestment of dividends or capital gains distributions paid by the Fund, (c) due to the death of the registered shareholder of a Fund account, or, due to the death of all registered shareholders of a Fund account with more than one registered shareholder, (i.e., joint tenant account), upon receipt by PFPC of appropriate written instructions and documentation satisfactory to the PFPC, or (d) by the Fund upon exercise of its right to liquidate accounts (i) falling below the minimum account size by reason of shareholder redemptions or (ii) when the shareholder has failed to provide tax identification information. 57 However, if Class A shares are purchased for a retirement plan account through a broker, financial institution or recordkeeper maintaining an omnibus account for the shares, these waivers may not apply. (Before purchasing Class A shares, please check with your account representative concerning the availability of the fee waivers.) In addition, these waivers do not apply to IRA and SEP-IRA accounts. For this purpose and without regard to the Class A shares actually redeemed, Class A shares will be treated as redeemed as follows: first, reinvestment shares; second, purchased shares held 30 days or more; and third, purchased shares held for less than 30 days. Finally, if a redeeming shareholder acquires Class A shares through a transfer from another shareholder, the applicability of the discount, if any, will be determined by reference to the date the Class A shares were originally purchased, and not from the date of transfer between shareholders. CONVERSION OF CLASS B SHARES As described in the Prospectus, Class B shares of the Fund will automatically convert to Class A shares of the Fund, based on the relative net asset values per share of the two classes, no later than the month following the eighth anniversary of the initial issuance of such Class B shares of the Fund occurs. For the purpose of calculating the holding period required for conversion of Class B shares, the date of initial issuance shall mean: (1) the date on which such Class B shares were issued, or (2) for Class B shares obtained through an exchange, or a series of exchanges, (subject to the exchange privileges for Class B shares) the date on which the original Class B shares were issued. For purposes of conversion of Class B shares, Class B shares purchased through the reinvestment of dividends and capital gain distributions paid in respect of Class B shares will be held in a separate sub-account. Each time any Class B shares in the shareholder's regular account (other than those shares in the sub-account) convert to Class A shares, a pro rata portion of the Class B shares in the sub-account will also convert to Class A shares. The portion will be determined by the ratio that the shareholder's Class B shares converting to Class A shares bears to the shareholder's total Class B shares not acquired through the reinvestment of dividends and capital gain distributions. NET ASSET VALUE The net asset value per share of the Fund is computed by dividing the value of the Fund's aggregate net assets (i.e., its total assets less its liabilities) by the number of the Fund's shares outstanding. For purposes of determining the Fund's aggregate net assets, receivables are valued at their realizable amounts. The Fund's liabilities, if not identifiable as belonging to a particular class of the Fund, are allocated among the Fund's several classes based on their relative net asset size. Liabilities attributable to a particular class are charged to that class directly. The total liabilities for a class are then deducted from the class's proportionate interest in the Fund's assets, and the resulting amount is divided by the number of shares of the class outstanding to produce its net asset value per share. A security listed or traded on a recognized stock exchange or The Nasdaq Stock Market, Inc. ("Nasdaq") is valued at the security's last sale price on the market 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 58 at the time as of which such rate is determined by an approved pricing source. 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 asked price, in the case of a written option, and the last bid price, in the case of a purchased option. An OTC traded option is valued at the last asked price, in the case of a written option, and the last bid price, in the case of a purchased option. Exchange-listed and widely-traded OTC futures (and options thereon) are valued at the most recent settlement price. Securities and other assets for which market prices are not readily available are priced at their "fair value" as determined by IMI in accordance with procedures approved by the Board. Trading in securities on many foreign securities exchanges is normally completed before the close of regular trading on the Exchange. Trading on foreign exchanges may not take place on all days on which there is regular trading on the Exchange, or may take place on days on which there is no regular trading on the Exchange (e.g., any of the national business holidays identified below). If events materially affecting the value of the Fund's portfolio securities occur between the time when a foreign exchange closes and the time when the Fund's net asset value is calculated (see following paragraph), such securities may be valued at their "fair value" as determined by IMI in accordance with procedures approved by the Board. IMI will monitor for significant events that may call into question the reliability of market quotations. Such events may include situations relating to a single security in a market sector, significant fluctuations in U.S. or foreign markets, natural disasters, armed conflicts, governmental actions or other developments not tied directly to the securities markets. 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 59 proper form by PFPC 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 advisor 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 60 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. 61 The Fund may make one or more of the elections available under the Code which are applicable to straddles. If the Fund makes any of the elections, the amount, character and timing of the recognition of gains or losses from the affected straddle positions will be determined under rules that vary according to the election(s) made. The rules applicable under certain of the elections may operate to accelerate the recognition of gains or losses from the affected straddle positions. Because application of the straddle rules may affect the character of gains or losses, defer losses and/or accelerate the recognition of gains or losses from the affected straddle positions, the amount which must be distributed to shareholders as ordinary income or long-term capital gain may be increased or decreased substantially as compared to the Fund that did not engage in such transactions. Notwithstanding any of the foregoing, the Fund may recognize gain (but not loss) from a constructive sale of certain "appreciated financial positions" if the Fund enters into a short sale, offsetting notional principal contract, futures or forward contract transaction with respect to the appreciated position or substantially identical property. Appreciated financial positions subject to this constructive sale treatment are interests (including options, futures and forward contracts and short sales) in stock, partnership interests, certain actively traded trust instruments and certain debt instruments. Constructive sale treatment of appreciated financial positions does not apply to certain transactions closed before the end of the 30th day after the close of the Fund's taxable year, if the position is held throughout the 60-day period beginning on the date the transaction is closed and certain other conditions are met. CURRENCY FLUCTUATIONS -- "SECTION 988" GAINS OR LOSSES Gains or losses attributable to fluctuations in exchange rates which occur between the time the Fund accrues receivables or liabilities denominated in a foreign currency and the time the Fund actually collects such receivables or pays such liabilities generally are treated as ordinary income or ordinary loss. Similarly, on disposition of some investments, including debt securities denominated in a foreign currency and certain options, futures and forward contracts, gains or losses attributable to fluctuations in the value of the foreign currency between the date of acquisition of the security or contract and the date of disposition also are treated as ordinary gain or loss. These gains and losses, referred to under the Code as "section 988" gains or losses, increase or decrease the amount of the Fund's investment company taxable income available to be distributed to its shareholders as ordinary income. INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES The Fund may invest in shares of foreign corporations which may be classified under the Code as passive foreign investment companies ("PFICs"). In general, a foreign corporation is classified as a PFIC if at least one-half of its assets constitute investment-type assets, or 75% or more of its gross income is investment-type income. If the Fund receives a so-called "excess distribution" with respect to PFIC stock, the Fund itself may be subject to a tax on a portion of the excess distribution, whether or not the corresponding income is distributed by the Fund to shareholders. In general, under the PFIC rules, an excess distribution is treated as having been realized ratably over the period during which the Fund held the PFIC shares. The Fund itself will be 62 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 63 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. 64 In some cases, shareholders will not be permitted to take all or portion of their sales loads into account for purposes of determining the amount of gain or loss realized on the disposition of their shares. This prohibition generally applies where (1) the shareholder incurs a sales load in acquiring the shares of the Fund, (2) the shares are disposed of before the 91st day after the date on which they were acquired, and (3) the shareholder subsequently acquires shares in the same Fund or another regulated investment company and the otherwise applicable sales charge is reduced under a "reinvestment right" received upon the initial purchase of Fund shares. The term "reinvestment right" means any right to acquire shares of one or more regulated investment companies without the payment of a sales load or with the payment of a reduced sales charge. Sales charges affected by this rule are treated as if they were incurred with respect to the shares acquired under the reinvestment right. This provision may be applied to successive acquisitions of fund shares. FOREIGN WITHHOLDING TAXES Income received by the Fund from sources within a foreign country may be subject to withholding and other taxes imposed by that country. If more than 50% of the value of the Fund's total assets at the close of its taxable year consists of securities of foreign corporations, the Fund will be eligible and may elect to "pass-through" to its shareholders the amount of foreign income and similar taxes paid by the Fund. Pursuant to this election, a shareholder will be required to include in gross income (in addition to taxable dividends actually received) his or her pro rata share of the foreign income and similar taxes paid by the Fund, and will be entitled either to deduct his or her pro rata share of foreign income and similar taxes in computing his or her taxable income or to use it as a foreign tax credit against his or her U.S. Federal income taxes, subject to limitations. No deduction for foreign taxes may be claimed by a shareholder who does not itemize deductions. Foreign taxes generally may not be deducted by a shareholder that is an individual in computing the alternative minimum tax. Each shareholder will be notified within 60 days after the close of the Fund's taxable year whether the foreign taxes paid by the Fund will "pass-through" for that year and, if so, such notification will designate (1) the shareholder's portion of the foreign taxes paid to each such country and (2) the portion of the dividend which represents income derived from sources within each such country. Generally, except in the case of certain electing individual taxpayers who have limited creditable foreign taxes and no foreign source income other than passive investment-type income, a credit for foreign taxes is subject to the limitation that it may not exceed the shareholder's U.S. tax attributable to his or her total foreign source taxable income. For this purpose, if the Fund makes the election described in the preceding paragraph, the source of the Fund's income flows through to its shareholders. With respect to the Fund, gains from the sale of securities generally will be treated as derived from U.S. sources and section 988 gains will be treated as ordinary income derived from U.S. sources. The limitation on the foreign tax credit is applied separately to foreign source passive income, including foreign source passive income received from the Fund. In addition, the foreign tax credit may offset only 90% of the revised alternative minimum tax imposed on corporations and individuals. 65 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 advisors. 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 30% ("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 advisors 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. 66 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 Standardized Return for the Advisor Class shares of the Fund for the period from inception (December 29, 2000) through December 31, 2001 and the one year period ending December 31, 2001 was (26.02)% and (26.02)%, respectively. The return after taxes on distributions for the same periods is (30.77)%. The return after taxes on distributions and sale of Fund shares for the same periods is (19.93)%. These figures reflect expense reimbursement. Without expense reimbursement, the Standardized Return would have been (42.88)% and (42.88)%, respectively. After tax returns are calculated using the historical highest individual federal marginal income tax rates. State and local tax rates are not included in the tax effect. 67 CUMULATIVE TOTAL RETURN. Cumulative total return is the cumulative rate of return on a hypothetical initial investment of $1,000 in a specific class of shares of the Fund for a specified period. Cumulative total return quotations reflect changes in the price of the Fund's shares and assume that all dividends and capital gains distributions during the period were reinvested in the Fund's shares. Cumulative total return is calculated by computing the cumulative rates of return of a hypothetical investment in a specific class of shares of the Fund over such periods, according to the following formula (cumulative total return is then expressed as a percentage): C = (ERV/P) - 1 Where: C = cumulative total return P = a hypothetical initial investment of $1,000 to purchase shares of a specific class ERV = ending redeemable value: ERV is the value, at the end of the applicable period, of a hypothetical $1,000 investment made at the beginning of the applicable period. The Cumulative Total Return for the Advisor Class shares of the Fund for the period from inception through December 31, 2001 and the one year period ending December 31, 2001 was (26.02)% and (26.02)%, 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 Fund's existence and may or may not include the impact of sales charges, taxes or other factors. Performance quotations for the Fund will vary from time to time depending on market conditions, the composition of the Fund's portfolio and operating expenses of the Fund. These factors and possible differences in the methods used in calculating performance quotations should be considered when comparing performance information regarding the Fund's shares with information published for other investment companies and other investment vehicles. Performance quotations should also be considered relative to changes in the value of the Fund's shares and the risks associated with the Fund's investment objectives and policies. At any time in the future, performance quotations may be higher or lower than past performance quotations and there can be no assurance that any historical performance quotation will continue in the future. The Fund may also cite endorsements or use for comparison its performance rankings and listings reported in such newspapers or business or consumer publications as, among others: AAII Journal, Barron's, Boston Business Journal, Boston Globe, Boston Herald, Business Week, Consumer's Digest, Consumer 68 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 Schedule of Investments as of December 31, 2001, Statement of Assets and Liabilities as of December 31, 2001, Statement of Operations for the for the fiscal year ended December 31, 2001, Statement of Changes in Net Assets for the fiscal year ended December 31, 2001, Financial Highlights, Notes to Financial Statements, and Report of Independent Certified Public Accountants, which are included in the Fund's December 31, 2001 Annual Report to shareholders, are incorporated by reference into this SAI. 69 APPENDIX A DESCRIPTION OF STANDARD & POOR'S RATINGS SERVICES ("S&P") AND MOODY'S INVESTORS SERVICE, INC. ("MOODY'S") CORPORATE BOND AND COMMERCIAL PAPER RATINGS [From Moody's Rating Definitions, www.moodys.com, December 2000, and "Standard & Poor's Municipal Ratings Handbook," September 2000 Issue (McGraw-Hill, New York, 2000).] MOODY'S: (a) CORPORATE BONDS. Aaa Bonds which are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edged." Interest payments are protected by a large or by an 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. Aa Bonds which are rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high-grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risk appear somewhat larger than the Aaa securities. A Bonds which are rated A 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 some time in the future. Baa Bonds which are rated Baa are considered as 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. Ba Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered as 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. B Bonds which are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. Caa 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. 70 Ca 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. C 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. Moody's short-term issuer ratings are opinions of the ability of issuers to honor senior financial obligations and contracts. These obligations have an original maturity not exceeding one year, unless explicitly noted. Moody's employs the following three designations, all judged to be investment grade, to indicate the relative repayment ability of rated issuers: Issuers rated Prime-1 (or supporting institutions) have a superior ability for repayment of senior short-term debt obligations. Prime-1 repayment ability will often be evidenced by many of the following characteristics: leading market positions in well-established industries; high rates of return on funds employed; conservative capitalization structure with moderate reliance on debt and ample asset protection; broad margins in earnings coverage of fixed financial charges and high internal cash generation; well-established access to a range of financial markets and assured sources of alternate liquidity. Issuers rated Prime-2 (or supporting institutions) have a strong ability for repayment of senior short-term debt obligations. This will normally be evidenced by many of the characteristics cited above but to a lesser degree. Earnings trends and coverage ratios, while sound, may be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained. Issuers rated Prime-3 (or supporting institutions) have an acceptable ability for repayment of senior short-term obligations. The effect of industry characteristics and market compositions may be more pronounced. Variability in earnings and profitability may result in changes in the level of debt protection measurements and may require relatively high financial leverage. Adequate alternate liquidity is maintained. Issuers rated Not Prime do not fall within any of the Prime rating categories. S&P: (a) LONG-TERM ISSUE CREDIT RATINGS. Issue credit ratings are based in varying degrees on the following considerations: o Likelihood of payment -- capacity and willingness of the obligor to meet its financial commitment on an obligation in accordance with the terms of the obligation; o Nature of and provisions of the obligation; and 71 o Protection afforded by, and relative position of, the obligation in the event of bankruptcy, reorganization, or other arrangement under the laws of bankruptcy and other laws affecting creditors' rights. The issue ratings definitions are expressed in terms of default risk. As such, they pertain to senior obligations of an entity. Junior obligations are typically rated lower than senior obligations, to reflect the lower priority in bankruptcy, as noted above. AAA An obligation rated `AAA' has the highest rating assigned by S&P. The obligor's capacity to meet its financial commitment on the obligation is extremely strong. AA An obligation rated `AA' differs from the highest rated obligations only in small degree. The obligor's capacity to meet its financial commitment on the obligation is very strong. A An obligation rated `A' is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher-rated categories. However, the obligor's capacity to meet its financial commitment on the obligation is still strong. BBB An obligation rated `BBB' exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation. BB, B, CCC, CC, AND C Obligations rated `BB', `B', `CCC', `CC', and `C' are regarded as having significant speculative characteristics. `BB' indicates the least degree of speculation and `C' the highest. While such obligations will likely have some quality and protective characteristics, these may be outweighed by large uncertainties or major exposures to adverse conditions. BB An obligation rated `BB' is less vulnerable to nonpayment than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions, which could lead to the obligor's inadequate capacity to meet its financial commitment on the obligation. B An obligation rated `B' is more vulnerable to nonpayment than obligations rated `BB,' but the obligor currently has the capacity to meet its financial commitment on the obligation. Adverse business, financial, or economic conditions will likely impair the obligor's capacity or willingness to meet its financial commitment on the obligation. CCC An obligation rated `CCC' is currently vulnerable to nonpayment and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation. In the event of adverse business, financial, or economic conditions, the obligor is not likely to have the capacity to meet its financial commitment on the obligation. CC An obligation rated `CC' is currently highly vulnerable to nonpayment. 72 C The `C' rating may be used to cover a situation where a bankruptcy petition has been filed or similar action has been taken, but payments on this obligation are being continued. D An obligation rated `D' is in payment default. The `D' rating category is used when payments on an obligation 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 or the taking of a similar action if payments on an obligation are jeopardized. (b) COMMERCIAL PAPER. An S&P commercial paper rating is a current assessment of the likelihood of timely payment of debt having an original maturity of no more than 365 days. Ratings are graded into several categories, ranging from `A' for the highest-quality obligations to `D' for the lowest. These categories are as follows: A-1 This designation 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. A-2 Capacity for timely payment on issues with this designation is satisfactory. However, the relative degree of safety is not as high as for issues designated `A-1.' A-3 Issues carrying this designation have an adequate capacity for timely payment. They are, however, more vulnerable to the adverse effects of changes in circumstances than obligations carrying the higher designations. B Issues rated `B' are regarded as having only speculative capacity for timely payment. C This rating is assigned to short-term debt obligations with a doubtful capacity for payment. D 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. 73 IVY GROWTH FUND IVY US BLUE CHIP FUND IVY US EMERGING GROWTH FUND series of IVY FUND 925 South Federal Highway, Suite 600 Boca Raton, Florida 33432 STATEMENT OF ADDITIONAL INFORMATION ------------ April 30, 2002 Ivy Fund (the "Trust") is an open-end management investment company that currently consists of sixteen portfolios, each of which is diversified. This Statement of Additional Information ("SAI") relates to the Class A, B, C and Advisor Class shares of Ivy Growth Fund and Ivy US Emerging Growth Fund, and to the Class A, B, C, I and Advisor Class shares of Ivy US Blue Chip Fund (each a "Fund" and, collectively, the "Funds"). The other thirteen portfolios of the Trust are described in separate prospectuses and SAIs. This SAI is not a prospectus and should be read in conjunction with the prospectus for the Funds dated April 30, 2002, as supplemented from time to time (the "Prospectus"), which may be obtained upon request and without charge from the Trust at the Distributor's address and telephone number printed below. Each Fund's Annual Report to shareholders dated December 31, 2001 (each, an "Annual Report") is incorporated by reference into this SAI. Each Fund's Annual Report may be obtained without charge from the Distributor. INVESTMENT MANAGER Ivy Management, Inc. ("IMI") 925 South Federal Highway, Suite 600 Boca Raton, Florida 33432 Telephone: (800) 777-6472 DISTRIBUTOR Ivy Mackenzie Distributors, Inc. ("IMDI") 925 South Federal Highway, Suite 600 Boca Raton, Florida 33432 Telephone: (800) 456-5111 TABLE OF CONTENTS
PAGE ---- GENERAL INFORMATION...............................................................................................1 INVESTMENT OBJECTIVES, STRATEGIES AND RESTRICTIONS................................................................1 IVY GROWTH FUND..........................................................................................1 IVY US BLUE CHIP FUND....................................................................................5 IVY US EMERGING GROWTH FUND..............................................................................8 RISK CONSIDERATIONS..............................................................................................11 EQUITY SECURITIES.......................................................................................11 CONVERTIBLE SECURITIES..................................................................................12 SMALL COMPANIES.........................................................................................12 INITIAL PUBLIC OFFERINGS................................................................................13 ADJUSTABLE RATE PREFERRED STOCKS........................................................................13 DEBT SECURITIES.........................................................................................13 IN GENERAL.....................................................................................13 INVESTMENT-GRADE DEBT SECURITIES...............................................................13 LOW-RATED DEBT SECURITIES......................................................................14 U.S. GOVERNMENT SECURITIES.....................................................................15 ZERO COUPON BONDS..............................................................................16 ILLIQUID SECURITIES.....................................................................................16 FOREIGN SECURITIES......................................................................................17 EMERGING MARKETS........................................................................................18 FOREIGN CURRENCIES......................................................................................19 FOREIGN CURRENCY EXCHANGE TRANSACTIONS..................................................................20 REPURCHASE AGREEMENTS...................................................................................21 BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS.......................................................21 COMMERCIAL PAPER........................................................................................22 BORROWING...............................................................................................22 WARRANTS................................................................................................22 REAL ESTATE INVESTMENT TRUSTS (REITS)...................................................................22 OPTIONS TRANSACTIONS....................................................................................23 IN GENERAL.....................................................................................23 WRITING OPTIONS ON INDIVIDUAL SECURITIES.......................................................24 PURCHASING OPTIONS ON INDIVIDUAL SECURITIES....................................................24 PURCHASING AND WRITING OPTIONS ON SECURITIES INDICES...........................................25 RISKS OF OPTIONS TRANSACTIONS..................................................................25 FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS......................................................26 IN GENERAL.....................................................................................26 RISKS ASSOCIATED WITH FUTURES AND RELATED OPTIONS..............................................28 SECURITIES INDEX FUTURES CONTRACTS......................................................................29 COMBINED TRANSACTIONS...................................................................................30 PORTFOLIO TURNOVER...............................................................................................31 TRUSTEES AND OFFICERS............................................................................................31 PRINCIPAL HOLDERS OF SECURITIES..................................................................................36 CLASS A.................................................................................................36 CLASS B.................................................................................................37
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PAGE ---- CLASS C.................................................................................................38 CLASS I.................................................................................................40 ADVISOR CLASS...........................................................................................41 INVESTMENT ADVISORY AND OTHER SERVICES...........................................................................43 BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES....................................................43 DISTRIBUTION SERVICES...................................................................................45 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....................................................................................56 AUTOMATIC INVESTMENT METHOD.............................................................................56 EXCHANGE OF SHARES......................................................................................57 LETTER OF INTENT........................................................................................60 RETIREMENT PLANS........................................................................................60 REINVESTMENT PRIVILEGE..................................................................................64 RIGHTS OF ACCUMULATION..................................................................................65 SYSTEMATIC WITHDRAWAL PLAN..............................................................................65 GROUP SYSTEMATIC INVESTMENT PROGRAM.....................................................................66 REDEMPTIONS......................................................................................................67 CONVERSION OF CLASS B SHARES.....................................................................................69 NET ASSET VALUE..................................................................................................69 TAXATION.........................................................................................................71 OPTIONS, FUTURES AND FOREIGN CURRENCY FORWARD CONTRACTS.................................................72 CURRENCY FLUCTUATIONS -- "SECTION 988" GAINS OR LOSSES..................................................73 INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES......................................................73 DEBT SECURITIES ACQUIRED AT A DISCOUNT..................................................................74 DISTRIBUTIONS...........................................................................................74 DISPOSITION OF SHARES...................................................................................75 FOREIGN WITHHOLDING TAXES...............................................................................76 BACKUP WITHHOLDING......................................................................................77 PERFORMANCE INFORMATION..........................................................................................77 FINANCIAL STATEMENTS.............................................................................................88 APPENDIX A.......................................................................................................89
ii 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, Class C and Advisor Class shares were October 22, 1993, April 30, 1996 and April 30, 1998, respectively. Ivy US Blue Chip Fund commenced operations (Class A, B, C and Advisor Class shares) on November 2, 1998. There are no Class I shares outstanding. 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, Class C and Advisor Class shares were October 22, 1993, April 30, 1996 and February 18, 1998, 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 RESTRICTIONS Each Fund has its own investment objectives and policies, which are described in the Prospectus under the captions "Summary" and "Additional Information About Strategies and Risks." Descriptions of each Fund's policies, strategies and investment restrictions, as well as additional information regarding the characteristics and risks associated with each Fund's investment techniques, are set forth below. Whenever an investment objective, policy or restriction set forth in the Prospectus or this SAI states a maximum percentage of assets that may be invested in any security or other asset or describes a policy regarding quality standards, such percentage limitation or standard shall, unless otherwise indicated, apply to a Fund only at the time a transaction is entered into. Accordingly, if a percentage limitation is adhered to at the time of investment, a later increase or decrease in the percentage which results from circumstances not involving any affirmative action by a Fund, such as a change in market conditions or a change in a Fund's asset level or other circumstances beyond a Fund's control, will not be considered a violation. IVY 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 rising earnings. Approximately one half of the Fund's portfolio is comprised of companies that have had a proven record of profitability and earnings growth, 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. For temporary defensive purposes and during periods when IMI believes that 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 2 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 FOR IVY GROWTH FUND 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: 3 (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. 4 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 80% of its net assets, plus the amount of any borrowings for investment purposes, in equity securities (including common stock preferred stock and securities convertible into common stock) of U.S. companies that IMI believes are "blue chip" companies. 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. For temporary defensive purposes and during periods when IMI believes that 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 5 changed with respect to the approval of a majority (as defined in the 1940 Act) of the outstanding voting shares of the Fund. The Fund has adopted the following fundamental investment restrictions: (i) The Fund has elected to be classified as a diversified series of an open-end investment company. (ii) The Fund will not borrow money, except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. (iii) The Fund will not issue senior securities, except as permitted under the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. (iv) The Fund will not engage in the business of underwriting securities issued by others, except to the extent that the Fund may be deemed to be an underwriter in connection with the disposition of portfolio securities. (v) The Fund will not purchase or sell real estate (which term does not include securities of companies that deal in real estate or mortgages or investments secured by real estate or interests therein), except that the Fund may hold and sell real estate acquired as a result of the Fund's ownership of securities. (vi) The Fund will not purchase physical commodities or contracts relating to physical commodities, although the Fund may invest in commodities futures contracts and options thereon to the extent permitted by the Prospectus and this SAI. (vii) The Fund will not make loans to other persons, except (a) loans of portfolio securities, and (b) to the extent that entry into repurchase agreements and the purchase of debt instruments or interests in indebtedness in accordance with the Fund's investment objective and policies may be deemed to be loans. (viii) The Fund will not concentrate its investments in a particular industry, as the term "concentrate" is interpreted in connection with the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. ADDITIONAL RESTRICTIONS FOR IVY US BLUE CHIP FUND 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: 6 (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; 7 (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 80% of its net assets, plus the amount of any borrowings for investment purposes, in the equity securities (including common stock, preferred stock and securities convertible into common stock). The Fund invests primarily in equity securities of small- and medium-sized U.S. companies, that are in the early stages of their life cycles and that IMI believes have the potential to increase their sales and earnings at above-average rates. These may include securities issued pursuant to initial public offerings ("IPOs"). U.S. companies are companies whose securities are traded mainly on U.S. markets and that are organized under the laws of the U.S. or that have more than half their business in the U.S. 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. For temporary defensive purposes and during periods when IMI believes that 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 8 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. 9 (vii) The Fund will not make loans to other persons, except (a) loans of portfolio securities, and (b) to the extent that entry into repurchase agreements and the purchase of debt instruments or interests in indebtedness in accordance with the Fund's investment objective and policies may be deemed to be loans. (viii) The Fund will not concentrate its investments in a particular industry, as the term "concentrate" is interpreted in connection with the Investment Company Act of 1940, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time. ADDITIONAL RESTRICTIONS FOR IVY US EMERGING GROWTH FUND 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 10 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. RISK CONSIDERATIONS EQUITY SECURITIES Equity securities can be issued by companies to raise cash; all equity securities represent a proportionate ownership interest in a company. As a result, the value of equity securities rises and falls with a company's success or failure. The market value of equity securities can fluctuate significantly, with smaller companies being particularly susceptible to price swings. Transaction costs in smaller company stocks may also be higher than those of larger companies. 11 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. 12 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. 13 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 14 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 15 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 16 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 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. 17 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 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 18 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 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 19 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 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 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 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 and Ivy US Emerging Growth Fund may also cross-hedge currencies by entering into transactions to purchase or sell one or more 20 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 21 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 1940 Act. By investing in REITs indirectly through Ivy Growth 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. 22 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 23 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 advisor 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 24 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, 25 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 26 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 27 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 28 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. 29 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 an 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 30 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. The portfolio turnover rate for Ivy US Emerging Growth Fund was significantly higher in 2001 than it was in 2000 because of the decrease in assets compounded by the increase in portfolio trading activity in 2001 compared to 2000. 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 non-Independent Trustees (as defined below) and Executive Officers of the Trust, their business addresses and principal occupations during the past five years are: 31
- --------------------------- -------------- ------------ --------------------------------------- ------------------ ------------- Term of Number of Other Name, Office and Principal Portfolios in Directorships Address, Position(s) Length of Occupation(s) Fund Complex Held And Held with Time During Past 5 Overseen by by Age Fund Served (1) Years Trustee Trustee - --------------------------- -------------- ------------ --------------------------------------- ------------------ ------------- James W. Broadfoot (2) Trustee and 6 years President and Chief Investment 16 __ 925 South Federal Hwy. President of Officer -- US Equities of IMI; Boca Raton, FL 33432 Ivy Fund Director, Senior Vice President of Age: 59 Mackenzie Investment Management Inc.; Director of Ivy Mackenzie Distributors, Inc.; Director of Ivy Mackenzie Services Corp. - --------------------------- -------------- ------------ --------------------------------------- ------------------ ------------- Keith J. Carlson (2) Trustee and 8 years Director, Chairman and Senior Vice 16 __ 925 South Federal Hwy. Chairman of President of IMI; Director, President Suite 600 Ivy Fund and Chief Executive Officer of Boca Raton, FL 33432 Mackenzie Investment Management Inc. Age: 45 and Ivy Mackenzie Distributors, Inc.; Director, President and Chairman of Ivy Mackenzie Services Corp. - --------------------------- -------------- ------------ --------------------------------------- ------------------ ------------- Paula Wolfe Secretary 4 years Compliance Manager of Mackenzie 16 __ 925 South Federal Hwy. Investment Management Inc.; Assistant Suite 600 Secretary of Ivy Fund ; Secretary of Boca Raton, FL 33432 Ivy Mackenzie Distributors, Inc.; Age: 40 Secretary of Ivy Mackenzie Services Corp. - --------------------------- -------------- ------------ --------------------------------------- ------------------ ------------- Beverly J. Yanowitch Treasurer of 1 year Vice President, Chief Financial 16 __ 925 South Federal Hwy. Ivy Fund Officer and Treasurer of Mackenzie Suite 600 Investment Management, Inc.; Vice Boca Raton, FL 33432 Present and Treasurer of IMI; Senior Age: 52 Vice President and Treasurer of Ivy Mackenzie Distributors, Inc. and Ivy Mackenzie Services Corp. - --------------------------- -------------- ------------ --------------------------------------- ------------------ -------------
(1) Each Trustee and Officer serves an indefinite term, until he or she sooner dies, resigns, is removed, or becomes disqualified. (2) Deemed to be an "interested person" of the Trust, as defined in the 1940 Act, by virtue of his or her employment by MIMI or IMI. The Trustees who are not "interested persons" of the Trust within the meaning of Section 2(a)(19) of the 1940 Act ("Independent Trustees"), their business addresses and principal occupations during the past five years are: 32
- --------------------------- -------------- ------------ ------------------------------ ------------------ ------------- Term of Number of Other Name, Office and Principal Portfolios in Directorships Address, Position(s) Length of Occupation(s) Fund Complex Held And Held with Time During Past 5 Overseen by by Age Fund Served (1) Years Trustee Trustee - --------------------------- -------------- ------------ ------------------------------ ------------------ ------------- John S. Anderegg, Jr. Trustee 35 years Chairman Emeritus, Dynamics 16 -- c/o Dynamics Research Corp. Research Corp.; (Defense 60 Concord Street Contractor) Wilmington, MA 01810 Age: 78 - ---------------------------- ------------- -------------- -------------------------------- ----------- ------------- Stanley Channick Trustee 27 years Chairman, Scott Management 16 -- 20234 Valley Forge Circle Company; President, The King of Prussia, PA 19406 Channick Group; President and Age: 78 CEO, The Whitestone Corporation (Retired) (2) - ---------------------------- ------------- -------------- -------------------------------- ----------- ------------- Dr. Roy J. Glauber Trustee 41 years Professor of Physics, Harvard 16 -- Lyman Laboratory of Physics University Harvard University Cambridge, MA 02138 Age: 76 - ---------------------------- ------------- -------------- -------------------------------- ----------- ------------- Joseph G. Rosenthal Trustee 10 years Chartered Accountant. 16 -- 925 South Federal Highway Rosenthal & Katkauskas Suite 600 (Accountants) Boca Raton, FL 33432 Age: 67 - ---------------------------- ------------- -------------- -------------------------------- ----------- ------------- Richard N. Silverman Trustee 29 years President, Van Leer USA 16 Trustee of 925 South Federal Highway (Retired) (3); President, Boston Suite 600 Hysil (Retired) (4) Ballet, Boca Raton, FL 33432 Member Age: 78 Charitable Foundation Board and Newton Wellesley Hospital - ---------------------------- ------------- -------------- -------------------------------- ----------- ------------- James Brendan Swan Trustee 10 years President, Airspray 16 -- 925 South Federal Highway International Inc. (5) Suite 600 Boca Raton, FL 33432 Age: 71 - ---------------------------- ------------- -------------- -------------------------------- ----------- ------------- Edward M. Tighe Trustee 3 years Chairman and CEO of JBE 16 Director of 925 South Federal Highway Technology Group, Inc. (6) Hansberger Suite 600 President of Global Mutual Institutional Boca Raton, FL 33432 Fund Services Inc.; President Funds & Age: 59 & CEO of Global Technology Global Funds Ltd. - ---------------------------- ------------- -------------- -------------------------------- ----------- -------------
(1) Each Trustee and Officer serves an indefinite term, until he or she sooner dies, resigns, is removed, or becomes disqualified. (2) Scott Management Co., The Channick Group and The Whitestone Corporation are consultants to insurance companies and agencies in the area of mass marketing and worksite payroll deduction marketing. (3) Manufacturer of packing materials. (4) Gift wrapping business. (5) Manufacturer of aerosol dispensing systems. (6) Telecommunications and computer network consulting. 33 The Board has an Audit Committee, an Investment Review Committee, a Valuation Committee, and a Corporate Governance Committee. The function of the Audit Committee is to assist the Board in fulfilling its responsibilities to shareholders of the Fund relating to accounting and reporting, internal controls and the adequacy of auditing relative thereto. The Audit Committee currently consists of Joseph G. Rosenthal, Edward M. Tighe and J. Brendan Swan. During the last year, the Audit Committee held 4 meetings. The function of the Investment Review Committee is to consider the Fund's investment processes, policies and risks, and the overall performance of the Fund. The Investment Review Committee currently consists of Edward M. Tighe, James W. Broadfoot, Keith J. Carlson, Stanley Channick, Joseph G. Rosenthal and Richard N. Silverman. During the last year, the Investment Review Committee held 4 meetings. The function of the Valuation Committee is to consider the valuation of portfolio securities which may be difficult to price. The Valuation Committee currently consists of Roy J. Glauber, John S. Anderegg, Jr. and James W. Broadfoot. During the last year, the Valuation Committee held 4 meetings. The function of the Corporate Governance Committee is to consider the responsibilities and actions of the Board of Trustees. The Corporate Governance Committee currently consists of Stanley Channick, Joseph G. Rosenthal, J. Brendan Swan, Keith J. Carlson and Richard N. Silverman. During the last year, the Corporate Governance Committee held 4 meetings. COMPENSATION TABLE IVY FUND (FISCAL YEAR ENDED DECEMBER 31, 2001)
- ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- TOTAL COMPENSATION AGGREGATE PENSION OR RETIREMENT ESTIMATED ANNUAL FROM TRUST AND FUND COMPENSATION FROM BENEFITS ACCRUED AS BENEFITS UPON COMPLEX PAID TO NAME, POSITION TRUST PART OF FUND EXPENSES RETIREMENT TRUSTEES* - ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- John S. Anderegg, Jr. (Trustee) $25,000 N/A N/A $25,000 - ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- James W. Broadfoot (Trustee and President) $0 N/A N/A $0 - ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- Keith J. Carlson (Trustee and Chairman) $0 N/A N/A $0 - ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- Stanley Channick (Trustee) $25,000 N/A N/A $25,000 - ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- Roy J. Glauber (Trustee) $25,000 N/A N/A $25,000 - ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- Joseph G. Rosenthal (Trustee) $25,000 N/A N/A $25,000 - ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- Richard N. Silverman (Trustee) $25,000 N/A N/A $25,000 - ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- J. Brendan Swan (Trustee) $25,000 N/A N/A $25,000 - ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- Edward M. Tighe (Trustee) $25,000 N/A N/A $25,000 - ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- Paula Wolfe (Assistant Secretary) $0 N/A N/A $0 - ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- Beverly J. Yanowitch (Treasurer) $0 N/A N/A $0 - ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
*The Fund complex consists of Ivy Fund. 34 As of April 4, 2002, 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 sixteen Ivy funds that are series of the Trust, except that the Officers and Trustees of the Trust as a group owned 1.97%, 4.34%, 18.71% and 8.87% of Ivy Cundill Global Value Fund, Ivy Global Science & Technology Fund, Ivy Growth Fund and Ivy US Emerging Growth Fund Advisor Class shares, respectively. The following table sets forth the dollar range of shares of the Fund held directly or indirectly by the Trustees:
DOLLAR RANGE OF DOLLAR RANGE OF AGGREGATE DOLLAR RANGE DOLLAR RANGE OF EQUITY SECURITIES EQUITY SECURITIES IN IN ALL FUNDS OVERSEEN EQUITY SECURITIES IN IVY US BLUE CHIP IVY US EMERGING BY THE TRUSTEE IN THE NAME OF TRUSTEE IN IVY GROWTH FUND FUND GROWTH FUND IVY FUND FAMILY --------------- ------------------ -------------------- -------------------- ----------------------- John S. Anderegg, Jr. $ -- $ 14,664 $ 108,381 $ 144,781 James W. Broadfoot 89,814 -- 180,644 404,680 Keith J. Carlson -- -- -- 140 Stanley Channick -- -- 11,944 55,485 Dr. Roy J. Glauber -- -- 59,468 371,607 Joseph G. Rosenthal -- -- -- -- Richard N. Silverman -- -- 19,377 158,140 J. Brendan Swan -- -- -- -- Edward M. Tighe -- -- -- 21,306
PERSONAL INVESTMENTS BY EMPLOYEES OF IMI, IMDI AND THE TRUST. IMI, IMDI and the Trust have adopted a Code of Ethics and Business Conduct Policy (the "Code of Ethics"), which is designed to identify and address certain conflicts of interest between personal investment activities and the interests of investment advisory clients such as each Fund, in compliance with Rule 17j-1 under the 1940 Act. The Code of Ethics permits employees of IMI, IMDI and the Trust to engage in personal securities transactions, including with respect to securities held by one or more Funds, subject to certain requirements and restrictions. 35 PRINCIPAL HOLDERS OF SECURITIES SHARE OWNERSHIP To the knowledge of the Trust as of April 4, 2002, no shareholder owned beneficially or of record 5% or more of any Fund's outstanding shares of any class, with the following exceptions: CLASS A Of the outstanding Class A shares of: IVY CUNDILL GLOBAL VALUE FUND, Raymond James & Assoc Inc CSDN Kyle M Payne IRA, 221 Sylvan Glen Drive, South Bend, IN 46615, owned of record 2,762.486 shares (8.08%), and John M Elkowitz Jr., 41 Smith Road, Denville, NJ 07834, owned of record 2598.811 shares (7.60%), and William L. Tepas Sep IRA, 48 Oakview Dr., Amherst, NY 14221, owned of record 2,479.669 (7.25%), and Katherine E. Sayre, Separate Property, PO Box 2224, Canyon Lake, TX 78130, owned of record 2,444.495 shares (7.15%), and Evelyn Dolins,Cust FBO: Sarah Laura Dolins UGMA/PA, 6 Jean Lo Way, York, PA 17402, owned of record 1,803.413 shares (5.27%), Jeanette C Arnone, 14 Lions Street, East Strousberg, PA 18301, owned of record 1,709.474 shares (5.00%); IVY EUROPEAN OPPORTUNITIES FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 303,064.982 shares (14.05%), and Charles Schwab & Co. Inc. Reinvest Account, Attn: Mutual Fund Dept., 101 Montgomery Street, San Francisco, CA 94104, owned of record 162,633.605 shares (7.54%); IVY GLOBAL NATURAL RESOURCES FUND, Carn & Co. #93030213 Wacker Salaried SVGS Plan Act42300001285000000 Attn: Mutual Funds Star , P.O. Box 96211 Washington, DC 20090-6211,owned of record 67,907.258 shares (5.53%), and Charles Schwab & Co. Inc. Reinvest Account, Attn: Mutual Fund Dept., 101 Montgomery Street, San Francisco, CA 94104, owned of record 194,730.641 shares (15.86%), and Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 77,836.226 shares (6.34%), and Deutsche Bank Securities Inc. FBO: 235-73733-11, PO Box 1346, Baltimore, MD 21203, VA 21203, owned of record 75,131.480 shares (6.12%); IVY GLOBAL SCIENCE & TECHNOLOGY FUND, Donaldson Lufkin Jenrette Securities Corporation Inc., P.O. Box 2052, Jersey City, NJ 07303-9998, owned of record 46,068.538 shares (5.04%),BBH & Co, Cust FBO: Lifetime Achievement Fund, 525 Washington Blvd, Jersey City, NJ 07310, owned of record 56,657.224 shares (6.20%), and Securities Trust Co. as Trustee FBO: Local 104 Supplemental Pension Plan, 2390 East Camelback Road Ste. 240, Phoenix, AZ 85016, owned of record 48,831.395 shares (5.34%); IVY INTERNATIONAL FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd Floor, Jacksonville, FL 32246, owned of record 2,594,179.817 36 (26.85%), and Charles Schwab & Co. Inc. Reinvest Account, Attn: Mutual Fund Dept., 101 Montgomery Street, San Francisco, CA 94104, owned of record 1,275,845.774 shares (13.20%); IVY INTERNATIONAL SMALL COMPANIES FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 43,468.854 shares (11.02%); IVY INTERNATIONAL VALUE FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246 owned of record 487,739.415 shares (38.73%); IVY PACIFIC OPPORTUNITIES FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 76,218.797 shares (8.30%); and IVY US EMERGING GROWTH FUND, F & Co. Inc. Cust FBO 401 K Plan, Attn: Cathy Laich ADM, 300 River Place - Suite 4000, Detroit, MI 48207, owned of record 158,123.679 shares (7.75%). CLASS B Of the outstanding Class B shares of: IVY BOND FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 1,065,008.211 shares (47.74%); IVY DEVELOPING MARKETS FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 98,627.609 shares (26.97%); IVY EUROPEAN OPPORTUNITIES FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 583,670.050 shares (25.48%); IVY GLOBAL FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 51,540.966 shares (18.67%); IVY GLOBAL NATURAL RESOURCES FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 68,342.843 shares (11.37%) and Rede & Co, 4380 SW Macadam Suite 450, Portland, OR 97201, owned of record 42,666.000 shares (7.10 %); IVY GLOBAL SCIENCE & TECHNOLOGY FUND, Merrill Lynch Pierce Fenner & Smith Inc. Mutual Fund Operations - Service Team, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 87,925.353 shares (10.74%); 37 IVY GROWTH FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 73,155.436 shares (15.56%); IVY INTERNATIONAL FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 2,577,317.424 shares (42.60%); IVY INTERNATIONAL SMALL COMPANIES FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 109,860.158 shares (31.02%); IVY INTERNATIONAL VALUE FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 2,723,623.738 shares (56.89%); IVY PACIFIC OPPORTUNITIES FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 126,191.785 shares (23.07%); IVY US BLUE CHIP FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 322,620.577 shares (15.95%); and IVY US EMERGING GROWTH FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 256,476.943 shares (20.44%). CLASS C Of the outstanding Class C shares of: IVY BOND FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 146,700.086 shares (62.45%); IVY CUNDILL GLOBAL VALUE FUND, Raymond James & Assoc Inc FAO: Katherine P. Ralston & James W. Ralston JT/WROS, 609 Hwy 466, Lady Lake, FL 32159, owned of record 835.491 shares (24.27%), Catherine Kawula, 1900 West Alpha Court, Lecanto, FL 34461-8435, owned of record 639.631 shares (18.58%), IBT Cust Ira Fbo: Phyllis W Monahan, 15 B Swan Cedar Glen West, Manchester, NJ 08759, owned of record 453.697 shares (13.18%), Lawrence J Mccarthy, 14 Sarian Drive, Nepune, NJ 07753, owned of record 448.060 shares (13.02%), Phyllis Monahan, Cedar Glenn West, 15 B Swan, Manchester, NJ 08759, owned of records 428.207 shares (12.44%), Dorothy V Hosonitz, 223 Goodmans Crossing, Clark, NJ 07066-2754, owned of record 323.276 shares (9.39%), IBT Cust IRA FBO: Candace Pignatello, 162 Newark Ave, Bloomfield, NJ 07003, owned of record 312.929 shares (9.09%); 38 IVY DEVELOPING MARKETS FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL 32246, owned of record 31,175.141 shares (32.28%), and Donaldson Lufkin Jenrette Securities Corp Inc, PO Box 2052, Jersey City, NJ 07303-9998, owed of record 7,301.270 shares (7.56%); IVY EUROPEAN OPPORTUNITIES FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL 32246, owned of record 728,807.904 shares (42.93%); IVY GLOBAL FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL 32246, owned of record 4,365.729 shares (25.71%), IBT CUST 403(B) FBO Mattie A Allen, 755 Selma PL., San Diego, CA 92114-1711, owned of record 2,891.025 shares (17.03%), Salomon Smith Barney Inc., 00157417165, 333 West 34th St. - 3rd Floor, New York, NY 10001, owned of record 2,256.265 shares (13.29%), Salomon Smith Barney Inc., 00141860273, 333 West 34th St 3rd "Floor., New York, NY 10001, owned of record 1,256.132 shares (7.39%), Salomon Smith Barney Inc., 00121066732, 333 West 34th St. - 3rd Floor, New York, NY 10001, owned of record 1,177.856 shares (6.93%), and Smith Barney Inc. 00107866133, 388 Greenwich Street, New York, NY 10013, owned of record shares 1,041.015 (6.13%), Smith Barney Inc., 00112701249, 388 Greenwich Street, New York, NY 10013, owned of record 982.067 shares (5.78%); IVY GLOBAL NATURAL RESOURCES FUND, Salomon Smith Barney Inc., 00150805236, 333 West 34th St 3rd Fl., New York, NY 10001, owned of record 12,049.188 shares (5.02%), Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL 32246, owned of record 29,288.072 shares (12.20%), US Bandcorp Piper Jaffray A/C #5882-0411, U S Bancorp Center, 800 Nicollet Mall, Minneapolis, MN 55402 owned of record 15,698.587 shares (6.54%); IVY GLOBAL SCIENCE & TECHNOLOGY FUND, Merrill Lynch Pierce Fenner & Smith Inc. Mutual Fund Operations - Service Team, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 32,904.764 shares (15.82%); IVY GROWTH FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL 32246, owned of record 2,359.140 shares (9.02%), First Presbyterian Church of McAlester, a Non Profit Corporation, PO Box 1550, 222 E Washington, McAlester, OK 74502-1550, owned of record 3,806.649 shares (14.56%), Mary Ann Ash & Robert R. Ash JT -Ten, 1119 Rundle Street, Scranton, PA 18504, owned of record 2,302.853 shares (8.81%), Salomon Smith Barney Inc. #00121013039, 333 West 34th Street 3rd Floor, New York, NY 10001, owned of record 1,743.389 shares (6.67%), Fiduciary Trust Co. of NH Cust 403(B) FBO: Jack L. Ewen, 278 Southside Drive, Oneonta, NY 13820, owned of record 1,630.943 shares (6.24%), Fiduciary Trust Co of NH Cust IRA FBO: Roland Wise, 45 Fordham, Buffalo, NY 14216, owned of record 1,629.655 shares (6.23%); IVY INTERNATIONAL FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL 32246, owned of record 723,518.558 shares (62.10%); 39 IVY INTERNATIONAL SMALL COMPANIES FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL 32246, owned of record 162,385.988 shares (63.89%); IVY INTERNATIONAL VALUE FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL 32246, owned of record 976,744.805 shares (59.95%); IVY MONEY MARKET FUND, Robert J Laws & Katherine A Laws JT ten, PO Box 723, Ramona, CA 92065, owned of record 43,871.340 shares (11.84%), First Trust Corp Cust IRA FBO: Suzanne Helen Anderson U/A/D 10-31-95 #135129-0001, PO Box 173301, Denver, CO 80217-3301, owned of record 35,317.650 shares (9.53%), IBT Cust IRA FBO: Betty J. Carson, 1987 Higgins Lane, El Centro, CA 92243, owned of record 27,781.690 shares (7.50%), Kenneth S. Hansen, 302 Lakeshore Dr, Lakeside, IA 50588-7660, owned of record 24,316.970 shares (6.56%), and Anthony L. Bassano & Marie E. Bassano Ttees of the Anthony & Marie Bassano Trust U/A/D 05-25-99, 8934 Bari Court, Port Richey, FL 34668, owned of record 18,780.970 shares (5.07%); IVY PACIFIC OPPORTUNITIES FUND, Merrill Lynch Pierce Fenner & Smith for the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr E., 3rd FL, Jacksonville, FL 32246, owned of record 25,760.540 shares (21.47%); IVY US BLUE CHIP FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL 32246, owned of record 35,609.358 shares (31.31%); and IVY US EMERGING GROWTH FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL 32246, owned of record 52,859.279 shares (29.60%), and First Clearing Corp, A/C 3109-0705, Robert Feinberg and Harriet Feinberg JTWROS, 1824 Byberry Road, Bensalem, PA 19020-4455, owned of record 9,162.445 shares (5.13%). CLASS I Of the outstanding Class I shares of: IVY EUROPEAN OPPORTUNITIES FUND, NFSC FEBO # RAS-469041 NFSC/FMTC IRA FBO Charles Peavy, 2025 Eagle Nest Bluff, Lawrenceville, GA 30244, owned of record 642.383 shares (100%); and IVY INTERNATIONAL FUND, Harleysville Mutual Ins Co/Equity, 355 Maple Ave, Harleysville, PA 19438, owned of record 284,051.014 shares (35.68%), Vanguard Fiduciary Trust Company FBO Ivy Funds, PO Box 2900, Valley Forge, PA 19482, owned of record 197,455.576 shares (24.80%), Liz Claiborne Foundation, One Claiborne Ave, N Bergen, NJ 07047, owned of record 102,444.806 shares (12.86), David & Co, PO Box 188, Murfreesboro, TN 37133-0188, owned of record 89,730.410 shares (11.27%), Lynspen and Company , P.O. Box 830804, Birmingham, AL 35283, owned of record 43,905.578 Shares (5.51%). 40 ADVISOR CLASS Of the outstanding Advisor Class shares of: IVY BOND FUND, NFSC FEBO # 279-055662 C/James Ferris/Bro, B Yanowitch/J Broadfoot TTES U/A 01/01/98, 925 South Federal Highway, Suite 600, Boca Raton, FL 33432-6143, owned of record 14,093.040 shares (61.31%), LPL Financial Services, 9785 Towne Centre Drive, San Diego, CA 92121-1968, owned of record 8,890.147 shares (38.68%); IVY CUNDILL GLOBAL VALUE FUND, Mackenzie Investment Mgmt Inc., Attn: Bev Yanowitch, 925 South Federal Highway, Suite 600, Boca Raton, FL 33432, owned of record 57,756.571 shares (56.61%), Peter Cundill Holdings Ltd., 1100 Melville St., Ste. 200, Vancouver BC V6E 4A6, owned of record 37,266.358 shares (36.52%); IVY DEVELOPING MARKETS FUND, NFSC FEBO # 279-055662 C/James Ferris/Bro, B Yanowitch/J Broadfoot TTES U/A 01/01/98, 925 South Federal Highway, Suite 600, Boca Raton, FL 33432-6143, owned of record 8,970.050 shares (98.36%); IVY EUROPEAN OPPORTUNITIES FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL 32246, owned of record 325,841.346 shares (51.60%), Donaldson Lufkin Jenrette Securities Corporation Inc, PO Box 2052, Jersey City, NJ 07303-9998 owned of record 75,318.881 shares (11.92%); and Donaldson Lufkin Jenrette Securities Corporation Inc, PO Box 2052, Jersey City, NJ 07303-9998 owned of record 62,497.356 shares (9.89%); IVY GLOBAL FUND, NFSC FEBO # 279-055662 C/James Ferris/Bro, B Yanowitch/J Broadfoot TTES U/A 01/01/98 925 South Federal Highway, Suite 600, Boca Raton, FL 33432-6143, owned of record 6,680.157 shares (61.83%), and Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr E., 3rd FL, Jacksonville, FL 32246, owned of record 3,768.327 shares (34.88%); IVY GLOBAL NATURAL RESOURCES FUND, FTC & Co Account #00055 Datalynx , PO Box 173736, Denver, Co 80217-3736, owned of record 122,047.343 (27.25%), FTC & Co Attn Datalynx #118, PO Box 173736, Denver, Co 80217-3736, owned of record 96,748.874 (21.60%), FTC & Co Attn Datalynx #464, PO Box 173736, Denver, Co 80217-3736, owned of record 80,663.486 (18.01%), FTC & Co Attn Datalynx #00315, PO Box 173736, Denver, Co 80217-3736, owned of record 51,401.961 (11.47%), and FTC & Co Attn Datalynx #00328, PO Box 173736, Denver, Co 80217-3736, owned of record 51,256.969 (11.44%); IVY GLOBAL SCIENCE & TECHNOLOGY FUND, NFSC FEBO # 279-055662 C/James Ferris/Bro, B Yanowitch/J Broadfoot TTES U/A 01/01/98, 925 South Federal Highway, Suite 600, Boca Raton, FL 33432-6143 owned of record 13,236.316 shares (53.55%), and Robert Chapin & Michelle Broadfoot TTEE Of The Nella Manes Trust U/A/D 04-09-92, 117 Thatch Palm Cove, Boca Raton, FL 33432, owned of record 3,321.388 shares (13.43%); 41 IVY GROWTH FUND, NFSC FEBO # 279-055662 C/James Ferris/Bro, B Yanowitch/J Broadfoot TTES U/A 01/01/98, 925 South Federal Highway, Suite 600, Boca Raton, FL 33432-6143, owned of record 17,040.218 shares (39.12%) and Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL 32246, owned of record 17,322.097 shares (39.77%), and James Broadfoot, 117 Thatch Palm Cove, Boca Raton, Fl 33432, owned of record 8,150.114 shares (18.71%) IVY INTERNATIONAL FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL 32246, owned of record 249.377 shares (100%); IVY INTERNATIONAL GROWTH FUND, Mackenzie Investment Mgmt Inc., Attn: Bev Yanowitch, 925 South Federal Highway, Suite 600, Boca Raton, FL 33432, owned of record 51,214.386 shares (99.88%); IVY INTERNATIONAL SMALL COMPANIES FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL 32246, owned of record 94,687.863 shares (93.04%); NFSC FEBO # 279-055662, C/James Ferris/Bro, B Yanowitch/J Broadfoot TTES U/A 01/01/98, 925 South Federal Highway, Suite 600, Boca Raton, FL 33432-6143, owned of record 6,190.702 shares (6.08%); IVY INTERNATIONAL VALUE FUND, Charles Schwab & Co Inc., Reinvest Account, Attn: Mutual Fund Dept, 101 Montgomery Street, San Francisco, CA 94104, owned of record 1,535.769 shares (5.98%), Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr E., 3rd FL, Jacksonville, FL 32246, owned of record 1,792.768 shares (6.98%), NFSC FEBO # 279-055662, C/James Ferris/Bro, B Yanowitch/J Broadfoot TTES U/A 01/01/98, 925 South Federal Highway, Suite 600, Boca Raton, FL 33432-6143, owned of record 7,001.558 shares (27.26%), Donaldson Lufkin Jenrette Securities Corporation Inc., PO Box 2052, Jersey City, NJ 07303-2052, owned of record 2,062.330 shares (8.03%), LPL Financial Services A/C #3383-3796, 9785 Towne Centre Drive, San Diego, CA 92121-1968, owned of record 2,503.224 shares (9.74%), LPL Financial Services A/C #1572-6093, 9785 Towne Centre Drive, San Diego, CA 92121-1968, owned of record 3,218.761 shares (12.53%), LPL Financial Services A/C #1982-6979, 9785 Towne Centre Drive, San Diego, CA 92121-1968, owned of record 1,900.057 shares (7.39%), and LPL Financial Services A/C #7105-6816, 9785 Towne Centre Drive, San Diego, CA 92121-1968, owned of record 1,310.281 shares (5.10%); IVY PACIFIC OPPORTUNITIES FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL 32246, owned of record 518.000 shares (8.94%), Donaldson Lufkin Jenrette Securities Corporation Inc, PO Box 2052, Jersey City, NJ 07303-9998 owned of record 4,512.894 shares (77.93%), and Donaldson Lufkin Jenrette Securities Corporation Inc, PO Box 2052, Jersey City, NJ 07303-9998 owned of record 748.503 shares (12.92%); IVY US BLUE CHIP FUND, Mackenzie Investment Management Inc., Attn: Bev Yanowitch, 925 South Federal Highway, Suite 600, Boca Raton, FL 33432, owned of record 51,179.697 shares (54.41%), NFSC FEBO # 279-055662 C/James 42 Ferris/Bro, B Yanowitch/J Broadfoot TTES U/A 01/01/98, 925 South Federal Highway, Suite 600, Boca Raton, FL 33432-6143, owned of record 38,299.532 shares (40.72%); and IVY US EMERGING GROWTH FUND, NFSC FEBO # 279-055662 C/James Ferris/Bro, B Yanowitch/J Broadfoot TTES U/A 01/01/98, 925 South Federal Highway, Suite 600, Boca Raton, FL 33432-6143, owned of record 26,549.906 shares (56.61%), Charles Schwab & Co. Inc. Reinvest Account, Attn: Mutual Fund Dept., 101 Montgomery Street, San Francisco, CA 94104, owned of record 4,850.696 shares (10.34%), and James W Broadfoot, 117 Thatch Palm Cove, Boca Raton, FL 33432, owned of record 2,393.086 shares (5.10%). INVESTMENT ADVISORY AND OTHER SERVICES BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES IMI, which provides business management and investment advisory services to the Funds, is a wholly-owned subsidiary of Mackenzie Investment Management Inc. ("MIMI"), 925 South Federal Highway, Suite 600, Boca Raton, Florida 33432. MIMI, a Delaware corporation, has approximately 15% of its outstanding common stock listed for trading on the Toronto Stock Exchange ("TSE"). IMI is a indirect subsidiary of Mackenzie Financial Corporation ("MFC"), 150 Bloor Street West, Suite 400, Toronto, Ontario, Canada M5S3B5. MFC is a wholly-owned subsidiary of Investors Group Inc. ("IGI"), One Canada Centre, 447 Portage Avenue, Winnipeg, Manitoba, Canada R3C3B6. MFC is a corporation organized under the laws of Ontario. MFC is registered in Ontario as a mutual fund dealer and advises Ivy Global Natural Resources Fund, a separate series of Ivy Fund. IMI also currently acts as both manager and investment advisor to the other series of Ivy Fund, with the exception of Ivy Global Natural Resources Fund, for which IMI acts solely as manager. 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 43 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, 1999, 2000 and 2001, Ivy Growth Fund paid IMI fees of $2,731,358, $3,041,015, and $1,857,265, respectively. During the same periods, IMI reimbursed Fund expenses in the amount of $0, $0 and $0, 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, 1999, 2000 and 2001, Ivy US Blue Chip Fund paid IMI fees of $78,946, $390,662 and $497,756, respectively. During the same periods, IMI reimbursed Fund expenses in the amount of $213,586, $126,188 and $179,897, 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, 1999, 2000 and 2001, Ivy US Emerging Growth Fund paid IMI fees of $1,070,591, $1,711,602 and $902,288, 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 US Blue Chip Fund to an annual rate of 1.34% of the Fund's average net assets, which may lower each Fund's expenses and increase its yield. 44 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 (as defined in the 1940 Act). In approving the investment advisory agreement, the Board considered a number of factors, including: (1) fee and performance information of each Fund relative to funds with similar objectives; (2) the profitability to IMI from its relationship with each Fund, both individually and from all of the series of the Trust, as applicable; (3) the manner in which expenses are allocated among all series of the Trust and their different classes of shares; (4) the performance and expenses of each Fund relative to comparable funds; (5) the nature and quality of the services historically provided by IMI, including information regarding advisory services and compliance records; (6) the professional qualifications of the personnel providing advisory services to each Fund; and (7) management's soft dollar practices and the use of soft dollars in connection with the Funds, as described under "Brokerage Allocation," below. Based upon their review and consideration of the factors described above, and such other factors and information it considered relevant, the Board recognized that IMI is deemed to owe a fiduciary duty to each Fund and approved the investment advisory agreement. 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 45 from time to time. In addition, IMDI is entitled to deduct a CDSC on the redemption of Class A shares sold without an initial sales charge and Class B and Class C shares, in accordance with, and in the manner set forth in, the Prospectus. Under the Distribution Agreement, each Fund bears, among other expenses, the expenses of registering and qualifying its shares for sale under Federal and state securities laws and preparing and distributing to existing shareholders periodic reports, proxy materials and prospectuses. During the fiscal years ended December 31, 1999, 2000, and 2001, IMDI received from sales of Class A shares of Ivy Growth Fund $67,547, $111,676 and $67,933, respectively, in sales commissions, of which $10,389, $15,235, and $12,009 was retained after dealer allowance. During the fiscal year ended December 31, 2001, IMI on behalf of IMDI received $8,023 in CDSCs on redemptions of Class B shares of Ivy Growth Fund. During the fiscal year ended December 31, 2001, IMI on behalf of IMDI received $281 in CDSCs on redemptions of Class C shares of Ivy Growth Fund. During the fiscal years ended December 31, 1999, 2000 and 2001, IMDI received from sales of Class A shares of Ivy US Blue Chip Fund $69,514, $39,484 and $28,365, respectively, in sales commissions, of which $8,790, $5,219 and $4,203, respectively, was retained after dealer allowance. During the fiscal year ended December 31, 2001, IMI on behalf of IMDI received $28,080 in CDSCs on redemptions of Class B shares of Ivy US Blue Chip Fund. During the fiscal year ended December 31, 2001, IMI on behalf of IMDI received $2,458 in CDSCs on redemptions of Class C shares of Ivy US Blue Chip Fund. During the fiscal years ended December 31, 1999, 2000, and 2001, IMDI received from sales of Class A shares of Ivy US Emerging Growth Fund $167,177, $225,396 and $23,617, respectively, in sales commissions, of which $23,611, $35,768 and $4,218, respectively, was retained after dealer allowance. During the fiscal year ended December 31, 2000, IMI on behalf of IMDI received $59,060 in CDSCs on redemptions of Class B shares of Ivy US Emerging Growth Fund. During the fiscal year ended December 31, 2001, IMI on behalf of IMDI received $1,124 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. PAYMENTS TO DEALERS: MIMI on behalf of IMDI currently intends to pay to dealers a sales commission of 4% of the sale price of Class B shares they have sold, and MIMI or one of its subsidiaries will receive the entire amount of the CDSC paid by shareholders on the redemption of Class B shares to finance the 4% commission and related marketing expenses. With respect to Class C shares, MIMI on behalf 46 of IMDI currently intends to pay to dealers a sales commission of 1% of the sale price of Class C shares that they have sold, a portion of which is to compensate the dealers for providing Class C shareholder account services during the first year of investment. MIMI or one of its subsidiaries will receive the entire amount of the CDSC paid by shareholders on the redemption of Class C shares to finance the 1% commission and related marketing expenses. 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 47 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, as defined below, shall be committed to the discretion of the then current Independent Trustees. 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 advisors, 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 permits IMDI to sell its right to receive distribution fees under the Class B Plan and CDSCs to third parties. MIMI on behalf of IMDI enters into such transactions to finance the payment of commissions to brokers at the time of sale and other distribution-related expenses. The Trust has agreed that the distribution fee will not be terminated or modified (including a modification by change in the rules relating to the conversion of Class B shares into shares of another class) for any reason (including a termination of the underwriting agreement) except: (i) to the extent required by a change in the 1940 Act, the rules or regulations under the 1940 Act, or the Conduct Rules of the NASD, in each case enacted, issued, or promulgated after March 16, 1999; 48 (ii) on a basis which does not alter the amount of the distribution payments to IMDI computed with reference to Class B shares the date of original issuance of which occurred on or before December 31, 1998; (iii) in connection with a Complete Termination (as defined in the Class B Plan); or (iv) on a basis determined by the Board of Trustees acting in good faith so long as (a) neither the Trust nor any successor trust or fund or any trust or fund acquiring a substantial portion of the assets of the Trust (collectively, the "Affected Funds") nor the sponsors of the Affected Funds pay, directly or indirectly, as a fee, a trailer fee, or by way of reimbursement, any fee, however denominated, to any person for personal services, account maintenance services or other shareholder services rendered to the holder of Class B shares of the Affected Funds from and after the effective date of such modification or termination, and (b) the termination or modification of the distribution fee applies with equal effect to all outstanding Class B shares from time to time of all Affected Funds regardless of the date of issuance thereof. In the underwriting agreement, the Trust has also agreed that it will not take any action to waive or change any CDSC in respect of any Class B share the date of original issuance of which occurred on or before December 31, 1998, except as provided in the Trust's prospectus or statement of additional information, without the consent of IMDI and its transferees. During the fiscal year ended December 31, 2001, Ivy Growth Fund paid IMDI $122,792 pursuant to its Class A plan. During the fiscal year ended December 31, 2001, Ivy Growth Fund paid MIMI or IMDI $64,755 pursuant to its Class B plan. During the fiscal year ended December 31, 2001, Ivy Growth Fund paid MIMI or IMDI $5,892 pursuant to its Class C plan. During the fiscal year ended December 31, 2001, MIMI or IMDI expended the following amounts in marketing Class A shares of Ivy Growth Fund: advertising $684; printing and mailing of prospectuses to persons other than current shareholders, $60,055; compensation to underwriters $0; compensation to dealers, $189,715; compensation to sales personnel $471,015; interest, carrying or other financing charges $0 seminars and meetings, $47,428; travel and entertainment, $74,276; general and administrative, $53,405; telephone, $11,800; and occupancy and equipment rental, $75,240. During the fiscal year ended December 31, 2001, MIMI or IMDI expended the following amounts in marketing Class B shares of Ivy Growth Fund: advertising, $38; printing and mailing of prospectuses to persons other than current shareholders, $1,888; compensation to underwriters $0; compensation to dealers, $19,666; compensation to sales personnel, $14,675; interest, carrying or other financing charges $0; seminars and meetings, $4,916; travel and entertainment, $2,300; general and administrative, $1,824; telephone, $369; and occupancy and equipment rental $2,310. During the fiscal year ended December 31, 2001, MIMI or IMDI expended the following amounts in marketing Class C shares of Ivy Growth Fund: advertising, $4; printing and mailing of prospectuses to persons other than current shareholders, $168; compensation to underwriters $0; compensation to 49 dealers, $4,428; compensation to sales personnel, $1,305; interest, carrying or other financing charges $0; seminars and meetings, $1,106; travel and entertainment, $204; general administrative, $160; telephone, $32; and occupancy and equipment rental, $204. During the fiscal year ended December 31, 2001, Ivy US Blue Chip Fund paid IMDI $87,301 pursuant to its Class A plan. During the fiscal year ended December 31, 2001, Ivy US Blue Chip Fund paid IMDI $209,039 pursuant to its Class B plan. During the fiscal year ended December 31, 2001, Ivy US Blue Chip Fund paid IMDI $17,470 pursuant to its Class C plan. During the fiscal year ended December 31, 2001, MIMI or IMDI expended the following amounts in marketing Class A shares of Ivy US Blue Chip Fund: advertising $335; printing and mailing of prospectuses to persons other than current shareholders, $12,068; compensation to underwriters $0; compensation to dealers, $38,728; compensation to sales personnel $97,113; interest, carrying or other financing charges $0; seminars and meetings, $9,682; travel and entertainment, $15,249; general and administrative, $12,267; telephone, $2,446; and occupancy and equipment rental, $15,157. During the fiscal year ended December 31, 2001, MIMI or IMDI expended the following amounts in marketing Class B shares of Ivy US Blue Chip Fund: advertising, $158; printing and mailing of prospectuses to persons other than current shareholders, $6,043; compensation of underwriters $0; compensation to dealers, $43,137; compensation to sales personnel, $48,327; interest, carrying or other financing charges $0; seminars and meetings, $10,784; travel and entertainment, $7,553; general and administrative, $6,352; telephone, $1,216; and occupancy and equipment rental $7,526. During the fiscal year ended December 31, 2001, MIMI or IMDI expended the following amounts in marketing Class C shares of Ivy US Blue Chip Fund: advertising, $4; printing and mailing of prospectuses to persons other than current shareholders, $442; compensation to underwriters $0; compensation to dealers, $10,951; compensation to sales personnel, $3,727; interest, carrying or other financing charges $0; seminars and meetings, $2,738; travel and entertainment, $595; general administrative, $393; telephone, $94; and occupancy and equipment rental, $591. During the fiscal year ended December 31, 2001, Ivy US Emerging Growth Fund paid IMDI $151,491 pursuant to its Class A plan. During the fiscal year ended December 31, 2001, Ivy US Emerging Growth Fund paid IMDI $381,678 pursuant to its Class B plan. During the fiscal year ended December 31, 2001, Ivy US Emerging Growth Fund paid IMDI $59,581 pursuant to its Class C plan. During the fiscal year ended December 31, 2001, MIMI or IMDI expended the following amounts in marketing Class A shares of Ivy US Emerging Growth Fund: advertising $119; printing and mailing of prospectuses to persons other than current shareholders, $18,735; compensation to underwriters $0; compensation to dealers, $53,850; compensation to sales personnel $136,422; interest, carrying or other financing charges $0; seminars and meetings, $13,463; travel and entertainment, $21,585; general and administrative, $14,882; telephone, $3,419; and occupancy and equipment rental, $21,852. 50 During the fiscal year ended December 31, 2001, MIMI or IMDI expended the following amounts in marketing Class B shares of Ivy US Emerging Growth Fund: advertising, $0; printing and mailing of prospectuses to persons other than current shareholders, $11,249; compensation to underwriters $0; compensation to dealers, $72,818; compensation to sales personnel, $83,636; interest, carrying or other financing charges $0; seminars and meetings, $18,204; travel and entertainment, $13,331; general and administrative, $7,988; telephone, $2,089; and occupancy and equipment rental $13,620. During the fiscal year ended December 31, 2001, MIMI or IMDI expended the following amounts in marketing Class C shares of Ivy US Emerging Growth Fund: advertising, $0; printing and mailing of prospectuses to persons other than current shareholders, $1,653; compensation to underwriters $0; compensation to dealers, $7,229; compensation to sales personnel, $12,737; interest, carrying or other financing charges $0; seminars and meetings, $1,808; travel and entertainment, $2,046; general and administrative, $991; telephone, $317; and occupancy and equipment rental, $2,127. 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, 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 51 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, 2001, Ivy Growth Fund paid MIMI $131,603 under the agreement. During the fiscal year ended December 31, 2001, Ivy US Blue Chip Fund paid MIMI $84,008 under the agreement. During the fiscal year ended December 31, 2001, Ivy US Emerging Growth Fund paid MIMI $105,114 under the agreement TRANSFER AGENT AND DIVIDEND PAYING AGENT Pursuant to a Transfer Agency Services Agreement, PFPC Global Fund Services, Inc. ("PFPC"), a Massachusetts corporation, located at 4400 Computer Drive, Westborough, MA 01581, is the transfer agent for each Fund. Under the Agreement, each Fund pays a monthly fee at an annual rate of $17.00 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 $3.60 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, 2001 for Ivy Growth Fund totaled $627,250. Such fees and expenses for the fiscal year ended December 31, 2001 for Ivy US Blue Chip Fund totaled $215,844. Such fees and expenses for the fiscal year ended December 31, 2001 for Ivy US Emerging Growth Fund totaled $322,329. 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 PFPC if the individual accounts that comprise the omnibus account were opened by their beneficial owners directly. PFPC 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 52 ended December 31, 2001 for Ivy Growth Fund totaled $218,502. Such fees for the fiscal year ended December 31, 2001 for Ivy US Blue Chip Fund totaled $66,368. Such fees for the fiscal year ended December 31, 2001 for Ivy US Emerging Growth Fund totaled $106,152. AUDITORS PricewaterhouseCoopers LLP, independent certified public accountants, located at 200 E. Las Olas Blvd., Ste. 1700, Ft. Lauderdale, Florida, 33301, has been selected as auditors for the Trust. The audit services performed by PricewaterhouseCoopers LLP include audits of the annual financial statements of each of the funds of the Trust. Other services provided principally relate to filings with the SEC and the preparation of the funds' tax returns. BROKERAGE ALLOCATION Subject to the overall supervision of the President and the Board, IMI places orders for the purchase and sale of each Fund's portfolio securities. Purchases and sales of securities on a securities exchange are effected through brokers who charge a commission for their services. Purchases and sales of debt securities are usually principal transactions and therefore, brokerage commissions are usually not required to be paid by 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 may choose broker-dealers that provide IMI with research services and may cause a client to pay such broker-dealers commissions which exceed those other broker-dealers may have charged, if IMI views the commissions as reasonable in relation to the value of the brokerage and/or research services. IMI will not, however, seek to execute brokerage transactions other than at the best price and execution, taking into account all relevant factors such as price, promptness of execution and other advantages to clients, including a determination that the commission paid is reasonable in relation to the value of the brokerage and/or research services. 53 During the fiscal years ended December 31, 1999 and 2000, Ivy Growth Fund paid brokerage commissions of $739,391 and $894,392, respectively. For the fiscal year ended December 31, 2001, Ivy Growth Fund paid a total of $945,243 in brokerage commissions with respect to portfolio transactions aggregating $500,257,003. Of such amount, $859,700 in brokerage commissions with respect to portfolio transactions aggregating $421,705,723 was placed with broker-dealers who provided research services. During the fiscal years ended December 31, 1999 and 2000, Ivy US Blue Chip Fund paid brokerage commissions of $19,700 and $78,308, respectively. For the fiscal year ended December 31, 2001, Ivy US Blue Chip Fund paid a total of $135,687 in brokerage commissions with respect to portfolio transactions aggregating $112,084,669. Of such amount, $103,426 in brokerage commissions with respect to portfolio transactions aggregating $76,949,048 was placed with broker-dealers who provided research services. During the fiscal years ended December 31, 1999 and 2000, Ivy US Emerging Growth Fund paid brokerage commissions of $588,118 and $588,138, respectively. For the fiscal year ended December 31, 2001, Ivy US Emerging Growth Fund paid a total of $766,661 in brokerage commissions with respect to portfolio transactions aggregating $306,216,249. Of such amount, $723,419 in brokerage commissions with respect to portfolio transactions aggregating $268,034,126 was placed with broker-dealers who provided research services. Brokerage commissions vary from year to year in accordance with the extent to which a particular Fund is more or less actively traded. Each Fund may, under some circumstances, accept securities in lieu of cash as payment for Fund shares. Each Fund will accept securities only to increase its holdings in a portfolio security or to take a new portfolio position in a security that 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 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 sixteen series, each of which represents a fund. The Trustees have further authorized the issuance of Class A, Class B, and Class C shares for Ivy Money Market Fund, and Class A, Class B, Class C and Advisor Class shares for the Funds, Ivy Bond Fund, Ivy Cundill Global Value Fund, Ivy 54 Developing Markets Fund, Ivy European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund, Ivy Global Science & Technology Fund, Ivy International Fund, Ivy International Growth Fund, Ivy International Small Companies Fund, Ivy International Value Fund and Ivy Pacific Opportunities Fund, as well as Class I shares for Ivy Bond Fund, Ivy Cundill Global Value Fund, Ivy European Opportunities Fund, Ivy Global Science & Technology Fund, Ivy International Fund, Ivy International Growth Fund, Ivy International Small Companies Fund, Ivy International Value Fund and Ivy US Blue Chip Fund. Under the Declaration of Trust, the Trustees may terminate any Fund without shareholder approval. This might occur, for example, if a Fund does not reach or fails to maintain an economically viable size. Shareholders have the right to vote for the election of Trustees of the Trust and on any and all matters on which they may be entitled to vote by law or by the provisions of the Trust's By-Laws. The Trust is not required to hold a regular annual meeting of shareholders, and it does not intend to do so. Shares of each class of each Fund entitle their holders to one vote per share (with proportionate voting for fractional shares). Shareholders of each Fund are entitled to vote alone on matters that only affect that Fund. All classes of shares of each Fund will vote together, except with respect to the distribution plan applicable to the Fund's Class A, Class B or Class C shares or when a class vote is required by the 1940 Act. On matters relating to all funds of the Trust, but affecting the funds differently, separate votes by the shareholders of each fund are required. Approval of an investment advisory agreement and a change in fundamental policies would be regarded as matters requiring separate voting by the shareholders of each fund of the Trust. If the Trustees determine that a matter does not affect the interests of a Fund, then the shareholders of that Fund will not be entitled to vote on that matter. Matters that affect the Trust in general, such as ratification of the selection of independent certified public accountants, will be voted upon collectively by the shareholders of all funds of the Trust. As used in this SAI and the Prospectus, the phrase "majority vote of the outstanding shares" of a Fund means the vote of the lesser of: (1) 67% of the shares of that Fund (or of the Trust) present at a meeting if the holders of more than 50% of the outstanding shares are present in person or by proxy; or (2) more than 50% of the outstanding shares of that Fund (or of the Trust). With respect to the submission to shareholder vote of a matter requiring separate voting by a Fund, the matter shall have been effectively acted upon with respect to that Fund if a majority of the outstanding voting securities of the Fund votes for the approval of the matter, notwithstanding that: (1) the matter has not been approved by a majority of the outstanding voting securities of any other fund of the Trust; or (2) the matter has not been approved by a majority of the outstanding voting securities of the Trust. The Amended and Restated Declaration of Trust provides that the holders of not less than two-thirds of the outstanding shares of the Trust may remove a person serving as trustee either by declaration in writing or at a meeting called for such purpose. The Trustees are required to call a meeting for the purpose of considering the removal of a person serving as Trustee if requested 55 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 Information as to how to purchase Fund shares is contained in the prospectus. The Trust offers, and (except as noted below) bears the cost of providing, to investors the following 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 Global Value Fund, Ivy Developing Markets Fund, Ivy European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund, Ivy Global Science & Technology Fund, Ivy International Fund, Ivy International Growth Fund, Ivy International Small Companies Fund, Ivy International Value Fund, Ivy Money Market Fund and Ivy Pacific Opportunities Fund (the other thirteen series of the Trust). Shareholders should obtain a current prospectus before exercising any right or privilege that may relate to these funds. AUTOMATIC INVESTMENT METHOD The Automatic Investment Method, which enables a Fund shareholder to have specified amounts automatically drawn each month from his or her bank for investment in Fund shares, is available for all classes of shares, except Class I. The minimum initial and subsequent investment under this method is $50 per month, $250 for Advisor Class shares (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 PFPC of telephone instructions or written notice. See "Automatic Investment Method" in the Prospectus. To begin the plan, complete Sections 8 and 9 of the Account Application. 56 EXCHANGE OF SHARES As described in the Prospectus, shareholders of each Fund have an exchange privilege with other Ivy funds. Before effecting an exchange, shareholders of a Fund should obtain and read the currently effective prospectus for the Ivy fund into which the exchange is to be made. A 2% redemption fee or short-term trading fee will be imposed on redemptions and exchanges of Class A shares of each Fund made within 30 days of purchase. This fee will be retained by the Fund. See "Redemptions" below. 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). In certain short-term transactions, Class A shares may be subject to a fee upon redemption or exchange. See "REDEMPTIONS" below. 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 57 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 Bond Fund, Ivy Cundill Global Value Fund, Ivy Developing Markets Fund, Ivy European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund, Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy International Fund, Ivy International Growth Fund, Ivy International Small Companies Fund, Ivy International Value Fund, Ivy Pacific Opportunities Fund, Ivy US Blue Chip Fund and Ivy US Emerging Growth Fund. 58 CONTINGENT DEFERRED SALES CHARGE AS A PERCENTAGE YEAR SINCE PURCHASE OF DOLLAR AMOUNT SUBJECT TO CHARGE - ------------------- ------------------------------------------------ First 5% Second 4% Third 3% Fourth 3% Fifth 2% Sixth 1% Seventh and thereafter 0% CLASS C: Class C shareholders may exchange their Class C shares ("outstanding Class C shares") for Class C shares of another Ivy fund ("new Class C shares") on the basis of the relative net asset value per Class C share, without the payment of any CDSC that would otherwise be due upon redemption. (Class C shares are subject to a CDSC of 1.00% if redeemed within one year of the date of purchase.) CLASS I AND ADVISOR CLASS: Subject to the restrictions set forth in the following paragraph, Class I and Advisor Class shareholders may exchange their outstanding shares for the same class of 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; $10,000 in the case of Advisor Class). 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; $10,000 in the case of Advisor Class). 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 PFPC of telephone instructions by PFPC or a properly executed request. Exchanges, whether written or telephonic, must be received by PFPC 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." 59 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 advisor 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 Bond Fund, Ivy Cundill Global Value Fund, Ivy Developing Markets Fund, Ivy European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund, Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy International Fund, Ivy International Growth Fund, Ivy International Small Companies Fund, Ivy International Value Fund, Ivy Pacific Opportunities Fund, Ivy US Blue Chip Fund and Ivy US Emerging Growth Fund (and shares that have been exchanged into Ivy Money Market Fund from any of the other funds in the Ivy funds) held of record by him or her as of the date of his or her Letter of Intent. During the term of the Letter of Intent, the Transfer Agent will hold Class A shares representing 5% of the indicated amount (less any accumulation credit value) in escrow. The escrowed Class A shares will be released when the full indicated amount has been purchased. If the full indicated amount is not purchased during the term of the Letter of Intent, the investor is required to pay IMDI an amount equal to the difference between the dollar amount of sales charge that he or she has paid and that which he or she would have paid on his or her aggregate purchases if the total of such purchases had been made at a single time. Such payment will be made by an automatic liquidation of Class A shares in the escrow account. A Letter of Intent does not obligate the investor to buy or the Trust to sell the indicated amount of Class A shares, and the investor should read carefully all the provisions of such letter before signing. RETIREMENT PLANS Shares may be purchased in connection with several types of tax-deferred retirement plans. Shares of more than one fund distributed by IMDI may be purchased in a single application establishing a single account under the plan, and shares held in such an account may be exchanged among the Ivy funds in accordance with the terms of the applicable plan and the exchange privilege available to all shareholders. Initial and subsequent purchase payments in connection with tax-deferred retirement plans must be at least $25 per participant. The following fees will be charged to individual shareholder accounts as described in the retirement prototype plan document: Retirement Plan New Account Fee no fee Retirement Plan Annual Maintenance Fee $10.00 per fund account 60 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 PFPC, who may impose a charge for establishing the account. Individuals should consult their tax advisors before investing IRA assets in the Fund if that Fund primarily distributes exempt-interest dividends. An individual who has not reached age 70-1/2 and who receives compensation or earned income is eligible to contribute to an IRA, whether or not he or she is an active participant in a retirement plan. An individual who receives a distribution from another IRA, a qualified retirement plan, a qualified annuity plan or a tax-sheltered annuity or custodial account ("403(b) plan") that qualifies for "rollover" treatment is also eligible to establish an IRA by rolling over the distribution either directly or within 60 days after its receipt. Tax advice should be obtained in connection with planning a rollover contribution to an IRA. In general, for the years 2002 through 2004, an eligible individual may contribute up to the lesser of $3,000 ($3,500 if 50 or older) 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 $3,000 ($3,500 if 50 or older) per year, the maximum potential contribution is $6,000 ($7,000 if 50 or older) 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 $6,000 ($7,000 if 50 or older), a contribution of up to $3,000 ($3,500 if 50 or older) 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. 61 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 $3,000 ($3,500 if 50 or older) per year to a Roth IRA for years 2002 through 2004. 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 $6,000 per year ($7,000 if 50 or older) or ($3,000 per IRA) ($7,000 per IRA if 50 or older). 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 $3,000 ($3,500 if 50 or older). 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 62 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 PFPC. 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 $40,000 or 100% of compensation or earned income to a money purchase pension plan or to a profit sharing plan each year on behalf of each participant. To be deductible, total contributions to a money purchase plan or profit sharing plan 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 $200,000 for benefits accruing in plan years beginning after 2001, 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 severance from employment. 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 63 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 PFPC. Distributions from the 403(b)(7) Account may be made only following death, disability, severance from employment, 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 $40,000 or 25% 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 $7,000 for 2002 (as increased for 2003 through 2005 and indexed thereafter). 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 PFPC 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." 64 REDUCED SALES CHARGES AND RIGHTS OF ACCUMULATION A scale of reduced sales charges applies to any investment of $50,000 or more in Class A shares of 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, PFPC 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 PFPC of a written election to have his or her shares withdrawn periodically (minimum distribution - $50 for Advisor Class shares), accompanied by a surrender to PFPC 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 Class A, Class B or Class C shareholder must have at least $5,000 in his or her account; an Advisor Class shareholder must continually maintain an account balance of $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 advisors. Additional investments made by investors participating in a Withdrawal Plan must equal at least $1,000 each for Class A, Class B or Class C shareholders and at least $250 for Advisor Class shareholders 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 PFPC. If all shares held by the investor are liquidated at any time, participation in the Withdrawal Plan will terminate automatically. The Trust or PFPC may terminate the Withdrawal Plan option at any time after reasonable notice to shareholders. 65 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 66 $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 PFPC, less any applicable CDSC or redemption fee. 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. Under unusual circumstances, when the Board deems it in the best interest of a Fund's shareholders, the Fund may make payment for shares repurchased or redeemed in whole or in part in securities of that Fund taken at current values. If any such redemption in kind is to be made, each Fund may make an election pursuant to Rule 18f-1 under the 1940 Act. This will require the particular Fund to redeem with cash at a shareholder's election in any case where the redemption involves less than $250,000 (or 1% of that Fund's net asset value at the beginning of each 90-day period during which such redemptions are in effect, if that amount is less than $250,000). Should payment be made in securities, the redeeming shareholder may incur brokerage costs in converting such securities to cash. The Trust may redeem those accounts of shareholders who have maintained an investment, including sales charges paid, of less than $1,000 in any Fund for a period of more than 12 months for Class A, Class B, Class C and Class I shareholders; $10,000 or less for Advisor Class shareholders 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 for Class A, Class B, Class C and Class I shareholders and $10,000 balance for Advisor Class shareholders, 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 67 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 certain retirement plans or accounts who wish to avoid tax consequences must "rollover" any sum so redeemed into another eligible 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. Class A shares of the Fund held for less than 30 days are redeemable at a price equal to 98% of the then current net asset value per share. This 2% discount, also referred to in the Prospectus and this statement of additional information as a redemption fee, exchange fee or short-term trading fee, directly affects the amount that a shareholder who is subject to the discount receives upon exchange or redemption. It is intended to encourage long-term investment in the Fund, to avoid transaction and other expenses caused by early redemptions and to facilitate portfolio management. The fee is not a deferred sales charge, is not a commission paid to IMI or its subsidiaries, and does not benefit IMI in any way. The Fund reserves the right to modify the terms of or terminate this fee at any time. The redemption discount may generally be waived for any redemption of Class A shares (a) Class A shares purchased through certain retirement and educational plans, including 401(k) plans, 403(b) plans, 457 plans, Keogh accounts, Profit Sharing and Money Purchase Pension Plans and 529 plans, (b) purchased through the reinvestment of dividends or capital gains distributions paid by the Fund, (c) due to the death of the registered shareholder of a Fund account, or, due to the death of all registered shareholders of a Fund account with more than one registered shareholder, (i.e., joint tenant account), upon receipt by PFPC of appropriate written instructions and documentation satisfactory to the PFPC, or (d) by the Fund upon exercise of its right to liquidate accounts (i) falling below the minimum account size by reason of shareholder redemptions or (ii) when the shareholder has failed to provide tax identification information. However, if Class A shares are purchased for a retirement plan account through a broker, financial institution or recordkeeper maintaining an omnibus account for the shares, these waivers may not apply. (Before purchasing Class A 68 shares, please check with your account representative concerning the availability of the fee waivers.) In addition, these waivers do not apply to IRA and SEP-IRA accounts. For this purpose and without regard to the Class A shares actually redeemed, Class A shares will be treated as redeemed as follows: first, reinvestment shares; second, purchased shares held 30 days or more; and third, purchased shares held for less than 30 days. Finally, if a redeeming shareholder acquires Class A shares through a transfer from another shareholder, the applicability of the discount, if any, will be determined by reference to the date the Class A shares were originally purchased, and not from the date of transfer between shareholders. 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 market 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 69 converted into its U.S. dollar equivalent at the foreign exchange rate in effect at the time as of which such rate is determined by an approved pricing source. 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 asked price, in the case of a written option, and the last bid price, in the case of a purchased option. An OTC traded option is valued at the last asked 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. IMI will monitor for significant events that may call into question the reliability of market quotations. Such events may include situations relating to a single security in a market sector, significant fluctuations in U.S. or foreign markets, natural disasters, armed conflicts, governmental actions or other developments not tied directly to the securities markets. 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 PFPC or by your registered securities dealer. Each purchase and redemption order is subject to any applicable sales charge. Since each Fund 70 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 advisor 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. 71 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 72 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 before the end of the 30th day after the close of each Fund's taxable year, if the position is held throughout the 60-day period beginning on the date the transaction is closed and certain other 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 73 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 74 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 75 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 each Fund's total assets at the close of its taxable year consists of securities of foreign corporations, each 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 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 advisors. 76 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 30% ("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 advisors 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: 77 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, Class C and Advisor Class 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. 78 IVY GROWTH FUND STANDARDIZED RETURN[*]
- ------------------------------------------------------------------------------------------------------------------------------ CLASS A[1] CLASS B[2] CLASS C ADVISOR CLASS[3] - --------------------------------------- ------------------- ------------------- ------------------------- -------------------- Year ended December 31, 2001 (26.89)% (27.05)% (23.97)% (22.68)% - --------------------------------------- ------------------- ------------------- ------------------------- -------------------- Return after taxes on distributions *** (26.90)% N/A N/A N/A - --------------------------------------- ------------------- ------------------- ------------------------- -------------------- Return after taxes on distributions and sale of Fund shares *** (13.73)% N/A N/A N/A - --------------------------------------- ------------------- ------------------- ------------------------- -------------------- Five Years ended December 31, 2001 (0.93)% (1.11)% (0.80)% N/A - --------------------------------------- ------------------- ------------------- ------------------------- -------------------- Return after taxes on distributions *** (2.75)% N/A N/A N/A - --------------------------------------- ------------------- ------------------- ------------------------- -------------------- Return after taxes on distributions and sale of Fund shares *** 0.43% N/A N/A N/A - --------------------------------------- ------------------- ------------------- ------------------------- -------------------- Ten Years ended December 31, 2001 5.02% N/A N/A N/A - --------------------------------------- ------------------- ------------------- ------------------------- -------------------- Return after taxes on distributions *** 2.66% N/A N/A N/A - --------------------------------------- ------------------- ------------------- ------------------------- -------------------- Return after taxes on distributions and sale of Fund shares *** 4.17% N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------------------
NON-STANDARDIZED RETURN[**]
- --------------------------------------- ------------------- ------------------- ------------------------- -------------------- CLASS A[4] CLASS B[5] CLASS C ADVISOR CLASS[3] - --------------------------------------- ------------------- ------------------- ------------------------- -------------------- Year ended December 31, 2001 (22.43)% (23.21)% (23.20)% (22.68)% - --------------------------------------- ------------------- ------------------- ------------------------- -------------------- Five Years ended December 31, 2001 0.25% (0.71)% (0.80)% N/A - --------------------------------------- ------------------- ------------------- ------------------------- -------------------- Ten Years ended December 31, 2001 5.65% N/A N/A N/A - --------------------------------------- ------------------- ------------------- ------------------------- -------------------- Inception [#] to year ended December 31, 2001 [6]: 9.55% 4.09% 0.18% (6.22)% - --------------------------------------- ------------------- ------------------- ------------------------- --------------------
[*] 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. 79 [**] The Non-Standardized Return figures do not reflect the deduction of any initial sales charge or CDSC. [***] After-tax returns are calculated using the historical highest individual federal marginal income tax rates. State and local tax rates are not included in the tax effect. [#] The inception date for Class A shares of Ivy Growth Fund was January 12, 1960. The inception dates for Class B, Class C and Advisor Class shares of the Fund were October 22, 1993, April 30, 1996 and April 30, 1998, 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, 2001 and the one, five and ten year periods ended December 31, 2001 would have been 9.38%, (26.89)%, (0.93)% and 5.00%, 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, 2001 and the one and five year periods ended December 31, 2001 would have been 4.07%, (27.05)% and (1.11)%, 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, 2001.) [3] Advisor Class shares are not subject to an initial sales charge or a CDSC; therefore, the Standardized and Non-Standardized Return figures are identical. Without expense reimbursement, the Standardized and Non-Standardized Return for Advisor Class shares for the period from inception through December 31, 2001 and the one year period ended December 31, 2001 would have been (6.22)% and (22.68)% 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, 2001 and the one, five and ten year periods ended December 31, 2001 would have been 9.54%, (22.43)%, 0.25% and 5.62%, 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, 2001 and the one and five year periods ended December 31, 2001 would have been 4.07%, (23.21)% and (0.71)%, 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, 2001.) [6] The total return for a period less than a full year is calculated on an aggregate basis and is not annualized. 80 IVY US BLUE CHIP FUND STANDARD RETURN[*]
- ------------------------------------------------------------------------------------------------------------------------------ CLASS A[1] CLASS B[2] CLASS C[3] CLASS I[4] ADVISOR CLASS[5] - --------------------- -------------------- -------------------- -------------------- --------------------- ------------------- Year ended December 31, 2001 (16.70)% (16.60)% (13.27)% N/A (11.36)% - --------------------- -------------------- -------------------- -------------------- --------------------- ------------------- Return after taxes on distributions *** (16.70)% N/A N/A N/A N/A - --------------------- -------------------- -------------------- -------------------- --------------------- ------------------- Return after taxes on distributions and sale of Fund shares *** (11.89)% N/A N/A N/A N/A - --------------------- -------------------- -------------------- -------------------- --------------------- ------------------- Inception [#] to year ended December 31, 2001 [9] (3.25)% (3.93)% (3.04)% N/A (1.08)% - --------------------- -------------------- -------------------- -------------------- --------------------- ------------------- Return after taxes on distributions *** (3.40)% N/A N/A N/A N/A - --------------------- -------------------- -------------------- -------------------- --------------------- ------------------- Return after taxes on distributions and sale of Fund shares *** (2.95)% N/A N/A N/A N/A - --------------------- -------------------- -------------------- -------------------- --------------------- -------------------
NON-STANDARD RETURN[**]
- ------------------------------------------------------------------------------------------------------------------------------ CLASS A[6] CLASS B[7] CLASS C[8] CLASS I[4] ADVISOR CLASS[5] - --------------------- -------------------- -------------------- -------------------- -------------------- -------------------- Year ended December 31, 2001 (11.61)% (12.21)% (12.39)% N/A (11.36)% - --------------------- -------------------- -------------------- -------------------- -------------------- -------------------- Inception [#] to year ended December 31, 2001 [9] (1.41)% (3.01)% (3.04)% N/A (1.08)% - --------------------- -------------------- -------------------- -------------------- -------------------- --------------------
81 [*] 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. [***] After-tax returns are calculated using the historical highest individual federal marginal income tax rates. State and local tax rates are not included in the tax effect. [#] 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, 2001 and the period from inception through December 31, 2001 would have been (4.08)% and (16.96)%, respectively. [2] The Standardized Return figures for the Class B shares reflect expense reimbursement. Without expense reimbursement, the Standardized Return for Class B shares for the one-year period ended December 31, 2001 and the period from inception through December 31, 2001 would have been (4.79)% and (16.87)%, 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, 2001 and the period from inception through December 31, 2001 would have been (3.93)% and (13.55)%, 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] Advisor Class shares are not subject to an initial sales charge or a CDSC; therefore, the Standardized and Non-Standardized Return figures are identical. Without expense reimbursement, the Standardized and Non-Standardized Return for Advisor Class shares for the period from inception through December 31, 2001 and the one year period ended December 31, 2001 would have been (2.09)% and (11.64)%, respectively. [6] 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, 2001 and the period from inception through December 31, 2001 would have been (2.26)% and (11.90)%, respectively. [7] 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, 2001 and the period from inception through December 31, 2001 would have been (3.87)% and (12.50)%, respectively. 82 [8] 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, 2001 and the period from inception through December 31, 2001 would have been (3.93)% and (12.68)%, respectively. [9] 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 ADVISOR CLASS[3] - ------------------------------------- ------------------- ------------------ ------------------ -------------------- Year ended December 31, 2001 (37.31)% (37.35)% (34.70)% (33.40)% - ------------------------------------- ------------------- ------------------ ------------------ -------------------- Return after taxes on distributions *** (37.31)% N/A N/A N/A - ------------------------------------- ------------------- ------------------ ------------------ -------------------- Return after taxes on distributions and sale of Fund shares *** (5.66)% N/A N/A N/A - ------------------------------------- ------------------- ------------------ ------------------ -------------------- Five years ended December 31, 2001 (1.45)% (1.43)% (1.00)% N/A - ------------------------------------- ------------------- ------------------ ------------------ -------------------- Return after taxes on distributions *** (2.42)% N/A N/A N/A - ------------------------------------- ------------------- ------------------ ------------------ -------------------- Return after taxes on distributions and sale of Fund shares *** 0.25% N/A N/A N/A - ------------------------------------- ------------------- ------------------ ------------------ -------------------- Inception [#] to year ended December 31, 2001 [6]: 10.34% 6.02% (1.68)% (2.22)% - ------------------------------------- ------------------- ------------------ ------------------ -------------------- Return after taxes on distributions *** 9.08% N/A N/A N/A - ------------------------------------- ------------------- ------------------ ------------------ -------------------- Return after taxes on distributions and sale of Fund shares *** 8.78% N/A N/A N/A - ------------------------------------- ------------------- ------------------ ------------------ --------------------
83 NON-STANDARDIZED RETURN[**]
- ------------------------------------------------------------------------------------------------ ------------------ ADVISOR CLASS A[4] CLASS B[5] CLASS C CLASS[3] - ------------------------------------- ------------------- ------------------ -------------------- ---------------- Year ended December 31, 2001 (33.49)% (34.05)% (34.04)% (33.40)% - ------------------------------------- ------------------- ------------------ -------------------- ---------------- Five years ended December 31, 2001 (0.27)% (1.03)% (1.00)% N/A - ------------------------------------- ------------------- ------------------ -------------------- ---------------- Inception [#] to year ended December 31, 2001 [6]: 11.10% 6.02% (1.68)% (2.22)% - ------------------------------------- ------------------- ------------------ -------------------- ----------------
[*] 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. [***] After-tax returns are calculated using the historical highest individual federal marginal income tax rates. State and local tax rates are not included in the tax effect. [#] 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, and Advisor Class shares were first offered to the public on January 1, 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, 2001 and the one and five year periods ended December 31, 2001 would have been 10.33%, (37.31)% and (1.45)%, 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, 2001 and the one and five year periods ended December 31, 2001 would have been 6.00%, (37.35)% and (1.43)%, respectively. [3] Advisor Class shares are not subject to an initial sales charge or a CDSC; therefore, the Standardized and Non-Standardized Return figures are identical. Without expense reimbursement, the Standardized and Non-Standardized Return for Advisor Class shares for the period from inception through December 31, 2001 and the one year period ended December 31, 2001 would have been (2.22)% and (33.40)%, respectively. [4] The Non-Standardized Return figures for Class A shares reflect expense reimbursement. Without expense reimbursement, the Non-Standardized 84 Return for Class A shares for the period from inception through December 31, 2001 and the one and five year periods ended December 31, 2001 would have been 11.09%, (33.49)% and (0.27)% 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, 2001 and the one and five year periods ended December 31, 2001 would have been 6.00%, (34.05)% and (1.03)% respectively. [6] 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, 2001, assuming the maximum 5.75% sales charge has been assessed.
ONE YEAR FIVE YEARS TEN YEARS SINCE INCEPTION[*] -------- ---------- --------- ------------------ Class A (26.89)% (4.59)% 63.25% 3,616.38% Class B (27.05)% (5.41)% N/A 38.92% Class C (23.97)% (3.92)% N/A 1.03% Advisor Class (22.68)% N/A N/A (21.01)%
85 The following table summarizes the calculation of Cumulative Total Return for Ivy Growth Fund for the periods indicated through December 31, 2001, assuming the maximum 5.75% sales charge has not been assessed.
ONE YEAR FIVE YEARS TEN YEARS SINCE INCEPTION[*] -------- ---------- --------- ------------------ Class A (22.43)% 1.23% 73.21% 3,843.11% Class B (23.21)% (3.48)% N/A 38.92% Class C (23.20)% (3.92)% N/A 1.03% Advisor Class (22.68)% N/A N/A (21.01)%
- --------------------------- [*] The inception date for Ivy Growth Fund (Class A shares) was January 12, 1960; 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; the inception date for Advisor Class shares was April 30, 1998. 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, 2001, assuming the maximum 5.75% sales charge has been assessed.
ONE YEAR SINCE INCEPTION[*] -------- ------------------ Class A (16.70)% (9.90)% Class B (16.60)% (11.91)% Class C (13.27)% (9.28)% Class I N/A N/A Advisor Class (11.36)% (3.37)%
The following table summarizes the calculation of Cumulative Total Return for Ivy US Blue Chip Fund for the periods indicated through December 31, 2001, assuming the maximum 5.75% sales charge has not been assessed.
ONE YEAR SINCE INCEPTION[*] -------- ------------------ Class A (11.61)% (4.40)% Class B (12.21)% (9.18)% Class C (12.39)% (9.28)% Class I N/A N/A Advisor Class (11.36)% (3.37)%
[*] The inception date for Ivy US Blue Chip Fund was November 2, 1998. 86 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, 2001, assuming the maximum 5.75% sales charge has been assessed.
ONE YEAR FIVE YEARS SINCE INCEPTION[*] -------- ---------- ------------------ Class A (37.31)% (7.03)% 134.99% Class B (37.35)% (6.94)% 61.43% Class C (34.70)% (4.91)% (9.17)% Advisor Class (33.40)% N/A (8.31)%
The following table summarizes the calculation of Cumulative Total Return for Ivy US Emerging Growth Fund for the periods indicated through December 31, 2001, assuming the maximum 5.75% sales charge has not been assessed.
ONE YEAR FIVE YEARS SINCE INCEPTION[*] -------- ---------- ------------------ Class A (33.49)% (1.36)% 149.33% Class B (34.05)% (5.05)% 61.43% Class C (34.04)% (4.91)% (9.17)% Advisor Class (33.40)% N/A (8.31)%
- --------------------------- [*] 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; the inception date for Advisor Class shares was January 1, 1998. OTHER QUOTATIONS, COMPARISONS AND GENERAL INFORMATION. The foregoing computation methods are prescribed for advertising and other communications subject to SEC Rule 482. Communications not subject to this rule may contain a number of different measures of performance, computation methods and assumptions, including but not limited to: historical total returns; results of actual or hypothetical investments; changes in dividends, distributions or share values; or any graphic illustration of such data. These data may cover any period of the Trust's existence and may or may not include the impact of sales charges, taxes or other factors. Performance quotations for each Fund will vary from time to time depending on market conditions, the composition of 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 87 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 Schedule of Investments as of December 31, 2001, Statement of Assets and Liabilities as of December 31, 2001, Statement of Operations for the fiscal year ended December 31, 2001, Statement of Changes in Net Assets for the fiscal years ended December 31, 2001 and 2000, Financial Highlights, Notes to Financial Statements, and Report of Independent Certified Public Accountants, which are included in the Fund's December 31, 2001 Annual Report to shareholders, are incorporated by reference into this SAI. 88 APPENDIX A DESCRIPTION OF STANDARD & POOR'S RATINGS SERVICES ("S&P") AND MOODY'S INVESTORS SERVICE, INC. ("MOODY'S") CORPORATE BOND AND COMMERCIAL PAPER RATINGS [From Moody's Rating Definitions, www.moodys.com, December 2000, and "Standard & Poor's Municipal Ratings Handbook," September 2000 Issue (McGraw-Hill, New York, 2000).] MOODY'S: (a) CORPORATE BONDS. Aaa Bonds which are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edged." Interest payments are protected by a large or by an 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. Aa Bonds which are rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high-grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risk appear somewhat larger than the Aaa securities. A Bonds which are rated A 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 some time in the future. Baa Bonds which are rated Baa are considered as 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. Ba Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered as 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. B Bonds which are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. Caa 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. 89 Ca 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. C 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. Moody's short-term issuer ratings are opinions of the ability of issuers to honor senior financial obligations and contracts. These obligations have an original maturity not exceeding one year, unless explicitly noted. Moody's employs the following three designations, all judged to be investment grade, to indicate the relative repayment ability of rated issuers: Issuers rated Prime-1 (or supporting institutions) have a superior ability for repayment of senior short-term debt obligations. Prime-1 repayment ability will often be evidenced by many of the following characteristics: leading market positions in well-established industries; high rates of return on funds employed; conservative capitalization structure with moderate reliance on debt and ample asset protection; broad margins in earnings coverage of fixed financial charges and high internal cash generation; well-established access to a range of financial markets and assured sources of alternate liquidity. Issuers rated Prime-2 (or supporting institutions) have a strong ability for repayment of senior short-term debt obligations. This will normally be evidenced by many of the characteristics cited above but to a lesser degree. Earnings trends and coverage ratios, while sound, may be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained. Issuers rated Prime-3 (or supporting institutions) have an acceptable ability for repayment of senior short-term obligations. The effect of industry characteristics and market compositions may be more pronounced. Variability in earnings and profitability may result in changes in the level of debt protection measurements and may require relatively high financial leverage. Adequate alternate liquidity is maintained. Issuers rated Not Prime do not fall within any of the Prime rating categories. S&P: (a) LONG-TERM ISSUE CREDIT RATINGS. Issue credit ratings are based in varying degrees on the following considerations: o Likelihood of payment -- capacity and willingness of the obligor to meet its financial commitment on an obligation in accordance with the terms of the obligation; o Nature of and provisions of the obligation; and 90 o Protection afforded by, and relative position of, the obligation in the event of bankruptcy, reorganization, or other arrangement under the laws of bankruptcy and other laws affecting creditors' rights. The issue ratings definitions are expressed in terms of default risk. As such, they pertain to senior obligations of an entity. Junior obligations are typically rated lower than senior obligations, to reflect the lower priority in bankruptcy, as noted above. AAA An obligation rated `AAA' has the highest rating assigned by S&P. The obligor's capacity to meet its financial commitment on the obligation is extremely strong. AA An obligation rated `AA' differs from the highest rated obligations only in small degree. The obligor's capacity to meet its financial commitment on the obligation is very strong. A An obligation rated `A' is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher-rated categories. However, the obligor's capacity to meet its financial commitment on the obligation is still strong. BBB An obligation rated `BBB' exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation. BB, B, CCC, CC, AND C Obligations rated `BB', `B', `CCC', `CC', and `C' are regarded as having significant speculative characteristics. `BB' indicates the least degree of speculation and `C' the highest. While such obligations will likely have some quality and protective characteristics, these may be outweighed by large uncertainties or major exposures to adverse conditions. BB An obligation rated `BB' is less vulnerable to nonpayment than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions, which could lead to the obligor's inadequate capacity to meet its financial commitment on the obligation. B An obligation rated `B' is more vulnerable to nonpayment than obligations rated `BB,' but the obligor currently has the capacity to meet its financial commitment on the obligation. Adverse business, financial, or economic conditions will likely impair the obligor's capacity or willingness to meet its financial commitment on the obligation. CCC An obligation rated `CCC' is currently vulnerable to nonpayment and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation. In the event of adverse business, financial, or economic conditions, the obligor is not likely to have the capacity to meet its financial commitment on the obligation. CC An obligation rated `CC' is currently highly vulnerable to nonpayment. 91 C The `C' rating may be used to cover a situation where a bankruptcy petition has been filed or similar action has been taken, but payments on this obligation are being continued. D An obligation rated `D' is in payment default. The `D' rating category is used when payments on an obligation 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 or the taking of a similar action if payments on an obligation are jeopardized. (b) COMMERCIAL PAPER. An S&P commercial paper rating is a current assessment of the likelihood of timely payment of debt having an original maturity of no more than 365 days. Ratings are graded into several categories, ranging from `A' for the highest-quality obligations to `D' for the lowest. These categories are as follows: A-1 This designation 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. A-2 Capacity for timely payment on issues with this designation is satisfactory. However, the relative degree of safety is not as high as for issues designated `A-1.' A-3 Issues carrying this designation have an adequate capacity for timely payment. They are, however, more vulnerable to the adverse effects of changes in circumstances than obligations carrying the higher designations. B Issues rated `B' are regarded as having only speculative capacity for timely payment. C This rating is assigned to short-term debt obligations with a doubtful capacity for payment. D 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. 92 IVY BOND FUND IVY MONEY MARKET FUND series of IVY FUND 925 South Federal Highway, Suite 600 Boca Raton, Florida 33432 STATEMENT OF ADDITIONAL INFORMATION -------------- April 30, 2002 Ivy Fund (the "Trust") is an open-end management investment company that currently consists of sixteen fully managed portfolios, each of which 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, I and Advisor Class shares of Ivy Bond Fund (each a "Fund" and, collectively, the "Funds"). The other fourteen portfolios of the Trust are described in separate prospectuses and SAIs. This SAI is not a prospectus and should be read in conjunction with the prospectus for the Funds dated April 30, 2002, as supplemented from time to time (the "Prospectus"), which may be obtained upon request and without charge from the Trust at the Distributor's address and telephone number printed below. Each Fund's Annual Report to shareholders, dated December 31, 2001 (each an "Annual Report") is incorporated by reference into this SAI. Each Fund's Annual Report may be obtained without charge from the Distributor. INVESTMENT MANAGER Ivy Management, Inc. ("IMI") 925 South Federal Highway, Suite 600 Boca Raton, Florida 33432 Telephone: (800) 777-6472 DISTRIBUTOR Ivy Mackenzie Distributors, Inc. ("IMDI") 925 South Federal Highway, Suite 600 Boca Raton, Florida 33432 Telephone: (800) 456-5111 TABLE OF CONTENTS
PAGE ---- GENERAL INFORMATION...............................................................................................1 INVESTMENT OBJECTIVES, STRATEGIES AND RISKS.......................................................................1 IVY BOND FUND............................................................................................1 INVESTMENT RESTRICTIONS FOR IVY BOND FUND................................................................2 IVY MONEY MARKET FUND....................................................................................5 INVESTMENT RESTRICTIONS FOR IVY MONEY MARKET FUND........................................................6 RISK CONSIDERATIONS...............................................................................................8 EQUITY SECURITIES........................................................................................8 CONVERTIBLE SECURITIES...................................................................................8 DEBT SECURITIES..........................................................................................9 IN GENERAL......................................................................................9 INVESTMENT-GRADE DEBT SECURITIES................................................................9 LOW-RATED DEBT SECURITIES......................................................................10 U.S. GOVERNMENT SECURITIES.....................................................................11 MUNICIPAL SECURITIES...........................................................................12 ZERO COUPON BONDS..............................................................................12 FIRM COMMITMENT AGREEMENTS AND "WHEN-ISSUED" SECURITIES.......................................................................13 ILLIQUID SECURITIES.....................................................................................13 FOREIGN SECURITIES......................................................................................14 DEPOSITORY RECEIPTS.....................................................................................15 EMERGING MARKETS........................................................................................15 FOREIGN SOVEREIGN DEBT OBLIGATIONS......................................................................16 FOREIGN CURRENCIES......................................................................................17 FOREIGN CURRENCY EXCHANGE TRANSACTIONS..................................................................17 REPURCHASE AGREEMENTS...................................................................................18 BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS.......................................................19 COMMERCIAL PAPER........................................................................................19 BORROWING...............................................................................................19 OPTIONS TRANSACTIONS....................................................................................19 IN GENERAL.....................................................................................20 WRITING OPTIONS ON INDIVIDUAL SECURITIES.......................................................20 PURCHASING OPTIONS ON INDIVIDUAL SECURITIES....................................................21 PURCHASING AND WRITING OPTIONS ON SECURITIES INDICES...........................................22 RISKS OF OPTIONS TRANSACTIONS..................................................................22 FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS......................................................23 IN GENERAL.....................................................................................23 INTEREST RATE FUTURES CONTRACTS................................................................25 OPTIONS ON INTEREST RATE FUTURES CONTRACTS.....................................................25 FOREIGN CURRENCY FUTURES CONTRACTS AND RELATED OPTIONS................................................................................26 RISKS ASSOCIATED WITH FUTURES AND RELATED OPTIONS..............................................27 COMBINED TRANSACTIONS..........................................................................27
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PAGE ---- PORTFOLIO TURNOVER...............................................................................................28 TRUSTEES AND OFFICERS............................................................................................28 PERSONAL INVESTMENTS BY EMPLOYEES OF IMI, IMDI AND THE TRUST............................................32 INVESTMENT ADVISORY AND OTHER SERVICES...........................................................................40 BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES....................................................40 DISTRIBUTION SERVICES...................................................................................42 RULE 18F-3 PLAN................................................................................43 RULE 12B-1 DISTRIBUTION PLANS..................................................................44 CUSTODIAN...............................................................................................47 FUND ACCOUNTING SERVICES................................................................................47 TRANSFER AGENT AND DIVIDEND PAYING AGENT................................................................48 ADMINISTRATOR...........................................................................................48 AUDITORS................................................................................................49 BROKERAGE ALLOCATION.............................................................................................49 CAPITALIZATION AND VOTING RIGHTS.................................................................................50 SPECIAL RIGHTS AND PRIVILEGES....................................................................................52 AUTOMATIC INVESTMENT METHOD.............................................................................52 EXCHANGE OF SHARES......................................................................................52 INITIAL SALES CHARGE SHARES....................................................................53 CONTINGENT DEFERRED SALES CHARGE SHARES.................................................................53 CLASS A........................................................................................53 CLASS B........................................................................................54 CLASS C........................................................................................54 CLASS I........................................................................................54 ALL CLASSES....................................................................................55 LETTER OF INTENT........................................................................................55 RETIREMENT PLANS........................................................................................56 INDIVIDUAL RETIREMENT ACCOUNTS.................................................................56 ROTH IRAS......................................................................................57 QUALIFIED PLANS................................................................................58 DEFERRED COMPENSATION FOR PUBLIC SCHOOLS AND CHARITABLE ORGANIZATIONS ("403(B)(7) ACCOUNT")....59 SIMPLIFIED EMPLOYEE PENSION ("SEP") IRAS.......................................................59 SIMPLE PLANS...................................................................................59 REINVESTMENT PRIVILEGE..................................................................................60 RIGHTS OF ACCUMULATION..................................................................................60 SYSTEMATIC WITHDRAWAL PLAN..............................................................................60 GROUP SYSTEMATIC INVESTMENT PROGRAM.....................................................................61 REDEMPTIONS......................................................................................................62 CONVERSION OF CLASS B SHARES.....................................................................................64 NET ASSET VALUE..................................................................................................65 TAXATION.........................................................................................................66 OPTIONS, FUTURES AND FOREIGN CURRENCY FORWARD CONTRACTS.................................................67 CURRENCY FLUCTUATIONS -- "SECTION 988" GAINS OR LOSSES..................................................68 INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES......................................................68 DEBT SECURITIES ACQUIRED AT A DISCOUNT..................................................................68
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PAGE ---- DISTRIBUTIONS...........................................................................................70 DISPOSITION OF SHARES...................................................................................71 FOREIGN WITHHOLDING TAXES...............................................................................71 BACKUP WITHHOLDING......................................................................................72 PERFORMANCE INFORMATION..........................................................................................72 YIELD...................................................................................................73 STANDARDIZED YIELD QUOTATIONS..................................................................73 AVERAGE ANNUAL TOTAL RETURN....................................................................73 CUMULATIVE TOTAL RETURN........................................................................79 OTHER QUOTATIONS, COMPARISONS AND GENERAL INFORMATION............................................................................80 FINANCIAL STATEMENTS.............................................................................................81 APPENDIX A.......................................................................................................82
iii 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 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. Advisor Class shares were first offered on January 1, 1998. 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 80% of its net assets, plus the amount of any borrowings for investment purposes, 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. 2 (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; 3 (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 4 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 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). 5 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 6 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 (vii) without registration under the Securities Act of 1933; 7 (viii) 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; (ix) 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; (x) purchase securities on margin; (xi) sell securities short; (xii) 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 (xiii) 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. RISK CONSIDERATIONS EQUITY SECURITIES Equity securities can be issued by companies to raise cash; all equity securities represent a proportionate ownership interest in a company. As a result, the value of equity securities rises and falls with a company's success or failure. The market value of equity securities can fluctuate significantly, with smaller companies being particularly susceptible to price swings. Transaction costs in smaller company stocks may also be higher than those of larger companies. CONVERTIBLE SECURITIES The convertible securities in which 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 8 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 9 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 that 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 10 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). 11 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 12 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 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 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 Ivy Bond 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. 13 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 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 Ivy Bond 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 Ivy Bond 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 14 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 Ivy 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 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 15 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, Ivy Bond 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 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 Ivy Bond 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 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 16 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) 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. FOREIGN CURRENCIES Investment in foreign securities usually will involve currencies of foreign countries. Moreover, Ivy 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 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 Ivy Bond 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. Currencies in which Ivy Bond 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 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 17 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 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. Ivy 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. 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. Ivy Bond 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 it 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 Ivy Bond 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 that 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 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 18 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, 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. 19 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 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." Ivy 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 20 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 Ivy Bond 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 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 for the options). In view of the investment objectives of the Fund, it generally would write call options only in circumstances where the investment advisor 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 Ivy Bond 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 may purchase call options on individual securities only to effect a "closing purchase transaction." As the writer of a call option, Ivy Bond 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 may purchase put options on underlying securities owned by the Fund as a defensive technique in order to protect against an anticipated decline in the value of the securities. 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. Ivy 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 21 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. Ivy 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 Ivy Bond 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 22 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 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 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. Ivy Bond Fund's options activities also may have an impact upon the level of their 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. Ivy 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 Ivy Bond 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 23 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 Ivy Bond 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. Ivy Bond 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, Ivy Bond 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 24 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, Ivy Bond 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. 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 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, the 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 a change in interest rates. The 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 the 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. The Fund may also maintain the futures contract as a substitute for the underlying securities. OPTIONS ON INTEREST RATE FUTURES CONTRACTS. Ivy Bond Fund may also purchase and write put and call options on interest rate futures contracts that 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 the 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 25 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 the 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. FOREIGN CURRENCY FUTURES CONTRACTS AND RELATED OPTIONS. Ivy 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 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. Ivy Bond 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 26 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 Ivy Bond 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 Ivy Bond 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. COMBINED TRANSACTIONS. Ivy 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 27 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 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 Ivy Bond 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, Ivy Bond 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 non-Independent Trustees (as defined below) and Executive Officers of the Trust, their business addresses and principal occupations during the past five years are:
- ------------------------ -------------- ------------ --------------------------------------- ---------------- ------------ Name, Position(s) Term of Principal Number of Other Address, Held with Office and Occupation(s) Portfolios in Directorships And Age Fund Length of During Past 5 Fund Complex Held Time Years Overseen by by Served (1) Trustee Trustee - ------------------------ -------------- ------------ --------------------------------------- ---------------- ------------ James W. Broadfoot (2) Trustee and 6 years President and Chief Investment 16 __ 925 South Federal Hwy. President of Officer -- US Equities of IMI; Boca Raton, FL 33432 Ivy Fund Director, Senior Vice President of Age: 59 Mackenzie Investment Management Inc.; Director of Ivy Mackenzie Distributors, Inc.; Director of Ivy Mackenzie Services Corp. - ------------------------ -------------- ------------ --------------------------------------- ---------------- ------------ Keith J. Carlson (2) Trustee and 8 years Director, Chairman and Senior Vice 16 __ 925 South Federal Hwy. Chairman of President of IMI; Director, President Suite 600 Ivy Fund and Chief Executive Officer of Boca Raton, FL 33432 Mackenzie Investment Management Inc. Age: 45 and Ivy Mackenzie Distributors, Inc.; Director, President and Chairman of Ivy Mackenzie Services Corp. - ------------------------ -------------- ------------ --------------------------------------- ---------------- ------------ Paula Wolfe Secretary 4 years Compliance Manager of Mackenzie 16 __ 925 South Federal Hwy. Investment Management Inc.; Assistant Suite 600 Secretary of Ivy Fund ; Secretary of Boca Raton, FL 33432 Ivy Mackenzie Distributors, Inc.; Age: 40 Secretary of Ivy Mackenzie Services Corp. - ------------------------ -------------- ------------ --------------------------------------- ---------------- ------------ Beverly J. Yanowitch Treasurer of 1 year Vice President, Chief Financial 16 __ 925 South Federal Hwy. Ivy Fund Officer and Treasurer of Mackenzie Suite 600 Investment Management, Inc.; Vice Boca Raton, FL 33432 Present and Treasurer of IMI; Senior Age: 52 Vice President and Treasurer of Ivy Mackenzie Distributors, Inc. and Ivy Mackenzie Services Corp. - ------------------------ -------------- ------------ --------------------------------------- ---------------- ------------
28 (1) Each Trustee and Officer serves an indefinite term, until he or she sooner dies, resigns, is removed, or becomes disqualified. (2) Deemed to be an "interested person" of the Trust, as defined in the 1940 Act, by virtue of his or her employment by MIMI or IMI. The Trustees who are not "interested persons" of the Trust within the meaning of Section 2(a)(19) of the 1940 Act ("Independent Trustees"), their business addresses and principal occupations during the past five years are:
- ----------------------------- ------------- -------------- --------------------------------- ---------------- --------------- Name, Position(s) Term of Principal Number of Other Address, Held with Office and Occupation(s) Portfolios in Directorships And Age Fund Length of During Past 5 Fund Complex Held by Time Served Years Overseen by Trustee (1) Trustee - ----------------------------- ------------- -------------- --------------------------------- ---------------- --------------- John S. Anderegg, Jr. Trustee 35 years Chairman Emeritus, Dynamics 16 -- c/o Dynamics Research Corp. Research Corp.; (Defense 60 Concord Street Contractor) Wilmington, MA 01810 Age: 78 - ----------------------------- ------------- -------------- --------------------------------- ---------------- --------------- Stanley Channick Trustee 27 years Chairman, Scott Management 16 -- 20234 Valley Forge Circle Company; President, The King of Prussia, PA 19406 Channick Group; President and Age: 78 CEO, The Whitestone Corporation (Retired) (2) - ----------------------------- ------------- -------------- --------------------------------- ---------------- --------------- Dr. Roy J. Glauber Trustee 41 years Professor of Physics, Harvard 16 -- Lyman Laboratory of Physics University Harvard University Cambridge, MA 02138 Age: 76 - ----------------------------- ------------- -------------- --------------------------------- ---------------- --------------- Joseph G. Rosenthal Trustee 10 years Chartered Accountant. Rosenthal 16 -- 925 South Federal Highway & Katkauskas (Accountants) Suite 600 Boca Raton, FL 33432 Age: 67 - ----------------------------- ------------- -------------- --------------------------------- ---------------- --------------- Richard N. Silverman Trustee 29 years President, Van Leer USA 16 Trustee of 925 South Federal Highway (Retired) (3); President, Hysil Boston Suite 600 (Retired) (4) Ballet, Boca Raton, FL 33432 Member Age: 78 Charitable Foundation Board and Newton Wellesley Hospital - ----------------------------- ------------- -------------- --------------------------------- ---------------- --------------- James Brendan Swan Trustee 10 years President, Airspray 16 -- 925 South Federal Highway International Inc. (5) Suite 600 Boca Raton, FL 33432 Age: 71 - ----------------------------- ------------- -------------- --------------------------------- ---------------- --------------- Edward M. Tighe Trustee 3 years Chairman and CEO of JBE 16 Director of 925 South Federal Highway Technology Group, Inc. (6) Hansberger Suite 600 President of Global Mutual Fund Institutional Boca Raton, FL 33432 Services Inc.; President & CEO Funds & Age: 59 of Global Technology Global Funds Ltd. - ----------------------------- ------------- -------------- --------------------------------- ---------------- ---------------
29 (1) Each Trustee and Officer serves an indefinite term, until he or she sooner dies, resigns, is removed, or becomes disqualified. (2) Scott Management Co., The Channick Group and The Whitestone Corporation are consultants to insurance companies and agencies in the area of mass marketing and worksite payroll deduction marketing. (3) Manufacturer of packing materials. (4) Gift wrapping business. (5) Manufacturer of aerosol dispensing systems. (6) Telecommunications and computer network consulting. The Board has an Audit Committee, an Investment Review Committee, a Valuation Committee, and a Corporate Governance Committee. The function of the Audit Committee is to assist the Board in fulfilling its responsibilities to shareholders of the Fund relating to accounting and reporting, internal controls and the adequacy of auditing relative thereto. The Audit Committee currently consists of Joseph G. Rosenthal, Edward M. Tighe and J. Brendan Swan. During the last year, the Audit Committee held 4 meetings. The function of the Investment Review Committee is to consider the Fund's investment processes, policies and risks, and the overall performance of the Fund. The Investment Review Committee currently consists of Edward M. Tighe, James W. Broadfoot, Keith J. Carlson, Stanley Channick, Joseph G. Rosenthal and Richard N. Silverman. During the last year, the Investment Review Committee held 4 meetings. The function of the Valuation Committee is to consider the valuation of portfolio securities which may be difficult to price. The Valuation Committee currently consists of Roy J. Glauber, John S. Anderegg, Jr. and James W. Broadfoot. During the last year, the Valuation Committee held 4 meetings. The function of the Corporate Governance Committee is to consider the responsibilities and actions of the Board of Trustees. The Corporate Governance Committee currently consists of Stanley Channick, Joseph G. Rosenthal, J. Brendan Swan, Keith J. Carlson and Richard N. Silverman. During the last year, the Corporate Governance Committee held 4 meetings. 30 COMPENSATION TABLE IVY FUND (FISCAL YEAR ENDED DECEMBER 31, 2001)
- ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- TOTAL COMPENSATION AGGREGATE PENSION OR RETIREMENT ESTIMATED ANNUAL FROM TRUST AND FUND COMPENSATION FROM BENEFITS ACCRUED AS BENEFITS UPON COMPLEX PAID TO NAME, POSITION TRUST PART OF FUND EXPENSES RETIREMENT TRUSTEES* - ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- John S. Anderegg, Jr. $25,000 N/A N/A $25,000 (Trustee) - ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- James W. Broadfoot $0 N/A N/A $0 (Trustee and President) - ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- Keith J. Carlson $0 N/A N/A $0 (Trustee and Chairman) - ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- Stanley Channick $25,000 N/A N/A $25,000 (Trustee) - ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- Roy J. Glauber $25,000 N/A N/A $25,000 (Trustee) - ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- Joseph G. Rosenthal $25,000 N/A N/A $25,000 (Trustee) - ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- Richard N. Silverman $25,000 N/A N/A $25,000 (Trustee) - ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- J. Brendan Swan $25,000 N/A N/A $25,000 (Trustee) - ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- Edward M. Tighe $25,000 N/A N/A $25,000 (Trustee) - ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- Paula Wolfe $0 N/A N/A $0 (Assistant Secretary) - ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- Beverly J. Yanowitch $0 N/A N/A $0 (Treasurer) - ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
* The Fund complex consists of Ivy Fund. 31 As of April 4, 2002, 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 sixteen Ivy funds that are series of the Trust, except that the Officers and Trustees of the Trust as a group owned 1.97%, 4.34%, 18.71% and 8.87% of Ivy Cundill Global Value Fund, Ivy Global Science & Technology Fund, Ivy Growth Fund and Ivy US Emerging Growth Fund Advisor Class shares, respectively. The following table sets forth the dollar range of shares of the Fund held directly or indirectly by the Trustees:
DOLLAR RANGE OF DOLLAR RANGE OF EQUITY SERCURITIES AGGREGATE DOLLAR RANGE IN ALL FUNDS EQUITY SECURITIES IN IVY MONEY OVERSEEN BY THE TRUSTEE IN THE IVY NAME OF TRUSTEE IN IVY BOND FUND MARKET FUND FUND FAMILY - --------------- ---------------- ------------------ --------------------------------------- John S. Anderegg, Jr $ -- $ 21,736 $144,781 James W. Broadfoot -- 72,040 404,680 Keith J. Carlson -- 140 140 Stanley Channick -- 43,541 55,485 Dr. Roy J. Glauber -- -- 371,607 Joseph G. Rosenthal -- -- -- Richard N. Silverman -- -- 158,140 J. Brendan Swan -- -- -- Edward M. Tighe -- -- 21,306
PERSONAL INVESTMENTS BY EMPLOYEES OF IMI, IMDI AND THE TRUST. IMI, IMDI and the Trust have adopted a Code of Ethics and Business Conduct Policy (the "Code of Ethics"), which is designed to identify and address certain conflicts of interest between personal investment activities and the interests of investment advisory clients such as each Fund, in compliance with Rule 17j-1 under the 1940 Act. The Code of Ethics permits personnel of IMI, IMDI and the Trust subject to the Code of Ethics to engage in personal securities transactions, including with respect to securities held by one or more Funds, subject to certain requirements and restrictions. 32 PRINCIPAL HOLDERS OF SECURITIES SHARE OWNERSHIP To the knowledge of the Trust as of April 4, 2002, no shareholder owned beneficially or of record 5% or more of any Fund's outstanding shares of any class, with the following exceptions: CLASS A Of the outstanding Class A shares of: IVY CUNDILL GLOBAL VALUE FUND, Raymond James & Assoc Inc CSDN Kyle M Payne IRA, 221 Sylvan Glen Drive, South Bend, IN 46615, owned of record 2,762.486 shares (8.08%), and John M Elkowitz Jr., 41 Smith Road, Denville, NJ 07834, owned of record 2598.811 shares (7.60%), and William L. Tepas Sep IRA, 48 Oakview Dr., Amherst, NY 14221, owned of record 2,479.669 (7.25%), and Katherine E. Sayre, Separate Property, PO Box 2224, Canyon Lake, TX 78130, owned of record 2,444.495 shares (7.15%), and Evelyn Dolins,Cust FBO: Sarah Laura Dolins UGMA/PA, 6 Jean Lo Way, York, PA 17402, owned of record 1,803.413 shares (5.27%), Jeanette C Arnone, 14 Lions Street, East Strousberg, PA 18301, owned of record 1,709.474 shares (5.00%); IVY EUROPEAN OPPORTUNITIES FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 303,064.982 shares (14.05%), and Charles Schwab & Co. Inc. Reinvest Account, Attn: Mutual Fund Dept., 101 Montgomery Street, San Francisco, CA 94104, owned of record 162,633.605 shares (7.54%); IVY GLOBAL NATURAL RESOURCES FUND, Carn & Co. #93030213 Wacker Salaried SVGS Plan Act42300001285000000 Attn: Mutual Funds Star , P.O. Box 96211 Washington, DC 20090-6211,owned of record 67,907.258 shares (5.53%), and Charles Schwab & Co. Inc. Reinvest Account, Attn: Mutual Fund Dept., 101 Montgomery Street, San Francisco, CA 94104, owned of record 194,730.641 shares (15.86%), and Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 77,836.226 shares (6.34%), and Deutsche Bank Securities Inc. FBO: 235-73733-11, PO Box 1346, Baltimore, MD 21203, VA 21203, owned of record 75,131.480 shares (6.12%); IVY GLOBAL SCIENCE & TECHNOLOGY FUND, Donaldson Lufkin Jenrette Securities Corporation Inc., P.O. Box 2052, Jersey City, NJ 07303-9998, owned of record 46,068.538 shares (5.04%),BBH & Co, Cust FBO: Lifetime Achievement Fund, 525 Washington Blvd, Jersey City, NJ 07310, owned of record 33 56,657.224 shares (6.20%), and Securities Trust Co. as Trustee FBO: Local 104 Supplemental Pension Plan, 2390 East Camelback Road Ste. 240, Phoenix, AZ 85016, owned of record 48,831.395 shares (5.34%); IVY INTERNATIONAL FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd Floor, Jacksonville, FL 32246, owned of record 2,594,179.817 (26.85%), and Charles Schwab & Co. Inc. Reinvest Account, Attn: Mutual Fund Dept., 101 Montgomery Street, San Francisco, CA 94104, owned of record 1,275,845.774 shares (13.20%); IVY INTERNATIONAL SMALL COMPANIES FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 43,468.854 shares (11.02%); IVY INTERNATIONAL VALUE FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246 owned of record 487,739.415 shares (38.73%); IVY PACIFIC OPPORTUNITIES FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 76,218.797 shares (8.30%); and IVY US EMERGING GROWTH FUND, F & Co. Inc. Cust FBO 401 K Plan, Attn: Cathy Laich ADM, 300 River Place - Suite 4000, Detroit, MI 48207, owned of record 158,123.679 shares (7.75%); CLASS B Of the outstanding Class B shares of: IVY BOND FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 1,065,008.211 shares (47.74%); IVY DEVELOPING MARKETS FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 98,627.609 shares (26.97%); IVY EUROPEAN OPPORTUNITIES FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 583,670.050 shares (25.48%); IVY GLOBAL FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 51,540.966 shares (18.67%); IVY GLOBAL NATURAL RESOURCES FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 34 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 68,342.843 shares (11.37%) and Rede & Co, 4380 SW Macadam Suite 450, Portland, OR 97201, owned of record 42,666.000 shares (7.10 %); IVY GLOBAL SCIENCE & TECHNOLOGY FUND, Merrill Lynch Pierce Fenner & Smith Inc. Mutual Fund Operations - Service Team, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 87,925.353 shares (10.74%); IVY GROWTH FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 73,155.436 shares (15.56%); IVY INTERNATIONAL FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 2,577,317.424 shares (42.60%); IVY INTERNATIONAL SMALL COMPANIES FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 109,860.158 shares (31.02%); IVY INTERNATIONAL VALUE FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 2,723,623.738 shares (56.89%); IVY PACIFIC OPPORTUNITIES FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 126,191.785 shares (23.07%); IVY US BLUE CHIP FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 322,620.577 shares (15.95%); and IVY US EMERGING GROWTH FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 256,476.943 shares (20.44%). CLASS C Of the outstanding Class C shares of: IVY BOND FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 146,700.086 shares (62.45%); IVY CUNDILL GLOBAL VALUE FUND, Raymond James & Assoc Inc FAO: Katherine P. Ralston & James W. Ralston JT/WROS, 609 Hwy 466, Lady Lake, FL 32159, owned of record 835.491 shares (24.27%), Catherine Kawula, 1900 West 35 Alpha Court, Lecanto, FL 34461-8435, owned of record 639.631 shares (18.58%), IBT Cust Ira Fbo: Phyllis W Monahan, 15 B Swan Cedar Glen West, Manchester, NJ 08759, owned of record 453.697 shares (13.18%), Lawrence J Mccarthy, 14 Sarian Drive, Nepune, NJ 07753, owned of record 448.060 shares (13.02%), Phyllis Monahan, Cedar Glenn West, 15 B Swan, Manchester, NJ 08759, owned of records 428.207 shares (12.44%), Dorothy V Hosonitz, 223 Goodmans Crossing, Clark, NJ 07066-2754, owned of record 323.276 shares (9.39%), IBT Cust IRA FBO: Candace Pignatello, 162 Newark Ave, Bloomfield, NJ 07003, owned of record 312.929 shares (9.09%); IVY DEVELOPING MARKETS FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL 32246, owned of record 31,175.141 shares (32.28%), and Donaldson Lufkin Jenrette Securities Corp Inc, PO Box 2052, Jersey City, NJ 07303-9998, owed of record 7,301.270 shares (7.56%); IVY EUROPEAN OPPORTUNITIES FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL 32246, owned of record 728,807.904 shares (42.93%); IVY GLOBAL FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL 32246, owned of record 4,365.729 shares (25.71%), IBT CUST 403(B) FBO Mattie A Allen, 755 Selma PL., San Diego, CA 92114-1711, owned of record 2,891.025 shares (17.03%), Salomon Smith Barney Inc., 00157417165, 333 West 34th St. - 3rd Floor, New York, NY 10001, owned of record 2,256.265 shares (13.29%), Salomon Smith Barney Inc., 00141860273, 333 West 34th St 3rd "Floor., New York, NY 10001, owned of record 1,256.132 shares (7.39%), Salomon Smith Barney Inc., 00121066732, 333 West 34th St. - 3rd Floor, New York, NY 10001, owned of record 1,177.856 shares (6.93%), and Smith Barney Inc. 00107866133, 388 Greenwich Street, New York, NY 10013, owned of record shares 1,041.015 (6.13%), Smith Barney Inc., 00112701249, 388 Greenwich Street, New York, NY 10013, owned of record 982.067 shares (5.78%); IVY GLOBAL NATURAL RESOURCES FUND, Salomon Smith Barney Inc., 00150805236, 333 West 34th St 3rd Fl., New York, NY 10001, owned of record 12,049.188 shares (5.02%), Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL 32246, owned of record 29,288.072 shares (12.20%), US Bandcorp Piper Jaffray A/C #5882-0411, U S Bancorp Center, 800 Nicollet Mall, Minneapolis, MN 55402 owned of record 15,698.587 shares (6.54%); IVY GLOBAL SCIENCE & TECHNOLOGY FUND, Merrill Lynch Pierce Fenner & Smith Inc. Mutual Fund Operations - Service Team, 4800 Deer Lake Dr. E, 3rd FL, Jacksonville, FL 32246, owned of record 32,904.764 shares (15.82%); IVY GROWTH FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL 32246, owned of record 2,359.140 shares (9.02%), First Presbyterian Church of McAlester, a Non Profit Corporation, PO Box 1550, 222 E Washington, McAlester, OK 74502-1550, owned of record 3,806.649 shares (14.56%), Mary Ann Ash & Robert R. Ash JT -Ten, 1119 Rundle Street, Scranton, PA 18504, owned of record 2,302.853 shares (8.81%), Salomon Smith Barney Inc. 36 #00121013039, 333 West 34th Street 3rd Floor, New York, NY 10001, owned of record 1,743.389 shares (6.67%), Fiduciary Trust Co. of NH Cust 403(B) FBO: Jack L. Ewen, 278 Southside Drive, Oneonta, NY 13820, owned of record 1,630.943 shares (6.24%), Fiduciary Trust Co of NH Cust IRA FBO: Roland Wise, 45 Fordham, Buffalo, NY 14216, owned of record 1,629.655 shares (6.23%); IVY INTERNATIONAL FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL 32246, owned of record 723,518.558 shares (62.10%); IVY INTERNATIONAL SMALL COMPANIES FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL 32246, owned of record 162,385.988 shares (63.89%); IVY INTERNATIONAL VALUE FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL 32246, owned of record 976,744.805 shares (59.95%); IVY MONEY MARKET FUND, Robert J Laws & Katherine A Laws JT ten, PO Box 723, Ramona, CA 92065, owned of record 43,871.340 shares (11.84%), First Trust Corp Cust IRA FBO: Suzanne Helen Anderson U/A/D 10-31-95 #135129-0001, PO Box 173301, Denver, CO 80217-3301, owned of record 35,317.650 shares (9.53%), IBT Cust IRA FBO: Betty J. Carson, 1987 Higgins Lane, El Centro, CA 92243, owned of record 27,781.690 shares (7.50%), Kenneth S. Hansen, 302 Lakeshore Dr, Lakeside, IA 50588-7660, owned of record 24,316.970 shares (6.56%), and Anthony L. Bassano & Marie E. Bassano Ttees of the Anthony & Marie Bassano Trust U/A/D 05-25-99, 8934 Bari Court, Port Richey, FL 34668, owned of record 18,780.970 shares (5.07%); IVY PACIFIC OPPORTUNITIES FUND, Merrill Lynch Pierce Fenner & Smith for the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr E., 3rd FL, Jacksonville, FL 32246, owned of record 25,760.540 shares (21.47%); IVY US BLUE CHIP FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL 32246, owned of record 35,609.358 shares (31.31%); and IVY US EMERGING GROWTH FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL 32246, owned of record 52,859.279 shares (29.60%), and First Clearing Corp, A/C 3109-0705, Robert Feinberg and Harriet Feinberg JTWROS, 1824 Byberry Road, Bensalem, PA 19020-4455, owned of record 9,162.445 shares (5.13%). 37 CLASS I Of the outstanding Class I shares of: IVY EUROPEAN OPPORTUNITIES FUND, NFSC FEBO # RAS-469041 NFSC/FMTC IRA FBO Charles Peavy, 2025 Eagle Nest Bluff, Lawrenceville, GA 30244, owned of record 642.383 shares (100%); and IVY INTERNATIONAL FUND, Harleysville Mutual Ins Co/Equity, 355 Maple Ave, Harleysville, PA 19438, owned of record 284,051.014 shares (35.68%), Vanguard Fiduciary Trust Company FBO Ivy Funds, PO Box 2900, Valley Forge, PA 19482, owned of record 197,455.576 shares (24.80%), Liz Claiborne Foundation, One Claiborne Ave, N Bergen, NJ 07047, owned of record 102,444.806 shares (12.86), David & Co, PO Box 188, Murfreesboro, TN 37133-0188, owned of record 89,730.410 shares (11.27%), Lynspen and Company , P.O. Box 830804, Birmingham, AL 35283, owned of record 43,905.578 Shares (5.51%). ADVISOR CLASS Of the outstanding Advisor Class shares of: IVY BOND FUND, NFSC FEBO # 279-055662 C/James Ferris/Bro, B Yanowitch/J Broadfoot TTES U/A 01/01/98, 925 South Federal Highway, Suite 600, Boca Raton, FL 33432-6143, owned of record 14,093.040 shares (61.31%), LPL Financial Services, 9785 Towne Centre Drive, San Diego, CA 92121-1968, owned of record 8,890.147 shares (38.68%); IVY CUNDILL GLOBAL VALUE FUND, Mackenzie Investment Mgmt Inc., Attn: Bev Yanowitch, 925 South Federal Highway, Suite 600, Boca Raton, FL 33432, owned of record 57,756.571 shares (56.61%), Peter Cundill Holdings Ltd., 1100 Melville St., Ste. 200, Vancouver BC V6E 4A6, owned of record 37,266.358 shares (36.52%); IVY DEVELOPING MARKETS FUND, NFSC FEBO # 279-055662 C/James Ferris/Bro, B Yanowitch/J Broadfoot TTES U/A 01/01/98, 925 South Federal Highway, Suite 600, Boca Raton, FL 33432-6143, owned of record 8,970.050 shares (98.36%); IVY EUROPEAN OPPORTUNITIES FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL 32246, owned of record 325,841.346 shares (51.60%), Donaldson Lufkin Jenrette Securities Corporation Inc, PO Box 2052, Jersey City, NJ 07303-9998 owned of record 75,318.881 shares (11.92%); and Donaldson Lufkin Jenrette Securities Corporation Inc, PO Box 2052, Jersey City, NJ 07303-9998 owned of record 62,497.356 shares (9.89%); IVY GLOBAL FUND, NFSC FEBO # 279-055662 C/James Ferris/Bro, B Yanowitch/J Broadfoot TTES U/A 01/01/98 925 South Federal Highway, Suite 600, Boca Raton, FL 33432-6143, owned of record 6,680.157 shares (61.83%), and Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr E., 3rd FL, Jacksonville, FL 32246, owned of record 3,768.327 shares (34.88%); 38 IVY GLOBAL NATURAL RESOURCES FUND, FTC & Co Account #00055 Datalynx , PO Box 173736, Denver, Co 80217-3736, owned of record 122,047.343 (27.25%), FTC & Co Attn Datalynx #118, PO Box 173736, Denver, Co 80217-3736, owned of record 96,748.874 (21.60%), FTC & Co Attn Datalynx #464, PO Box 173736, Denver, Co 80217-3736, owned of record 80,663.486 (18.01%), FTC & Co Attn Datalynx #00315, PO Box 173736, Denver, Co 80217-3736, owned of record 51,401.961 (11.47%), and FTC & Co Attn Datalynx #00328, PO Box 173736, Denver, Co 80217-3736, owned of record 51,256.969 (11.44%); IVY GLOBAL SCIENCE & TECHNOLOGY FUND, NFSC FEBO # 279-055662 C/James Ferris/Bro, B Yanowitch/J Broadfoot TTES U/A 01/01/98, 925 South Federal Highway, Suite 600, Boca Raton, FL 33432-6143 owned of record 13,236.316 shares (53.55%), and Robert Chapin & Michelle Broadfoot TTEE Of The Nella Manes Trust U/A/D 04-09-92, 117 Thatch Palm Cove, Boca Raton, FL 33432, owned of record 3,321.388 shares (13.43%); IVY GROWTH FUND, NFSC FEBO # 279-055662 C/James Ferris/Bro, B Yanowitch/J Broadfoot TTES U/A 01/01/98, 925 South Federal Highway, Suite 600, Boca Raton, FL 33432-6143, owned of record 17,040.218 shares (39.12%) and Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL 32246, owned of record 17,322.097 shares (39.77%), and James Broadfoot, 117 Thatch Palm Cove, Boca Raton, Fl 33432, owned of record 8,150.114 shares (18.71%); IVY INTERNATIONAL FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL 32246, owned of record 249.377 shares (100%); IVY INTERNATIONAL GROWTH FUND, Mackenzie Investment Mgmt Inc., Attn: Bev Yanowitch, 925 South Federal Highway, Suite 600, Boca Raton, FL 33432, owned of record 51,214.386 shares (99.88%); IVY INTERNATIONAL SMALL COMPANIES FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL 32246, owned of record 94,687.863 shares (93.04%); NFSC FEBO # 279-055662, C/James Ferris/Bro, B Yanowitch/J Broadfoot TTES U/A 01/01/98, 925 South Federal Highway, Suite 600, Boca Raton, FL 33432-6143, owned of record 6,190.702 shares (6.08%); IVY INTERNATIONAL VALUE FUND, Charles Schwab & Co Inc., Reinvest Account, Attn: Mutual Fund Dept, 101 Montgomery Street, San Francisco, CA 94104, owned of record 1,535.769 shares (5.98%), Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr E., 3rd FL, Jacksonville, FL 32246, owned of record 1,792.768 shares (6.98%), NFSC FEBO # 279-055662, C/James Ferris/Bro, B Yanowitch/J Broadfoot TTES U/A 01/01/98, 925 South Federal Highway, Suite 600, Boca Raton, FL 33432-6143, owned of record 7,001.558 shares (27.26%), Donaldson Lufkin Jenrette Securities Corporation Inc., PO Box 2052, Jersey City, NJ 07303-2052, owned of record 2,062.330 shares (8.03%), LPL Financial Services A/C #3383-3796, 39 9785 Towne Centre Drive, San Diego, CA 92121-1968, owned of record 2,503.224 shares (9.74%), LPL Financial Services A/C #1572-6093, 9785 Towne Centre Drive, San Diego, CA 92121-1968, owned of record 3,218.761 shares (12.53%), LPL Financial Services A/C #1982-6979, 9785 Towne Centre Drive, San Diego, CA 92121-1968, owned of record 1,900.057 shares (7.39%), and LPL Financial Services A/C #7105-6816, 9785 Towne Centre Drive, San Diego, CA 92121-1968, owned of record 1,310.281 shares (5.10%); IVY PACIFIC OPPORTUNITIES FUND, Merrill Lynch Pierce Fenner & Smith For the sole benefit of its customers, Attn: Fund Administration, 4800 Deer Lake Dr. E., 3rd FL, Jacksonville, FL 32246, owned of record 518.000 shares (8.94%), Donaldson Lufkin Jenrette Securities Corporation Inc, PO Box 2052, Jersey City, NJ 07303-9998 owned of record 4,512.894 shares (77.93%), and Donaldson Lufkin Jenrette Securities Corporation Inc, PO Box 2052, Jersey City, NJ 07303-9998 owned of record 748.503 shares (12.92%); IVY US BLUE CHIP FUND, Mackenzie Investment Management Inc., Attn: Bev Yanowitch, 925 South Federal Highway, Suite 600, Boca Raton, FL 33432, owned of record 51,179.697 shares (54.41%), NFSC FEBO # 279-055662 C/James Ferris/Bro, B Yanowitch/J Broadfoot TTES U/A 01/01/98, 925 South Federal Highway, Suite 600, Boca Raton, FL 33432-6143, owned of record 38,299.532 shares (40.72%); and IVY US EMERGING GROWTH FUND, NFSC FEBO # 279-055662 C/James Ferris/Bro, B Yanowitch/J Broadfoot TTES U/A 01/01/98, 925 South Federal Highway, Suite 600, Boca Raton, FL 33432-6143, owned of record 26,549.906 shares (56.61%), Charles Schwab & Co. Inc. Reinvest Account, Attn: Mutual Fund Dept., 101 Montgomery Street, San Francisco, CA 94104, owned of record 4,850.696 shares (10.34%), and James W Broadfoot, 117 Thatch Palm Cove, Boca Raton, FL 33432, owned of record 2,393.086 shares (5.10%). INVESTMENT ADVISORY AND OTHER SERVICES BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES IMI, which provides business management and investment advisory services to the Funds, is a wholly-owned subsidiary of Mackenzie Investment Management Inc. ("MIMI"), 925 South Federal Highway, Suite 600, Boca Raton, Florida 33432. MIMI, a Delaware corporation, has approximately 15% of its outstanding common stock listed for trading on the Toronto Stock Exchange ("TSE"). IMI is an indirect subsidiary of Mackenzie Financial Corporation ("MFC"), 150 Bloor Street West, Suite 400, Toronto, Ontario, Canada M5S3B5. MFC is a wholly-owned subsidiary of Investors Group Inc. ("IGI"), One Canada Centre, 447 Portage Avenue, Winnipeg, Manitoba, Canada R3C3B6. MFC is a corporation organized under the laws of Ontario. MFC is registered in Ontario as a mutual fund dealer and advises Ivy Global Natural Resources Fund, a separate series of Ivy Fund. IMI also currently acts as both manager and investment advisor to the other series of Ivy Fund, with the exception of Ivy Global Natural Resources Fund, for which IMI acts solely as manager. 40 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 0.50% of the first $500 million of the Fund's average net assets, reduced to 0.40% of the Fund's average net assets in excess of $500 million. During the fiscal years ended December 31, 1999, 2000 and 2001, Ivy Bond Fund paid IMI fees of $907,277 , $563,599 and $332,360 respectively. 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, 1999, 2000 and 2001, Ivy Money Market Fund paid IMI $105,311, $98,462 and $92,906, respectively. During the same periods IMI reimbursed Fund expenses in the amount of $137,040, $162,695 and $168,669, 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; 41 (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 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 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 (as defined in the 1940 Act), 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 (as defined in the 1940 Act). In approving the investment advisory agreement, the Board considered a number of factors, including: (1) fee and performance information of each Fund relative to funds with similar objectives; (2) the profitability to IMI from its relationship with each Fund, both individually and from all of the series of the Trust, as applicable; (3) the manner in which expenses are allocated among all series of the Trust and their different classes of shares; (4) the performance and expenses of each Fund relative to comparable funds; (5) the nature and quality of the services historically provided by IMI, including information regarding advisory services and compliance records; (6) the professional qualifications of the personnel providing advisory services to each Fund; and (7) management's soft dollar practices and the use of soft dollars in connection with the Funds, as described under "Brokerage Allocation," below. Based upon their review and consideration of the factors described above, and such other factors and information it considered relevant, the Board recognized that IMI is deemed to owe a fiduciary duty to each Fund and approved the investment advisory agreement. 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. 42 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 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 of Ivy Bond Fund sold without an initial sales charge and Class B and Class C shares of Ivy 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 years ended December 31, 1999, 2000, and 2001, IMDI received from sales of Class A shares of Ivy Bond Fund $55,002, $33,783, and $20,231, respectively, in sales commissions, of which $8,759, $4,302, and $4,228, respectively, was retained after dealer allowances. During the fiscal year ended December 31, 2001, IMI on behalf of IMDI received $31,027 in CDSCs on redemptions of Class B shares of Ivy Bond Fund. During the fiscal year ended December 31, 2001, IMI on behalf of IMDI received $570 in CDSCs on redemptions of Class C shares of Ivy Bond Fund. The Distribution Agreement will continue in effect for successive one-year periods, provided that such continuance is specifically approved at least annually by the vote of a majority of the Independent Trustees, cast in person at a meeting called for that purpose and by the vote of either a majority of the entire Board or a majority of the outstanding voting securities of each Fund. The Distribution Agreement may be terminated with respect to each Fund at any time, without payment of any penalty, by IMDI on 60 days' written notice to that Fund or by a Fund by vote of either a majority of the outstanding voting securities of that Fund or a majority of the Independent Trustees on 60 days' written notice to IMDI. The Distribution Agreement shall terminate automatically in the event of its assignment. PAYMENTS TO DEALERS: MIMI on behalf of IMDI currently intends to pay to dealers a sales commission of 4% of the sale price of Class B shares they have sold, and MIMI or one of its subsidiaries will receive the entire amount of the CDSC paid by shareholders on the redemption of Class B shares to finance the 4% commission and related marketing expenses. With respect to Class C shares, MIMI on behalf of IMDI currently intends to pay to dealers a sales commission of 1% 43 of the sale price of Class C shares that they have sold, a portion of which is to compensate the dealers for providing Class C shareholder account services during the first year of investment. MIMI or one of its subsidiaries will receive the entire amount of the CDSC paid by shareholders on the redemption of Class C shares to finance the 1% commission and related marketing expenses. 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 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 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. 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 re-designation 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 re-designation (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, 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, Ivy Bond 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 44 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, Ivy 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 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 of the Trust shall be committed to the discretion of the then current Independent Trustees. 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 advisors, 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 permits IMDI to sell its right to receive distribution fees under the Class B Plan and CDSCs to third parties. MIMI on behalf of IMDI enters into such transactions to finance the payment of commissions to brokers at the time of sale and other 45 distribution-related expenses. The Trust has agreed that the distribution fee will not be terminated or modified (including a modification by change in the rules relating to the conversion of Class B shares into shares of another class) for any reason (including a termination of the underwriting agreement) except: (i) to the extent required by a change in the 1940 Act, the rules or regulations under the 1940 Act, or the Conduct Rules of the NASD, in each case enacted, issued, or promulgated after March 16, 1999; (ii) on a basis which does not alter the amount of the distribution payments to IMDI computed with reference to Class B shares the date of original issuance of which occurred on or before December 31, 1998; (iii) in connection with a Complete Termination (as defined in the Class B Plan); or (iv) on a basis determined by the Board of Trustees acting in good faith so long as (a) neither the Trust nor any successor trust or fund or any trust or fund acquiring a substantial portion of the assets of the Trust (collectively, the "Affected Funds") nor the sponsors of the Affected Funds pay, directly or indirectly, as a fee, a trailer fee, or by way of reimbursement, any fee, however denominated, to any person for personal services, account maintenance services or other shareholder services rendered to the holder of Class B shares of the Affected Funds from and after the effective date of such modification or termination, and (b) the termination or modification of the distribution fee applies with equal effect to all outstanding Class B shares from time to time of all Affected Funds regardless of the date of issuance thereof. In the underwriting agreement, the Trust has also agreed that it will not take any action to waive or change any CDSC in respect of any Class B share the date of original issuance of which occurred on or before December 31, 1998, except as provided in the Trust's prospectus or statement of additional information, without the consent of IMDI and its transferees. During the fiscal year ended December 31, 2001, Ivy Bond Fund paid IMDI $110,085 pursuant to its Class A plan. During the fiscal year ended December 31, 2001, Ivy Bond Fund paid IMDI $196,154 pursuant to its Class B plan. During the fiscal year ended December 31, 2001, Ivy Bond Fund paid IMDI $26,250 pursuant to its Class C plan. During the fiscal year ended December 31, 2001, MIMI or IMDI expended the following amounts in marketing Class A shares of Ivy Bond Fund: advertising $323, printing and mailing of prospectuses to persons other than current shareholders, $13,486; compensation to the underwriters $0; compensation to 46 dealers, $40,392; compensation to sales personnel $100,576; interest, carrying or other financing charges $0; seminars and meetings, $10,098; travel and entertainment, $15,757; general and administrative, $13,379; telephone, $2,540; and occupancy and equipment rental, $15,516. During the fiscal year ended December 31, 2001, MIMI or IMDI expended the following amounts in marketing Class B shares of Ivy Bond Fund: advertising, $160; printing and mailing of prospectuses to persons other than current shareholders, $6,310; compensation to underwriters $0; compensation to dealers, $24,591; compensation to sales personnel, $46,131; interest, carrying or other financing charges $0; seminars and meetings, $6,148; travel and entertainment, $7,160; general and administrative, $6,586; telephone, $1,163; and occupancy and equipment rental $7095. During the fiscal year ended December 31, 2001, MIMI or IMDI expended the following amounts in marketing Class C shares of Ivy Bond Fund: advertising, $22; printing and mailing of prospectuses to persons other than current shareholders, $845; compensation to underwriters $0; compensation to dealers, $9,190; compensation to sales personnel, $6,090; interest, carrying or other financing charges $0; seminars and meetings, $2,298; travel and entertainment, $949; general administrative, $858; telephone, $153; and occupancy and equipment rental, $932. 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, 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 is based upon the net assets of the Fund at the preceding month end at the following rates: $1,000 47 when net assets are $20 million and under; $1,500 when net assets are over $20 million to $75 million; $4,000 when net assets are over $75 million to $100 million; and $6,000 when net assets are over $100 million. During the fiscal year ended December 31, 2001, Ivy Bond Fund paid MIMI $53,853 under the agreement. During the fiscal year ended December 31, 2001, Ivy Money Market Fund paid MIMI $31,959 under the agreement. TRANSFER AGENT AND DIVIDEND PAYING AGENT Pursuant to a Transfer Agency Services Agreement, PFPC Global Fund Services, Inc. ("PFPC"), a Massachusetts corporation, located at 4400 Computer Drive, Westborough, MA 01581 is the transfer agent for each Fund. Under the Agreement, Ivy Bond Fund pays a monthly fee at an annual rate of $17.00 for each open Class A, Class B, Class C and Advisor Class account. The Fund pays a monthly fee at an annual rate of $10.25 for each open Class I account. In addition, the Fund pays a monthly fee at an annual rate of $3.60 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, 2001 totaled $176,093. Ivy Money Market pays PFPC an annual fee of $22.00 per open account and $4.58 for each account that is closed, and reimburses PFPC monthly for out-of-pocket expenses. Such fees and expenses for Ivy Money Market Fund for the fiscal year ended December 31, 2001 totaled $96,709. 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 PFPC if the individual accounts that comprise the omnibus account were opened by their beneficial owners directly. PFPC 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, for Ivy Bond Fund, Advisor Class shares. Ivy Bond 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, 2001 for Ivy Bond Fund totaled $66,472. Such fees for the fiscal year ended December 31, 2001 for Ivy Money Market Fund totaled $23,227. 48 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. AUDITORS PricewaterhouseCoopers LLP, independent certified public accountants, located at 200 East Las Olas Blvd., Ste. 1700, Ft. Lauderdale, Florida 33301, has been selected as auditors for the Trust. The audit services performed by PricewaterhouseCoopers LLP include audits of the annual financial statements of each of the funds of the Trust. Other services provided principally relate to filings with the SEC and the preparation of the funds' tax returns. BROKERAGE ALLOCATION Subject to the overall supervision of the President and the Board, IMI places orders for the purchase and sale of each Fund's portfolio securities. Purchases and sales of securities on a securities exchange are effected through brokers who charge a commission for their services. However, the types of securities in which the Funds invest, debt securities, are usually purchased and sold through 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. The types of securities that the Funds purchase do not normally involve the payment of brokerage commissions. For transactions in debt securities, IMI's selection of broker-dealers is generally based on the availability of a security and its price and, to a lesser extent, on the overall quality of execution and other services, including research, provided to the Trust by the broker-dealer. If any brokerage commissions are paid, however, IMI selects broker-dealers to execute transactions and evaluates the reasonableness of any commissions on the basis of quality, quantity, and the nature of the firms' professional services. Any commissions to be charged, and the rendering of investment services, including any 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 49 with research services. IMI may choose broker-dealers that provide IMI with research services and may cause a client to pay such broker-dealers commissions which exceed those other broker-dealers may have charged, if IMI views the commissions as reasonable in relation to the value of the brokerage and/or research services. IMI will not, however, seek to execute brokerage transactions other than at the best price and execution, taking into account all relevant factors such as price, promptness of execution and other advantages to clients, including a determination that the commission paid is reasonable in relation to the value of the brokerage and/or research services. During the fiscal years ended December 31, 1999 and 2000, Ivy Bond Fund paid brokerage commissions of $0 and $6,098, respectively. For the fiscal year ended December 31, 2001, the Fund paid a total of $0 in brokerage commissions with respect to portfolio transactions aggregating $0. During the fiscal years ended December 31, 1999, 2000 and 2001, Ivy Money Market Fund paid brokerage commission of $0, $0 and $0, respectively. Each Fund may, under some circumstances, accept securities in lieu of cash as payment for Fund shares. Each Fund will accept securities only to increase its holdings in a portfolio security or to take a new portfolio position in a security that IMI deems to be a desirable investment for the Fund. While no minimum has been established, it is expected that each Fund will not accept securities having an aggregate value of less than $1 million. The Trust may reject in whole or in part any or all offers to pay for any Fund shares with securities and may discontinue accepting securities as payment for any Fund shares at any time without notice. The Trust will value accepted securities in the manner and at the same time provided for valuing portfolio securities of each Fund, and the Fund shares will be sold for net asset value determined at the same time the accepted securities are valued. The Trust will only accept securities delivered in proper form and will not accept securities subject to legal restrictions on transfer. The acceptance of securities by the Trust must comply with the applicable laws of certain states. CAPITALIZATION AND VOTING RIGHTS The capitalization of the Trust consists of an unlimited number of shares of beneficial interest (no par value per share). When issued, shares of each class of each Fund are fully paid, non-assessable, redeemable and fully transferable. No class of shares of any Fund has preemptive rights or subscription rights. The Amended and Restated Declaration of Trust permits the Trustees to create separate series or portfolios and to divide any series or portfolio into one or more classes. Pursuant to the Declaration of Trust, the Trustees may terminate any Fund without shareholder approval. This might occur, for example, if a Fund does not reach or fails to maintain an economically viable size. The Trustees have authorized sixteen series, each of which represents a fund. The Trustees have further authorized the issuance of Class A, Class B, and Class C shares for Ivy Money Market Fund and Class A, Class B, Class C and Advisor Class shares for Ivy Bond Fund, Ivy Cundill Global Value Fund, Ivy Developing Markets Fund, Ivy European Opportunities Fund, Ivy Global Fund, Ivy Global Natural 50 Resources Fund, Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy International Fund, Ivy International Growth Fund, Ivy International Small Companies Fund, Ivy International Value Fund, Ivy Pacific Opportunities Fund, Ivy US Blue Chip Fund and Ivy US Emerging Growth Fund, as well as Class I shares for Ivy Bond Fund, Ivy Cundill Global Value Fund, Ivy European Opportunities Fund, Ivy Global Science & Technology Fund, Ivy International Growth Fund, Ivy International Small Companies Fund, Ivy International Value Fund and Ivy US Blue Chip Fund. Shareholders have the right to vote for the election of Trustees of the Trust and on any and all matters on which they may be entitled to vote by law or by the provisions of the Trust's By-Laws. The Trust is not required to hold a regular annual meeting of shareholders, and it does not intend to do so. Shares of each class of each Fund entitle their holders to one vote per share (with proportionate voting for fractional shares). Shareholders of each Fund are entitled to vote alone on matters that only affect that Fund. All classes of shares of each Fund will vote together, except with respect to the distribution plan applicable to the Fund's Class A, Class B or Class C shares or when a class vote is required by the 1940 Act. On matters relating to all funds of the Trust, but affecting that funds differently, separate votes by the shareholders of each fund are required. Approval of an investment advisory agreement and a change in fundamental policies would be regarded as matters requiring separate voting by the shareholders of each fund of the Trust. If the Trustees determine that a matter does not affect the interests of a Fund, then the shareholders of that Fund will not be entitled to vote on that matter. Matters that affect the Trust in general, such as ratification of the selection of independent public accountants, will be voted upon collectively by the shareholders of all funds of the Trust. As used in this SAI and the Prospectus, the phrase "majority vote of the outstanding shares" of a Fund means the vote of the lesser of: (1) 67% of the shares of the Fund (or of the Trust) present at a meeting if the holders of more than 50% of the outstanding shares are present in person or by proxy; or (2) more than 50% of the outstanding shares of the Fund (or of the Trust). With respect to the submission to shareholder vote of a matter requiring separate voting by a Fund, the matter shall have been effectively acted upon with respect to the Fund if a majority of the outstanding voting securities of the Fund votes for the approval of the matter, notwithstanding that: (1) the matter has not been approved by a majority of the outstanding voting securities of any other fund of the Trust; or (2) the matter has not been approved by a majority of the outstanding voting securities of the Trust. The Amended and Restated Declaration of Trust provides that the holders of not less than two-thirds of the outstanding shares of the Trust may remove a person serving as trustee either by declaration in writing or at a meeting called for such purpose. The Trustees are required to call a meeting for the purpose of considering the removal of a person serving as Trustee if requested in writing to do so by the holders of not less than 10% of the outstanding shares of the Trust. Shareholders will be assisted in communicating with other shareholders in connection with the removal of a Trustee as if Section 26(c) of the Act were applicable. The Trust's shares do not have cumulative voting rights and accordingly the holders of more than 50% of the outstanding shares could elect the entire Board, in which case the holders of the remaining shares would not be able to elect any Trustees. 51 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 Information as to how to purchase Fund shares is contained in the prospectus. The Trust offers, and (except as noted below) bears the cost of providing, to investors the following 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 Cundill Global Value Fund, Ivy Developing Markets Fund, Ivy European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund, Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy International Value Fund, Ivy International Fund, Ivy International Growth Fund, Ivy International Small Companies Fund, Ivy Pacific Opportunities Fund, Ivy US Blue Chip Fund and Ivy US Emerging Growth Fund (the other fourteen series of the Trust). Shareholders should obtain a current prospectus before exercising any right or privilege that may relate to these funds. AUTOMATIC INVESTMENT METHOD The Automatic Investment Method, which enables a Fund shareholder to have specified amounts automatically drawn each month from his or her bank for investment in Fund shares, is available for all classes of shares, except Class I. The minimum initial and subsequent investment under this method is $50 per month, $250 for Advisor Class shares, (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 PFPC of telephone instructions or written notice. See "Automatic Investment Method" in the Prospectus. To begin the plan, complete Sections 8 and 9 of the Account Application. EXCHANGE OF SHARES As described in the Prospectus, shareholders of each Fund have an exchange privilege with other Ivy funds. Before effecting an exchange, shareholders of each Fund should obtain and read the currently effective prospectus for the Ivy fund into which the exchange is to be made. 52 A 2% redemption fee or short-term trading fee will be imposed on redemptions and exchanges of Class A shares of Ivy Bond Fund made within 30 days of purchase. This fee will be retained by the Fund. See "Redemptions" below. INITIAL SALES CHARGE SHARES. Generally, Class A shareholders of Ivy 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 the Fund 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). In certain short-term transactions, Class A shares of Ivy Bond Fund may be subject to a fee redemption or exchange. See "REDEMPTIONS" below. Ivy 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 the Fund that are purchased using all or a portion of the proceeds obtained by such clients through redemptions of shares of a mutual fund (other than the Fund) on which a sales charge was paid (the "NAV transfer privilege"). Purchases eligible for the NAV transfer privilege must be made within 60 days of redemption from the other fund, and the Class A shares purchased are subject to a 1.00% CDSC on shares redeemed within the first year after purchase. The NAV transfer privilege also applies to Fund shares purchased directly by clients of such dealers as long as their accounts are linked to the dealer's master account. The normal service fee, as described in the "Initial Sales Charge Alternative - Class A Shares" section of the Prospectus, will be paid to those dealers in connection with these purchases. IMDI may from time to time pay a special cash incentive to The Legend Group or United Planners Financial Services of America, Inc. in connection with sales of shares of 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 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. 53 CLASS B: Class B shareholders of Ivy 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 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 Bond Fund, Ivy Cundill Global Value Fund, Ivy Developing Markets Fund, Ivy European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund, Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy International Fund, Ivy International Growth Fund, Ivy International Small Companies Fund, Ivy International Value Fund, Ivy Pacific Opportunities Fund, Ivy US Blue Chip Fund and Ivy US Emerging Growth Fund: CONTINGENT DEFERRED SALES CHARGE AS A PERCENTAGE OF YEAR SINCE PURCHASE DOLLAR AMOUNT SUBJECT TO CHARGE - ------------------- ------------------------------- First 5% Second 4% Third 3% Fourth 3% Fifth 2% Sixth 1% Seventh and thereafter 0% CLASS C: Class C shareholders of Ivy Bond Fund 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 AND ADVISOR CLASS: Subject to the restrictions set forth in the following paragraph, Class I and Advisor Class shareholders of Ivy Bond Fund may exchange their outstanding shares for the same class of shares of another Ivy fund on the basis of the relative net asset value per share. 54 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; $10,000 in the case of Advisor Class 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; $10,000 in the case of Advisor Class 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 PFPC of telephone instructions by PFPC or a properly executed request. Exchanges, whether written or telephonic, must be received by PFPC 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 advisor 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 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. 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 Bond Fund, Ivy Cundill Global Value Fund, Ivy Developing Markets Fund, Ivy European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund, Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy International Fund, Ivy International Growth Fund, Ivy International Small Companies Fund, Ivy International Value Fund, Ivy Pacific Opportunities Fund, Ivy US Blue Chip Fund and Ivy US Emerging Growth Fund (and shares that have been exchanged into Ivy Money Market Fund from any of the other funds in the Ivy 55 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 PFPC, who may impose a charge for establishing the account. Individuals should consult their tax advisors before investing IRA assets in a fund if that fund primarily distributes exempt-interest dividends. An individual who has not reached age 70-1/2 and who receives compensation or earned income is eligible to contribute to an IRA, whether or not he or she is an active participant in a retirement plan. An individual who receives a distribution from another IRA, a qualified retirement plan, a qualified annuity plan or a tax-sheltered annuity or custodial account ("403(b) plan") that qualifies for "rollover" treatment is also eligible to establish an IRA by rolling over the distribution either directly or within 60 days after its receipt. Tax advice should be obtained in connection with planning a rollover contribution to an IRA. In general, for years 2002 through 2004, an eligible individual may contribute up to the lesser of $3,000 ($3,500 if 50 or older) or 100% of his or her compensation or earned income to an IRA each year. If a husband and wife are 56 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 $3,000 ($3,500 if 50 or older) per year, the maximum potential contribution is $6,000 ($7,000 if 50 or older) 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 $6,000 ($7,000 if 50 or older), a contribution of up to $3,000 ($3,500 if 50 or older) 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 $3,000 ($3,500 if 50 or older) per year to a Roth IRA for years 2002 through 2004. 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 57 a full $6,000 per year ($7,000 if 50 or older) or ($3,000 per IRA) ($3,500 per IRA if 50 or older). 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 $3,000 ($3,500 if 50 or older). 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 PFPC. 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 $40,000 or 100% of compensation or earned income to a money purchase pension plan or to a profit sharing plan each year on behalf of each participant. To be deductible, total contributions to a money purchase plan or profit sharing plan 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 $200,000 for benefits accruing in plan years beginning after 2001, 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. 58 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 severance from employment. 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 PFPC. Distributions from the 403(b)(7) Account may be made only following death, disability, severance from employment, 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 $40,000 or 25% 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 $7,000 for 2002 (as increased for 2003 through 2005 and indexed thereafter). Subject to certain limits, the employer 59 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 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 PFPC of the reinvestment order accompanied by the funds to be reinvested. No compensation will be paid to any sales personnel or dealer in connection with the transaction. Any redemption is a taxable event. A loss realized on a redemption generally may be disallowed for tax purposes if the reinvestment privilege is exercised within 30 days after the redemption. In certain circumstances, shareholders will be ineligible to take sales charges into account in computing taxable gain or loss on a redemption if the reinvestment privilege is exercised. See "Taxation." REDUCED SALES CHARGES AND RIGHTS OF ACCUMULATION A scale of reduced sales charges applies to any investment of $50,000 or more in Class A shares of Ivy 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, PFPC 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 PFPC of a written election to have his or her shares withdrawn periodically, accompanied by a surrender to PFPC of all share certificates then outstanding in such shareholder's name, properly endorsed by 60 the shareholder. To be eligible to elect a Withdrawal Plan, a shareholder must have at least $5,000 in his or her account for Class A, B or C shareholders, and $10,000 in his or her account for Advisor Class shareholders. 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 advisors. Additional investments made by investors participating in a Withdrawal Plan must equal at least $1,000 each and $250 each in the case of Advisor Class shares 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 PFPC. If all shares held by the investor are liquidated at any time, participation in the Withdrawal Plan will terminate automatically. The Trust or PFPC 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 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 61 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 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 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 PFPC, less any applicable CDSC or redemption fee. 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. 62 Under unusual circumstances, when the Board deems it in the best interest of a Fund's shareholders, the Fund may make payment for shares repurchased or redeemed in whole or in part in securities of that Fund taken at current values. If any such redemption in kind is to be made, each Fund may make an election pursuant to Rule 18f-1 under the 1940 Act. This will require the particular Fund to redeem with cash at a shareholder's election in any case where the redemption involves less than $250,000 (or 1% of that Fund's net asset value at the beginning of each 90-day period during which such redemptions are in effect, if that amount is less than $250,000). Should payment be made in securities, the redeeming shareholder may incur brokerage costs in converting such securities to cash. The Trust may redeem those accounts of Class A, B, C or I 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; Advisor Class shareholders must have maintained an investment of $10,000 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 and $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 certain retirement plans or accounts who wish to avoid tax consequences must "rollover" any sum so redeemed into another eligible 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. Class A shares of the Fund held for less than 30 days are redeemable at a price equal to 98% of the then current net asset value per share. This 2% discount, also referred to in the Prospectus and this statement of additional information as a redemption fee, exchange fee or short-term trading fee, 63 directly affects the amount that a shareholder who is subject to the discount receives upon exchange or redemption. It is intended to encourage long-term investment in the Fund, to avoid transaction and other expenses caused by early redemptions and to facilitate portfolio management. The fee is not a deferred sales charge, is not a commission paid to IMI or its subsidiaries, and does not benefit IMI in any way. The Fund reserves the right to modify the terms of or terminate this fee at any time. The redemption discount may generally be waived for any redemption of Class A shares (a) Class A shares purchased through certain retirement and educational plans, including 401(k) plans, 403(b) plans, 457 plans, Keogh accounts, Profit Sharing and Money Purchase Pension Plans and 529 plans, (b) purchased through the reinvestment of dividends or capital gains distributions paid by the Fund, (c) due to the death of the registered shareholder of a Fund account, or, due to the death of all registered shareholders of a Fund account with more than one registered shareholder, (i.e., joint tenant account), upon receipt by PFPC of appropriate written instructions and documentation satisfactory to the PFPC, or (d) by the Fund upon exercise of its right to liquidate accounts (i) falling below the minimum account size by reason of shareholder redemptions or (ii) when the shareholder has failed to provide tax identification information. However, if Class A shares are purchased for a retirement plan account through a broker, financial institution or recordkeeper maintaining an omnibus account for the shares, these waivers may not apply. (Before purchasing Class A shares, please check with your account representative concerning the availability of the fee waivers.) In addition, these waivers do not apply to IRA and SEP-IRA accounts. For this purpose and without regard to the Class A shares actually redeemed, Class A shares will be treated as redeemed as follows: first, reinvestment shares; second, purchased shares held 30 days or more; and third, purchased shares held for less than 30 days. Finally, if a redeeming shareholder acquires Class A shares through a transfer from another shareholder, the applicability of the discount, if any, will be determined by reference to the date the Class A shares were originally purchased, and not from the date of transfer between shareholders. CONVERSION OF CLASS B SHARES As described in the Prospectus, Class B shares of Ivy Bond Fund will automatically convert to Class A shares, 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 64 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 market 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 the time as of which such rate is determined by an approved pricing source. 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 asked price, in the case of a written option, and the 65 last bid price, in the case of a purchased option. An OTC traded option is valued at the last asked 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. IMI will monitor for significant events that may call into question the reliability of market quotations. Such events may include situations relating to a single security in a market sector, significant fluctuations in U.S. or foreign markets, natural disasters, armed conflicts, governmental actions or other developments not tied directly to the securities markets. 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 PFPC 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 66 consult a competent tax advisor 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 67 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 68 transactions closed before the end of the 30th day after the close of each Fund's taxable year, if the position is held throughout the 60-day period beginning on the date the transaction is closed and certain other 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 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. Ivy Bond 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, 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, 69 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 70 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 71 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 advisors. 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 30% ("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. 72 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 advisors 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 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 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. 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 73 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, 2001 was 0.67%, 0.76% and 0.50% for Class A, Class B and Class C shares, respectively. IMI currently reimburses the Fund to limit ordinary operating expenses to 0.85% of average net assets. Without reimbursement, the Fund's current yield for this period would have been 3.65%. IVY 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, Class C and Advisor Class shares of Ivy Bond Fund for the 30-day period ended December 31, 2001 were 5.68%, 5.15%, 5.18% and 5.65%, respectively. There were no Class I shares outstanding as of December 31, 2001. AVERAGE ANNUAL TOTAL RETURN. Quotations of standardized average annual total return ("Standardized Return") for a specific class of shares of Ivy 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: 74 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 4.75% sales charge for Ivy 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. 75 The following tables summarize the calculation of Standardized and Non-Standardized Return for the Class A, Class B, Class C, Class I and Advisor Class shares of Ivy Bond Fund for the periods indicated. In determining the average annual total return for a specific class of shares of the Fund, recurring fees, if any, that are charged to all shareholder accounts are taken into consideration. For any account fees that vary with the size of the account of the Fund, the account fee used for purposes of the following computations is assumed to be the fee that would be charged to the mean account size of the Fund. 76 STANDARDIZED RETURN FOR IVY BOND FUND[*] [#]
CLASS A[1] CLASS B CLASS C CLASS I[2] ADVISOR CLASS[3] ---------- ------- ------- ---------- ---------------- One year ended December 31, 2001 3.53% 2.60% 6.50% N/A 9.07% Return after taxes on distributions *** 1.20% N/A N/A N/A N/A Return after taxes on distributions and sale of Fund shares *** 1.22% N/A N/A N/A N/A Five years ended December 31, 2001 2.06% 1.64% 2.22% N/A N/A Return after taxes on distributions *** (0.66)% N/A N/A N/A N/A Return after taxes on distributions and sale of Fund shares *** (0.56)% N/A N/A N/A N/A Ten years ended December 31, 2001 5.34% N/A N/A N/A N/A Return after taxes on distributions *** 2.28% N/A N/A N/A N/A Return after taxes on distributions and sale of Fund shares *** 2.53% N/A N/A N/A N/A
77 NON-STANDARDIZED RETURN FOR IVY BOND FUND[**]
CLASS A[4] CLASS B CLASS C CLASS I[2] ADVISOR CLASS[3] ---------- ------- ------- ---------- ---------------- Year ended December 31, 2001 8.70% 7.60% 7.50% N/A 9.05% Five years ended December 31, 2001 3.06% 2.20% 2.22% N/A N/A Ten years ended December 31, 2001 5.85% N/A N/A N/A N/A
[*] 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 and Advisor Class 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. [***] After-tax returns are calculated using the historical highest individual federal marginal income tax rates. State and local tax rates are not included in the tax effect. [#] Until December 31, 1994, MIMI served as investment advisor 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; the inception date for the Class C shares of the Fund was April 30, 1996; the inception date for the Advisor Class shares was January 20, 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, 2001 and the one, five and ten year periods ended December 31, 2001 would have been 1.91%, 3.53%, 2.06% and 5.33%, respectively. [2] No Class I shares were outstanding during the time periods indicated. [3] Advisor Class shares are not subject to an initial sales charge or a CDSC; therefore, the Standardized and Non-Standardized Return figures are 78 identical. Without expense reimbursement, the Standardized and Non-Standardized Return for Advisor Class shares for the period from inception through December 31, 2001 and the one year period ended December 31, 2001 would have been (1.24)% and 9.07%, 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, 2001 and the one, five and ten year periods ended December 31, 2001 would have been 2.23%, 8.70%, 3.06% and 5.85%, respectively. [5] 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 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, 2001, assuming the maximum 4.75% sales charge has been assessed.
ONE YEAR FIVE YEARS TEN YEARS SINCE INCEPTION[*] -------- ---------- --------- ------------------ Class A 3.53% 10.73% 68.22% 200.06% Class B 2.60% 9.47% N/A 36.30% Class C 6.50% 11.58% N/A 21.41% Class I N/A N/A N/A N/A Advisor Class 9.07% N/A N/A 4.28%
79 The following table summarizes the calculation of Cumulative Total Return for Ivy Bond Fund for the periods indicated through December 31, 2001, assuming the maximum 4.75% sales charge has not been assessed.
ONE YEAR FIVE YEARS TEN YEARS SINCE INCEPTION[*] -------- ---------- --------- ------------------ Class A 8.70% 16.25% 76.61% 215.03% Class B 7.61% 11.47% N/A 36.30% Class C 7.51% 11.58% N/A 21.41% Class I N/A N/A N/A N/A Advisor Class 9.07% N/A N/A 4.28%
- --------------------------- [*] Until December 31, 1994, MIMI served as investment advisor 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. The inception date for Advisor Class shares was January 20, 1998. OTHER QUOTATIONS, COMPARISONS AND GENERAL INFORMATION. The foregoing computation methods are prescribed for advertising and other communications subject to SEC Rule 482. Communications not subject to this rule may contain a number of different measures of performance, computation methods and assumptions, including but not limited to: historical total returns; results of actual or hypothetical investments; changes in dividends, distributions or share values; or any graphic illustration of such data. These data may cover any period of the Trust's existence and may or may not include the impact of sales charges, taxes or other factors. Performance quotations for each Fund will vary from time to time depending on market conditions, the composition of 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. 80 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 Schedule of Investments as of December 31, 2001, Statement of Assets and Liabilities as of December 31, 2001, Statement of Operations for the fiscal year ended December 31, 2001, Statement of Changes in Net Assets for the fiscal years ended December 31, 2001 and 2000, Financial Highlights, Notes to Financial Statements, and Public Accountants, Report of Independent Certified Public Accountants, which are included in each Fund's December 31, 2001 Annual Report to shareholders, are incorporated by reference into this SAI. 81 APPENDIX A DESCRIPTION OF STANDARD & POOR'S RATINGS SERVICES ("S&P") AND MOODY'S INVESTORS SERVICE, INC. ("MOODY'S") CORPORATE BOND AND COMMERCIAL PAPER RATINGS [From Moody's Rating Definitions, www.moodys.com, December 2000, and "Standard & Poor's Municipal Ratings Handbook," September 2000 Issue (McGraw-Hill, New York, 2000).] MOODY'S: (a) CORPORATE BONDS. Aaa Bonds that are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edged." Interest payments are protected by a large or by an 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. Aa Bonds that are rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high-grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risk appear somewhat larger than the Aaa securities. A Bonds that are rated A 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 some time in the future. Baa Bonds which are rated Baa are considered as 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. Ba Bonds that are rated Ba are judged to have speculative elements; their future cannot be considered as 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. B Bonds that are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. Caa Bonds that 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. Ca Bonds that are rated Ca represent obligations that are speculative in a high degree. Such issues are often in default or have other marked shortcomings. 82 C 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. Moody's short-term issuer ratings are opinions of the ability of issuers to honor senior financial obligations and contracts. These obligations have an original maturity not exceeding one year, unless explicitly noted. Moody's employs the following three designations, all judged to be investment grade, to indicate the relative repayment ability of rated issuers: Issuers rated Prime-1 (or supporting institutions) have a superior ability for repayment of senior short-term debt obligations. Prime-1 repayment ability will often be evidenced by many of the following characteristics: leading market positions in well-established industries; high rates of return on funds employed; conservative capitalization structure with moderate reliance on debt and ample asset protection; broad margins in earnings coverage of fixed financial charges and high internal cash generation; well-established access to a range of financial markets and assured sources of alternate liquidity. Issuers rated Prime-2 (or supporting institutions) have a strong ability for repayment of senior short-term debt obligations. This will normally be evidenced by many of the characteristics cited above but to a lesser degree. Earnings trends and coverage ratios, while sound, may be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained. Issuers rated Prime-3 (or supporting institutions) have an acceptable ability for repayment of senior short-term obligations. The effect of industry characteristics and market compositions may be more pronounced. Variability in earnings and profitability may result in changes in the level of debt protection measurements and may require relatively high financial leverage. Adequate alternate liquidity is maintained. Issuers rated Not Prime do not fall within any of the Prime rating categories. S&P: (a) LONG-TERM ISSUE CREDIT RATINGS. Issue credit ratings are based in varying degrees on the following considerations: o Likelihood of payment -- capacity and willingness of the obligor to meet its financial commitment on an obligation in accordance with the terms of the obligation; o Nature of and provisions of the obligation; and o Protection afforded by, and relative position of, the obligation in the event of bankruptcy, reorganization, or other arrangement under the laws of bankruptcy and other laws affecting creditors' rights. 83 The issue ratings definitions are expressed in terms of default risk. As such, they pertain to senior obligations of an entity. Junior obligations are typically rated lower than senior obligations, to reflect the lower priority in bankruptcy, as noted above. AAA An obligation rated `AAA' has the highest rating assigned by S&P. The obligor's capacity to meet its financial commitment on the obligation is extremely strong. AA An obligation rated `AA' differs from the highest rated obligations only in small degree. The obligor's capacity to meet its financial commitment on the obligation is very strong. A An obligation rated `A' is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher-rated categories. However, the obligor's capacity to meet its financial commitment on the obligation is still strong. BBB An obligation rated `BBB' exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation. BB, B, CCC, CC, AND C Obligations rated `BB', `B', `CCC', `CC', and `C' are regarded as having significant speculative characteristics. `BB' indicates the least degree of speculation and `C' the highest. While such obligations will likely have some quality and protective characteristics, these may be outweighed by large uncertainties or major exposures to adverse conditions. BB An obligation rated `BB' is less vulnerable to nonpayment than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions, which could lead to the obligor's inadequate capacity to meet its financial commitment on the obligation. B An obligation rated `B' is more vulnerable to nonpayment than obligations rated `BB,' but the obligor currently has the capacity to meet its financial commitment on the obligation. Adverse business, financial, or economic conditions will likely impair the obligor's capacity or willingness to meet its financial commitment on the obligation. CCC An obligation rated `CCC' is currently vulnerable to nonpayment and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation. In the event of adverse business, financial, or economic conditions, the obligor is not likely to have the capacity to meet its financial commitment on the obligation. CC An obligation rated `CC' is currently highly vulnerable to nonpayment. C The `C' rating may be used to cover a situation where a bankruptcy petition has been filed or similar action has been taken, but payments on this obligation are being continued. D An obligation rated `D' is in payment default. The `D' rating category is used when payments on an obligation are not made on the date due even if the applicable grace period has not expired, unless S&P believes that 84 such payments will be made during such grace period. The `D' rating also will be used upon the filing of a bankruptcy petition or the taking of a similar action if payments on an obligation are jeopardized. (b) COMMERCIAL PAPER. An S&P commercial paper rating is a current assessment of the likelihood of timely payment of debt having an original maturity of no more than 365 days. Ratings are graded into several categories, ranging from `A' for the highest-quality obligations to `D' for the lowest. These categories are as follows: A-1 This designation 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. A-2 Capacity for timely payment on issues with this designation is satisfactory. However, the relative degree of safety is not as high as for issues designated `A-1.' A-3 Issues carrying this designation have an adequate capacity for timely payment. They are, however, more vulnerable to the adverse effects of changes in circumstances than obligations carrying the higher designations. B Issues rated `B' are regarded as having only speculative capacity for timely payment. C This rating is assigned to short-term debt obligations with a doubtful capacity for payment. D 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. 85 PART C. OTHER INFORMATION Item 23: Exhibits: (a) Articles of Incorporation: (1) Amended and Restated Declaration of Trust dated December 10, 1992, filed with Post-Effective Amendment No. 102 and incorporated by reference herein. (2) Redesignation of Shares of Beneficial Interest and Establishment and Designation of Additional Series and Classes of Shares of Beneficial Interest (No Par Value) filed with Post-Effective Amendment No. 102 and incorporated by reference herein. (3) Amendment to Amended and Restated Declaration of Trust, filed with Post-Effective Amendment No. 102 and incorporated by reference herein. (4) Amendment to Amended and Restated Declaration of Trust, filed with Post-Effective Amendment No. 102 and incorporated by reference herein. (5) Establishment and Designation of Additional Series (Ivy Emerging Growth Fund), filed with Post-Effective Amendment No. 102 and incorporated by reference herein. (6) Redesignation of Shares (Ivy Growth with Income Fund--Class A) and Establishment and Designation of Additional Class (Ivy Growth with Income Fund--Class C), filed with Post-Effective Amendment No. 102 and incorporated by reference herein. (7) Redesignation of Shares (Ivy Emerging Growth Fund--Class A, Ivy Growth Fund--Class A and Ivy International Fund--Class A), filed with Post-Effective Amendment No. 102 and incorporated by reference herein. (8) Establishment and Designation of Additional Series (Ivy China Region Fund), filed with Post-Effective Amendment No. 102 and incorporated by reference herein. (9) Establishment and Designation of Additional Class (Ivy China Region Fund--Class B, Ivy Emerging Growth Fund--Class B, Ivy Growth Fund--Class B, Ivy Growth with Income Fund--Class B and Ivy International Fund--Class B), filed with Post-Effective Amendment No. 102 and incorporated by reference herein. -1- (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 -2- 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 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 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 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 -3- Post-Effective Amendment No. 110 and incorporated by reference herein. (27) Establishment and designation of Series and Classes (Ivy Cundill Value Fund -- Class A, Class B, Class C, Class I and Advisor Class) filed with Post-Effective Amendment No. 113 and incorporated by reference herein. (28) Establishment and designation of Series and Classes Ivy Next Wave Internet Fund -- Class A, Class B, Class C, Class I and Advisor Class) filed with Post-Effective Amendment No. 113 and incorporated by reference herein. (29) Establishment and Designation of Additional Class (Ivy International Fund--Advisor Class), filed with Post-Effective Amendment No. 119 and incorporated by reference herein. (30) Redesignation of Series of Shares of Beneficial Interest and Redesignation of Classes of Shares of Beneficial Interest (Ivy Next Wave Internet Fund redesignated as Ivy International Growth Fund) filed with Post-Effective Amendment No. 118 and incorporated by reference herein. (31) Redesignation of Series of Shares of Beneficial Interest and Redesignation of Classes of Shares of Beneficial Interest (Ivy Developing Nations Fund redesignated as Ivy Developing Markets Fund) filed with Post-Effective Amendment No. 119 and incorporated by reference herein. (32) Redesignation of Series of Shares of Beneficial Interest and Redesignation of Classes of Shares of Beneficial Interest (Ivy China Region Fund redesignated as Ivy Pacific Opportunities Fund) filed with Post-Effective Amendment No. 119 and incorporated by reference herein. (33) Redesignation of Series of Shares of Beneficial Interest and Redesignation of Classes of Shares of Beneficial Interest (Ivy International Fund II redesignated as Ivy International Value Fund) filed with Post-Effective Amendment No. 119 and incorporated by reference herein. (34) Abolition of Series of Shares of Beneficial Interest (Ivy Growth With Income Fund, Ivy Pan-Europe Fund, Ivy South America Fund) filed with Post-Effective Amendment No. 119 and incorporated by reference herein. (35) Redesignation of Series of Shares of Beneficial Interest and Redesignation of Classes of Shares of Beneficial Interest (Ivy Cundill Value Fund redesignated as Ivy Cundill Global Value Fund) filed with Post-Effective Amendment No. 120 and incorporated by reference herein. -4- (b) By-laws: (1) By-Laws, as amended, filed with Post-Effective Amendment No. 102 and incorporated by reference herein. (2) Amendment to the By-Laws, dated April 23, 2001, filed with Post-Effective Amendment No. 120 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. -5- (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 -6- 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 and incorporated by reference herein. -7- (22) Supplement to Master Business Management and Investment Advisory Agreement between Ivy Fund and Ivy Management, Inc. (Ivy International Strategic Bond Fund) filed with Post-Effective Amendment No. 110 and incorporated by reference herein. (23) Supplement to Master Business Management and Investment Advisory Agreement between Ivy Fund and Ivy Management, Inc. (Ivy European Opportunities Fund) filed with Post-Effective Amendment No. 110 and incorporated by reference herein. (24) Subadvisory Agreement between Ivy Management, Inc. and Henderson Investment Management Limited (Ivy International Small Companies Fund) filed with Post-Effective Amendment No. 110 and incorporated by reference herein. (25) Amendment to Subadvisory Agreement between Ivy Management, Inc. and Henderson Investment Management Limited (Ivy European Opportunities Fund) filed with Post-Effective Amendment No. 110 and incorporated by reference herein. (26) Supplement to Master Business Management and Investment Advisory Agreement between Ivy Fund and Ivy Management, Inc. (Ivy Cundill Value Fund and Ivy Next Wave Internet Fund) filed with Post-Effective Amendment No. 114 and incorporated by reference herein. (27) Subadvisory Agreement between Ivy Management, Inc. and Peter Cundill & Associates, Inc. (Ivy Cundill Value Fund) filed with Post-Effective Amendment No. 114 and incorporated by reference herein. (28) Supplement to Master Business Management and Investment Advisory Agreement between Ivy Fund and Ivy Management, Inc. (Ivy International Growth Fund), filed with Post-Effective Amendment No. 119 and incorporated by reference herein. (29) Interim Master Business Management and Investment Advisory Agreement between Ivy Fund and Ivy Management, Inc. (Ivy Bond Fund, Ivy Cundill Value Fund, Ivy Developing Markets Fund, Ivy European Opportunities Fund, Ivy Global Fund, Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy International Fund, Ivy International Growth Fund, Ivy International Small Companies Fund, Ivy International Value Fund, Ivy Money Market Fund, Ivy Pacific Opportunities Fund, Ivy US Blue Chip Fund, Ivy US Emerging Growth Fund), filed with Post-Effective Amendment No. 120 and incorporated by reference herein. -8- (30) Interim Master Business Management Agreement between Ivy Fund and Ivy Management, Inc. (Ivy Global Natural Resources Fund), filed with Post-Effective Amendment No. 120 and incorporated by reference herein. (31) Interim Investment Advisory Agreement between Ivy Fund and Mackenzie Financial Corp. (Ivy Global Natural Resources Fund), filed with Post-Effective Amendment No. 120 and incorporated by reference herein. (32) Interim Subadvisory Agreement between Ivy Management, Inc. and Henderson Investment Management Limited (Ivy European Opportunities Fund and Ivy International Small Companies Fund), filed with Post-Effective Amendment No. 120 and incorporated by reference herein. (33) Interim Subadvisory Agreement between Ivy Management, Inc. and Peter Cundill & Associates, Inc. (Ivy Cundill Value Fund), filed with Post-Effective Amendment No. 120 and incorporated by reference herein. (34) Master Business Management and Investment Advisory Agreement between Ivy Fund and Ivy Management, Inc. (Ivy Bond Fund, Ivy Cundill Global Value Fund, Ivy Developing Markets Fund, Ivy European Opportunities Fund, Ivy Global Fund, Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy International Fund, Ivy International Growth Fund, Ivy International Small Companies Fund, Ivy International Value Fund, Ivy Money Market Fund, Ivy Pacific Opportunities Fund, Ivy US Blue Chip Fund, Ivy US Emerging Growth Fund), filed with this Post-Effective Amendment No. 121. (35) Supplement to Master Business Management and Investment Advisory Agreement between Ivy Fund and Ivy Management, Inc. (Ivy Bond Fund, Ivy Cundill Global Value Fund, Ivy Developing Markets Fund, Ivy European Opportunities Fund, Ivy Global Fund, Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy International Fund, Ivy International Growth Fund, Ivy International Small Companies Fund, Ivy International Value Fund, Ivy Money Market Fund, Ivy Pacific Opportunities Fund, Ivy US Blue Chip Fund, Ivy US Emerging Growth Fund), filed with this Post-Effective Amendment No. 121. (36) Master Business Management Agreement between Ivy Fund and Ivy Management, Inc. (Ivy Global Natural Resources Fund), filed with this Post-Effective Amendment No. 121. (37) Supplement to Master Business Management Agreement between Ivy Fund and Ivy Management, Inc. (Ivy Global Natural Resources Fund), filed with this Post-Effective Amendment No. 121. -9- (38) Investment Advisory Agreement between Ivy Fund and Mackenzie Financial Corp. (Ivy Global Natural Resources Fund), filed with this Post-Effective Amendment No. 121. (39) Subadvisory Agreement between Ivy Management, Inc. and Henderson Investment Management Limited (Ivy European Opportunities Fund and Ivy International Small Companies Fund), filed with this Post-Effective Amendment No. 121. (40) Subadvisory Agreement between Ivy Management, Inc. and Peter Cundill & Associates, Inc. (Ivy Cundill Global Value Fund), filed with this Post-Effective Amendment No. 121. (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. -10- (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 and incorporated by reference herein. (14) Addendum to Amended and Restated Distribution Agreement (Ivy International Strategic Bond Fund) filed with Post-Effective Amendment No. 110 and incorporated by reference herein. (15) Addendum to Amended and Restated Distribution Agreement (Ivy European Opportunities Fund) filed with Post-Effective Amendment No. 110 and incorporated by reference herein. (16) Amended and Restated Distribution Agreement, filed with Post-Effective Amendment No. 110 and incorporated by reference herein. (17) Addendum to Amended and Restated Distribution Agreement (Ivy Cundill Value Fund and Ivy Next Wave Internet Fund) filed with Post-Effective Amendment No. 114 and incorporated by reference herein. (18) Addendum to Amended and Restated Distribution Agreement (Ivy International Fund - Advisor Class) filed with Post-Effective Amendment No. 117 and incorporated by reference herein. -11- (19) Addendum to Amended and Restated Distribution Agreement (Ivy International Growth Fund), filed with Post-Effective Amendment No. 119 and incorporated by reference herein. (20) Amended and Restated Distribution Agreement filed with Post-Effective Amendment No. 120 as Exhibit (m)(48) and incorporated herein by reference. (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. -12- (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. -13- (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. -14- (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. -15- (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. -16- (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 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 and incorporated by reference herein. (48) Addendum to Administrative Services Agreement (Ivy US Blue Chip Fund), filed with Post-Effective Amendment No. 101 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. -17- (54) Addendum to Administrative Services Agreement (Ivy European Opportunities Fund) filed with Post-Effective Amendment No. 110 and incorporated by reference herein. (55) Addendum to Transfer Agency and Shareholder Services Agreement (Ivy Cundill Value Fund and Ivy Next Wave Internet Fund) filed with Post-Effective Amendment No. 114 and incorporated by reference herein. (56) Addendum to Fund Accounting Services Agreement (Ivy Cundill Value Fund and Ivy Next Wave Internet Fund) filed with Post-Effective Amendment No. 114 and incorporated by reference herein. (57) Addendum to Administrative Services Agreement (Ivy Cundill Value Fund and Ivy Next Wave Internet Fund) filed with Post-Effective Amendment No. 114 and incorporated by reference herein. (58) Addendum to Transfer Agency and Shareholder Services Agreement (Ivy International Fund - Advisor Class) filed with Post-Effective Amendment No. 117 and incorporated by reference herein. (59) Addendum to Administrative Services Agreement (Ivy International Fund - Advisor Class) filed with Post-Effective Amendment No. 117 and incorporated by reference herein. (60) Addendum to Transfer Agency and Shareholder Services Agreement (Ivy International Growth Fund), filed with Post-Effective Amendment No. 119 and incorporated by reference herein. (61) Addendum to Fund Accounting Services Agreement (Ivy International Growth Fund), filed with Post-Effective Amendment No. 119 and incorporated by reference herein. (62) Administrative Services Agreement Supplement (Ivy International Growth Fund), filed with Post-Effective Amendment No. 119 and incorporated by reference herein. (63) Transfer Agency Services Agreement between PFPC Inc. and Ivy Fund, filed with this Post-Effective Amendment No. 121. (i) Legal Opinion: Opinion and consent of counsel, filed with this Post-Effective Amendment No. 121. (j) Other Opinions: Consents and reports of independent Certified Public Accountants filed with this Post-Effective Amendment No. 121. -18- (k) Omitted Financial Statements: Not applicable. (l) Initial Capital Agreements: Not applicable. (m) Rule 12b-1 Plans: (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. -19- (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- (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. -21- (30) Supplement to Distribution Plan for Ivy Fund Class C Shares (Ivy High Yield Fund), filed with Post-Effective Amendment No. 98 and incorporated by reference herein. (31) Supplement to Master Amended and Restated Distribution Plan for Ivy Fund Class A Shares (Ivy US Blue Chip Fund), filed with Post-Effective Amendment No. 101 and incorporated by reference herein. (32) Supplement to Distribution Plan for Ivy Fund Class B Shares (Ivy US Blue Chip Fund), filed with Post-Effective Amendment No. 101 and incorporated by reference herein. (33) Supplement to Distribution Plan for Ivy Fund Class C Shares (Ivy US Blue Chip Fund), filed with Post-Effective Amendment No. 101 and incorporated by reference herein. (34) Supplement to Master Amended and Restated Distribution Plan for Ivy Fund Class A Shares (Ivy International Strategic Bond Fund) filed with Post-Effective Amendment No. 110 and incorporated by reference herein. (35) Supplement to Distribution Plan for Ivy Fund Class B Shares (Ivy International Strategic Bond Fund) filed with Post-Effective Amendment No. 110 and incorporated by reference herein. (36) Supplement to Distribution Plan for Ivy Fund Class C Shares (Ivy International Strategic Bond Fund) filed with Post-Effective Amendment No. 110 and incorporated by reference herein. (37) Supplement to Master Amended and Restated Distribution Plan for Ivy Fund Class A Shares (Ivy European Opportunities Fund) filed with Post-Effective Amendment No. 110 and incorporated by reference herein. (38) Supplement to Distribution Plan for Ivy Fund Class B Shares (Ivy European Opportunities Fund) filed with Post-Effective Amendment No. 110 and incorporated by reference herein. (39) Supplement to Distribution Plan for Ivy Fund Class C Shares (Ivy European Opportunities Fund) filed with Post-Effective Amendment No. 110 and incorporated by reference herein. (40) Form of Amended and Restated Distribution Plan For Ivy Fund Class B Shares, filed with Post-Effective Amendment No. 107 and incorporated by reference herein. -22- (41) Amended and Restated Distribution Plan for Ivy Fund Class A Shares, filed with Post-Effective Amendment No. 111 and incorporated by reference herein. (42) Supplement to Master Amended and Restated Distribution Plan for Ivy Fund Class A Shares (Ivy Cundill Value Fund and Ivy Next Wave Internet Fund) filed with Post-Effective Amendment No. 114 and incorporated by reference herein. (43) Supplement to Amended and Restated Distribution Plan for Ivy Fund Class B Shares (Ivy Cundill Value Fund and Ivy Next Wave Internet Fund) filed with Post-Effective Amendment No. 114 and incorporated by reference herein. (44) Supplement to Distribution Plan for Ivy Fund Class C Shares (Ivy Cundill Value Fund and Ivy Next Wave Internet Fund) filed with Post-Effective Amendment No. 114 and incorporated by reference herein. (45) Supplement to Master Amended and Restated Distribution Plan for Ivy Fund Class A Shares (Ivy International Growth Fund) filed with Post-Effective Amendment No. 119 and incorporated by reference herein. (46) Supplement to Amended and Restated Distribution Plan for Ivy Fund Class B Shares (Ivy International Growth Fund) filed with Post-Effective Amendment No. 119 and incorporated by reference herein. (47) Supplement to Distribution Plan for Ivy Fund Class C Shares (Ivy International Growth Fund) filed with Post-Effective Amendment No. 119 and incorporated by reference herein. (48) Amended and Restated Distribution Agreement between Ivy Fund and Ivy Mackenzie Distributors, Inc. (Class A, Class B, Class C, Class I (if applicable) and the Advisor Class of Ivy Bond Fund, Ivy Cundill Value Fund, Ivy Developing Markets Fund, Ivy European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund, Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy International Fund, Ivy International Growth Fund, Ivy International Value Fund, Ivy International Small Companies Fund, Ivy Pacific Opportunities Fund, Ivy US Blue Chip Fund, Ivy US Emerging Growth Fund, Ivy Money Market Fund), filed with Post-Effective Amendment No. 120 and incorporated by reference herein. (n) Rule 18f-3 Plans: -23- (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 and incorporated by reference herein. (10) Amended and Restated Plan adopted pursuant to Rule 18f-3 under the Investment Company Act of 1940, filed with Post-Effective Amendment No. 110 and incorporated by reference herein. (11) Amended and Restated Plan adopted pursuant to Rule 18f-3 under the Investment Company Act of 1940, filed with Post-Effective Amendment No. 114 and incorporated by reference herein. -24- (12) Amended and Restated Plan adopted pursuant to Rule 18f-3 under the Investment Company Act of 1940, filed with Post-Effective Amendment No. 117 and incorporated by reference herein. (13) Amended and Restated Plan adopted pursuant to Rule 18f-3 under the Investment Company Act of 1940, filed with Post-Effective Amendment No. 119 and incorporated by reference herein. (14) Amended and Restated Plan adopted pursuant to Rule 18f-3 under the Investment Company Act of 1940, filed with Post-Effective Amendment No. 120 and incorporated by reference herein. (p) Codes of Ethics: (1) Code of Ethics of Mackenzie Investment Management Inc., filed with Post-Effective Amendment No. 113 and incorporated by reference herein. (2) Code of Ethics of Peter Cundill & Associates, Inc., filed with Post-Effective Amendment No. 113 and incorporated by reference herein. (3) Code of Ethics of Mackenzie Financial Corporation filed with Post Effective Amendment No. 116 and incorporated by reference herein. (4) Code of Ethics of Henderson Investment Management Limited filed with Post Effective Amendment No. 116 and incorporated by reference herein. (5) Amended and Restated Code of Ethics of Mackenzie Investment Management Inc., filed with this Post-Effective Amendment No. 121. 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. -25- 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 fifteen series of the Trust, Mackenzie Financial Corporation, the adviser to Ivy Global Natural Resources Fund, Henderson Investment Management Limited, the subadviser to Ivy European Opportunities Fund and Ivy International Small Companies Fund, and Peter Cundill & Associates, Inc., the subadviser to Ivy Cundill Global Value Fund. The list required by this Item 26 of officers and directors of Ivy Management, Inc., Mackenzie Financial Corporation, Henderson Investment Management Limited, and Peter Cundill & Associates, Inc., 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, 925 South Federal Highway, Suite 600, Boca Raton, Florida 33432, Registrant's distributor, is a subsidiary of Mackenzie Investment Management Inc. ("MIMI"), Via Mizner Financial Plaza, 925 South Federal Highway, Suite 600, Boca Raton, Florida 33432. IMDI is the successor to MIMI's distribution activities. (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 Ivy Management, Inc. Via Mizner Financial Plaza 925 South Federal Highway - Suite 600 Boca Raton, Florida 33432 Ivy Management Distributors, Inc. Via Mizner Financial Plaza 925 South Federal Highway - Suite 600 Boca Raton, Florida 33432 -26- Ivy Management Services Corp. Via Mizner Financial Plaza 925 South Federal Highway - Suite 600 Boca Raton, Florida 33432 Brown Brothers, Harriman & Co. 40 Water Street Boston MA 02109 Item 29. Management Services: Not applicable. Item 30. Undertakings: Not applicable. -27- 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. 121 to its Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused this Post-Effective Amendment No. 121 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 30th day of April, 2002. 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. 121 to the Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.
SIGNATURES TITLE DATE - ---------- ----- ---- * Trustee 4/30/02 - -------------------------------------------- John S. Anderegg, Jr. *** Trustee and President 4/30/02 - -------------------------------------------- James W. Broadfoot ** Trustee and Chairman 4/30/02 - -------------------------------------------- (Chief Executive Officer) Keith J. Carlson * Trustee 4/30/02 - -------------------------------------------- Stanley Channick /s/ BEVERLY J. YANOWITCH Treasurer 4/30/02 - -------------------------------------------- (Chief Financial Officer) Beverly J. Yanowitch * Trustee 4/30/02 - -------------------------------------------- Roy J. Glauber * Trustee 4/30/02 - -------------------------------------------- Joseph G. Rosenthal
-28-
SIGNATURES TITLE DATE - ---------- ----- ---- * Trustee 4/30/02 - -------------------------------------------- Richard N. Silverman * Trustee 4/30/02 - -------------------------------------------- James Brendan Swan *** Trustee 4/30/02 - -------------------------------------------- Edward M. Tighe
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. -29- EXHIBIT INDEX Exhibit (d)(34): Master Business Management and Investment Advisory Agreement between Ivy Fund and Ivy Management, Inc. (Ivy Bond Fund, Ivy Cundill Global Value Fund, Ivy Developing Markets Fund, Ivy European Opportunities Fund, Ivy Global Fund, Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy International Fund, Ivy International Growth Fund, Ivy International Small Companies Fund, Ivy International Value Fund, Ivy Money Market Fund, Ivy Pacific Opportunities Fund, Ivy US Blue Chip Fund, Ivy US Emerging Growth Fund). Exhibit (d)(35): Supplement to Master Business Management and Investment Advisory Agreement between Ivy Fund and Ivy Management, Inc. (Ivy Bond Fund, Ivy Cundill Global Value Fund, Ivy Developing Markets Fund, Ivy European Opportunities Fund, Ivy Global Fund, Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy International Fund, Ivy International Growth Fund, Ivy International Small Companies Fund, Ivy International Value Fund, Ivy Money Market Fund, Ivy Pacific Opportunities Fund, Ivy US Blue Chip Fund, Ivy US Emerging Growth Fund). Exhibit (d)(36): Master Business Management Agreement between Ivy Fund and Ivy Management, Inc. (Ivy Global Natural Resources Fund). Exhibit (d)(37): Supplement to Master Business Management Agreement between Ivy Fund and Ivy Management, Inc. (Ivy Global Natural Resources Fund). Exhibit (d)(38): Investment Advisory Agreement between Ivy Fund and Mackenzie Financial Corp. (Ivy Global Natural Resources Fund). Exhibit (d)(39): Subadvisory Agreement between Ivy Management, Inc. and Henderson Investment Management Limited (Ivy European Opportunities Fund and Ivy International Small Companies Fund). Exhibit (d)(40): Subadvisory Agreement between Ivy Management, Inc. and Peter Cundill & Associates, Inc. (Ivy Cundill Global Value Fund). Exhibit (h)(63): Transfer Agency Services Agreement between PFPC Inc. and Ivy Fund. Exhibit (i): Opinion and consent of counsel. Exhibit (j): Consents and reports of independent Certified Public Accountants. Exhibit (p)(5): Amended and Restated Code of Ethics of Mackenzie Investment Management Inc.
-30- EX-99.(D)(34) 3 g74718ex99-d34.txt MASTER BUSINESS AND INVESTMENT ADVISORY AGREEMENT EXHIBIT (d)(34) MASTER BUSINESS MANAGEMENT AND INVESTMENT ADVISORY AGREEMENT AGREEMENT made this 29th day of May, 2001, by Ivy Fund (the "Fund") and Ivy Management, Inc. (the "Manager"). WHEREAS, the Fund is an open-end investment company organized as a Massachusetts business trust and consists of one or more separate investment portfolios (the "Portfolios") as may be established and designated from time to time; WHEREAS, the Fund desires the services of the Manager as business manager and investment adviser with respect to such Portfolios as shall be designated in supplements to this Agreement as further agreed between the Fund and the Manager; and WHEREAS, the Fund engages in the business of investing and reinvesting the assets of the Portfolios in the manner and in accordance with the investment objectives and restrictions specified in the currently effective prospectus and statement of additional information (the "Prospectus") relating to the Portfolios included in the Fund's Registration Statement, as amended from time to time, filed by the Fund under the Investment Company Act of 1940 (the "1940 Act") and the Securities Act of 1933; NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, the parties agree as follows: 1. APPOINTMENT. The Fund hereby appoints the Manager to provide the business management and investment advisory services specified in this Agreement with regard to such Portfolios as shall be designated in supplements to this Agreement, and the Manager hereby accepts such appointment. 2. INVESTMENT ADVISORY SERVICES. (a) As investment adviser to the Portfolios, the Manager shall make investments for the account of each Portfolio in accordance with the Manager's best judgment and within the investment objectives and restrictions set forth in the Prospectus applicable to the Portfolios, the 1940 Act and the provisions of the Internal Revenue Code relating to regulated investment companies, subject to policy decisions adopted by the Fund's Board of Trustees. (b) The Manager will determine the securities to be purchased or sold by each Portfolio and will place orders pursuant to its determinations with any broker or dealer who deals in such securities. The Manager also shall (i) comply with all reasonable requests of the Fund for information, including information required in connection with the Fund's filing with the Securities -1- and Exchange Commission (the "SEC") and state securities commissions, and (ii) provide such other services as the Manager shall from time to time determine to be necessary or useful to the administration of the Portfolios. (c) The Manager shall furnish to the Fund's Board of Trustees periodic reports on the investment performance of each Portfolio and on the performance of its obligations under this Agreement and shall supply such additional reports and information as the Fund's officers or Board of Trustees shall reasonably request. (d) On occasions when the Manager deems the purchase or sale of a security to be in the best interest of a Portfolio as well as other customers, the Manager, to the extent permitted by applicable law, may aggregate the securities to be so sold or purchased in order to obtain the best execution or lower brokerage commissions, if any. The Manager also may purchase or sell a particular security for one or more customers in different amounts. On either occasion, and to the extent permitted by applicable law and regulations, allocation of the securities so purchased or sold, as well as the expenses incurred in the transaction, will be made by the Manager in the manner it considers to be the most equitable and consistent with its fiduciary obligations to the Portfolio involved and to such other customers. 3. BUSINESS MANAGEMENT SERVICES. (a) The Manager shall supervise the Portfolios' business and affairs and shall provide such services reasonably necessary for the operation of the Portfolios as are not provided by employees or other agents engaged by the Portfolios; provided, that the Manager shall not have any obligation to provide under this Agreement any direct or indirect services to the Portfolios' shareholders, any services related to the distribution of the Portfolios' shares, or any other services which are the subject of a separate agreement or arrangement between the Portfolios and the Manager. Subject to the foregoing, in providing business management services hereunder, the Manager shall, at its expense, (1) coordinate with the Portfolios' Custodian and monitor the services it provides to the Portfolios; (2) coordinate with and monitor any other third parties furnishing services to the Portfolios; (3) provide the Portfolios with the necessary office space, telephones and other communications facilities as are adequate for the Portfolios' needs; (4) provide the services of individuals competent to perform administrative and clerical functions which are not performed by employees or other agents engaged by the Portfolios or by the Manager acting in some other capacity pursuant to a separate agreement or arrangement with the Portfolios; (5) maintain or supervise the maintenance by third parties of such books and records of the Fund as may be required by applicable Federal or state law; (6) authorize and permit the Manager's directors, officers and employees who may be elected or appointed as trustees or officers of the Fund to serve in such capacities; and (7) take such other action with respect to the Fund, after approval by the Fund, 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. (b) The Manager may retain third parties to provide these services to the Fund, at the Manager's own cost and expense. The Manager shall make periodic reports to the Fund's Board of Trustees on the performance of its -2- obligations under this Agreement, other than services provided to the Fund by third parties retained in accordance with the previous sentence. 4. EXPENSES OF THE FUND. Except as provided in paragraph 3 or as provided in any separate agreement between the Portfolios and the Manager, the Fund shall be responsible for all of its expenses and liabilities, including: (1) the fees and expenses of the Fund's Trustees who are not parties to this Agreement or "interested persons" (as defined in the 1940 Act) of any such party ("Independent Trustees"); (2) the salaries and expenses of any of the Fund's officers or employees who are not affiliated with the Manager; (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 Fund'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 Fund'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. 5. STANDARD OF CARE. The Manager shall give the Fund the benefit of the Manager's best judgment and efforts in rendering business management and investment advisory services pursuant to paragraphs 2 and 3 of this Agreement. As an inducement to the Manager's undertaking to render these services, the Fund agrees that the Manager shall not be liable under this Agreement for any mistake in judgment or in any other event whatsoever except for lack of good faith, provided that nothing in this Agreement shall be deemed to protect or purport to protect the Manager against any liability to the Fund or its shareholders to which the Manager would otherwise be subject by reason of willful misfeasance, bad faith or gross negligence in the performance of the Manager's duties under this Agreement or by reason of the Manager's reckless disregard of its obligations and duties hereunder. 6. FEES. In consideration of the services to be rendered by the Manager pursuant to paragraphs 2 and 3 of this Agreement, each Portfolio shall pay the Manager a monthly fee on the first business day of each month, based on the average daily value (as determined on each business day at the time set forth in the Prospectus of the Portfolio for determining net asset value per share) of the net assets of the Portfolio during the preceding month at the annual rates set forth in a supplement to this Agreement with respect to each Portfolio. If the fees payable to the Manager pursuant to this paragraph 6 begin to accrue before the end of any month or if this Agreement terminates before the end of any month, the fees for the period from that date to the end of that month or from the beginning of that month to the date of termination, as the case may be, shall be prorated according to the proportion which the period bears to the full month in which the effectiveness or termination occurs. For purposes of -3- calculating the monthly fees, the value of the net assets of a Portfolio shall be computed in the manner specified in the Portfolio's Prospectus for the computation of net asset value. For purposes of this Agreement, a "business day" is any day on which the New York Stock Exchange is open for trading. 7. OWNERSHIP OF RECORDS. All records required to be maintained and preserved by the Portfolios pursuant to the provisions or rules or regulations of the SEC under Section 31(a) of the 1940 Act and maintained and preserved by the Manager on behalf of the Portfolios are the property of the Portfolios and shall be surrendered by the Manager promptly on request by the Portfolios; PROVIDED, that the Manager may at its own expense make and retain copies of any such records. 8. DURATION AND TERMINATION. (a) This Agreement shall become effective as of the date first written above or such later date as the shareholders may approve this Agreement, and shall continue in effect until September 30, 2001, provided, that the Agreement will continue in effect with respect to a Portfolio beyond September 30, 2001, only so long as the continuance is specifically approved at least annually (i) by the vote of a majority of the outstanding voting securities of that Portfolio (as defined in the 1940 Act) or by the Fund's entire Board of Trustees, and (ii) by the vote, cast in person at a meeting called for that purpose, of a majority of the Fund's Independent Trustees. (b) This Agreement may be terminated with respect to a Portfolio at any time, without the payment of any penalty, by a vote of a majority of the outstanding voting securities of that Portfolio (as defined in the 1940 Act) or by a vote of a majority of the Fund's entire Board of Trustees on sixty (60) days' written notice to the Manager or by the Manager on sixty (60) days' written notice to the Fund. This Agreement shall terminate automatically in the event of is assignment (as defined in the 1940 Act). 9. RETENTION OF SUB-ADVISERS. Subject to a Portfolio's obtaining any initial and periodic approvals that are required under Section 15 of the 1940 Act, the Manager may retain a sub-adviser with respect to that Portfolio, at the Manager's own cost and expense. 10. SERVICES TO OTHER CLIENTS. Nothing herein contained shall limit the freedom of the Manager or any affiliated person of the Manager to render investment supervisory and administrative services to other investment companies, to act as investment adviser or investment counselor to other persons, firms or corporations, or to engage in other business activities. 11. MISCELLANEOUS. (a) This Agreement shall be construed in accordance with the laws of the State of Florida, provided that nothing herein shall be construed in a manner inconsistent with the 1940 Act. -4- (b) The captions in this Agreement are included for convenience of reference only and in no way define or delineate any of the provisions hereof or otherwise affect their construction or effect. (c) The Fund's Declaration of Trust has been filed with the Secretary of State of The Commonwealth of Massachusetts. The obligations of the Fund are not personally binding upon, nor shall resort be had to the private property of, any of the Trustees, shareholders, officers, employees or agents of the Fund, but only the Fund's property shall be bound. It is further understood and acknowledged that all persons dealing with any Portfolio must look solely to the property of such Portfolio for the enforcement of any claims against that Portfolio as neither the Trustees, shareholders, officers, employees or agents assume any personal liability for obligations entered into on behalf of any Portfolio. No Portfolio shall be liable for the obligations or liabilities of any other Portfolio. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written. IVY FUND By: /s/ JAMES W. BROADFOOT ---------------------- Title: President IVY MANAGEMENT, INC. By: /s/ JAMES W. BROADFOOT ---------------------- Title: President -5- EX-99.(D)(35) 4 g74718ex99-d35.txt SUPPLEMENT TO MASTER BUSINESS MANAGEMENT AGREEMENT EXHIBIT (d)(35) IVY FUND MASTER BUSINESS MANAGEMENT AND INVESTMENT ADVISORY AGREEMENT SUPPLEMENT Ivy Bond Fund Ivy Cundill Value Fund Ivy Developing Markets Fund Ivy European Opportunities Fund Ivy Global Fund Ivy Global Science & Technology Fund Ivy Growth Fund Ivy International Fund Ivy International Growth Fund Ivy International Small Companies Fund Ivy International Value Fund Ivy Money Market Fund Ivy Pacific Opportunities Fund Ivy US Blue Chip Fund Ivy US Emerging Growth Fund AGREEMENT made as of the 29th day of May, 2001, by and between Ivy Fund (the "Fund") and Ivy Management, Inc. (the "Manager"). WHEREAS, the Fund is an open-end investment company organized as a Massachusetts business trust and consists of such separate investment portfolios as have been or may be established and designated by the Trustees of the Fund from time to time; WHEREAS, a separate class of shares of the Fund is offered to investors with respect to each investment portfolio; WHEREAS, the Fund has adopted a Master Business Management and Investment Advisory Agreement dated May 29, 2001 (the "Master Agreement"), pursuant to which the Fund has appointed the Manager to provide the business management and investment advisory services specified in that Master Agreement; and WHEREAS, Ivy Bond Fund, Ivy Cundill Value Fund, Ivy Developing Markets Fund, Ivy European Opportunities Fund, Ivy Global Fund, Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy International Fund, Ivy International Growth Fund, Ivy International Small Companies Fund, Ivy International Value Fund, Ivy Money Market Fund, Ivy Pacific Opportunities Fund, Ivy US Blue Chip Fund and Ivy US Emerging Growth Fund (each a "Portfolio" and, collectively, the "Portfolios") are separate investment portfolios of the Fund. NOW, THEREFORE, the Trustees of the Fund hereby take the following actions, subject to the conditions set forth: 1. As provided for in the Master Agreement, the Fund hereby adopts the Master Agreement with respect to each Portfolio, and the Manager hereby acknowledges that the Master Agreement shall pertain to each Portfolio, the terms and conditions of such Master Agreement being hereby incorporated herein by reference. 2. The term "Portfolio" as used in the Master Agreement shall, for purposes of this Supplement, pertain to each Portfolio. 3. As provided in the Master Agreement and subject to further conditions as set forth therein, each Portfolio shall pay the Manager a monthly fee on the first business day of each month based upon the average daily value (as determined on each business day at the time set forth in the Prospectus of the applicable Portfolio for determining net asset value per share) of the net assets of the Portfolio during the preceding month at the following annual rates: -------------------------------------- ---------------------------------------- FEE RATE PORTFOLIO (AS A PERCENTAGE OF AVERAGE NET ASSETS) -------------------------------------- ---------------------------------------- Ivy Bond Fund 0.50% of the first $500 million; 0.40% over $500 million -------------------------------------- ---------------------------------------- Ivy Cundill Value Fund 1.00% -------------------------------------- ---------------------------------------- Ivy Developing Markets Fund 1.00% -------------------------------------- ---------------------------------------- Ivy European Opportunities Fund 1.00% of the first $250 million; 0.85% of the next $250 million; 0.75% over $500 million -------------------------------------- ---------------------------------------- Ivy Global Fund 1.00% of the first $500 million; 0.75% over $500 million -------------------------------------- ---------------------------------------- Ivy Global Science & Technology Fund 1.00% -------------------------------------- ---------------------------------------- Ivy Growth Fund 0.85% of the first $350 million; 0.75% over $350 million -------------------------------------- ---------------------------------------- Ivy International Fund 1.00% of the first $2.0 billion; 0.90% of the next $500 million; 0.80% of the next $500 million; 0.70% over $3 billion -------------------------------------- ---------------------------------------- Ivy International Growth Fund 1.00% -------------------------------------- ---------------------------------------- Ivy International Small Companies Fund 1.00% -------------------------------------- ---------------------------------------- Ivy International Value Fund 1.00% -------------------------------------- ---------------------------------------- Ivy Money Market Fund 0.40% -------------------------------------- ---------------------------------------- Ivy Pacific Opportunities Fund 1.00% -------------------------------------- ---------------------------------------- Ivy US Blue Chip Fund 0.75% -------------------------------------- ---------------------------------------- Ivy US Emerging Growth Fund 0.85% -------------------------------------- ---------------------------------------- -2- 4. This Supplement and the Master Agreement (together, the "Agreement") shall become effective with respect to each Portfolio as of the date first written above or such later date as the shareholders may approve the Agreement, and unless sooner terminated as hereinafter provided, the Agreement shall remain in effect with respect to each Portfolio until September 30, 2001, and from year to year thereafter if such continuance is specifically approved at least annually (a) by the vote of a majority of the outstanding voting securities of the applicable Portfolio (as defined in the Investment Company Act of 1940, as amended (the "1940 Act")) or by the Fund's entire Board of Trustees and (b) by the vote, cast in person at a meeting called for that purpose, of a majority of the Fund's Independent Trustees. This Agreement may be terminated with respect to each Portfolio at any time, without payment of any penalty, by vote of a majority of the outstanding voting securities of the applicable Portfolio (as defined in the 1940 Act) or by vote of a majority of the Fund's entire Board of Trustees on sixty (60) days' written notice to the Manager or by the Manager on sixty (60) days' written notice to the Fund. This Agreement shall terminate automatically in the event of its assignment (as defined in the 1940 Act). IN WITNESS WHEREOF, the Fund and the Manager have adopted this Supplement as of the date first set forth above. IVY FUND, on behalf of Ivy Bond Fund, Ivy Cundill Value Fund, Ivy Developing Markets Fund, Ivy European Opportunities Fund, Ivy Global Fund, Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy International Fund, Ivy International Growth Fund, Ivy International Small Companies Fund, Ivy International Value Fund, Ivy Money Market Fund, Ivy Pacific Opportunities Fund, Ivy US Blue Chip Fund and Ivy US Emerging Growth Fund By: /s/ JAMES W. BROADFOOT --------------------------------- James W. Broadfoot, President IVY MANAGEMENT, INC. By: /s/ JAMES W. BROADFOOT --------------------------------- James W. Broadfoot, President -3- EX-99.(D)(36) 5 g74718ex99-d36.txt MASTER BUSINESS MANAGEMENT AGREEMENT EXHIBIT (d)(36) MASTER BUSINESS MANAGEMENT AGREEMENT AGREEMENT made this 29th day of May, 2001, by Ivy Fund (the "Company") and Ivy Management, Inc. (the "Manager"). WHEREAS, the Company is an open-end investment company organized as a Massachusetts business trust and consists of one or more separate investment portfolios (the "Funds") as may be established and designated from time to time; WHEREAS, the Company desires the services of the Manager as business manager with respect to such Funds as shall be designated in supplements to this Agreement as further agreed between the Company and the Manager; and WHEREAS, the Company engages in the business of investing and reinvesting the assets of the Funds in the manner and in accordance with the investment objective and restrictions specified in the currently effective prospectus and statement of additional information (the "Prospectus") relating to the Funds included in the Company's Registration Statement, as amended from time to time, filed by the Company under the Investment Company Act of 1940 (the "1940 Act") and the Securities Act of 1933; NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, the parties agree as follows: 1. APPOINTMENT. The Company hereby appoints the Manager to provide the business management services specified in this Agreement with regard to such Funds as shall be designated in supplements to this Agreement, and the Manager hereby accepts such appointment. 2. BUSINESS MANAGEMENT SERVICES. (a) The Manager shall supervise the Funds' business and affairs and shall provide such services reasonably necessary for the operation of the Funds as are not provided by employees or other agents engaged by the Funds; provided, that the Manager shall not have any obligation to provide under this Agreement any direct or indirect services to the Funds' shareholders, any services related to the distribution of the Funds' shares, or any other services which are the subject of a separate agreement or arrangement between the Funds and the Manager. Subject to the foregoing, in providing business management services hereunder, the Manager shall, at its expense, (1) review the activities of each Fund's investment adviser to ensure that each Fund is operated in compliance with the Fund's investment objective and policies and with the 1940 Act; (2) coordinate with the Funds' Custodian and Transfer Agent and monitor the services they provide to the Funds; (3) coordinate with and monitor any other third parties furnishing services to the Funds; (4) provide the Funds with the necessary office space, telephones and other communications facilities as are adequate for the Funds' needs; (5) provide the services of individuals competent to perform administrative and clerical functions which are not performed by employees or other agents engaged by the Funds or by the Manager acting in some other capacity pursuant to a separate agreement or arrangement with the Funds; (6) maintain or supervise the maintenance by third parties of such books and records of the Company as may be required by applicable Federal or state law; (7) authorize and permit the Manager's directors, officers and employees who may be elected or appointed as directors or officers of the Company to serve in such capacities; and (8) take such other action with respect to the Company, after approval by the Company, 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. (b) The Manager may retain third parties to provide these services to the Company, at the Manager's own cost and expense. The Manager shall make periodic reports to the Company's Board of Trustees on the performance of its obligations under this Agreement, other than services provided to the Company by third parties retained in accordance with the pervious sentence. 3. EXPENSES OF THE COMPANY. Except as provided in paragraph 2 or as provided in any separate agreement between the Funds and the Manager, the Company shall be responsible for all of its expenses and liabilities, including: (1) the fees and expenses of the Company's Trustees who are not parties to this Agreement or "interested persons" (as defined in the 1940 Act) of any such party ("Independent Trustees"); (2) the salaries and expenses of any of the Company's officers or employees who are not affiliated with the Manager; (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 Company'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 Company'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. 4. STANDARD OF CARE. The Manager shall give the Company the benefit of the Manager's best judgment and efforts in rendering business management services pursuant to paragraph 2 of this Agreement. As an inducement to the Manager's undertaking to render these services, the Company agrees that the Manager shall not be liable under this Agreement for any mistake in judgment or in any other event whatsoever except for lack of good faith, provided that nothing in this Agreement shall be deemed to protect or purport to protect the Manager against any liability to the Company or its shareholders to which the Manager would otherwise be subject by reason of the Manager's reckless disregard of its obligations and duties hereunder. 5. FEES. In consideration of the services to be rendered by the Manager pursuant to paragraph 2 of this Agreement, each Fund shall pay the Manager a monthly fee on the first business day of each month, based on the average daily -2- value (as determined on each business day at the time set forth in the Prospectus of the Fund for determining net asset value per share) of the net assets of the Fund during the preceding month at the annual rates set forth in a supplement to this Agreement with respect to each Fund. If the fees payable to the Manager pursuant to this paragraph 5 begin to accrue before the end of any month or if this Agreement terminates before the end of any month, the fees for the period from that date to the end of that month or from the beginning of that month to the date of termination, as the case may be, shall be prorated according to the proportion which the period bears to the full month in which the effectiveness or termination occurs. For purposes of calculating the monthly fees, the value of the net assets of a Fund shall be computed in the manner specified in the Fund's Prospectus for the computation of net asset value. For purposes of this Agreement, a "business day" is any day on which the New York Stock Exchange is open for trading. 6. OWNERSHIP OF RECORDS. All records required to be maintained and preserved by the Funds pursuant to the provisions or rules or regulations of the SEC under Section 31(a) of the 1940 Act and maintained and preserved by the Manager on behalf of the Funds are the property of the Funds and shall be surrendered by the Manager promptly on request by the Funds; PROVIDED, that the Manager may at its own expense make and retain copies of any such records. 7. DURATION AND TERMINATION. (a) This Agreement shall become effective as of the date first written above or such later date as the shareholders may approve this Agreement, and shall continue in effect until September 30, 2001 PROVIDED, that the Agreement will continue in effect with respect to a Fund beyond September 30, 2001 only so long as the continuance is specifically approved at least annually (i) by the vote of a majority of the outstanding voting securities of that Fund (as defined in the 1940 Act) or by the Company's entire Board of Trustees, and (ii) by the vote, cast in person at a meeting called for that purpose, of a majority of the Company's Independent Trustees. (b) This Agreement may be terminated with respect to a Fund at any time, without the payment of any penalty, by a vote of a majority of the outstanding voting securities of that Fund (as defined in the 1940 Act) or by a vote of a majority of the Company's entire Board of Trustees on 60 days' written notice to the Manager or by the Manager on 60 days' written notice to the Company. This Agreement shall terminate automatically in the event of its assignment (as defined in the 1940 Act). 8. SERVICES TO OTHER CLIENTS. Nothing herein contained shall limit the freedom of the Manager or any affiliated person of the Manager to render investment supervisory and administrative services to other investment companies, to act as investment adviser or investment counselor to other persons, firms or corporations, or to engage in other business activities. -3- 9. MISCELLANEOUS. (a) This Agreement shall be construed in accordance with the laws of the State of Florida, provided that nothing herein shall be construed in a manner inconsistent with the 1940 Act. (b) The captions in this Agreement are included for convenience of reference only and in no way define or delineate any of the provisions hereof or otherwise affect their construction or effect. (c) The Company's Declaration of Trust has been filed with the Secretary of State of The Commonwealth of Massachusetts. The obligations of the Company are not personally binding upon, nor shall resort be had to the private property of, any of the Trustees, shareholders, officers, employees or agents of the Company, but only the Company's property shall be bound. It is further understood and acknowledged that all persons dealing with any Fund must look solely to the property of such Fund for the enforcement of any claims against that Fund as neither the Trustees, shareholders, officers, employees or agents assume any personal liability for obligations entered into on behalf of any Fund. No Fund shall be liable for the obligations or liabilities of any other Fund. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written. IVY FUND By: /s/ JAMES W. BROADFOOT ---------------------- Title: President IVY MANAGEMENT, INC. By: /s/ JAMES W. BROADFOOT ---------------------- Title: President -4- EX-99.(D)(37) 6 g74718ex99-d37.txt SUPPLEMENT TO MASTER BUSINESS MANAGEMENT AGREEMENT EXHIBIT (d)(37) IVY FUND MASTER BUSINESS MANAGEMENT AGREEMENT SUPPLEMENT IVY GLOBAL NATURAL RESOURCES FUND AGREEMENT made as of the 29th day of May, 2001, by and between Ivy Fund (the "Trust") and Ivy Management, Inc. (the "Manager"). WHEREAS, the Trust is an open-end investment company organized as a Massachusetts business trust and consists of such separate investment portfolios as have been or may be established and designated by the Trustees of the Trust from time to time; WHEREAS, a separate class of shares of the Trust is offered to investors with respect to each investment portfolio; WHEREAS, the Trust has adopted a Master Business Management Agreement dated May 29, 2001 (the "Master Agreement"), pursuant to which the Trust has appointed the Manager to provide the business management services specified in that Master Agreement; and WHEREAS, Ivy Global Natural Resources Fund (the "Fund") is a separate investment portfolio of the Trust. NOW, THEREFORE, the Trustees of the Trust hereby take the following actions, subject to the conditions set forth: 1. As provided for in the Master Agreement, the Trust hereby adopts the Master Agreement with respect to the Fund, and the Manager hereby acknowledges that the Master Agreement shall pertain to the Fund, the terms and conditions of such Master Agreement being hereby incorporated herein by reference. 2. The term "Fund" as used in the Master Agreement shall, for purposes of this Supplement, pertain to the Fund. 3. As provided in the Master Agreement and subject to further conditions as set forth therein, the Fund shall pay the Manager a monthly fee on the first business day of each month based upon the average daily value (as determined on each business day at the time set forth in the Fund's Prospectus for determining net asset value per share) of the Fund's net assets during the preceding month at the annual rate of 0.50%. 4. This Supplement and the Master Agreement (together, the "Agreement") shall become effective with respect to the Fund as of the date first written above or such later date as the shareholders may approve the Agreement, and unless sooner terminated as hereinafter provided, the Agreement shall remain in effect with respect to the Fund until September 30, 2001 and from year to year thereafter if such continuance is specifically approved at least annually (a) by the vote of a majority of the outstanding voting securities of the Fund (as defined in the Investment Company Act of 1940, as amended (the "1940 Act")) or by the Trust's entire Board of Trustees and (b) by the vote, cast in person at a meeting called for that purpose, of a majority of the Trust's Independent Trustees. This Agreement may be terminated with respect to the Fund at any time, without payment of any penalty, by vote of a majority of the outstanding voting securities of the Fund (as defined in the 1940 Act) or by vote of a majority of the Trust's entire Board of Trustees on sixty (60) days' written notice to the Manager or by the Manager on sixty (60) days' written notice to the Trust. This Agreement shall terminate automatically in the event of its assignment (as defined in the 1940 Act). IN WITNESS WHEREOF, the Trust and the Manager have adopted this Supplement as of the date first set forth above. IVY FUND, on behalf of Ivy Global Natural Resources Fund By: /s/ JAMES W. BROADFOOT ------------------------------- Title: President IVY MANAGEMENT, INC. By: /s/ JAMES W. BROADFOOT ------------------------------- Title: President EX-99.(D)(38) 7 g74718ex99-d38.txt INVESTMENT ADVISORY AGREEMENT EXHIBIT (d)(38) INVESTMENT ADVISORY AGREEMENT AGREEMENT made this 29th day of May, 2001, by and between Ivy Fund (the "Trust") and Mackenzie Financial Corporation (the "Adviser"). WHEREAS, the Trust is an open-end investment company with one or more investment portfolios, one of which is Ivy Global Natural Resources Fund (the "Fund"); and WHEREAS, the Trust has, on behalf of the Fund, entered into an agreement with Ivy Management, Inc. (the "Manager") to provide management and administrative services; and WHEREAS, the Trust engages in the business of investing and reinvesting the assets of the Fund in the manner and in accordance with the investment objective and restrictions specified in the currently effective Prospectus (the "Prospectus") relating to the Trust and the Fund included in the Trust's Registration Statement, as amended from time to time, filed by the Trust under the Investment Company Act of 1940 (the "1940 Act") and the Securities Act of 1933; NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, the parties agree as follows: 1. The Trust hereby appoints the Adviser to provide the investment advisory services specified in this Agreement with regard to the Fund and the Adviser hereby accepts such appointment. 2. (a) The Adviser shall, at its expense, (i) employ or associate with itself such persons as it believes appropriate to assist it in performing its obligations under this Agreement and (ii) provide all services, equipment and facilities necessary to perform its obligations under this Agreement. (b) The Trust shall be responsible for all of its expenses and liabilities, including: (1) the fees and expenses of the Trust's Trustees who are not parties to this Agreement or "interested persons" (as defined in the 1940 Act) of any such party ("Independent Trustees"); (2) the salaries and expenses of any of the Trust's officers or employees who are not affiliated with the Manager or the Adviser; (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 Securities and Exchange Commission 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; (13) fees and expenses of membership in industry organizations; and (14) expenses of qualification of the Trust as a foreign entity authorized to do business in any jurisdiction in which the Manager determines that such qualification is necessary or desirable. -2- 3. (a) As manager of the assets of the Fund, the Adviser shall make investments for the account of the Fund in accordance with the Adviser's best judgment and within the investment objective and restrictions set forth in the Prospectus applicable to the Fund, the 1940 Act and the provisions of the Internal Revenue Code relating to regulated investment companies, subject to policy decisions adopted by the Trust's Board of Trustees. (b) The Adviser will determine the securities to be purchased or sold by the Fund and will place orders pursuant to its determinations with any broker or dealer who deals in such securities. The Adviser also shall (i) comply with all reasonable requests of the Trust for information, including information required in connection with the Trust's filings with the Securities and Exchange Commission and state securities commissions, and (ii) provide such other services as the Adviser shall from time to time determine, upon consultation with the Manager, to be necessary or useful to the administration of the Funds. (c) The Adviser shall furnish to the Trust's Board of Trustees periodic reports on the investment performance of the Fund and on performance of its obligations under this Agreement and shall supply such additional reports and information as the Trust's officers or Board of Trustees shall reasonably request. (d) On occasions when the Adviser deems the purchase or sale of a security to be in the best interest of the Fund as well as other customers, the Adviser, to the extent permitted by applicable law, may aggregate the securities to be so sold or purchased in order to obtain the best execution or lower brokerage commissions, if any. The Adviser also may purchase or sell a -3- particular security for one or more customers in different amounts. On either occasion, and to the extent permitted by applicable law and regulations, allocation of the securities so purchased or sold, as well as the expenses incurred in the transaction, will be made by the Adviser in the manner it considers to be the most equitable and consistent with its fiduciary obligations to the Fund and to such other customers. 4. The Adviser shall give the Trust the benefit of the Adviser's best judgment and efforts in rendering services under this Agreement. The Trust agrees that the Adviser shall not be liable under this Agreement for any mistake in judgment or in any other event whatsoever, PROVIDED that nothing in this Agreement shall be deemed to protect or purport to protect the Adviser against any liability to the Trust or its shareholders to which the Adviser would otherwise be subject by reason of willful misfeasance, bad faith or gross negligence in the performance of the Adviser's duties under this Agreement or by reason of the Adviser's reckless disregard of its obligations and duties hereunder. 5. In consideration of the services to be rendered by the Adviser under this Agreement, the Trust shall pay the Adviser a monthly fee on the first business day of each month, at the annual rate of 0.50% of the average daily value (as determined on each business day at the time set forth in the Prospectus of the Fund for determining net asset value per share) of the net assets of the Fund during the preceding month. If the fees payable to the Adviser pursuant to this paragraph 5 begin to accrue before the end of any month or if this Agreement terminates before the end of any month, the fees for the period from that date to the end of that month or from the beginning of that month to the date of termination, as the case may be, shall be prorated -4- according to the proportion which the period bears to the full month in which the effectiveness or termination occurs. For purposes of calculating the monthly fees, the value of the net assets of the Fund shall be computed in the manner specified in the Prospectus of the Fund for the computation of net asset value. For purposes of this Agreement, a "business day" is any day on which the New York Stock Exchange is open for trading. 6. (a) This Agreement shall become effective as of the date first written above or such later date as the shareholders may approve this Agreement, and shall continue in effect until September 30, 2001, PROVIDED, that the Agreement will continue in effect beyond September 30, 2001, only so long as the continuance is specifically approved at least annually (i) by the vote of a majority of the outstanding voting securities of the Fund (as defined in the 1940 Act) or by the Trust's Board of Trustees and (ii) by the vote, case in person at a meeting called for that purpose, of a majority of the Trust's Independent Trustees. (b) This Agreement may be terminated with respect to the Fund at any time, without the payment of any penalty, by a vote of a majority of the outstanding voting securities of the Fund (as defined in the 1940 Act) or by a vote of a majority of the Trust's entire Board of Trustees on 60 days' written notice to the Adviser or by the Adviser on 60 days' written notice to the Trust. This Agreement shall terminate automatically in the event of its assignment (as defined in the 1940 Act). 7. (a) This Agreement shall be construed in accordance with the laws of the State of Florida, provided that nothing herein shall be construed in a manner inconsistent with the 1940 Act. -5- (b) The Trust's Declaration of Trust has been filed with the Secretary of State of The Commonwealth of Massachusetts. The obligations of the Trust are not personally binding upon, nor shall resort be had to the private property of, any of the Trustees, shareholders, officers, employees or agents of the Trust, but only the Trust's property shall be bound. It is further understood and acknowledged that all persons dealing with any series of the Trust must look solely to the property of such series for the enforcement of any claims against that series as neither the Trustees, shareholders, officers, employees or agents assume any personal liability for obligations entered into on behalf of any series of the Trust. No series of the Trust shall be liable for the obligations or liabilities of any other series. IN WITNESS WHEREOF, the parties hereto have caused the Agreement to be executed as of the date first above written. IVY FUND, on behalf of Ivy Global Natural Resources Fund By: /s/ JAMES W. BROADFOOT ---------------------------------- TITLE: President MACKENZIE FINANCIAL CORPORATION By: /s/ JAMES L. HUNTER ---------------------------------- TITLE: President -6- EX-99.(D)(39) 8 g74718ex99-d39.txt SUBADVISORY AGREEMENT EXHIBIT (d)(39) SUBADVISORY AGREEMENT AGREEMENT made as of the 29th day of May, 2001, between IVY MANAGEMENT, INC., 700 South Federal Highway, Boca Raton, Florida 33432 U.S.A., a Massachusetts corporation (hereinafter called the "Manager"), and HENDERSON INVESTMENT MANAGEMENT LIMITED, 4 Broadgate, London, England EC2M 2DA, an United Kingdom corporation (hereinafter called the "Subadviser"). WHEREAS, Ivy Fund (the "Trust") is a Massachusetts business trust organized with one or more series of shares, and is registered as an investment company under the Investment Company Act of 1940, as amended (the "1940 Act"); WHEREAS, the Manager has entered into a Master Business Management and Investment Advisory Agreement dated May 29, 2001, as amended (the "Advisory Agreement"), with the Trust, pursuant to which the Manager acts as investment adviser to a specified portion of the portfolio assets of certain series of the Trust listed on Schedule A hereto, as amended from time to time (each a "Fund" and, collectively, the "Funds"); WHEREAS, the Manager desires to utilize the services of the Subadviser as investment subadviser with respect to certain portfolio assets of each Fund; and WHEREAS, the Subadviser is willing to perform such services on the terms and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the mutual agreements herein contained, the parties hereto agree as follows: 1. DUTIES OF THE SUBADVISER. The Subadviser will serve the Manager as investment subadviser with respect to certain portfolio assets of each Fund, as set forth on the attached Schedule A. (a) As investment subadviser to the Funds, the Subadviser is hereby authorized and directed and hereby agrees, in accordance with the Subadviser's best judgment and subject to the stated investment objectives, policies and restrictions of the Funds as set forth in the current prospectuses and statements of additional information of the Trust (including amendments) and in accordance with the Trust's Declaration of Trust, as amended, and By-laws governing the offering of its shares (collectively, the "Trust Documents"), the 1940 Act and the provisions of the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"), relating to regulated investment companies, and subject to such resolutions as from time to time may be adopted by the Trust's Board of Trustees, and provided that the Trust Documents are all furnished to the Subadviser, to develop, recommend and implement such investment program and strategy for the Funds as may from time to time be most appropriate to the achievement of the investment objectives of the Funds as stated in the aforesaid prospectuses, to provide research and analysis relative to the investment program and investments of the Funds, to determine what securities should be purchased and sold and to monitor on a continuing basis the performance of the portfolio securities of the Funds. (b) The Subadviser shall (i) comply with all reasonable requests of the Trust for information, including information required in connection with the Trust's filings with the Securities and Exchange Commission (the "SEC") and state securities commissions, and (ii) provide such other services as the Subadviser shall from time to time determine to be necessary or useful to the administration of the Funds. (c) The Subadviser shall furnish to the Trust's Board of Trustees periodic reports on the investment performance of each Fund and on the performance of its obligations under this Agreement and shall supply such additional reports and information as the Trust's officers or Board of Trustees shall reasonably request. (d) On occasions when the Subadviser deems the purchase or sale of a security to be in the best interest of a Fund as well as other customers, the Subadviser, to the extent permitted by applicable law, may aggregate the securities to be so sold or purchased in order to obtain the best execution or lower brokerage commissions, if any. The Subadviser also may purchase or sell a particular security for one or more customers in different amounts. On either occasion, and to the extent permitted by applicable law and regulations, allocation of the securities so purchased or sold, as well as the expenses incurred in the transaction, will be made by the Subadviser in the manner it considers to be the most equitable and consistent with its fiduciary obligations to the Fund involved and to such other customers. In no instance, however, will a Fund's assets be purchased from or sold to the Manager, the Subadviser, the Trust's principal underwriter, or any affiliated person of either the Trust, the Manager, the Subadviser or the principal underwriter, acting as principal in the transaction, except to the extent permitted by the SEC and the 1940 Act. (e) The Subadviser shall provide the Funds' custodian on each business day with information relating to all transactions concerning each Fund's assets and shall provide the Manager with such information upon request of the Manager. (f) The investment advisory services provided by the Subadviser under this Agreement are not to be deemed exclusive and the Subadviser shall be free to render similar services to others, as long as such services do not impair the services rendered to the Manager or the Trust. (g) The Subadviser shall promptly notify the Manager of any financial condition that is likely to impair the Subadviser's ability to fulfill its commitment under this Agreement. (h) The Subadviser shall review all proxy solicitation materials and be responsible for voting and handling all proxies in relation to the securities held in a Fund's portfolio. The Manager shall instruct the custodian and other parties providing services to the Fund to promptly forward misdirected proxies to the Subadviser. 2. DELIVERY OF DOCUMENTS TO THE MANAGER. The Subadviser has furnished the Manager with copies of each of the following documents: (a) The Subadviser's current Form ADV and any amendments thereto; -2- (b) The Subadviser's most recent balance sheet; (c) Separate lists of persons whom the Subadviser wishes to have authorized to give written and/or oral instructions to the custodian and the fund accounting agent of Trust assets for the Funds; and (d) The Code of Ethics of the Subadviser as currently in effect. The Subadviser will furnish the Manager from time to time with copies, properly certified or otherwise authenticated, of all material amendments of or supplements to the foregoing, if any. Additionally, the Subadviser will provide to the Manager such other documents relating to its services under this Agreement as the Manager may reasonably request on a periodic basis. Such amendments or supplements as to items (a) through (d) above will be provided within 30 days of the time such materials became available to the Subadviser. 3. EXPENSES. The Subadviser shall pay all of its expenses arising from the performance of its obligations under Section 1. 4. COMPENSATION. The Manager shall pay to the Subadviser for its services hereunder, and the Subadviser agrees to accept as full compensation therefor, a fee with respect to each Fund as set forth on Schedule B. Such fee shall be accrued daily on the basis of the value of the portion of the average daily net assets of the applicable Fund as are then being managed by the Subadviser and shall be payable monthly. If the Subadviser shall serve hereunder for less than the whole of any month, the fee hereunder shall be prorated accordingly. 5. PURCHASE AND SALE OF SECURITIES. The Subadviser will determine the securities to be purchased or sold with respect to the portion of each Fund's portfolio assets being managed by it, and shall purchase securities from or through and sell securities to or through such persons, brokers or dealers as the Subadviser shall deem appropriate in order to carry out the policy with respect to allocation of portfolio transactions as set forth in the prospectuses and statements of additional information (including amendments) of the Funds or as the Trust's Board of Trustees may direct from time to time. In providing the Funds with investment management and supervision, it is recognized that the Subadviser will seek the most favorable price and execution, and, consistent with such policy, may give consideration to the research services furnished by brokers or dealers to the Subadviser for its use and to such other considerations as the Trust's Board of Trustees may direct or authorize from time to time. Nothing in this Agreement shall be implied to prevent (i) the Manager from engaging other subadvisers to provide investment advice and other services in relation to series of the Trust, or a portion of the portfolio assets of any such series, for which the Subadviser does not provide such services, or to prevent the Manager from providing such services itself in relation to such series; or (ii) the Subadviser from providing investment advice and other services to other funds or clients. In the performance of its duties hereunder, the Subadviser is and shall be an independent contractor and except as expressly provided herein or otherwise authorized in writing, shall have no authority to act for or represent the Trust, the Funds, any other series of the Trust or the Manager in -3- any way or otherwise be deemed to be an agent of the Trust, the Funds, any other series of the Trust or the Manager. 6. TERM OF AGREEMENT. This Agreement shall become effective as of the date first written above or such later date as the shareholders may approve this Agreement, and shall continue in full force and effect until September 30, 2001, and from year to year thereafter if such continuance is approved in the manner required by the 1940 Act, if the Subadviser shall not have notified the Manager in writing at least 60 days prior to such September 30 or prior to September 30 of any year thereafter that it does not desire such continuance. This Agreement may be terminated at any time, without payment of penalty by a Fund, by vote of the Trust's Board of Trustees or a majority of the outstanding voting securities of the applicable Fund (as defined by the 1940 Act), or by the Manager or by the Subadviser upon 60 days' written notice. This Agreement will automatically terminate in the event of its assignment (as defined by the 1940 Act) or upon the termination of the Advisory Agreement or if (a) either party is unable to pay its debts or an administrative or insolvency order is made in respect of a party pursuant to its relevant governing and applicable laws and regulations or (b) a party commits a material breach of any of the terms or conditions of this Agreement and such breach shall continue 30 days after notice in writing, specifying the breach and requiring the same to be remedied, has been given. 7. AMENDMENTS. This Agreement may be amended by consent of the parties hereto provided that the consent of the applicable Fund is obtained in accordance with the requirements of the 1940 Act. 8. CONFIDENTIAL TREATMENT. It is understood that any information or recommendation supplied by the Subadviser in connection with the performance of its obligations hereunder is to be regarded as confidential and for use only by the Manager, the Trust or such persons as the Manager may designate in connection with the Funds. It is also understood that any information supplied to the Subadviser in connection with the performance of its obligations hereunder, particularly, but not limited to, any list of securities which, on a temporary basis, may not be bought or sold for the Funds, is to be regarded as confidential and for use only by the Subadviser in connection with its obligation to provide investment advice and other services to the Funds. 9. REPRESENTATIONS AND WARRANTIES. The Subadviser hereby represents and warrants as follows: (a) The Subadviser is registered with the SEC as an investment adviser under the Investment Advisers Act of 1940, as amended (the "Advisers Act"), and such registration is current, complete and in full compliance with all material applicable provisions of the Advisers Act and the rules and regulations thereunder; (b) The Subadviser has all requisite authority to enter into, execute, deliver and perform the Subadviser's obligations under this Agreement; (c) The Subadviser's performance of its obligations under this Agreement does not conflict with any law, regulation or order to which the Subadviser is subject; and (d) The Subadviser has reviewed the portion of (i) the registration statement filed with the SEC, as amended from time to time, for the Funds ("Registration Statement"), and (ii) each Fund's prospectuses and -4- statements of additional information (including amendments) thereto, in each case in the form received from the Manager with respect to the disclosure about the Subadviser and the Funds of which the Subadviser has knowledge (the "Subadviser and Fund Information") and except as advised in writing to the Manager such Registration Statement, prospectuses and statements of additional information (including amendments) contain, as of their respective dates, no untrue statement of any material fact of which the Subadviser has knowledge and do not omit any statement of a material fact of which the Subadviser has knowledge which was required to be stated therein or necessary to make the statements contained therein not misleading. 10. COVENANTS. The Subadviser hereby covenants and agrees that, so long as this Agreement shall remain in effect: (a) The Subadviser shall maintain the Subadviser's registration as an investment adviser under the Advisers Act, and such registration shall at all times remain current, complete and in full compliance with all material applicable provisions of the Advisers Act and the rules and regulations thereunder; (b) The Subadviser's performance of its obligations under this Agreement shall not conflict with any law, regulation or order to which the Subadviser is then subject; (c) The Subadviser shall at all times comply with the Advisers Act and the 1940 Act, and all rules and regulations thereunder, and all other applicable laws and regulations, and the Registration Statement, prospectuses and statements of additional information (including amendments) and with any applicable procedures adopted by the Trust's Board of Trustees, provided that such procedures are substantially similar to those applicable to similar funds for which the Trust's Board of Trustees is responsible and that such procedures are identified in writing to the Subadviser; (d) The Subadviser shall promptly notify the Manager and the Fund upon the occurrence of any event that might disqualify or prevent the Subadviser from performing its duties under this Agreement. The Subadviser shall promptly notify the Manager and the Fund if there are any changes to its organizational structure or the Subadviser has become the subject of any adverse regulatory action imposed by any regulatory body or self-regulatory organization. The Subadviser further agrees to notify the Manager of any changes relating to it or the provision of services by it that would cause the Registration Statement, prospectuses or statements of additional information (including amendments) for the Funds to contain any untrue statement of a material fact or to omit to state a material fact which is required to be stated therein or is necessary to make the statements contained therein not misleading, in each case relating to Subadviser and Fund Information; and (e) The Subadviser will manage the portion of each Fund's portfolio assets for which it serves as subadviser under this Agreement in a manner consistent with the Fund's status as a regulated investment company under Subchapter M of the Internal Revenue Code. -5- 11. USE OF NAMES. (a) The Subadviser acknowledges and agrees that the names Ivy Fund and Ivy Management, Inc., and abbreviations or logos associated with those names, are the valuable property of the Manager and its affiliates; that the Funds, the Manager and their affiliates have the right to use such names, abbreviations and logos; and that the Subadviser shall use the names Ivy Fund and Ivy Management, Inc., and associated abbreviations and logos, only in connection with the Subadviser's performance of its duties hereunder. Further, in any communication with the public and in any marketing communications of any sort, the Subadviser agrees to obtain prior written approval from the Manager before using or referring to Ivy Fund, and Ivy Management, Inc., or the Funds or any abbreviations or logos associated with those names; provided that nothing herein shall be deemed to prohibit the Subadviser from referring to the performance of the Funds in the Subadviser's marketing material as long as such marketing material does not constitute "sales literature" or "advertising" for the Funds, as those terms are used in the rules, regulations and guidelines of the SEC and the National Association of Securities Dealers, Inc. (b) The Manager acknowledges that "Henderson" and "Henderson Global Investors" and abbreviations or logos associated with those names are valuable property of the AMP group of companies and are distinctive in connection with investment advisory and related services provided by the Subadviser, the "Henderson" name is a property right of the Subadviser, and the "Henderson" and "Henderson Global Investors" names are understood to be used by each Fund upon the conditions hereinafter set forth; provided that each Fund may use such names only so long as the Subadviser shall be retained as the investment subadviser of the Fund pursuant to the terms of this Agreement. (c) The Subadviser acknowledges that each Fund and its agents may use the "Henderson" and "Henderson Global Investors" names in connection with accurately describing the activities of the Fund, including use with marketing and other promotional and informational material relating to the Fund with the prior written approval always of the Subadviser. In the event that the Subadviser shall cease to be the investment subadviser of a Fund, then the Fund at its own or the Manager's expense, upon the Subadviser's written request: (i) shall cease to use the Subadviser's name for any commercial purpose; and (ii) shall use its best efforts to cause the Fund's officers and trustees to take any and all actions which may be necessary or desirable to effect the foregoing and to reconvey to the Subadviser all rights which a Fund may have to such name. The Manager agrees to take any and all reasonable actions as may be necessary or desirable to effect the foregoing and Subadviser agrees to allow the Funds and their agents a reasonable time to effectuate the foregoing. (d) The Subadviser hereby agrees and consents to the use of the Subadviser's name upon the foregoing terms and conditions. 12. REPORTS BY THE SUBADVISER AND RECORDS OF THE FUNDS. The Subadviser shall furnish the Manager monthly, quarterly and annual reports concerning transactions and performance of the Funds, including information required to be disclosed in the Trust's Registration Statement, in such form as may be mutually agreed. The Subadviser shall permit the financial statements, books and records with respect to the Funds to be inspected and audited by the Trust, the Manager or their agents at all reasonable times during normal business hours. The -6- Subadviser shall immediately notify and forward to both the Manager and legal counsel for the Trust any legal process served upon it on behalf of the Manager or the Trust. The Subadviser shall promptly notify the Manager of any changes in any information concerning the Subadviser of which the Subadviser becomes aware that would be required to be disclosed in the Trust's Registration Statement. In compliance with the requirements of Rule 31a-3 under the 1940 Act, the Subadviser agrees that all records it maintains for the Trust are the property of the Trust and further agrees to surrender promptly to the Trust or the Manager any such records upon the Trust's or the Manager's request. The Subadviser further agrees to maintain for the Trust the records the Trust is required to maintain under Rule 31a-1(b) insofar as such records relate to the investment affairs of each Fund. The Subadviser further agrees to preserve for the periods prescribed by Rule 31a-2 under the 1940 Act the records it maintains for the Trust. 13. INDEMNIFICATION. The Subadviser agrees to indemnify and hold harmless the Manager, any affiliated person within the meaning of Section 2(a)(3) of the 1940 Act ("affiliated person") of the Manager and each person, if any, who, within the meaning of Section 15 of the Securities Act of 1933, as amended (the "1933 Act"), controls ("controlling person") the Manager, against any and all losses, claims, damages, liabilities or litigation (including reasonable legal and other expenses), to which the Manager, the Trust or such affiliated person or controlling person may become subject under the 1933 Act, the 1940 Act, the Advisers Act, under any other statute, at common law or otherwise, arising out of Subadviser's responsibilities as subadviser of the Funds (1) to the extent of and as a result of the willful misconduct, bad faith, or gross negligence of the Subadviser, any of the Subadviser's employees or representatives or any affiliate of or any person acting on behalf of the Subadviser, or (2) as a result of any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, prospectuses or statements of additional information covering the Funds or the Trust or any amendment thereof or any supplement thereto or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statement therein not misleading, if such a statement or omission was made in reliance upon written information furnished by the Subadviser to the Manager, the Trust or any affiliated person of the Manager or the Trust expressly for use in the Trust's Registration Statement, or upon verbal information confirmed by the Subadviser in writing expressly for use in the Trust's Registration Statement or (3) to the extent of, and as a result of, the failure of the Subadviser to execute, or cause to be executed, portfolio transactions according to the standards and requirements of the 1940 Act; provided, however, that in no case is the Subadviser's indemnity in favor of the Manager or any affiliated person or controlling person of the Manager deemed to protect such person against any liability to which any such person would otherwise be subject by reason of willful misconduct, bad faith or gross negligence in the performance of its duties or by reason of its reckless disregard of its obligations and duties under this Agreement. The Manager agrees to indemnify and hold harmless the Subadviser, any affiliated person of the Subadviser and each controlling person of the Subadviser against any and all losses, claims, damages, liabilities or litigation (including reasonable legal and other expenses), to which the Subadviser or such affiliated person or controlling person may become subject under the 1933 Act, the 1940 Act, the Advisers Act, under any other statute, at common law or otherwise, arising out of the Manager's responsibilities as -7- investment manager of the Funds (1) to the extent of and as a result of the willful misconduct, bad faith, or gross negligence of the Manager, any of the Manager's employees or representatives or any affiliate of or any person acting on behalf of the Manager, or (2) as a result of any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, prospectuses or statements of additional information covering the Funds or the Trust or any amendment thereof or any supplement thereto or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statement therein not misleading, if such a statement or omission was made by the Trust other than in reliance upon written information furnished by the Subadviser, or any affiliated person of the Subadviser, expressly for use in the Trust's Registration Statement or other than upon verbal information confirmed by the Subadviser in writing expressly for use in the Trust's Registration Statement; provided, however, that in no case is the Manager's indemnity in favor of the Subadviser or any affiliated person or controlling person of the Subadviser deemed to protect such person against any liability to which any such person would otherwise be subject by reason of willful misconduct, bad faith or gross negligence in the performance of its duties or by reason of its reckless disregard of its obligations and duties under this Agreement. 14. JURISDICTION. The Subadviser irrevocably submits to the jurisdiction of any state or U.S. federal court sitting in the Commonwealth of Massachusetts over any suit, action or proceeding arising out of or relating to this proposal and the agreement contemplated herein. The Subadviser irrevocably waives, to the fullest extent permitted by law, any objection which it may have to the laying of the venue of any such suit, action or proceeding brought in such a court and any claim that any such suit, action or proceeding brought in such a court has been brought in an inconvenient forum. The Subadviser agrees that final judgment in any such suit, action or proceeding brought in such a court shall be conclusive and binding upon the Subadviser, and may be enforced to the extent permitted by applicable law in any court of the jurisdiction of which the Subadviser is subject by a suit upon such judgment, provided that service of process is effected upon the Subadviser in the manner specified in the following paragraph or as otherwise permitted by law. As long as the agreement contemplated herein remains in effect, the Subadviser will at all times have an authorized agent in the Commonwealth of Massachusetts upon whom process may be served in any legal action or proceeding in a state or U.S. federal court sitting in the Commonwealth of Massachusetts over any suit, action or proceeding arising out of or relating to this proposal or the agreement contemplated herein. The Subadviser hereby appoints CT Corporation System as its agent for such purpose, and covenants and agrees that service of process in any such legal action or proceeding may be made upon it at the office of such agent at 2 Oliver Street, Boston, MA 02019 (or at such other address in the Commonwealth of Massachusetts, as said agent may designate by written notice to the Subadviser and the Manager). The Subadviser hereby consents to the process being served in any suit, action or proceeding of the nature referred to in the preceding paragraph by service upon such agent -8- together with the mailing of a copy thereof by registered or certified mail, postage prepaid, return receipt requested, to the address of the Subadviser set forth in Section 15 below or to any other address of which the Subadviser shall have given written notice to the Manager. The Subadviser irrevocably waives, to the fullest extent permitted by law, all claim of error by reason of any such service (but does not waive any right to assert lack of subject matter jurisdiction) and agrees that such service (i) shall be deemed in every respect effective service of process upon the Subadviser in any suit, action or proceeding and (ii) shall, to the fullest extent permitted by law, be taken and held to be valid personal service upon and personal delivery to the Subadviser. Nothing in this Section 14 shall affect the right of the Manager to serve process in any manner permitted by law or limit the right of the Manager to bring proceedings against the Subadviser in the courts of any jurisdiction or jurisdictions. 15. NOTICES. All notices or other communications required or permitted to be given hereunder shall be in writing and shall be delivered or sent by pre-paid first class letter post to the following addresses or to such other address as the relevant addressee shall hereafter notify for such purpose to the others by notice in writing and shall be deemed to have been given at the time of delivery. If to the Manager: IVY MANAGEMENT, INC. Via Mizner Financial Plaza 700 South Federal Highway Boca Raton, FL 33432, U.S.A. Attention: Keith J. Carlson If to the Trust: IVY FUND Via Mizner Financial Plaza 700 South Federal Highway Boca Raton, FL 33432, U.S.A. Attention: Keith J. Carlson If to the Subadviser: HENDERSON INVESTMENT MANAGEMENT LIMITED 4 Broadgate London EC2M 2DA United Kingdom Attention: Sean Dranfield and the Company Secretary 16. LIMITATION OF LIABILITY OF THE TRUST, ITS TRUSTEES, AND SHAREHOLDERS. It is understood and expressly stipulated that none of the trustees, officers, agents, or shareholders of any series of the Trust shall be personally liable hereunder. It is understood and acknowledged that all persons dealing with any series of the Trust must look solely to the property of such series for the enforcement of any claims against that series as neither the trustees, officers, agents or shareholders assume any personal liability for obligations entered into on behalf of any series of the Trust. No series of the Trust shall be liable for the obligations or liabilities of any other series of the Trust. 17. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts. Anything herein to the contrary notwithstanding, this Agreement shall not be construed to require, or to impose any duty upon either of the parties, to do anything in violation of any applicable laws or regulations. -9- 18. SEVERABILITY. Should any part of this Agreement be held invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors. 19. COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, and all such counterparts shall constitute a single instrument. IN WITNESS WHEREOF, IVY MANAGEMENT, INC. AND HENDERSON INVESTMENT MANAGEMENT LIMITED have each caused this instrument to be signed in duplicate on its behalf by the officer designated below thereunto duly authorized. IVY MANAGEMENT, INC. By: /s/ JAMES W. BROADFOOT ------------------------------------ Title: President HENDERSON INVESTMENT MANAGEMENT LIMITED By: /s/ JOHN NESTOR ------------------------------------ Title: Director -10- SCHEDULE A TO SUBADVISORY AGREEMENT BETWEEN IVY MANAGEMENT, INC. AND HENDERSON INVESTMENT MANAGEMENT LIMITED DATED MAY 29, 2001 ----------------------------------- Funds: IVY INTERNATIONAL SMALL COMPANIES FUND - 100% of Fund's net assets IVY EUROPEAN OPPORTUNITIES FUND - 100% of Fund's net assets -11- SCHEDULE B TO SUBADVISORY AGREEMENT BETWEEN IVY MANAGEMENT, INC. AND HENDERSON INVESTMENT MANAGEMENT LIMITED DATED MAY 29, 2001 ---------------------------------- Fee schedule: IVY INTERNATIONAL SMALL COMPANIES FUND: payable monthly at an annual rate of 0.22% of the portion of the Fund's average daily net assets managed by the Subadviser. IVY EUROPEAN OPPORTUNITIES FUND: payable monthly at an annual rate of 0.22% of the portion of the Fund's average daily net assets managed by the Subadviser. -12- EX-99.(D)(40) 9 g74718ex99-d40.txt SUBADVISORY AGREEMENT EXHIBIT (d)(40) SUBADVISORY AGREEMENT AGREEMENT made as of the 29th day of May, 2001, between IVY MANAGEMENT, INC., 700 South Federal Highway, Boca Raton, Florida 33432 U.S.A., a Massachusetts corporation (hereinafter called the "Manager"), and PETER CUNDILL & ASSOCIATES, INC., a corporation incorporated under the laws of Delaware at PO Box 50133, Santa Barbara, CA 93150 USA (hereinafter called the "Subadviser"). WHEREAS, Ivy Fund (the "Trust") is a Massachusetts business trust organized with one or more series of shares, and is registered as an investment company under the Investment Company Act of 1940, as amended (the "1940 Act"); and WHEREAS, the Manager has entered into a Master Business Management and Investment Advisory Agreement dated May 29, 2001, as amended (the "Advisory Agreement"), with the Trust, pursuant to which the Manager acts as investment adviser to the portfolio assets of certain series of the Trust listed on Schedule A hereto, as amended from time to time (each a "Fund" and, collectively, the "Funds"); and WHEREAS, the Manager desires to utilize the services of the Subadviser as investment subadviser with respect to certain portfolio assets of each Fund; and WHEREAS, the Subadviser is willing to perform such services on the terms and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the mutual agreements herein contained, the parties hereto agree as follows: 1. DUTIES OF THE SUBADVISER. The Subadviser will serve the Manager as investment subadviser with respect to certain portfolio assets of each Fund, as set forth on the attached Schedule A. (a) As investment subadviser to the Funds, the Subadviser is hereby authorized and directed and hereby agrees, in accordance with the Subadviser's best judgment and subject to the stated investment objectives, policies and restrictions of the Funds as set forth in the current prospectuses and statements of additional information of the Trust (including amendments) and in accordance with the Trust's Declaration of Trust, as amended, and By-laws governing the offering of its shares (collectively, the "Trust Documents"), the 1940 Act and the provisions of the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"), relating to regulated investment companies, and subject to such resolutions as from time to time may be adopted by the Trust's Board of Trustees, and provided that the Trust Documents are all furnished to the Subadviser, to develop, recommend and implement such investment program and strategy for the Funds as may from time to time be most appropriate to the achievement of the investment objectives of the Funds as stated in the aforesaid prospectuses, to provide research and analysis relative to the investment program and investments of the Funds, to determine what securities should be purchased and sold and to monitor on a continuing basis the performance of the portfolio securities of the Funds. (b) The Subadviser agrees to comply with the investment objective and policies as set out in the Funds registration statement in providing its investment advisory services and to notify the Manager on a timely basis of any lapse in compliance with the objective and policies. (c) The Subadviser shall (i) comply with all reasonable requests of the Trust (through the Manager) for information, including information required in connection with the Trust's filings with the Securities and Exchange Commission (the "SEC") and state securities commissions, and (ii) provide such other services as the Subadviser shall from time to time determine to be necessary or useful to the administration of the Funds. (d) The Subadviser shall furnish to the Manager for distribution to the Trust's Board of Trustees periodic reports on the investment performance of each Fund and on the performance of its obligations under this Agreement and shall supply such additional reports and information as the Trust's officers or Board of Trustees shall reasonably request. (e) On occasions when the Subadviser deems the purchase or sale of a security to be in the best interest of a Fund as well as other customers, the Subadviser, to the extent permitted by applicable law, may aggregate the securities to be so sold or purchased in order to obtain the best execution or lower brokerage commissions, if any. The Subadviser also may purchase or sell a particular security for one or more customers in different amounts. On either occasion, and to the extent permitted by applicable law and regulations, allocation of the securities so purchased or sold, as well as the expenses incurred in the transaction, will be made by the Subadviser in the manner it considers to be the most equitable and consistent with its fiduciary obligations to the Fund involved and to such other customers. In no instance, however, will a Fund's assets be purchased from or sold to the Manager, the Subadviser, the Trust's principal underwriter, or any affiliated person of either the Trust, the Manager, the Subadviser or the principal underwriter, acting as principal in the transaction, except to the extent permitted by the SEC and the 1940 Act. (f) Consistent with U.S. securities laws, the Subadviser agrees to adopt written trade allocation procedures that are "fair and equitable" to its clients which are consistent with the investment policies set out in the prospectuses and statements of additional information (including amendments) of the Funds or as the Trust's Board of Trustees may direct from time to time. The Subadviser also agrees to effect securities transactions in client accounts consistent with the allocation system described in such written procedures, to keep accurate records of such transactions and to fully disclose such trade allocation procedures and practices to clients. (g) The Subadviser shall provide the Funds' custodian on each business day with information relating to all transactions concerning each Fund's assets and shall provide the Manager with such information upon request of the Manager. -2- (h) The investment advisory services provided by the Subadviser under this Agreement are not to be deemed exclusive and the Subadviser shall be free to render similar services to others, as long as such services do not impair the services rendered to the Manager or the Trust. (i) The Subadviser shall promptly notify the Manager of any financial condition that is likely to impair the Subadviser's ability to fulfill its commitment under this Agreement. 2. DELIVERY OF DOCUMENTS TO THE MANAGER. The Subadviser has furnished the Manager with copies of each of the following documents: (a) The Subadviser's current Form ADV and any amendments thereto, if applicable; (b) The Subadviser's most recent audited balance sheet; (c) Separate lists of persons whom the Subadviser wishes to have authorized to give written and/or oral instructions to the custodian and the fund accounting agent of Trust assets for the Funds; and (d) The Code of Ethics of the Subadviser as currently in effect. The Subadviser will furnish the Manager from time to time with copies, properly certified or otherwise authenticated, of all material amendments of or supplements to the foregoing, if any. Additionally, the Subadviser will provide to the Manager such other documents relating to its services under this Agreement as the Manager may reasonably request on a periodic basis. Such amendments or supplements as to items (a) through (d) above will be provided within 30 days of the time such materials became available to the Subadviser. 3. EXPENSES. The Subadviser shall pay all of its expenses arising from the performance of its obligations under this Agreement. 4. COMPENSATION. The Manager shall pay to the Subadviser for its services hereunder, and the Subadviser agrees to accept as full compensation therefor, a fee with respect to each Fund as set forth on Schedule B. Such fee shall be accrued daily on the basis of the value of the portion of the average daily net assets of the applicable Fund as are then being managed by the Subadviser and shall be payable monthly. If the Subadviser shall serve hereunder for less than the whole of any month, the fee hereunder shall be prorated accordingly. 5. PURCHASE AND SALE OF SECURITIES. The Subadviser will determine the securities to be purchased or sold with respect to the portion of each Fund's portfolio assets being managed by it, and shall purchase securities from or through and sell securities to or through such persons, brokers or dealers as the Subadviser shall deem appropriate in order to carry out the policy with respect to allocation of portfolio transactions as described in section 1.(f) of this Agreement and statements of additional information (including amendments) of the Funds. In providing the Funds with investment management and supervision, it is recognized that the Subadviser will seek the most favorable price and execution, and, consistent with such policy, may give consideration to the -3- research services furnished by brokers or dealers to the Subadviser for its use and to such other considerations as the Trust's Board of Trustees may direct or authorize from time to time. Nothing in this Agreement shall be implied to prevent: (i) the Manager from engaging other subadvisers to provide investment advice and other services in relation to series of the Trust, or a portion of the portfolio assets of any such series, for which the Subadviser does not provide such services, or to prevent the Manager from providing such services itself in relation to such series; or (ii) the Subadviser from providing investment advice and other services to other funds or clients. In the performance of its duties hereunder, the Subadviser is and shall be an independent contractor and except as expressly provided herein or otherwise authorized in writing, shall have no authority to act for or represent the Trust, the Funds, any other series of the Trust or the Manager in any way or otherwise be deemed to be an agent of the Trust, the Funds, any other series of the Trust or the Manager. 6. TERM OF AGREEMENT. This Agreement shall become effective as of the date first written above or such later date as the shareholders may approve the Agreement, and shall continue in full force and effect until September 30, 2001, and from year to year thereafter if such continuance is approved in the manner required by the 1940 Act, if the Subadviser shall not have notified the Manager in writing at least 60 days prior to such September 30 or prior to September 30 of any year thereafter that it does not desire such continuance. This Agreement may be terminated at any time, without payment of penalty by a Fund, by vote of the Trust's Board of Trustees or a majority of the outstanding voting securities of the applicable Fund (as defined by the 1940 Act), or by the Manager upon 30 days' written notice or by the Subadviser upon 120 days' written notice. This Agreement will automatically terminate in the event of its assignment (as defined by the 1940 Act) or upon the termination of the Advisory Agreement, or if (a) either party is unable to pay its debts or an administrative or insolvency order is made in respect of a party pursuant to its relevant governing and applicable laws and regulations. 7. AMENDMENTS. This Agreement may be amended by consent of the parties hereto provided that the consent of the applicable Fund is obtained in accordance with the requirements of the 1940 Act. 8. CONFIDENTIAL TREATMENT. It is understood that any information or recommendation supplied by the Subadviser in connection with the performance of its obligations hereunder is to be regarded as confidential and for use only by the Manager, the Trust or such persons as the Manager may designate in connection with the Funds. It is also understood that any information supplied to the Subadviser in connection with the performance of its obligations hereunder, particularly, but not limited to, any list of securities which, on a temporary basis, may not be bought or sold for the Funds, is to be regarded as confidential and for use only by the Subadviser in connection with its obligation to provide investment advice and other services to the Funds. -4- 9. REPRESENTATIONS AND WARRANTIES. The Subadviser hereby represents and warrants as follows: (a) The Subadviser is registered with the SEC as an investment adviser under the Investment Advisers Act of 1940, as amended (the "Advisers Act"), and such registration is current, complete and in full compliance with all material applicable provisions of the Advisers Act and the rules and regulations thereunder; (b) The Subadviser has all requisite authority to enter into, execute, deliver and perform the Subadviser's obligations under this Agreement; (c) The Subadviser's performance of its obligations under this Agreement does not conflict with any law, regulation or order to which the Subadviser is subject; and (d) The Subadviser has reviewed the portion of (i) the registration statement filed with the SEC, as amended from time to time, for the Funds ("Registration Statement"), and (ii) each Fund's prospectuses and statements of additional information (including amendments) thereto, in each case in the form received from the Manager with respect to the disclosure about the Subadviser and the Funds of which the Subadviser has knowledge ("Subadviser and Fund Information") and except as advised in writing to the Manager such Registration Statement, prospectuses and statements of additional information (including amendments) contain, as of their respective dates, no untrue statement of any material fact of which the Subadviser has knowledge and do not omit any statement of a material fact of which the Subadviser has knowledge which was required to be stated therein or necessary to make the statements contained therein not misleading. 10. COVENANTS. The Subadviser hereby covenants and agrees that, so long as this Agreement shall remain in effect: (a) The Subadviser shall maintain the Subadviser's registration as an investment adviser under the Advisers Act, and such registration shall at all times remain current, complete and in full compliance with all material applicable provisions of the Advisers Act and the rules and regulations thereunder; (b) The Subadviser's performance of its obligations under this Agreement shall not conflict with any law, regulation or order to which the Subadviser is then subject; (c) The Subadviser shall at all times comply with the Advisers Act and the 1940 Act, and all rules and regulations thereunder, and all other applicable laws and regulations, and the Registration Statement, prospectuses and statements of additional information (including amendments) and with any applicable procedures adopted by the Trust's Board of Trustees, provided that such procedures are substantially similar to those applicable to similar funds for which the Trust's Board of Trustees is responsible and that such procedures are identified in writing to the Subadviser; -5- (d) The Subadviser shall promptly notify the Manager and the Fund upon the occurrence of any event that might disqualify or prevent the Subadviser from performing its duties under this Agreement. The Subadviser shall promptly notify the Manager and the Fund if there are any changes to its organizational structure or the Subadviser has become the subject of any adverse regulatory action imposed by any regulatory body or self-regulatory organization. The Subadviser further agrees to notify the Manager of any changes relating to it or the provision of services by it that would cause the Registration Statement, prospectuses or statements of additional information (including amendments) for the Funds to contain any untrue statement of a material fact or to omit to state a material fact which is required to be stated therein or is necessary to make the statements contained therein not misleading, in each case relating to Subadviser and Fund Information; (e) The Subadviser will manage the portion of each Fund's portfolio assets for which it serves as subadviser under this Agreement in a manner consistent with the Fund's status as a regulated investment company under Subchapter M of the Internal Revenue Code; and (f) The Subadviser shall exercise its powers and discharge its duties as adviser honestly, in good faith and in the best interests of the Funds and shall exercise the degree of care, diligence and skill that a reasonably prudent person would exercise in the circumstances; provided, that if it has fulfilled its standard of care obligation, the Subadviser will not be liable for any loss sustained by reason of the adoption or implementation of any investment objective or policy or the purchase, sale or retention of any portfolio investment by and on behalf of the Funds. 11. USE OF NAMES. (a) The Subadviser acknowledges and agrees that the names Ivy Fund and Ivy Management, Inc., and abbreviations or logos associated with those names, are the valuable property of the Manager and its affiliates; that the Funds, the Manager and their affiliates have the right to use such names, abbreviations and logos; and that the Subadviser shall use the names Ivy Fund and Ivy Management, Inc., and associated abbreviations and logos, only in connection with the Subadviser's performance of its duties hereunder. Further, in any communication with the public and in any marketing communications of any sort, the Subadviser agrees to obtain prior written approval from the Manager before using or referring to Ivy Fund, and Ivy Management, Inc., or the Funds or any abbreviations or logos associated with those names; provided that nothing herein shall be deemed to prohibit the Subadviser from referring to the performance of the Funds in the Subadviser's marketing material as long as such marketing material does not constitute "sales literature" or "advertising" for the Funds, as those terms are used in the rules, regulations and guidelines of the SEC and the National Association of Securities Dealers, Inc. (b) The Subadviser acknowledges that each Fund and its agents may use the "Cundill" and "Peter Cundill" names in connection with accurately describing the activities of the Fund, including use with marketing and other -6- promotional and informational material relating to the Fund. The Subadviser hereby agrees and consents to the use of the Subadviser's name upon the foregoing terms and conditions. (c) The Subadviser acknowledges that each Fund and its agents may use the "Cundill" name in conjunction with accurately describing the activities of the Fund, including use with marketing and other promotional materials relating to the Fund with prior written approval always of the Subadviser. In the event that the Subadviser shall cease to be the Manager's subadviser of a Fund, then the Fund at its own or the Manager's expense, upon the Subadviser's written request: (i) shall cease to use the Subadviser's name for any commercial purpose; and (ii) shall use its best efforts to cause the Fund's officers and trustees to take any and all actions which may be necessary or desirable to effect the foregoing and to reconvey to the Subadviser all rights which a Fund may have to such name. The Manager agrees to take any and all reasonable actions as may be necessary or desirable to effect the foregoing and the Subadviser agrees to allow the Funds and their agents a reasonable time to effectuate the foregoing. (d) The Subadviser hereby agrees and consents to the use of the Subadviser's name upon the foregoing terms and conditions. 12. REPORTS BY THE SUBADVISER AND RECORDS OF THE FUNDS. The Subadviser shall furnish the Manager monthly, quarterly and annual reports concerning transactions and performance of the Funds, including information required to be disclosed in the Trust's Registration Statement, in such form as may be mutually agreed. The Subadviser shall permit the financial statements, books and records with respect to the Funds to be inspected and audited by the Trust, the Manager or their agents at all reasonable times during normal business hours. The Subadviser shall immediately notify and forward to both the Manager and legal counsel for the Trust any legal process served upon it on behalf of the Manager or the Trust. The Subadviser shall promptly notify the Manager of any changes in any information concerning the Subadviser of which the Subadviser becomes aware that would be required to be disclosed in the Trust's Registration Statement. In compliance with the requirements of Rule 31a-3 under the 1940 Act, the Subadviser agrees that all records it maintains for the Trust are the property of the Trust and further agrees to surrender promptly to the Trust or the Manager any such records upon the Trust's or the Manager's request. The Subadviser further agrees to maintain for the Trust the records the Trust is required to maintain under Rule 31a-1(b) insofar as such records relate to the investment affairs of each Fund. The Subadviser further agrees to preserve for the periods prescribed by Rule 31a-2 under the 1940 Act the records it maintains for the Trust. 13. INDEMNIFICATION. The Subadviser agrees to indemnify and hold harmless the Manager, any affiliated person within the meaning of Section 2(a)(3) of the 1940 Act ("affiliated person") of the Manager and each person, if any, who, within the meaning of Section 15 of the Securities Act of 1933, as amended (the "1933 Act"), controls ("controlling person") the Manager, against any and all losses, claims, damages, liabilities or litigation (including -7- reasonable legal and other expenses), to which the Manager, the Trust or such affiliated person or controlling person may become subject under the 1933 Act, the 1940 Act, the Advisers Act, under any other statute, at common law or otherwise, arising out of the Subadviser's responsibilities as subadviser of the Funds (1) to the extent of and as a result of the willful misconduct, bad faith, or gross negligence of the Subadviser, any of the Subadviser's employees or representatives or any affiliate of or any person acting on behalf of the Subadviser, or (2) as a result of any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, prospectuses or statements of additional information covering the Funds or the Trust or any amendment thereof or any supplement thereto or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statement therein not misleading, if such a statement or omission was made in reliance upon written information furnished by the Subadviser to the Manager, the Trust or any affiliated person of the Manager or the Trust expressly for use in the Trust's Registration Statement, or upon verbal information confirmed by the Subadviser in writing expressly for use in the Trust's Registration Statement or (3) to the extent of, and as a result of, the failure of the Subadviser to execute, or cause to be executed, portfolio transactions according to the standards and requirements of the 1940 Act; provided, however, that in no case is the Subadviser's indemnity in favor of the Manager or any affiliated person or controlling person of the Manager deemed to protect such person against any liability to which any such person would otherwise be subject by reason of willful misconduct, bad faith or gross negligence in the performance of its duties or by reason of its reckless disregard of its obligations and duties under this Agreement. The Manager agrees to indemnify and hold harmless the Subadviser against any and all losses, claims, damages, liabilities or litigation (including reasonable legal and other expenses), to which the Subadviser or such affiliated person or controlling person may become subject under the 1933 Act, the 1940 Act, the Advisers Act, under any other statute, at common law or otherwise, arising out of the Manager's responsibilities as investment manager of the Funds (1) to the extent of and as a result of the willful misconduct, bad faith, or gross negligence of the Manager, any of the Manager's employees or representatives or any affiliate of or any person acting on behalf of the Manager, or (2) as a result of any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, prospectuses or statements of additional information covering the Funds or the Trust or any amendment thereof or any supplement thereto or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statement therein not misleading, if such a statement or omission was made by the Trust other than in reliance upon written information furnished by the Subadviser, or any affiliated person of the Subadviser, expressly for use in the Trust's Registration Statement or other than upon verbal information confirmed by the Subadviser in writing expressly for use in the Trust's Registration Statement; provided, however, that in no case is the Manager's indemnity in favor of the Subadviser deemed to protect such person against any liability to which any such person would otherwise be subject by reason of willful misconduct, bad faith or gross negligence in the performance of its duties or by reason of its reckless disregard of its obligations and duties under this Agreement. 14. ASSIGNMENT BY THE SUBADVISER. This Agreement shall not be assigned by the Subadviser to any other person or company without the Manager's prior written consent. -8- 15. JURISDICTION. The Subadviser irrevocably submits to the jurisdiction of any state or U.S. federal court sitting in the Commonwealth of Massachusetts over any suit, action or proceeding arising out of or relating to this proposal and the agreement contemplated herein. The Subadviser irrevocably waives, to the fullest extent permitted by law, any objection which it may have to the laying of the venue of any such suit, action or proceeding brought in such a court and any claim that any such suit, action or proceeding brought in such a court has been brought in an inconvenient forum. The Subadviser agrees that final judgment in any such suit, action or proceeding brought in such a court shall be conclusive and binding upon the Subadviser, and may be enforced to the extent permitted by applicable law in any court of the jurisdiction of which the Subadviser is subject by a suit upon such judgment, provided that service of process is effected upon the Subadviser in the manner specified in the following paragraph or as otherwise permitted by law. As long as the agreement contemplated herein remains in effect, the Subadviser will at all times have an authorized agent in the Commonwealth of Massachusetts upon whom process may be served in any legal action or proceeding in a state or U.S. federal court sitting in the Commonwealth of Massachusetts over any suit, action or proceeding arising out of or relating to this proposal or the agreement contemplated herein. The Subadviser hereby appoints CT Corporation System as its agent for such purpose, and covenants and agrees that service of process in any such legal action or proceeding may be made upon it at the office of such agent at 2 Oliver Street, Boston, MA 02019 (or at such other address in the Commonwealth of Massachusetts, as said agent may designate by written notice to the Subadviser and the Manager). The Subadviser hereby consents to the process being served in any suit, action or proceeding of the nature referred to in the preceding paragraph by service upon such agent together with the mailing of a copy thereof by registered or certified mail, postage prepaid, return receipt requested, to the address of the Subadviser set forth in Section 16 below or to any other address of which the Subadviser shall have given written notice to the Manager. The Subadviser irrevocably waives, to the fullest extent permitted by law, all claim of error by reason of any such service (but does not waive any right to assert lack of subject matter jurisdiction) and agrees that such service (i) shall be deemed in every respect effective service of process upon the Subadviser in any suit, action or proceeding and (ii) shall, to the fullest extent permitted by law, be taken and held to be valid personal service upon and personal delivery to the Subadviser. Nothing in this Section 15 shall affect the right of the Manager to serve process in any manner permitted by law or limit the right of the Manager to bring proceedings against the Subadviser in the courts of any jurisdiction or jurisdictions. 16. NOTICES. All notices or other communications required or permitted to be given hereunder shall be in writing and shall be delivered or sent by pre-paid first class letter post to the following addresses or to such other address as the relevant addressee shall hereafter notify for such purpose to the others by notice in writing and shall be deemed to have been given at the time of delivery. -9- If to the Manager: IVY MANAGEMENT, INC. Via Mizner Financial Plaza 700 South Federal Highway Boca Raton, FL 33432, U.S.A. Attention: Keith J. Carlson If to the Trust: IVY FUND Via Mizner Financial Plaza 700 South Federal Highway Boca Raton, FL 33432, U.S.A. Attention: Keith J. Carlson If to the Subadviser: PETER CUNDILL & ASSOCIATES, INC. PO Box 50133 Santa Barbara, CA 93108 USA Attn: Brian L. McDermott With a copy to: Cundill Investment Research Ltd. 1200 1100 Melville Street Vancouver, British Columbia V6E 4A6 Attn: Mr. Andrew C. Parkinson 17. LIMITATION OF LIABILITY OF THE TRUST, ITS TRUSTEES, AND SHAREHOLDERS. It is understood and expressly stipulated that none of the trustees, officers, agents, or shareholders of any series of the Trust shall be personally liable hereunder. It is understood and acknowledged that all persons dealing with any series of the Trust must look solely to the property of such series for the enforcement of any claims against that series as neither the trustees, officers, agents or shareholders assume any personal liability for obligations entered into on behalf of any series of the Trust. No series of the Trust shall be liable for the obligations or liabilities of any other series of the Trust. 18. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts. Anything herein to the contrary notwithstanding, this Agreement shall not be construed to require, or to impose any duty upon either of the parties, to do anything in violation of any applicable laws or regulations. 19. SEVERABILITY. Should any part of this Agreement be held invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors. 20. COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, and all such counterparts shall constitute a single instrument. -10- IN WITNESS WHEREOF, Ivy Management, Inc. and Peter Cundill & Associates, Inc. have each caused this instrument to be signed in duplicate on its behalf by the officer designated below thereunto duly authorized. IVY MANAGEMENT, INC. By:/s/ JAMES W. BROADFOOT --------------------------------------- Title: President PETER CUNDILL & ASSOCIATES, INC. By:/s/ ANDREW C. PARKINSON -------------------------------------- Title: Treasurer -11- SCHEDULE A TO SUBADVISORY AGREEMENT BETWEEN IVY MANAGEMENT, INC. AND PETER CUNDILL & ASSOCIATES, INC. DATED MAY 29, 2001 ----------------------------------- Funds: IVY CUNDILL VALUE FUND - 100% of Fund's net assets -12- SCHEDULE B TO SUBADVISORY AGREEMENT BETWEEN IVY MANAGEMENT, INC. AND PETER CUNDILL & ASSOCIATES, INC. DATED MAY 29, 2001 ----------------------------------- Fee schedule: FUND NET ASSETS (U.S. $MILLIONS) ADVISORY FEE ANNUAL RATE - -------------------------------- ------------------------ All Net Assets 0.50% Fees are subject to renegotiation based on assets under management. -13- EX-99.(H)(63) 10 g74718ex99-h63.txt TRANSFER AGENCY SERVICES AGREEMENT EXHIBIT (h)(63) TRANSFER AGENCY SERVICES AGREEMENT THIS AGREEMENT is made as of June 25, 2001 by and between PFPC INC., a Massachusetts corporation ("PFPC"), and Ivy Fund, a Massachusetts business trust (the "Fund"). W I T N E S S E T H: WHEREAS, the Fund is registered as an open-end management investment company under the Investment Company Act of 1940, as amended (the "1940 Act"); and WHEREAS, the Fund wishes to retain PFPC to serve as transfer agent, registrar, dividend disbursing agent and shareholder servicing agent to its investment portfolios listed on Exhibit A attached hereto and made a part hereof, as such Exhibit A may be amended from time to time (each a "Portfolio"), and PFPC wishes to furnish such services. NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, and intending to be legally bound hereby, the parties hereto agree as follows: 1. DEFINITIONS. AS USED IN THIS AGREEMENT: (a) "1933 ACT" means the Securities Act of 1933, as amended. (b) "1934 ACT" means the Securities Exchange Act of 1934, as amended. (c) "AUTHORIZED PERSON" means any officer of the Fund and any other person duly authorized by the Fund's Board of Trustees to give Oral Instructions and Written Instructions on behalf of the Fund. An Authorized Person's scope of authority may be limited by setting forth such limitation in a written document signed by both parties hereto. (d) "CEA" means the Commodities Exchange Act, as amended. (e) "CHANGE OF CONTROL" means a change in ownership or control (not including transactions between wholly-owned direct or indirect subsidiaries of a common parent) of 50% or more of the beneficial ownership of the shares of common stock or shares of beneficial interest of an entity or its parent(s). (f) "ORAL INSTRUCTIONS" mean oral instructions received by PFPC from an Authorized Person or from a person reasonably believed by PFPC to be an Authorized Person. (g) "SEC" means the Securities and Exchange Commission. (h) "SECURITIES LAWS" mean the 1933 Act, the 1934 Act, the 1940 Act and the CEA. (i) "SHARES" mean the shares of beneficial interest of any series or class of the Fund. (j) "WRITTEN INSTRUCTIONS" mean (i) written instructions signed by an Authorized Person and received by PFPC or (ii) trade instructions transmitted (and received by PFPC) by means of an electronic transaction reporting system access to which requires use of a password or other authorized identifier. The instructions may be delivered by hand, mail, cable, e:mail, telex or facsimile sending device. 2. APPOINTMENT. The Fund hereby appoints PFPC to serve as transfer agent, registrar, dividend disbursing agent and shareholder servicing agent to the Fund in accordance with the terms set forth in this Agreement. PFPC accepts such appointment and agrees to furnish such services. 3. DELIVERY OF DOCUMENTS. The Fund has provided or, where applicable, will provide PFPC with the following: (a) At PFPC's request, certified or authenticated copies of the resolutions of the Fund's Board of Trustees approving the appointment of PFPC or its affiliates to provide services to the Fund and approving this Agreement; (b) A copy of the Fund's most recent effective registration statement; -2- (c) A copy of the advisory agreement with respect to each investment Portfolio of the Fund; (d) A copy of the distribution/underwriting agreement with respect to each class of Shares of the Fund; (e) A copy of each Portfolio's administration agreements if PFPC is not providing the Portfolio with such services; (f) Copies of any distribution and/or shareholder servicing plans and agreements made in respect of the Fund or a Portfolio; (g) A copy of the Fund's organizational documents, as filed with the state in which the Fund is organized; and (h) Copies of any and all amendments or supplements to the foregoing. 4. COMPLIANCE WITH RULES AND REGULATIONS. PFPC undertakes to comply with all applicable requirements of the Securities Laws and any laws, rules and regulations of governmental authorities having jurisdiction with respect to the duties to be performed by PFPC hereunder. PFPC represents that it is currently registered with the appropriate federal agency for the registration of transfer agents, or is otherwise permitted to lawfully conduct its activities without such registration, and that it will remain so registered or able to so conduct such activities for the duration of this Agreement. PFPC agrees that it will promptly notify the Fund in the event of any change in its status as a registered transfer agent. Except as specifically set forth herein, PFPC assumes no responsibility for such compliance by the Fund. 5. INSTRUCTIONS. (a) Unless otherwise provided in this Agreement, PFPC shall act only upon Oral Instructions or Written Instructions. -3- (b) PFPC shall be entitled to rely upon any Oral Instruction or Written Instruction it receives from an Authorized Person (or from a person reasonably believed by PFPC to be an Authorized Person) pursuant to this Agreement. PFPC may assume that any Oral Instruction or Written Instruction received hereunder is not in any way inconsistent with the provisions of organizational documents or this Agreement or of any vote, resolution or proceeding of the Fund's Board of Trustees or of the Fund's shareholders, unless and until PFPC receives Written Instructions to the contrary. (c) The Fund agrees to forward to PFPC Written Instructions confirming Oral Instructions so that PFPC receives the Written Instructions by the close of business on the same day that such Oral Instructions are received. The fact that such confirming Written Instructions are not received by PFPC or differ from the Oral Instructions shall in no way invalidate the transactions or enforceability of the transactions authorized by the Oral Instructions or PFPC's ability to rely upon such Oral Instructions. Where Oral Instructions or Written Instructions reasonably appear to have been received from an Authorized Person, PFPC shall incur no liability to the Fund in acting upon such Oral Instructions or Written Instructions provided that PFPC's actions comply with such Oral or Written Instructions and the other provisions of this Agreement. 6. RIGHT TO RECEIVE ADVICE. (a) ADVICE OF THE FUND. If PFPC is in doubt as to any action it should or should not take, PFPC may request directions or advice, including Oral Instructions or Written Instructions, from the Fund. -4- (b) ADVICE OF COUNSEL. If PFPC shall be in doubt as to any question of law pertaining to any action it should or should not take, PFPC may request advice from counsel of its own choosing (who may be counsel for the Fund, the Fund's investment adviser or PFPC, at the option of PFPC). (c) CONFLICTING ADVICE. In the event of a conflict between directions or advice or Oral Instructions or Written Instructions PFPC receives from the Fund, and the advice it receives from counsel, PFPC may rely upon and follow the advice of counsel. (d) PROTECTION OF PFPC. PFPC shall be protected in any action it takes or does not take in reliance upon directions or advice or Oral Instructions or Written Instructions it receives from the Fund or from counsel and which PFPC believes, in good faith, to be consistent with those directions or advice or Oral Instructions or Written Instructions. Nothing in this section shall be construed so as to impose an obligation upon PFPC to seek such directions or advice or Oral Instructions or Written Instructions. 7. RECORDS; VISITS. The books and records pertaining to the Fund, which are in the possession or under the control of PFPC, shall be the property of the Fund. Such books and records shall be prepared and maintained as required by the 1940 Act and other applicable securities laws, rules and regulations. The Fund and Authorized Persons shall have access to such books and records at all times during PFPC's normal business hours. Upon the reasonable request of the Fund, copies of any such books and records shall be provided by PFPC to the Fund or to an Authorized Person, at the Fund's expense. Upon reasonable notice by the Fund, PFPC shall make available during regular business hours its facilities and -5- premises employed in connection with its performance of this Agreement for reasonable visits by the Fund, any agent or person designated by the Fund or any regulatory agency having authority over the Fund. Notwithstanding the foregoing and upon three (3) days' prior notice from the Fund, PFPC shall allow representatives of the Fund to perform at PFPC's offices on-site audits during normal business hours and of a duration reasonably necessary to assess PFPC's adherence to the terms of this Agreement. 8. CONFIDENTIALITY. (a) Each party shall keep confidential any information relating to the other party's business ("Confidential Information"). Confidential Information shall include: (i) any data or information that is competitively sensitive material, and not generally known to the public, including, but not limited to, information about product plans, marketing strategies, finances, operations, customer relationships, customer profiles, customer or shareholder lists, broker/dealer or other sales relationships, sales estimates, business plans, and internal performance results relating to the past, present or future business activities of the Fund or PFPC, their respective subsidiaries and affiliated companies and the customers, clients and suppliers of any of them; (ii) any scientific or technical information, design, process, procedure, formula, or improvement that is commercially valuable and secret in the sense that its confidentiality affords the Fund or PFPC a competitive advantage over its competitors; (iii) all confidential or proprietary concepts, documentation, reports, data, specifications, computer software, source code, object code, flow charts, databases, inventions, know-how, and trade secrets, whether or not patentable or copyrightable; and -6- (iv) anything designated in writing as confidential. (b) Notwithstanding the foregoing, information shall not be subject to such confidentiality obligations if it: (i) is already known to the receiving party at the time it is obtained; (ii) is or becomes publicly known or available through no wrongful act of the receiving party; (iii) is rightfully received from a third party who, to the best of the receiving party's knowledge, is not under a duty of confidentiality; (iv) is released by the protected party to a third party without restriction; (v) is required to be disclosed by the receiving party pursuant to a requirement of a court order, subpoena, governmental or regulatory agency or law (provided the receiving party will provide the other party written notice of such requirement, to the extent such notice is permitted); (vi) is relevant to the defense of any claim or cause of action asserted under this Agreement; or (vii) has been or is independently developed or obtained by the receiving party. (c) Neither party shall use the Confidential Information of the other party for any purpose whatsoever, except as expressly contemplated under this Agreement. (d) Nothing in the foregoing Section 8 will prevent customer or shareholder lists and related information from being considered Confidential Information and as such will not be released in any form to third -7- parties, except as described above in sub-section (b)(v) and (vi), or the release or communication of such information to third parties has been consented to by the applicable customer or shareholder or the Fund. 9. COOPERATION WITH ACCOUNTANTS. PFPC shall cooperate with the Fund's independent public accountants and shall take all reasonable actions in the performance of its obligations under this Agreement to ensure that the necessary information is made available to such accountants for the expression of their opinion, as required by the Fund. 10. PFPC SYSTEM. PFPC shall retain title to and ownership of any and all data bases, computer programs, screen formats, report formats, interactive design techniques, derivative works, inventions, discoveries, patentable or copyrightable matters, concepts, expertise, patents, copyrights, trade secrets, and other related legal rights utilized by PFPC in connection with the services provided by PFPC to the Fund. Notwithstanding the foregoing, at no time will PFPC receive title to or ownership of the Fund's books and records as described in Section 7 herein, the Fund's web site or any other intellectual property of the Fund and/or its adviser and affiliates provided to PFPC under this Agreement. 11. DISASTER RECOVERY. PFPC shall enter into and shall maintain in effect with appropriate parties one or more agreements making reasonable provisions for emergency use of electronic data processing equipment. PFPC shall, at no additional expense to the Fund, take all reasonable steps to minimize service interruptions. PFPC shall have no liability with respect to the loss of data or service interruptions caused by equipment failure, provided such loss or interruption is not caused by PFPC's own negligence, willful misfeasance, bad -8- faith, violation of law, breach of this Agreement, or reckless disregard of its duties or obligations under this Agreement. PFPC agrees to take measures and make arrangements for the use of back-up systems in the event of a disaster as described in this Section 11. PFPC agrees to back-up data maintained pursuant to this Agreement on a daily basis. Upon the Fund's request, PFPC shall timely provide it with copies of PFPC's then current disaster recovery plan and related documentation. 12. COMPENSATION. As compensation for services rendered by PFPC during the term of this Agreement, the Fund will pay to PFPC a fee or fees as may be agreed to from time to time in writing by the Fund and PFPC. The Fund acknowledges that PFPC may receive float benefits and/or investment earnings in connection with maintaining certain accounts required to provide services under this Agreement. 13. INDEMNIFICATION. (a) The Fund agrees to indemnify, defend and hold harmless PFPC and its affiliates from all taxes, charges, expenses, assessments, claims and liabilities (including, without limitation, reasonable attorneys' fees and disbursements and liabilities arising under the Securities Laws and any state and foreign securities and blue sky laws) arising directly or indirectly from any action or omission to act which PFPC takes in connection with the provision of services to the Fund or at the request or on the direction of or in reliance on the advice of the Fund, upon Oral Instructions or Written Instructions, or under PFPC's prescribed procedures, including the acceptance, processing and/or negotiation of checks or other methods utilized for the purchase of Shares. Neither PFPC, nor any of its affiliates, shall be indemnified against any liability (or any expenses incident to such liability) caused by PFPC's or its affiliates' own negligence, willful misfeasance, bad faith, violation of law, breach of this Agreement, or reckless disregard of its duties and obligations under this Agreement, provided that in the absence of a finding to the contrary, the acceptance, processing and/or -9- negotiation of a fraudulent payment for the purchase of Shares shall be presumed not to have been the result of PFPC's or its affiliates own negligence, willful misfeasance, bad faith or reckless disregard of such duties and obligations. (b) PFPC agrees to indemnify, defend and hold harmless the Fund, its Trustees and shareholders from all taxes, charges, expenses, assessments, claims and liabilities (including, without limitation, reasonable attorneys' fees and disbursements and liabilities arising under the Securities Laws and any state and foreign securities and blue sky laws) arising directly or indirectly out of PFPC's or its affiliates' own negligence, willful misfeasance, bad faith, violation of law, breach of this Agreement, or reckless disregard of its duties and obligations under this Agreement. The Trustees and shareholders of the Fund, or of any Portfolio thereof, shall not be liable for any obligations under this Agreement, and PFPC agrees that in asserting any rights or claims under this Agreement, it shall look only to the assets and property of the particular Portfolio in settlement of such rights or claims and not to such Trustees or shareholders. PFPC further agrees that it will look only to the assets and property of a particular Portfolio of the Fund in asserting any rights or claims under this Agreement with respect to services rendered with respect to that Portfolio and will not seek to obtain settlement of such rights or claims from assets of any other Portfolio of the Fund. -10- 14. RESPONSIBILITY OF PFPC. (a) PFPC will maintain insurance of the types and in the amounts that PFPC reasonably believes is adequate for its business, including, but not limited to, insurance covering errors and omissions, and all other risks customarily insured against by similarly situated companies, all of which insurance is in full force and effect. (b) Upon the request of the Fund, PFPC shall contract with an independent third party (e.g., NQR or Dalbar, Inc.) chosen by the Fund and at the Fund's expense to conduct quality assurance review of PFPC's performance under this Agreement and, upon completion thereof, shall disclose the results of such review to the Fund. (c) PFPC shall be under no duty to take any action hereunder on behalf of the Fund except as specifically set forth herein or as may be specifically agreed to by PFPC and the Fund in a written amendment hereto. PFPC shall be obligated to exercise care and diligence in the performance of its duties hereunder and to act in good faith and with its best efforts within commercially reasonable limits in performing services provided for under this Agreement. PFPC shall be liable only for any damages arising out of PFPC's failure to perform its duties under this Agreement to the extent such damages arise out of PFPC's negligence, misfeasance, bad faith, violation of law, breach of this Agreement, or reckless disregard of such duties. (d) Without limiting the generality of the foregoing or of any other provision of this Agreement, (i) PFPC shall not be liable for losses beyond its control, including without limitation (subject to Section 11), delays or errors or loss of data occurring by reason of circumstances beyond PFPC's control, provided that PFPC has acted in accordance with the standard set forth in Section 14(c) above; and (ii) PFPC shall not be under any duty or obligation to inquire into and -11- shall not be liable for the validity or invalidity or authority or lack thereof of any Oral Instruction or Written Instruction, notice or other instrument which conforms to the applicable requirements of this Agreement, and which PFPC reasonably believes to be genuine. (e) Notwithstanding anything in this Agreement to the contrary, (i) neither party nor its affiliates shall be liable for any consequential, special or indirect losses or damages, whether or not the likelihood of such losses or damages was known by such party or its affiliates. (f) Each party shall have a duty to reasonably mitigate damages for which the other party may become responsible. 15. DESCRIPTION OF SERVICES. (a) SERVICES PROVIDED ON AN ONGOING BASIS, IF APPLICABLE. (i) Calculate 12b-1 payments; (ii) Maintain shareholder registrations; (iii) Review new applications and correspond with shareholders to complete or correct information; (iv) Direct payment processing of checks or wires; (v) Prepare and certify stockholder lists in conjunction with proxy solicitations; (vi) Countersign share certificates, if applicable; (vii) Prepare and mail to shareholders confirmation of activity; -12- (viii) Provide toll-free lines for direct shareholder use, including use in connection with IMPRESSNet(R) Services, plus properly trained customer liaison staff for on-line inquiry response; (ix) Mail duplicate confirmations to broker-dealers of their clients' activity, whether executed through the broker-dealer or directly with PFPC; (x) Provide periodic shareholder lists and statistics to the Fund; (xi) Provide detailed data for underwriter/broker confirmations; (xii) Provide applicable data to the Fund in order for the Fund to prepare and perform periodic mailing of year-end tax and statement information; (xiii) Notify on a timely basis the investment adviser, accounting agent, and custodian of fund activity; (xiv) Perform other shareholder services for participating broker-dealers as may be agreed upon from time to time; (xv) PFPC shall provide the Fund with read-only access for two concurrent users to Fund shareholder account information stored in its computerized record keeping system in the same manner as is available to PFPC's representatives. (b) SERVICES PROVIDED BY PFPC UNDER ORAL INSTRUCTIONS OR WRITTEN INSTRUCTIONS. (i) Accept and post daily Share purchases and redemptions; (ii) Accept, post and perform shareholder transfers and exchanges; (iii) Pay dividends and other distributions; (iv) Issue and cancel certificates (when requested in writing by the shareholder). -13- (c) PURCHASE OF SHARES. PFPC shall issue and credit an account of an investor, in the manner described in the Fund's applicable prospectus and SAI, once it receives: (i) A purchase order; (ii) Proper information to establish a shareholder account; and (iii) Confirmation of receipt or crediting of funds for such order to the Fund's custodian. (d) REDEMPTION OF SHARES. PFPC shall redeem Shares only if that function is properly authorized by the declaration of trust or resolution of the Fund's Board of Trustees. Shares shall be redeemed and payment therefor shall be made in accordance with the Fund's applicable prospectus and SAI, when the recordholder tenders Shares in proper form and directs the method of redemption. If Shares are received in proper form, the redemption of such Shares shall be recorded before the funds are provided to PFPC from the Fund's custodian (the "Custodian"). If the recordholder has not directed that redemption proceeds be wired, when the Custodian provides PFPC with funds, the redemption check shall be sent to and made payable to the recordholder, unless: (i) the surrendered certificate is drawn to the order of an assignee or holder and transfer authorization is signed by the recordholder; or (ii) transfer authorizations are signed by the recordholder when Shares are held in book-entry form, in which case the proceeds from such redemption will be paid as instructed. When a broker-dealer notifies PFPC of a redemption desired by a customer, and the Custodian provides PFPC with funds, PFPC shall prepare and send the redemption proceeds to the broker-dealer. -14- (e) DIVIDENDS AND DISTRIBUTIONS. Upon receipt of a resolution of the Fund's Board of Trustees authorizing the declaration and payment of dividends and distributions, PFPC shall issue dividends and distributions declared by the Fund in Shares, or, upon shareholder election, pay such dividends and distributions in cash, if provided for in the Fund's applicable prospectus and SAI. Such issuance or payment, as well as payments upon redemption as described above, shall be made after deduction and payment of the required amount of funds to be withheld in accordance with any applicable tax laws or other laws, rules or regulations. PFPC shall mail to the Fund's shareholders such tax forms and other information, or permissible substitute notice, relating to dividends and distributions paid by the Fund as are required to be filed and mailed by applicable law, rule or regulation. PFPC shall prepare, maintain and file with the IRS and other appropriate taxing authorities reports relating to all dividends above a stipulated amount paid by the Fund to its shareholders as required by tax or other law, rule or regulation. (f) SHAREHOLDER ACCOUNT SERVICES. (i) PFPC will arrange, in accordance with the Fund's applicable prospectus and SAI, for issuance of Shares obtained through: - Any pre-authorized check plan; and - Direct purchases through broker wire orders, checks and applications. (ii) PFPC will arrange, in accordance with the Fund's applicable prospectus and SAI, for a shareholder's: - Exchange of Shares for shares of another fund with which the Fund has exchange privileges; - Automatic redemption from an account where that shareholder participates in a automatic redemption plan; and/or - Redemption of Shares from an account with a checkwriting privilege. -15- (g) COMMUNICATIONS TO SHAREHOLDERS. Upon timely Written Instructions, PFPC shall cooperate with the Fund and its agents to produce and mail all communications by the Fund to its shareholders, including: (i) Reports to shareholders; (ii) Confirmations of purchases and sales of Fund shares; (iii) Monthly or quarterly statements; (iv) Dividend and distribution notices; (v) Tax form information. (h) RECORDS. PFPC shall maintain records of the accounts for each shareholder showing the following information: (i) Name, address, United States Tax Identification or Social Security number and such other information furnished on a properly executed Form W-9 or Form W-8 as appropriate; (ii) Number and class of Shares held and number and class of Shares for which certificates, if any, have been issued, including certificate numbers and denominations; (iii) Historical information regarding the account of each shareholder, including dividends and distributions paid and the date and price for all transactions on a shareholder's account; (iv) Any stop or restraining order placed against a shareholder's account; -16- (v) Any correspondence relating to the current maintenance of a shareholder's account; (vi) Information with respect to withholdings; and (vii) Any information required in order for PFPC to perform any calculations required by this Agreement. (i) LOST OR STOLEN CERTIFICATES. PFPC shall place a stop notice against any certificate reported to be lost or stolen and comply with all applicable federal regulatory requirements for reporting such loss or alleged misappropriation. A new certificate shall be registered and issued only upon: (i) The shareholder's pledge of a lost instrument bond or such other appropriate indemnity bond issued by a surety company approved by PFPC; and (ii) Completion of a release and indemnification agreement signed by the shareholder to protect PFPC and its affiliates. (j) SHAREHOLDER INSPECTION OF STOCK RECORDS. Upon a request from any Fund shareholder to inspect stock records, PFPC will notify the Fund and the Fund will issue instructions granting or denying each such request. Unless PFPC has acted contrary to the Fund's instructions, the Fund agrees to and does hereby release PFPC from any liability for refusal of permission for a particular shareholder to inspect the Fund's stock records. (k) WITHDRAWAL OF SHARES AND CANCELLATION OF CERTIFICATES. Upon receipt of Written Instructions, PFPC shall cancel outstanding certificates surrendered by the Fund to reduce the total amount of outstanding shares by the number of shares surrendered by the Fund. -17- (l) LOST SHAREHOLDERS. PFPC shall perform such services as are required in order to comply with Rules 17a-24 and 17Ad-17 of the 1934 Act (the "Lost Shareholder Rules"), including, but not limited to, those set forth below. PFPC may, in its sole discretion, use the services of a third party to perform some of or all such services. (i) documentation of search policies and procedures; (ii) execution of required searches; (iii) tracking results and maintaining data sufficient to comply with the Lost Shareholder Rules; and (iv) preparation and submission of data required under the Lost Shareholder Rules. Except as set forth above, PFPC shall have no responsibility for any escheatment services. (m) PRINT MAIL. In addition to performing the foregoing services, the Fund hereby engages PFPC as its print/mail service provider with respect to those items, and for such fees, as may be agreed to from time to time in writing by the Fund and PFPC. (n) RETIREMENT PLANS. In connection with the individual retirement accounts, simplified employee pension plans, rollover individual retirement plans, educational IRA's and ROTH individual retirement accounts ("IRA Plans"), 403(b) Plans and money purchase and profit sharing plans ("Qualified Plans") (collectively, the "Retirement Plans") within the meaning of applicable Sections of the Internal Revenue Code of 1986, as amended (the "Code") for which contributions by or for the benefit of the Retirement Plans' participants (the "Participants") are invested in Shares of the Fund, PFPC shall provide the following administrative services: -18- (i) Establish a record of types of and reasons for distributions (i.e., attainment of age 59-1/2, disability, death, return of excess contributions, etc.); (ii) Record method of distribution requested and/or made; (iii) Receive and process designation of beneficiary forms; (iv) Examine and process requests for direct transfers between custodians/trustees, transfer and pay over to the successor assets in the account and records pertaining thereto as requested; (v) Prepare any annual reports or returns required to be prepared and/or filed by a custodian of a Retirement Plan, including, but not limited to, an annual fair market value report, Forms 1099R and 5498 and file with the IRS and provide to Participant (or beneficiary); and (vi) Perform applicable federal withholding and send Participants (or beneficiary) an annual TEFRA notice regarding required federal tax withholding. 16. DURATION AND TERMINATION. This Agreement shall continue until terminated by the Fund or by PFPC on one hundred twenty (120) days' prior written notice to the other party. Should PFPC fail to be registered with the SEC as a transfer agent at any time during this Agreement and such failure to register does not permit PFPC to lawfully conduct its activities, the Fund may, on written notice to PFPC, terminate this Agreement upon five days' written notice to PFPC. In the event the Fund gives notice of termination, unless such termination is derived from PFPC's failure to maintain its transfer agency registration or other material breach of any provision of this Agreement, all reasonable expenses of PFPC associated with movement (or duplication) of records -19- and materials and conversion thereof to a successor transfer agent or other service provider will be borne by the Fund. Further, upon termination of this Agreement by either party for any reason, each party will promptly return to the other party, or at such other party's request will destroy, all copies of the Confidential Information and any other proprietary information of the other party, and upon written request from the other party will certify to such requesting party in writing, by the signature of a duly authorized representative of the applicable party, that it has done so. 17. PHASE BACK. (a) Upon termination of this Agreement and payment by the Fund of any undisputed fees, PFPC shall at the expense of the Fund deliver to the Fund and any successor transfer agent as the Fund may designate, in machine readable form on such media as the Fund or its designee reasonably requests, a copy of all Fund records, files and data maintained by PFPC for the Fund hereunder, including, without limitation, all data in PFPC's possession which are related to the services provided by PFPC for the Fund. Notwithstanding and in addition to the foregoing, as soon as reasonably practicable after the issuance of a notice of termination by either party, PFPC shall at the Fund's expense deliver to the Fund or its designee the then most current data in PFPC's possession which are related to the services provided by PFPC for the Fund. (b) PFPC agrees to cooperate with any third parties at the Fund's expense, as designated by the Fund, in performing the tasks it will perform as part of such additional support. Further, any transactions initiated prior to the effective date of the termination of this Agreement shall be processed as otherwise provided in accordance with the terms and conditions of this Agreement. -20- (c) In the event of a termination under the terms of the Agreement, the parties may upon mutual agreement extend the term of this Agreement for the sole purpose of accomplishing the Phase Back as described in this Section. (d) If at the time of termination the Fund in good faith legitimately disputes any fees owed to PFPC under this Agreement, the Fund shall do the following upon any notice of termination: (i) pay PFPC any and all undisputed fees owed under this Agreement; and (ii) provide PFPC a detailed written description of the disputed amount and the basis for the Fund's dispute with such amount. In addition, the Fund shall cooperate with PFPC in good faith in resolving any disputed fees and then promptly paying such amounts mutually determined to be due. 18. CHANGE OF CONTROL. Notwithstanding any other provision of this Agreement, in the event of an agreement to enter into a transaction that would result in a Change of Control of the Fund's adviser or sponsor during the first eighteen months of this Agreement, the Fund's ability to terminate the Agreement pursuant to Section 16 will be suspended for the remainder, if any, of the first eighteen months of this Agreement. This provision shall not apply if such Change in Control agreement is terminated for any reason. 19. NOTICES. Notices shall be addressed (a) if to PFPC, at 400 Bellevue Parkway, Wilmington, Delaware 19809, Attention: President; (b) if to the Fund, at Ivy Funds, 925 South Federal Highway, Suite 600, Boca Raton, Florida 33432, Attention: President or (c) if to neither of the foregoing, at such other address as shall have been given by like notice to the sender of any such notice or other communication by the other party. If notice is sent by confirming telegram, cable, telex or facsimile sending device, it shall be deemed to have -21- been given immediately. If notice is sent by first-class mail, it shall be deemed to have been given three days after it has been mailed. If notice is sent by messenger, it shall be deemed to have been given on the day it is delivered. 20. AMENDMENTS. This Agreement, or any term thereof, may be changed or waived only by a written amendment, signed by the party against whom enforcement of such change or waiver is sought. 21. DELEGATION; ASSIGNMENT. PFPC may not assign its rights and delegate its duties hereunder without the prior consent of the Fund, which consent will not be unreasonably withheld or delayed, provided however, PFPC may assign its rights and delegate its duties hereunder to any majority-owned direct or indirect subsidiary of PFPC or of The PNC Financial Services Group, Inc., provided that PFPC gives the Fund 30 days' prior written notice of such assignment or delegation. 22. COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 23. FURTHER ACTIONS. Each party agrees to perform such further acts and execute such further documents as are necessary to effectuate the purposes hereof. 24. IMPRESSNET(R) SERVICES. PFPC shall provide to the Fund the internet access services as set forth on Exhibit B attached hereto and made a part hereof, as such Exhibit B may be amended from time to time. 25. IMPRESSPLUS(R) SERVICES. In addition to the services set forth in this Agreement, PFPC hereby grants to the Fund a license to PFPC's proprietary -22- IMPRESSPlus(R) software under the terms set forth on Exhibit C - IMPRESSPlus(R) Software Terms, attached hereto and made part hereof, as such Exhibit C may be amended from time to time. 26. MISCELLANEOUS. (a) ENTIRE AGREEMENT. This Agreement and any and all exhibits and attachments to this agreement (which exhibits and attachments are also hereby deemed to be included in the definition of the Agreement) embody the entire agreement and understanding between the parties and supersedes all prior agreements and understandings relating to the subject matter hereof, provided that the parties may embody in one or more separate documents their agreement, if any, with respect to delegated duties. (b) NO CHANGES THAT MATERIALLY AFFECT OBLIGATIONS. Notwithstanding anything in this Agreement to the contrary, the Fund agrees not to adopt any policies which would affect materially the obligations or responsibilities of PFPC hereunder without first consulting with PFPC with respect to such policies so affecting PFPC's responsibilities and obligations. (c) CAPTIONS. The captions in this Agreement are included for convenience of reference only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect. (d) GOVERNING LAW. This Agreement shall be deemed to be a contract made in Delaware and governed by Delaware law, without regard to principles of conflicts of law. (e) PARTIAL INVALIDITY. If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby. -23- (f) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns. (g) NO REPRESENTATIONS OR WARRANTIES. Except for any representations and warranties expressly provided in this Agreement, each party hereby disclaims all representations and warranties, express or implied, made to the other or any other person, including, without limitation, any warranties regarding quality, suitability, merchantability, fitness for a particular purpose or otherwise (irrespective of any course of dealing, custom or usage of trade), of any services or any goods provided incidental to services provided under this Agreement. Each party disclaims any warranty of title or non-infringement except for any representations and warranties otherwise set forth in this Agreement. (h) FACSIMILE SIGNATURES. The facsimile signature of any party to this Agreement shall constitute the valid and binding execution hereof by such party. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the day and year first above written. PFPC INC. By: /s/ JAMES PASMAN ---------------------- Title: MANAGING DIRECTOR IVY FUND By: /s/ JAMES W. BROADFOOT ---------------------- Title: PRESIDENT -24- EXHIBIT A THIS EXHIBIT A, dated as of _____________, 2001, is Exhibit A to that certain Transfer Agency Services Agreement dated as of ___________, 2001 between PFPC Inc. and Ivy Fund. PORTFOLIOS 1.) Ivy Bond Fund 2.) Ivy Money Market Fund 3.) Ivy Growth Fund 4.) Ivy US Blue Chip Fund 5.) Ivy US Emerging Growth Fund 6.) Ivy International Fund 7.) Ivy Developing Markets Fund 8.) Ivy European Opportunities Fund 9.) Ivy Global Fund 10.) Ivy Global Natural Resources Fund 11.) Ivy Global Science & Technology Fund 12.) Ivy International Value Fund 13.) Ivy International Small Companies Fund 14.) Ivy Pacific Opportunities Fund 15.) Ivy Cundill Global Value Fund 16.) Ivy International Growth Fund -25- EXHIBIT B IMPRESSNET(R) SERVICES 1. DEFINITIONS. Any term not herein defined shall have the meaning given such term in the Agreement. The following definitions shall apply to this Exhibit B: (a) "End-User" shall mean any Shareholder and/or Financial Intermediary that attempts to access IMPRESSNet(R). (b) "Financial Intermediary" shall mean any investment advisor, broker-dealer, financial planner or any other person authorized by a Shareholder or the Fund to act on behalf of a Shareholder. (c) "Fund Web Site" means the collection of electronic documents, electronic files and pages (other than IMPRESSNet(R)) maintained on behalf of the Fund and residing on any computer system(s) maintained on behalf of the Fund, connected to the Internet and accessible through the World Wide Web at the URL www.ivyfunds.com or such other successor URL designated by the Fund. (d) "IMPRESSNet(R) Services" means the services identified in Section 2 hereof to be provided by PFPC utilizing the Internet and certain software, equipment and systems provided by PFPC, telecommunications carriers and security providers which have been certified by ICSA or a nationally-recognized audit firm (including but not limited to firewalls and encryption), whereby Inquires may be performed and Transactions may be requested by accessing IMPRESSNet(R) via hypertext link from the Fund Web Site or otherwise. (e) "Inquiry" shall mean any access to IMPRESSNet(R)initiated by an End-User which is not a Transaction. (f) "Internet" shall mean that certain communications network comprised of multiple communications networks linking education, government, industrial and private computer networks and commonly known as the Internet. (g) "IMPRESSNet(R)" means the collection of electronic documents, electronic files and pages residing on PFPC's computer system(s) (or those elements of the computer system of one or more Internet Service Providers ("ISPs") retained by PFPC and necessary for PFPC's services hereunder), connected to the Internet and accessible by hypertext link from the Funds Web Site or otherwise through the World Wide Web, where the Inquiry and Transaction data fields and related screens provided by PFPC may be viewed. (h) "Shareholder" means the record owner or authorized agent of the record owner of shares of the Fund. -26- (i) "Transaction" shall mean purchase, redemption, exchange or any other activity which is mutually agreed upon by both the Fund and PFPC involving the movement of Shares initiated by an End-User, provided however, it being understood that broker-dealer back office operations will not be permitted to initiate Transactions. 2. PFPC RESPONSIBILITIES. Subject to the provisions of this Exhibit B and the Agreement, PFPC shall provide or perform, or shall retain other persons to provide or perform, the following, at PFPC's expense (unless otherwise provided herein): (a) provide all computers, telecommunications equipment, encryption technology and other materials, services, equipment and software reasonably necessary to develop and maintain IMPRESSNet(R) to permit persons to be able to view information about the Fund and to permit End-Users with appropriate identification and access codes to perform Inquiries and initiate Transactions; PFPC will use commercially reasonable efforts to make IMPRESSNet(R) and the functionality which allows End Users to perform Inquiries and initiate Transactions available 24 hours a day, seven days a week, 365 days a year (other than for a reasonable amount of time for standard scheduled maintenance of which advance notice is provided); (b) if requested by the Fund, address and mail, at the Fund's expense, notification and promotional mailings and other communications provided by the Fund to Financial Intermediaries and/or Shareholders regarding the availability of IMPRESSNet(R) Services; (c) if requested by the Fund, PFPC shall prepare and process new account applications received through IMPRESSNet(R) from Shareholders determined by the Fund to be eligible for such services and in connection with such, the Fund agrees as follows: (i) to permit the establishment of Shareholder bank account information over the Internet in order to facilitate purchase activity through the Automated Clearing House; (ii) the ACH prenote process will be waived and the ACH status will be set to active; (iii) the Fund shall be responsible for any resulting gain/loss liability associated with the ACH process (iv) the maximum permitted initial purchase amount shall be $50,000.; (d) on a timely basis, process the set up of personal identification numbers ("PIN"), as described in the IMPRESSNet(R) Product Guide provided to the Fund, for the agents of the Fund which are identified -27- by the Fund as an authorized agent to access IMPRESSNet(R) on the Fund's behalf, Shareholders and/or Financial Intermediaries, as applicable, which shall include verification of initial identification numbers issued, reset and activate personalized PIN's and reissue new PIN's in connection with lost PIN's; (e) provide installation services, which shall include review and approval of the Fund's network requirements, recommending method of establishing (and, as applicable, cooperate with the Fund to implement and maintain) a hypertext link between IMPRESSNet(R) and the Fund Web Site and testing the network connectivity and performance; (f) establish systems to guide, assist and permit End-Users who access IMPRESSNet(R) from the Fund Web Site to electronically perform Inquires and create and transmit Transaction requests to PFPC; (g) deliver to the Fund one (1) copy of the PFPC IMPRESSNet(R)Product Guide, as well as all updates thereto on a timely basis; (h) deliver a monthly billing report to the Fund, which shall include a report of Inquiries and Transactions; (i) provide a form of encryption that is generally available to the public in the U.S. for standard Internet browsers and establish, monitor and verify firewalls and other security features (commercially reasonable for this type of information and data) and exercise commercially reasonable efforts to maintain the security and integrity of IMPRESSNet(R); (j) maintain all on-screen disclaimers and copyright, trademark and service mark notifications, if any, provided by the Fund to PFPC in writing from time to time, and all "point and click" features of IMPRESSNet(R) relating to End User acknowledgment and acceptance of such disclaimers and notifications; (k) provide periodic reports of site visitation (hit reports) and other information regarding End-User activity under this Agreement as agreed by PFPC and the Fund from time to time; (l) monitor the telephone lines involved in providing IMPRESSNet(R)Services and inform the Fund promptly of any malfunctions or service interruptions; (m) PFPC shall periodically scan its Internet interfaces and IMPRESSNet(R)for viruses and promptly remove any such viruses located thereon; (n) maintenance and support of IMPRESSNet(R), which includes providing error corrections, enhancements and upgrades to IMPRESSNet.com(R) which are made generally available to IMPRESSNet(R) customers and providing help desk support to provide assistance to Fund representatives with their use of IMPRESSNet(R); -28- Maintenance and support shall NOT include (i) access to or use of any substantial added functionality, new interfaces, new architecture, new platforms, new versions or major development efforts, unless made generally available by PFPC to IMPRESSNet(R) clients, as determined solely by PFPC; or (ii) maintenance of customized features, unless otherwise agreed upon by the parties in writing; and (o) the Fund recognizes and acknowledges that (i) a logon I.D. and PIN are required by End-Users to access PFPC's IMPRESSNet(R); (ii) End-User's Web Browser and ISP must support Secure Sockets Layer (SSL) encryption technology; and (iii) PFPC will not provide any software for access to the Internet; software must be acquired from a third-party vendor. 3. FUND RESPONSIBILITIES. Subject to the provisions of this Exhibit B and the Agreement, the Fund shall at its expense (unless otherwise provided herein): (a) provide, or retain other persons to provide, all computers, telecommunications equipment, encryption technology and other materials, services, equipment and software reasonably necessary to develop and maintain the Fund Web Site, including the functionality necessary to maintain the hypertext links to IMPRESSNet(R); (b) promptly provide PFPC written notice of changes in Fund policies or procedures requiring changes to the IMPRESSNet(R)Services; (c) if the Fund chooses, in its discretion, to develop such materials, work with PFPC to develop Internet marketing materials for End-Users and forward a copy of appropriate marketing materials to PFPC; (d) revise and update the applicable prospectus(es) and other pertinent materials, such as user agreements with End-Users, to include the appropriate consents, notices and disclosures for IMPRESSNet(R) Services as agreed upon by the Fund and PFPC, including disclaimers and information reasonably requested by PFPC; (e) maintain all on-screen disclaimers and copyright, trademark and service mark notifications, if any, provided by PFPC to the Fund in writing from time to time, and all appropriate "point and click" features of the Fund Web Site relating to End User acknowledgment and acceptance of such disclaimers and notifications as requested by PFPC; and (f) design and develop the Fund Web Site functionality necessary to facilitate, implement and maintain the hypertext links to IMPRESSNet(R), which contains the various Inquiry and Transaction web pages, and otherwise make the Fund Web Site available to End-Users. -29- 4. STANDARDS OF CARE FOR INTERNET SERVICES. Notwithstanding anything to the contrary contained in the Agreement, although PFPC shall comply with the standard of care and other obligations specified in the Agreement and above in providing IMPRESSNet(R) Services, PFPC shall not be obligated to ensure or verify the accuracy or actual receipt, or the transmission, of any data or information contained in any transmission by an End User to PFPC in connection with IMPRESSNet(R) Services or the consummation of any Inquiry or Transaction request not actually received by PFPC. PFPC shall include on IMPRESSNet(R) a conspicuous disclaimer stating that the End User acknowledges and agrees that PFPC shall not be obligated to ensure or verify the accuracy or actual receipt, or the transmission, of any data or information contained in any transmission via, or by an End User to PFPC in connection with, IMPRESSNet(R) Services or the consummation of any Inquiry or Transaction request not actually received by PFPC. PFPC shall advise End-Users to promptly notify the Fund or PFPC of any errors or inaccuracies in Shareholder data or information transmitted via IMPRESSNet(R) Services. 5. ADDITIONAL FEES FOR IMPRESSNET(R)SERVICES. As consideration for the performance by PFPC of IMPRESSNet(R) Services, the Fund will pay the fees, if any, set forth in a separate fee letter as agreed between the parties from time to time. 6. PROPRIETARY RIGHTS. (a) Each of the parties acknowledges and agrees that, except as expressly set forth in this Exhibit B, it obtains no rights in or to any of the software, hardware, processes, trade secrets, proprietary information or distribution and communication networks of the other under this Exhibit B. Any software, interfaces or other programs a party provides to the other hereunder shall be used by such receiving party only during the term of the Agreement and only in accordance with the provisions of this Exhibit B, Exhibit C to the Agreement and the Agreement. Except as expressly contemplated by this Exhibit B, Exhibit C to the Agreement and/or the Agreement, any interfaces, other software or other programs developed by or on behalf of one party or its licensor shall not be used directly or indirectly by or for the other party or any of its affiliates to connect such receiving party or any affiliate to any other person, without the first party's prior written approval, which it may give or withhold in its sole discretion. Except in the normal course of business and in conformity with Federal copyright law or with the other party's consent, neither party nor any of its affiliates shall disclose, use, copy, decompile or reverse engineer any software or other programs provided to such party by the other in connection herewith. (b) The Fund Web Site and IMPRESSNet(R)may contain certain intellectual property, including, but not limited to, rights in copyrighted works, trademarks and trade dress that is the property of the other party. Each party retains all rights in its web site (i.e. the Fund Web Site or IMPRESSNet(R), as applicable) and in such intellectual property of such party that may reside on the other party's web site, and to all corrections, modifications, additions, improvements and enhancements to, derivative works of, and all intellectual property rights relating to the foregoing . To the extent the intellectual property of one party (the "Owner") is cached by the other to expedite communication so as to enhance the performance of its obligations to the Owner hereunder and/or to better fulfill the purposes of this Agreement, the Owner grants to the other a limited, non-exclusive, non-transferable license to so cache and use such intellectual property solely for the purpose of so expediting the communication and for a period of time no longer than that reasonably necessary for the communication. To the extent that the Owner of intellectual property provides such intellectual -30- property to the other for such party to duplicate such intellectual property within the other party's web site to replicate the "look and feel", "trade dress" or other aspect of the appearance or functionality of the first site, to appropriately identify the Owner as necessary or desirable to fulfill the purposes of this Agreement or for another purpose as authorized by the Owner (the "Authorized Purposes"), the Owner grants to the other a limited, non-exclusive, non-transferable license to copy and use such intellectual property solely for an Authorized Purpose and only for the duration of the Agreement. This license is limited to the intellectual property needed for the Authorized Purpose and does not extend to any other intellectual property owned by the Owner. Each party warrants that it has sufficient right, title and interest in and to its web site and its intellectual property to enter into these obligations, and that to its knowledge, the license hereby granted to the other party does not and will not infringe on any U.S. patent, U.S. copyright or other U.S. proprietary right of a third party. Notwithstanding any provision to the contrary, in the event of a breach of the warranty set forth in this paragraph, the parties agree that breaching party's sole obligations and sole liability in connection with such breach shall be pursuant to the terms of paragraph 9 of this Exhibit B below, which obligations are the exclusive remedy of the other party in connection with such breach and are in lieu of all other remedies in connection with such breach. 7. REPRESENTATIONS AND WARRANTIES. (a) Each party represents and warrants that such party shall not knowingly, with the intent to cause harm, insert into any interface, other software, or other program provided by such party to the other hereunder, or accessible on IMPRESSNet(R)or Fund Web Site, as the case may be, any "back door," "time bomb," "Trojan Horse," "worm," "drop dead device," "virus" or other computer software code or routines or hardware components designed to disable, damage or impair the operation of any system, program or operation hereunder. For failure to comply with this warranty, the non-complying party shall immediately replace all copies of the affected work product, system or software. All costs incurred with replacement including, but not limited to cost of media, shipping, deliveries and installation shall be borne by such party. (b) PFPC further represents and warrants that (i) the IMPRESSNet(R) Services shall be performed by qualified personnel in a professional and workmanlike manner and in accordance with the terms of the Agreement and this Exhibit B and (ii) IMPRESSNet(R) will operate in material conformance with the then-current version of the IMPRESSNet(R) Product Guide, the terms of the Agreement and the terms of this Exhibit B. -31- 8. LIABILITY LIMITATIONS. (a) THE INTERNET. Each party acknowledges that the Internet is an unsecured, unstable, unregulated, unorganized and unreliable network, and that the ability of the other party to provide or perform services or duties hereunder is dependent upon the Internet and equipment, software, systems, data and services provided by various telecommunications carriers, equipment manufacturers, firewall providers, encryption system developers and other vendors and third parties. Each party agrees that the other shall not be liable in any respect for the functions or malfunctions of the Internet or for any failure or delay of the party due to causes beyond its control. Each party agrees the other shall not be liable in any respect for the actions or omissions of any third party wrongdoers (i.e., hackers not employed by such party or its affiliates) or of any third parties involved in the Internet Services and shall not be liable in any respect for the selection of any such third party, unless such party breached the standard of care specified herein with respect to that selection. (b) FURTHER LIMIT OF THE FUND'S LIABILITY. Notwithstanding anything in the Agreement or Exhibit B to the contrary, neither party nor its affiliates shall be liable for any consequential, special or indirect losses or damages arising out of or in connection with its actions pursuant to this Exhibit B, whether or not the likelihood of such losses or damages was known by such party or its affiliates. (c) PFPC'S EXPLICIT DISCLAIMER OF CERTAIN WARRANTIES. EXCEPT AS SPECIFICALLY PROVIDED IN THIS AGREEMENT, ALL SOFTWARE AND SYSTEMS DESCRIBED IN THIS EXHIBIT B ARE PROVIDED "AS-IS" ON AN "AS-AVAILABLE" BASIS, NEITHER PARTY MAKES ANY OTHER REPRESENTATIONS OR WARRANTIES OF ANY KIND, WHETHER SUCH WARRANTY BE EXPRESS OR IMPLIED, AND EACH PARTY HEREBY SPECIFICALLY DISCLAIMS ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE AND IMPLIED WARRANTIES ARISING FROM COURSE OF DEALING OR COURSE OF PERFORMANCE. 9. INDEMNIFICATION. Provided the Indemnified Party (see definition below) gives the other party timely written notice, reasonable assistance, including assistance from the Indemnified Party's employees, agents, independent contractors and affiliates (collectively, the "INDEMNIFIED PARTY'S AGENTS"), and sole authority to defend or settle the action, then the other party shall do the following ("INFRINGEMENT INDEMNIFICATION"): (a) defend or settle, at its expense, any action brought against the party to whom the allegedly infringing information was provided by the other party (the "Indemnified Party") or the Indemnified Party's Agents to the extent the action is based on a claim that the other party's website or the Indemnified Party's use of the intellectual property of the other pursuant to the terms of this Agreement infringes a duly -32- issued United States' patent or copyright or violates a third party's proprietary trade secrets or other intellectual property rights ("INFRINGEMENT"); (b) pay damages and costs finally awarded against the Indemnified Party or the Indemnified Party's Agents directly attributable to such claim and, to the extent commercially reasonable (c) modify and/or replace the applicable allegedly infringing website and/or intellectual property so that it is non-infringing or obtain for the Indemnified Party the right to use the applicable website and/or intellectual property upon commercially reasonable terms to both parties but at not cost to the Indemnified Party. The other party shall have no Infringement Indemnification obligation to the extent the alleged Infringement is based upon the Indemnified Party's or the Indemnified Party's Agent's use of the applicable website or intellectual property of the other party with equipment or software not furnished or approved by the other party or to the extent such claim arises from the other party's compliance with the Indemnified Party's designs or instructions, or from the Indemnified Party's modifications of the applicable website and/or intellectual property. The Infringement Indemnification states each party's entire liability for Infringement and shall be the Indemnified Party's sole and exclusive remedy for the warranty set forth in paragraph 6(b) of this Exhibit B. 10. MISCELLANEOUS. (a) INDEPENDENT CONTRACTOR. The parties to this Agreement are and shall remain independent contractors, and nothing herein shall be construed to create a partnership or joint venture between them and none of them shall have the power or authority to bind or obligate the other in any manner not expressly set forth herein. Unless otherwise expressly agreed in writing, any contributions to IMPRESSNet(R) by the Fund and any contributions to the Fund Web Site by PFPC shall be works for hire pursuant to Section 101 of the Copyright Act. (b) CONFLICT WITH AGREEMENT. In the event of a conflict between specific terms of this Exhibit B and the Agreement, this Exhibit B shall control as to IMPRESSNet(R) Services and the other subject matter of this Exhibit B. -33- EXHIBIT C IMPRESSPLUS(R) SOFTWARE TERMS ARTICLE 1 - SYSTEM, SUPPORT AND IMPLEMENTATION 1.1 SOFTWARE AND SUPPORT. PFPC shall provide or has previously provided to the Fund and the Fund shall acquire from PFPC the right to copy and use the computer software programs ("SOFTWARE"), set forth in Schedule 1 of this Exhibit C ("SCHEDULE 1") for the fees, if any, agreed to in writing by the parties ("IMPRESSPlus(R) Fees"). Software includes related user manuals and reference guides (collectively, "DOCUMENTATION"). One copy of the Documentation shall be provided to the Fund at no additional cost. PFPC shall provide only the machine readable object version of the Software and not source code. Additional terms and conditions concerning the Software are set forth in Schedule 1 ("SOFTWARE SCHEDULE"). Subject to the Agreement terms and conditions, PFPC grants to the Fund and the Fund accepts from PFPC the non-exclusive, non-transferable license to copy and use the Software during the term of the Agreement ("LICENSE"). Some software components ("THIRD PARTY SOFTWARE") required to be used with the Software were developed by a third party ("THIRD PARTY VENDOR"). Third Party Software is licensed to the Fund only pursuant to: (a) shrink wrapped or other agreements between the Third Party Vendor and the Fund with respect to "Directly Obtained Third Party Software" and (b) the specifically indicated terms and conditions in this Agreement with respect to all PFPC Provided Third Party Software licensed to the Fund by PFPC hereunder. Schedule 1 shall indicate which Third Party Software the Fund is required to obtain and license from PFPC ("PFPC PROVIDED THIRD PARTY SOFTWARE") and which Third Party Software the Fund shall be solely responsible to obtain and license ("DIRECTLY OBTAINED THIRD PARTY SOFTWARE"). As part of the Software, PFPC shall provide the Fund with the interfaces set forth in Schedule 1, between the Software and Third Party Software ("INTERFACES"). PFPC shall provide the software support services ("SOFTWARE SUPPORT") so designated in Schedule 2 of this Exhibit C ("SCHEDULE 2"). Software Support shall include a License to error corrections, enhancements and upgrades to the Software which are made generally available to PFPC clients of the Software under Software Support, but shall not include a License to substantial added functionality, new interfaces, new architecture, new platforms or other major software development efforts which are not made generally available to PFPC clients under Software Support, as determined solely by PFPC. 1.2 OWNERSHIP. PFPC or its licensor shall retain title to and ownership of the Software, and all copies and derivative works of the foregoing; inventions, discoveries, patentable or copyrightable matter, concepts, expertise, and techniques created, developed and/or conceived by PFPC; and all patents, copyrights, trade secrets and other related legal rights related to the foregoing ("PROPRIETARY INFORMATION"). PFPC reserves all rights in the Proprietary Information not expressly granted to the Fund in the Agreement. Upon PFPC's request, the Fund shall inform PFPC in writing of the quantity and location of any Software. 1.3 EQUIPMENT, SYSTEM IMPLEMENTATION AND ACCESS. The Fund is responsible for acquiring, installing and maintaining the data processing and related equipment as mutually agreed upon from time to time ("EQUIPMENT"). The Equipment represents the minimum equipment requirements to properly operate the Software. Except to the extent that PFPC have agreed that equipment other than the Equipment may be used (which equipment will be deemed Equipment after such agreement), PFPC disclaims responsibility for the performance of the Software in the event that the Fund utilizes equipment different than the Equipment. PFPC and the Fund shall (a) within a reasonable time after the Effective Date, agree upon, by Addendum, any tasks required to implement the Software, Third Party Software and Equipment ("SYSTEM") and the party responsible and time frames for each such task ("SCOPE OF WORK"); (b) perform their respective assigned tasks, if any, according to the Scope of Work; and (c) if not the party assigned to a task, cooperate with the responsible party. To the extent the Scope of Work is incomplete, PFPC shall follow its reasonable and customary practices. The Fund shall give reasonable and safe access to the System to PFPC, PFPC's employees, -34- affiliates, representatives, agents, contractors, licensors and suppliers ("PFPC'S AGENTS") who are providing services under the Agreement or auditing adherence to the Agreement to the extent that such access is required for PFPC to fulfill its obligations or exercise its audit rights set forth in this Exhibit C and subject to obligations of confidentiality substantially similar to those imposed on PFPC hereunder. 1.4 USE OF SOFTWARE. The Fund may use the Software during the term of the Agreement only on the Equipment to process the Fund's and affiliates' data for internal business purposes at the locations agreed to in writing in advance by the Fund and PFPC. If the Equipment is inoperative due to malfunction, the license grant shall, upon written notice to PFPC, be temporarily extended to authorize the Fund to use the Software on any other equipment approved in writing by PFPC until the Equipment is returned to operable condition. PFPC, in its reasonable discretion, may suspend any Software Support while the Software is being used on such other equipment. Upon written approval of PFPC which shall not be unreasonably withheld or delayed, the Fund may allow a third party consultant of the Fund to use the Software solely in accordance with the terms of this Exhibit C, provided that the consultant (a) has a need to know, (b) uses the Software solely for the benefit of the Fund, in accordance with the terms of this Exhibit C, (c) prior to accessing the Software has signed an appropriate confidentiality agreement which agreement contains provisions no less restrictive than the non-use and non-disclosure provisions of this Exhibit C and which identifies PFPC as a third party beneficiary with respect to such confidentiality obligation to permit PFPC to enforce its rights directly against any such third party consultant, and (d) is not a competitor of PFPC. Notwithstanding anything contained in the foregoing sentence to the contrary, the Fund shall remain at all times directly liable to PFPC for any actions of such third party consultants with respect to such consultant's use of the Software. No right is granted for use of the Software by any third party, or by the Fund to process for any third party, or for any other purpose whatsoever, except as expressly provided in this paragraph. The Fund shall not modify, re-engineer, decompile or reverse engineer the Software or otherwise attempt to obtain any source code without the express prior written consent of PFPC. 1.5 SOFTWARE INSTALLATION AND ACCEPTANCE. PFPC shall advise the Fund that the Software as listed in Schedule 1 is installed and functioning on the Equipment ("Software Installation Date") so that implementation and training activities can proceed. 1.6 COPIES OF SOFTWARE. The Fund may not copy the software except as necessary for the Fund to exercise its rights hereunder and for backup and archival purposes only, and the Fund shall include on all copies of the Software all copyright and other proprietary notices or legends included on the Software. The provisions of this Paragraph do not apply to the Fund data files in machine-readable form. 1.7 NO-EXPORT. The Software shall not be shipped or used by the Fund outside the United States. The Fund shall comply with all applicable export and re-export restrictions and regulations of the U.S. Department of Commerce or other U.S. agency or authority. The Software shall not be transferred to a prohibited country or otherwise in violation of any such restrictions or regulations. 1.8 TERMINATION. Terms and conditions which require their performance after the termination of the Agreement, including but not limited to the License and Software use restrictions, limitations of liability, indemnification, and confidentiality obligations, shall survive and be enforceable despite the termination of the Agreement. ARTICLE 2 - WARRANTIES, REPRESENTATIONS, LIABILITY AND DEFAULT 2.1 SOFTWARE WARRANTIES AND REMEDIES. For the term of the Agreement, PFPC warrants ("PERFORMANCE WARRANTY") that the Software shall perform on the Equipment substantially in accordance with the Documentation, except for Directly Obtained Third Party Software as set forth in Paragraph 2.2. The correction of errors and deficiencies in the Software pursuant to Software Support shall be the Fund's sole and exclusive remedy for the Performance Warranty. PFPC warrants ("RIGHTS WARRANTY") it has the right to license the Software in accordance with the Agreement and that the licensed use of the Software will not infringe any duly issued United States' patent or copyright or violate a third party's proprietary trade secrets or other similar intellectual property rights. Provided the Fund gives PFPC timely written notice, reasonable -35- assistance, including assistance from the Fund's employees, agents, independent contractors and affiliates (collectively, the "COMPANY'S AGENTS"), and sole authority to defend or settle the action, then PFPC shall do the following ("INFRINGEMENT INDEMNIFICATION"): (a) defend or settle, at its expense, any action brought against the Fund or the Fund's Agents to the extent the action is based on a claim that the Software or the Fund's use of the Software infringes a duly issued United States' patent or copyright or violates a third party's proprietary trade secrets or other intellectual property rights ("INFRINGEMENT"); (b) pay damages and costs finally awarded against the Fund or the Fund's Agents directly attributable to such claim and, (c) modify and/or replace the Software so that it is non-infringing or obtain for the Fund the right to use the Software at not cost to the Fund. PFPC shall have no Infringement Indemnification obligation to the extent that the alleged Infringement is based upon the Fund's use of the Software with equipment or software not furnished or approved by PFPC or to the extent such claim arises from PFPC's compliance with the Fund's designs or instructions, or from the Fund's modifications of the Software. The Infringement Indemnification states PFPC's entire liability for Infringement and shall be the Fund's sole and exclusive remedy for the Rights Warranty. 2.2 THIRD PARTY WARRANTIES. All warranties for the Directly Obtained Third Party Software, if any, are specifically set forth in the applicable agreements supplied by the Third Party Vendors. Subject to the terms of Schedule 1 and to the extent permitted by PFPC's suppliers, PFPC conveys to the Fund all Third Party Software warranties made by the Third Party Vendors. 2.3 EXCLUSION OF WARRANTIES. THE WARRANTIES SET FORTH IN PARAGRAPH 2.1 AS TO THE SOFTWARE AND IN PARAGRAPH 2.2 AS TO THIRD PARTY SOFTWARE, AND ANY OTHER APPLICABLE EXPRESS WARRANTIES SET FORTH IN THE AGREEMENT AND/OR ANY EXHIBIT TO THE AGREEMENT ARE IN LIEU OF ALL OTHER WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED, ARISING OUT OF OR RELATED TO THE SUBJECT MATTER ADDRESSED UNDER THIS EXHIBIT C. PFPC SPECIFICALLY DISCLAIMS ALL OTHER WARRANTIES, INCLUDING THE IMPLIED WARRANTIES OF MERCHANTABILITY, NON-INFRINGEMENT AND FITNESS FOR A PARTICULAR PURPOSE. 2.4 COMPANY RESPONSIBILITY. The System is an information system only, designed to assist the Fund and the Fund's agents in performing their professional activities and is not intended to replace the professional skill and judgment of the Fund's Agents. The Fund shall be solely responsible for: (a) acts or omissions of the Fund's Agents, excluding PFPC and its agents, in entering data into the System, including its accuracy and adequacy; (b) checking the correctness and accuracy of the data entered into the System by the Fund; and (c) any use of or reliance upon the System output by the Fund's Agents, excluding PFPC and its agents. 2.5 REPRESENTATIONS, DAMAGE LIMITATION AND RISK ALLOCATION. Each party represents that (a) it has all requisite power and authority to carry on its business and perform its obligations as contemplated by the Agreement; and (b) the execution, delivery and performance of the Agreement has been properly authorized. PFPC's entire aggregate liability to the Fund for any loss or damage, direct or indirect, for any cause whatsoever and regardless of the form of action with respect to the Fund's use of the Software, shall be limited to the Fund's actual direct damages which are reasonably incurred by the Fund in an amount not to exceed ("DAMAGE LIMITATION") all license and support fees paid under the Agreement with respect to the Software. The Fund understands the Damage Limitation and considers it reasonable and appropriate. In allocating risks under the Agreement, the parties agree: (i) the Damage Limitation should specifically apply to any alternative remedy ordered by a court in the event such court determines that a sole and exclusive remedy provided for in the Agreement fails of its essential purpose; and (ii) the IMPRESSPlus(R) Fees, if any, agreed to by the parties reflect the risks attributable to the parties, including, but not limited to, the disclaimer of warranties and the limitations of liability set forth in this Article 2 and the sole and exclusive remedies in the Agreement. -36- SCHEDULE 1 OF EXHIBIT C SOFTWARE 1. PFPC SOFTWARE. 1.1 PFPC Software includes the following IMPRESSPlus(R)products: IMPRESSPlus(R) Workflow/Image Release 6.2 - 3 maximum user seats IMPRESSPlus(R) COLD Release 3.0 1.2 INTERFACES. Except as agreed in writing, PFPC shall not be required to modify the Software or the Interfaces to accommodate changes made by the Fund vendor to its portion of the interface. If the Fund's vendor needs information about the Software, then the vendor must first execute a nondisclosure agreement in form and content reasonably acceptable to PFPC. PFPC shall not be liable for any delay or degradation to the Software or Equipment attributable to the Fund's use of Interfaces provided by the Fund. 2. THIRD PARTY SOFTWARE. 2.1 PFPC PROVIDED THIRD PARTY SOFTWARE. The following Third Party Software is licensed to the Fund directly by PFPC, the cost of which is included in the IMPRESSPlus(R)Fees: 2.1.1 BANCTEC SOFTWARE. The following Third Party Software is licensed directly to the Fund by PFPC subject to the terms of this Agreement and the mandatory BancTec ("BancTec") terms and conditions set forth in Attachment 1 to Schedule 1, attached and incorporated by reference. To the extent that Attachment 1 to Schedule 1, conflicts with or differs from the other terms and conditions in the Agreement, Attachment 1 to Schedule 1 shall prevail with respect to the following BancTec Software ("BancTec Software") Informix Multi-User with 3 maximum user seats XDP Storage Manager Multi-User with 3 maximum user seats FloWare Multi-User with 3 maximum user seats Application Designer Single-User with 3 maximum user seats (Run Time Version) 2.1.2 INSCI SOFTWARE. The following Third Party Software is licensed directly to the Fund by PFPC subject to the terms and conditions set forth in this Agreement. Advanced COINSERV Software w/Hierarchical Storage Mgr. WINCOINS-32 bit Software PDF Form Overlay Software Metacode Server License Jukebox Driver Software -37- Meta2Meta DJDE to Metacode Xform Software (Gentext) Metacode Client Viewer, 10 concurrent users Operating Kit (Includes Dial-In for Trouble Shooting) 2.2 DIRECTLY OBTAINED THIRD PARTY SOFTWARE. The following Third Party Software are separately licensed by the Third Party Vendor directly to the Fund subject to the respective terms and conditions of "shrink-wrapped" or other agreements between the Third Party Vendor and the Fund. The Third Party Software in the Required Column must be obtained by the Fund. The Third Party Software in the Optional column is helpful but not required unless the indicated features are being used. The Fund accepts the provisions of such agreements, including the warranty provisions, if any, and agrees to comply with the terms set forth in such agreements: Required: - Microsoft Windows 95 or NT 4.0 with SP6a - Microsoft Office 97 SP2 - Microsoft NT Server 4.0 SP6a - Microsoft SQL Server 7.0 with SP2 - Microsoft TCP/IP Stack - UNIX ESQL/C Compiler for selected UNIX platform - Sybase Open Client NetLibrary for the selected TCP/IP stack 11.1.1 - SUN Solaris 2.6 OS -38- ATTACHMENT 1 TO SCHEDULE 1 TERMS AND CONDITIONS BANCTEC 1. Each BancTec Software Package listed in Schedule 1 ("Program") which is identified as "Multi-User Program" is licensed for installation on a single network server computer which is supplied by BancTec, PFPC, or a third party, and which is electronically linked with one or more workstations having access to the Program. If Schedule 1 designates a maximum number of users authorized to simultaneously access the Multi-User Program, no access will be permitted in excess of such maximum number. In all other cases, Multi-User Program is authorized to be accessed by all workstations which are configured to communicate with that network server computer. 2. Each Program listed in Schedule 1 identified as "Single-User Software" is licensed for installation and use on a single computer. 3. Each Program listed in Schedule 1 identified as an "Unlimited-User Program" is licensed for use by the Fund after ordering a copy of the Program. Once ordered, the Fund may make unlimited copies of such Programs at no additional charge. 4. Each Program listed in Schedule 1 identified as a "Device Program" is licensed for use solely to facilitate the operation of the corresponding equipment device. 5. Each Program listed in Schedule 1 identified as a "Development-User Program" is licensed for installation and use on a single computer for development and testing purposes. The license for Development-User Programs also includes a license for production use on a single computer. 6. Each Program listed in Schedule 1 identified as a "Production-User Program" consists of necessary runtime modules and associated link libraries for inclusion with custom software applications. Production-User Programs are not licensed for use in the development of custom software applications and may be either Multi-User or Single-User Programs. 7. Only a nontransferable, nonexclusive, perpetual license to use the Programs and related BancTec documentation for its own internal use (including, without limitation, providing processing services to third parties in a service bureau or facilities management environment) is granted to the Fund. 8. BancTec or its vendors retain all title to the Programs, and all copies thereof, and no title to the Programs, or any intellectual property in the Programs, is being transferred; provided, however, nothing contained herein shall give BancTec or its vendors any right, title or interest in the Software. -39- 9. The Programs shall not be copied, except as specifically authorized under an Schedule to this Agreement and except for backup or archival purposes. All such copies shall contain all copyright and other proprietary notices or legends of BancTec or its vendors contained in the Programs delivered under this Agreement. 10. The Programs shall not be modified, reverse assembled or decompiled by the Fund. No attempt shall be made by the Fund to derive source code from the Programs. 11. The Programs will not be shipped or used by PFPC or the Fund to Africa or the Middle East. All applicable export and re-export restrictions and regulations of the U.S. Department of Commerce or other U.S. agency or authority shall be complied with. The Programs shall not be transferred to a prohibited country or otherwise in violation of any such restrictions or regulations. 12. Each Program is copyrighted and contains proprietary and confidential trade secret information of BancTec and its vendors. Each sublicensee of the Programs shall protect the confidentiality of the Programs with at least the same standard of care used to protect the Fund's own similar confidential information. 13. BancTec and its vendors are each a direct and intended beneficiary of the sublicenses granted for the Programs and may enforce such sublicenses directly against sublicensees of the Programs. 14. Neither BancTec nor its vendors shall be liable to the Fund for any general, special, direct, indirect, consequential, incidental, or other damages arising out of the sublicense of the Programs. 15. The license granted to the Fund of the Programs may be terminated, either immediately or after a notice period not exceeding thirty (30) days, upon violation by the Fund of any of the terms or conditions of Exhibit C to the Agreement which set forth the non-use and/or non-disclosure obligations of the Fund, as such provision relates to the use of the Program, including but not limited to the terms included in Attachment 1 to Schedule 1. 16. Upon termination of the license grant to the Fund to use the Program or the Agreement, the Fund shall return all copies of the Programs to PFPC. -40- SCHEDULE 2 OF EXHIBIT C MAINTENANCE AND SUPPORT TERMS These terms are based on an IMPRESSPlus(R) User network environment of up to 39 Users and the associated server(s), as described in Schedule 1 of Exhibit C to the Agreement. 1. SOFTWARE SUPPORT. PFPC shall provide the following Software support services ("Software Support"): 1.1 PFPC shall provide the Fund with full System Administration Guide(s) for Software. 1.2 PFPC will have a Response Center (help desk) to provide support services 24 hours a day, 7 days a week, 365 days a year, to designated client contacts. 1.3 PFPC shall use commercially reasonable efforts to resolve all Software (excluding Directly Obtained Third Party Software products) failures through: remote support to the Fund's information systems staff (the "Company's Staff"), coordination of Third Party Vendor support (on-site or remotely), coordination of other subcontractors' actions, or direct on-site support by PFPC personnel. 1.4 PFPC shall investigate errors in the Software reported by the Fund which prevent substantial compliance with the then current Documentation and initiate the corrective action to correct each such error, including but not limited to temporary fixes, patches and corrective releases to PFPC's clients generally. Notwithstanding the foregoing, to the extent reported errors result from or arise solely out of: (i) malfunctions of equipment other than the Equipment, (ii) improper use or misuse of the system by the Fund, (iii) modifications or changes made to the system without PFPC's prior written approval, (iv) causes beyond the reasonable control of each party, or (v) user developed features such as those users may develop with form generators, ad hoc report writers and user customized screens, PFPC shall have no responsibility for investigating the error or making the correction, except as the parties may otherwise agree to in writing. The Fund shall pay PFPC's then current time and materials charges plus travel and out-of-pocket expenses incurred in investigating and attempting to correct any errors for which the parties determine PFPC is not responsible. 1.5 PFPC shall from time to time provide bug fixes, error corrections, maintenance, enhancements, upgrades and updates to the Software which are generally made available by PFPC to its customers as part of Software Support ("Updates"). The Updates will be provided at no additional charge to the Fund if the updates are supplied to the Fund using PFPC's standard update facility. All Updates and other corrections provided to the Fund hereunder will be deemed to be Software once provided to the Fund. PFPC installation assistance for the new -41- Updates may be required and, is billable to the Fund as an Additional Service. During the term of the Agreement, PFPC will use reasonable efforts to provide the Fund with not less than thirty (30) days prior written notice of PFPC's intent issue a new update of Software. The Fund shall implement an Update within ninety (90) days of receipt. Any support by PFPC of any prior release of the Software after such ninety (90) day period shall be at PFPC's sole discretion and as an Additional Service. 1.6 Any Software Support in connection with any modification to the Software provided by PFPC to the Fund which contains any substantial added functionality (including any significant new interface features) which is not an Update and is designated by PFPC as outside of the scope of the Software for which Software Support is provided herein as determined solely by PFPC, or any new architecture or any significant modification of the Software which contains any substantial added or different functionality and is not an Update, whether or not such new functionality is coupled with any change in software architecture or hardware platform ("New Products"), shall be provided for an additional fee at PFPC's then current rates. New Products shall be provided and licensed to the Fund as an Additional Service. 1.7 PFPC may decline to support the Software if the Software or Equipment was added to or changed without PFPC's prior approval. 1.8 The support obligations of PFPC as set forth above are related solely to support of the Software and PFPC Provided Third Party Software. Any support requested by the Fund which is not related to the Software or PFPC Provided Third Party Software shall be billed at PFPC's then current rates. 2. COMPANY MAINTENANCE AND SUPPORT RESPONSIBILITIES. The Fund's facility will have all of the required security, space, electrical power source, communications lines, heating, ventilation and cooling, and other physical requirements reasonably necessary for the installation and proper operation of the Equipment. The Fund's users will first direct all questions and problems to the Company's Staff for proper call tracking and problem resolution. The Company's Staff will coordinate all facility issues at the site and will serve as primary contact for PFPC when planning installs, upgrades and other equipment changes. All facility requirements will be provided by PFPC to the Fund. The Company's Staff shall: 2.1. Identify designated contacts, one for Operations and one technical systems administrator, to function as single points of contact for discussion, review and resolution of problems with PFPC. 2.2. Perform initial problem determination and symptom documentation. 2.3. Be responsible for all system hardware and software and network hardware components and shrink-wrap software which are located at Fund's site, including but not limited to all Directly Obtained Third Party Software from a maintenance, support and problem resolution standpoint. 2.4. Provide data back-up and recovery, perform reasonable maintenance in accordance with general industry practice, and perform server administration tasks as described in the Systems Administration Guide(s) and Third Party Software documentation. -42- 2.5. Maintain all network and trouble-log documentation reasonably required by PFPC or by third-party vendors with respect to errors that the Fund experiences, as necessary for PFPC to perform its obligations hereunder. PFPC shall be allowed to review such documentation if necessary to resolve support issues. 2.6. Be available during normal business hours and reachable for support 24 hours a day, 7 days a week, as required. The Fund shall maintain the appropriate staff level to adequately perform the maintenance support functions specified. This staff should have experience in network administration, troubleshooting, Microsoft Windows, workstation memory management, and UNIX and NT systems administration. 2.7. Consult with PFPC before performing any work that it believes may affect the operation of the Software or performance of the System, including installation, upgrading, or unplanned maintenance affecting Equipment. -43- EX-99.(I) 11 g74718ex99-i.txt OPINION AND CONSENT OF COUNSEL EXHIBIT (i) DECHERT TEN POST OFFICE SQUARE -- SOUTH BOSTON, MASSACHUSETTS 02109-4603 April 30, 2002 Ivy Fund Via Mizner Financial Plaza 925 South Federal Highway Suite 600 Boca Raton, Florida 33432 Dear Sirs: As counsel for Ivy Fund (the "Trust"), we are familiar with the registration of the Trust under the Investment Company Act of 1940, as amended (File No. 811-1028), and the prospectuses contained in Post-Effective Amendment No. 121 to the Trust's registration statement ("Prospectuses") relating to the shares of beneficial interest of Ivy Bond Fund, Ivy Cundill Global Value Fund, Ivy Developing Markets Fund, Ivy European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund, Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy International Fund, Ivy International Growth Fund, Ivy International Small Companies Fund, Ivy International Value Fund, Ivy Money Market Fund, Ivy Pacific Opportunities Fund, Ivy US Blue Chip Fund, and Ivy US Emerging Growth Fund (the "Shares") being filed under the Securities Act of 1933, as amended (File No. 2-17613) ("Post-Effective Amendment No. 121"). We have also examined such other records of the Trust, agreements, documents and instruments as we deemed appropriate. Based upon the foregoing, it is our opinion that the Shares have been duly authorized and, when issued and sold at the public offering price contemplated by the Prospectuses and delivered by the Trust against receipt of the net asset value of the Shares, will be issued as fully paid and nonassessable shares of the Trust. We consent to the filing of this opinion on behalf of the Trust with the Securities and Exchange Commission in connection with the filing of Post-Effective Amendment No. 121. Very truly yours, /s/ DECHERT - ------------------ EX-99.(J) 12 g74718ex99-j.txt CONSENTS AND REPORTS OF PRICEWATERHOUSECOOPERS EXHIBIT(j) CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We hereby consent to the incorporation by reference in this Registration Statement on Form N-1A of our report dated February 8, 2002, relating to the financial statements and financial highlights of Ivy Cundill Global Value Fund, Ivy Developing Markets Fund, Ivy European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund, Ivy Global Science & Technology Fund, Ivy International Fund, Ivy International Small Companies Fund, Ivy International Value Fund, Ivy Pacific Opportunities Fund, Ivy Growth Fund, Ivy US Blue Chip Fund, Ivy US Emerging Growth Fund, Ivy Bond Fund and Ivy Money Market Fund, which appears in the December 31, 2001 Annual Report of Ivy Funds, which are also incorporated by reference into the Registration Statement. We also consent to the references to us under the headings "Financial Highlights" and "Auditors" in such Registration Statement. /s/ PRICEWATERHOUSECOOPERS LLP - ---------------------------------- Ft. Lauderdale, Florida April 25, 2002 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We hereby consent to the incorporation by reference in this Registration Statement on Form N-1A of our report dated February 8, 2002, relating to the financial statements and financial highlights which appears in the December 31, 2001 Annual Report of Ivy International Growth Fund, which are also incorporated by reference into the Registration Statement. We also consent to the references to us under the headings "Financial Highlights" and "Auditors" in such Registration Statement. /s/ PRICEWATERHOUSECOOPERS LLP - -------------------------------- Ft. Lauderdale, Florida April 25, 2002 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Board of Trustees and Shareholders of Ivy Fund In our opinion, the accompanying statements of assets and liabilities, including the schedules of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Ivy Cundill Global Value Fund, Ivy Developing Markets Fund, Ivy European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund, Ivy Global Science & Technology Fund, Ivy International Fund, Ivy International Small Companies Fund, Ivy International Value Fund, Ivy Pacific Opportunities Fund, Ivy Growth Fund, Ivy US Blue Chip Fund, Ivy US Emerging Growth Fund, Ivy Bond Fund and Ivy Money Market Fund (constituting portfolios within Ivy Fund, hereafter referred to as the "Fund") at December 31, 2001, and the results of each of their operations, the changes in each of their net assets and the financial highlights for each of the periods indicated, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2001 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP Fort Lauderdale, Florida February 8, 2002 EX-99.(P)(5) 13 g74718ex99-p5.txt AMENDED & RESTATED CODE OF ETHICS EXHIBIT (p)(5) CODE OF ETHICS AND BUSINESS CONDUCT POLICY MACKENZIE INVESTMENT MANAGEMENT INC. February 3, 2000, as amended and restated on March 3, 2001, December 6, 2001 and February 28, 2002 TABLE OF CONTENTS: 1. OVERVIEW...................................................................1 2. CONFIDENTIALITY............................................................1 3. STANDARDS..................................................................2 4. CONFLICTS OF INTEREST......................................................2 5. GIFTS......................................................................4 6. INSIDER TRADING............................................................4 7. PERSONAL INVESTING.........................................................7 8. REVIEW, ENFORCEMENT AND OTHER ADMINISTRATIVE MATTERS......................13 SCHEDULE A: Certificate/Acknowledgment SCHEDULE B: Request for Authorization of Securities Transaction(s) SCHEDULE C: Initial Securities Holdings Report by Access Persons SCHEDULE D: Annual Securities Holdings Report by Access Persons SCHEDULE E: Quarterly Report of Securities Transactions by Access Persons SCHEDULE F: Record Retention Requirements SCHEDULE G: Summary of Responsibilities under the Code 1. OVERVIEW This Code of Ethics and Business Conduct Policy ("Code") has been adopted by Mackenzie Investment Management Inc. ("MIMI"), Ivy Management, Inc. ("IMI"), Ivy Mackenzie Distributors, Inc. ("IMDI") and Ivy Fund.(1) MIMI, IMI and IMDI are referred to collectively herein as "Mackenzie".(2) 1.1. PURPOSE. It is fundamental to the continuing success of Mackenzie that it maintain its reputation for the highest standards of integrity and ethical business conduct. This can only be achieved if the officers, directors and employees of Mackenzie acknowledge and adhere to the highest principles of conduct in the discharge of their duties. This Code is designed to facilitate such adherence. 1.2. APPLICATION. This Code applies to all officers, directors/trustees and employees of Mackenzie and Ivy Fund.(3) 1.3. ADMINISTRATION. This Code will be administered by MIMI's Compliance Department, headed by its Chief Compliance Officer. 1.4. NON-COMPLIANCE. Failure to comply with the Code may be grounds for a warning, revision of responsibilities, suspension, or immediate dismissal. Failure to report or to cooperate in the investigation of possible breaches of this Code may also constitute a failure to comply with this Code. All officers, directors/trustees and employees of Mackenzie and the Funds have a duty to report any violation of this policy that comes to their attention. 2. CONFIDENTIALITY 2.1. POLICY. Mackenzie's professional reputation and its success as a leading portfolio manager and manager and promoter of mutual funds depends, in part, upon the relationship of trust and professionalism that Mackenzie engenders in its clients and other professionals. A significant part of maintaining these relationships of trust and professionalism is Mackenzie's ability to protect the confidentiality and prevent the misuse of the information entrusted to it. - -------- (1) Ivy Fund is a registered open-end investment company under the Investment Company Act of 1940, as amended (the "1940 Act"). MIMI and IMI provide investment advisory and business management services to the separate series of shares of Ivy Fund (each, a "Fund", and collectively, the "Funds"). IMDI is the Funds' principal underwriter. (2) A summary of the various actions that are required under the Code and the persons responsible for carrying them out is set forth in Schedule G. (3) Each "Advisory Person" (as defined in Section 7.2) of MIMI and/or IMI is also expected to adhere to the Standards of Professional Conduct of the Financial Analysts Federation. -1- 2.2. COMMUNICATION OF CONFIDENTIAL INFORMATION. In the course of their duties, officers, directors and employees of Mackenzie may obtain information concerning Mackenzie and/or the Funds, or their respective shareholders, operations, sales people (including brokers and mutual fund dealers), employees, officers and/or directors/trustees. As a general rule, communication of confidential information within and outside of Mackenzie is permitted only when the recipient of the information has a legitimate need to know such information in connection with his or her duties as an officer, director or employee of Mackenzie. THIS DUTY OF CONFIDENTIALITY APPLIES NOT ONLY WITH RESPECT TO PRIVATE INFORMATION, BUT ALSO TO ANY ASSET OF MACKENZIE (INCLUDING TRADE SECRETS, COMPUTER SOFTWARE, COMPANY RECORDS AND OTHER PROPRIETARY INFORMATION). 2.3. DEPARTURE FROM MACKENZIE. The duty of confidentiality described in Section 2.2 continues to apply to each officer, director and employee who has left Mackenzie. 3. STANDARDS 3.1. OBLIGATIONS TO CUSTOMERS. It is Mackenzie's policy to continue to maintain the highest standards for quality service to its clients. Mackenzie has a duty to its clients to act honestly, in good faith and in the best interests of its clients. This duty extends to all Mackenzie officers, directors and employees in every facet of Mackenzie's business operations. 3.2. OBLIGATIONS TO FELLOW EMPLOYEES. Mackenzie adheres to principles of fair and equitable treatment in such areas as the evaluation of employees, hiring, discipline, training and general interaction. Mackenzie and its officers and directors are bound by the Civil Rights Act, including the prohibition of discrimination or harassment of others on the basis of race, color, language, national origin, religion, creed, marital status or sex. 3.3. KNOWLEDGE. Officers, directors and employees of Mackenzie may be required to attain a certain level of knowledge for their employment duties.(4) 3.4. OBLIGATION TO COMPLY WITH THE LAW. Mackenzie and each of its officers, directors and employees are required to comply with all of the laws applicable to Mackenzie's business operations, including securities laws governing the provision of investment advisory services, insider trading and personal investment activities. 4. CONFLICTS OF INTEREST 4.1. POLICY. Officers, directors and employees of Mackenzie must avoid any situation in which their personal interests conflict or appear to conflict with their duties at Mackenzie (see "Personal Investing" below for special restrictions affecting Access Persons and Investment - -------- (4) For example, some persons may be asked to pass certain NASD series tests or the chartered financial analyst's course required for investment advisers. -2- Persons, as defined in Section 7.2). Conflicts of interest may arise in a number of ways and include, but are not limited to, the following. Each example is accompanied by a rule governing disclosure. (a) EXAMPLE: A personal interest in a proposed business transaction involving Mackenzie or in a business activity also conducted by Mackenzie. (This would include the interests of a family member or close personal friends.) RULE: The interest or activity must be disclosed to Mackenzie's Executive Committee.(5) (b) EXAMPLE: A proposed directorship in a business enterprise (other than family firms, personal tax planning corporations or businesses connected with hobbies or special interests that do not occupy a significant portion of an officer's time). RULE: Officers and directors of Mackenzie must disclose other directorships to the Chief Compliance Officer and must obtain permission before accepting such positions from Mackenzie's Executive Committee. (c) EXAMPLE: Involvement with outside political, charitable or other business activities. RULE: The involvement must be disclosed to Mackenzie's Executive Committee. (d) EXAMPLE: An interest in the business of a supplier, contractor, customer, competitor or other company in which Mackenzie has an investment. RULE: The interest must be disclosed to Mackenzie's Executive Committee. (e) EXAMPLE: A portfolio manager has beneficial ownership of a security, and wishes to buy or sell the same security for his or her managed portfolio. RULE: The decision must be reviewed and confirmed by another portfolio manager and disclosed to the Chief Compliance Officer. 4.2. DISCLOSURE PROCEDURES. For any of the above conflicts of interest, it is important that disclosure take place immediately after discovery. Disclosure should be made to the Chief Compliance Officer or to any other member of Mackenzie's Executive Committee. If there is any uncertainty as to whether a conflict of interest exists: (a) If you are an officer or director of Mackenzie, you should discuss the matter (i) with the Chief Compliance Officer or (ii) at a meeting of the Board of Directors of a Mackenzie company. - -------- (5) Mackenzie's Executive Committee is comprised of members of MIMI's Board of Directors. Any member of the Executive Committee may be contacted through the offices of MIMI (925 S. Federal Highway, Boca Raton, Florida, (800) 456-5111). -3- (b) If you are an employee, you should discuss the matter with the Chief Compliance Officer, who will determine whether the matter should be disclosed to Mackenzie's Executive Committee. 5. GIFTS 5.1. POLICY. No officer, director or employee of Mackenzie may accept gifts or personal benefits from any individual, entity or business that does (or is considering doing) business with or on behalf of Mackenzie or Ivy Fund. Bona fide gifts of a nominal value (i.e., gifts whose reasonable value is no more that $100 annually from a single giver), and customary business lunches, dinners, entertainment (e.g., sporting events) and promotional items (e.g., pens and mugs) may, however, be accepted. Extraordinary or extravagant gifts are not permissible and must be declined or returned. If you receive any gift that might be prohibited under this Code, you must inform MIMI's Compliance Department. All solicitation of gifts or gratuities is unprofessional and is strictly prohibited. 6. INSIDER TRADING 6.1. POLICY. Every officer, director/trustee and employee of Mackenzie and the Funds is prohibited from trading, either personally or on behalf of others (such as mutual funds, and private accounts managed by MIMI or IMI), on the basis of material non-public information or communicating material non-public information to others in violation of the law (referred to herein as "Insider Trading"). Each of Mackenzie's and Ivy Fund's policy against insider trading (the "Insider Trading Policy") applies to every officer, director/trustee and employee of Mackenzie and the Funds and extends to activities within and outside his or her duties with Mackenzie (or the Funds, as applicable). Every officer, director/trustee and employee of Mackenzie and the Funds must read and retain this policy statement. Any questions regarding the Insider Trading Policy and procedures should be referred to the President of MIMI (or his or her duly appointed designee) or the Chief Compliance Officer. 6.2. EXPLANATION OF TERMS. Following are explanations of terms used in the Policy. (a) INSIDER. The law has left this definition intentionally broad. An insider may include officers, directors/trustee and employees of a company. In addition, a person may be a "temporary insider" if he or she enters into a special confidential relationship in the conduct of a company's affairs and as a result is given access to information solely for the company's purposes. Mackenzie may become a temporary insider of a company it advises or for which it performs services. (b) INSIDER TRADING. The term "insider trading" is not defined in the Federal Securities Laws, but generally is used to refer to the use of material non-public information to trade in securities (whether or not one is an "insider") or to the communications of material non-public information to others. -4- While the law concerning insider trading is not static, it is generally understood that the law prohibits: o trading by an insider, while in possession of material non-public information. o trading by a non-insider while in possession of material non-public information, where the information was disclosed to the non-insider in violation of an insider's duty to keep it confidential. o communicating material non-public information to others. (c) MATERIAL INFORMATION. Trading on inside information is not a basis for liability unless the information is material. Generally speaking, information is material if there is a substantial likelihood that a reasonable investor would consider it important in making his or her investment decisions, or if the information is reasonably certain to have a substantial effect on the price of a company's securities. Information that officers, directors/trustees and employees of Mackenzie and the Funds should consider material includes, but is not limited to: dividend changes, earnings estimates, changes in the previously released earnings estimates, significant merger or acquisition proposals or agreements, major litigation, liquidation problems and other unusual management developments. (d) NON-PUBLIC INFORMATION. Information is non-public until it has been effectively communicated to the marketplace. One must be able to point to some fact to show that the information is generally public. For example, information found in a report filed with the Securities and Exchange Commission (the "SEC"), or appearing in a newspaper, or other publication of general circulation, would be considered public. 6.3. PENALTIES FOR INSIDER TRADING. Penalties for trading or communicating material non-public information are severe, both for individuals and their employers. A person may be subject to some or all of the penalties below even if he or she does not personally benefit from the violation of the law. Penalties include, but are not necessarily limited to: o civil injunctions o treble damages o disgorgement of profits o jail sentences o fines of up to three times the profit gained, or loss avoided, whether or not the individual benefited o fines for the employer of up to the greater of $1,000,000 or three times the profit gained, or the loss avoided -5- ANY VIOLATION OF THE INSIDER TRADING POLICY COULD ALSO RESULT IN SERIOUS SANCTIONS BY MACKENZIE, INCLUDING IMMEDIATE DISMISSAL. 6.4. PROCEDURES FOR IDENTIFYING INSIDER TRADING. The following procedures have been established to aid the officers, directors/trustees and employees of Mackenzie and the Funds in avoiding insider trading, and to aid Mackenzie and the Funds in preventing, detecting and determining appropriate sanctions against insider trading. Every officer, director/trustee and employee of Mackenzie and/or the Funds must follow these procedures or risk serious sanctions, including immediate dismissal, substantial personal liability and criminal penalties. BEFORE TRADING FOR YOURSELF OR OTHERS, INCLUDING ANY OF THE FUNDS AND PRIVATE ACCOUNTS MANAGED BY MACKENZIE OR IN SECURITIES OF A COMPANY ABOUT WHICH YOU MAY HAVE POTENTIAL INSIDE INFORMATION, ASK YOURSELF THE FOLLOWING QUESTIONS: (a) IS THE INFORMATION MATERIAL? Would an investor consider the information important in making his or her investment decisions? Is it likely that the information would substantially affect the market price of the securities if generally disclosed? (b) IS THE INFORMATION NON-PUBLIC? To whom has this information been provided? Has this information been effectively communicated to the marketplace by being published? 6.5. POSSESSION OF MATERIAL AND NON-PUBLIC INFORMATION. If, after considering the above, you believe that the information you possess is both material and non-public, or if you have questions as to whether the information is both material and non-public, you should take the following steps: (a) Report the matter to the Chief Compliance Officer. (b) Do not purchase or sell the securities on behalf of yourself or others. (c) Do not communicate the information to persons outside of Mackenzie, other than to its legal counsel. (d) After the Chief Compliance Officer has reviewed the matter, you will be instructed to continue to abide by the prohibitions against trading and communication, or you will be allowed to trade and communicate the information. 6.6. RESTRICTING ACCESS TO MATERIAL NON-PUBLIC INFORMATION. Information in your possession that you identify as material and non-public may not be communicated to anyone, including persons within Mackenzie, except as provided above. In addition, care should be taken so that such information is secure. For example, files containing material non-public information should be sealed, and access to computer files containing material non-public information should be restricted. -6- 6.7. RESOLVING ISSUES CONCERNING INSIDER TRADING. If you are uncertain as to the meaning or application of the foregoing procedures with respect to certain information in your possession, you should discuss the matter with the President of MIMI (or his or her duly appointed designee) before trading or communicating the information to anyone. 7. PERSONAL INVESTING Certain officers, directors/trustees and employees of Mackenzie and/or the Funds may have access to (i) information of a confidential nature about the companies in which they invest that has not been made public, and (ii) information concerning proposed purchases or sales of securities by the Funds or private accounts managed by Mackenzie. Mackenzie and the Funds have adopted the following guidelines relating to personal investing that are designed to prevent such persons from engaging in inappropriate trading activity. 7.1. GENERAL PRINCIPLES. All personal securities transactions by Access Persons (as defined below) are governed by the following general principles: o It is the duty of each Access Person to place the interests of Mackenzie's advisory clients (both the Funds and private accounts) first. o It is absolutely necessary and is the responsibility of each Access Person to comply with the Code and to avoid actual and/or potential conflicts of interest in personal securities transactions. o It is essential that each Access Person realizes that the Code prohibits him or her from taking inappropriate advantage of his or her position with and/or relationship to any Fund or private account managed by MIMI or IMI. 7.2. DEFINITIONS (a) ACCESS PERSON. Either a Class 1 Access Person or a Class 2 Access Person. (b) ACCOUNT. Any personal account of an Access Person; any joint or tenant-in-common account in which an Access Person has an interest or is a participant; any account for which the Access Person acts as trustee, executor, or custodian; any account over which the Access Person has investment discretion or otherwise can exercise control (other than non-related clients' accounts over which the Access Person has investment discretion), including accounts of entities controlled directly or indirectly by the Access Person; any securities account of a member of an Access Person's Immediate Family; and any other account in which the Access Person has a direct or indirect Beneficial Interest (other than such accounts over which the Access Person has no investment discretion and cannot otherwise exercise control). (c) ADVISORY PERSON. (i) Any employee of a Fund or Mackenzie who in connection with his or her regular functions or duties makes or participates in making recommendations, or obtains information, regarding the purchase or sale of Securities by a Fund; and (ii) any natural person in a control relationship -7- (25% ownership) with respect to a Fund, IMI or MIMI who obtains information concerning recommendations made to the Fund with regard to its purchase or sale of Securities.(6) (d) BENEFICIAL INTEREST. Any direct or indirect opportunity, through any contract, arrangement, understanding, relationship or otherwise (including, but not limited to, all joint accounts, partnerships, and trusts), to profit or to share in any profit on a transaction in Securities, including Securities held by members of an Access Person's Immediate Family. (e) CLASS 1 ACCESS PERSON. Any director, trustee, officer or Advisory Person of the Funds, MIMI or IMI, except for any director of MIMI who is a Class 2 Access Person, as defined below. The term "Class 1 Access Person" also includes any director or officer of IMDI who in the ordinary course of his or her business makes, participates in, or obtains information regarding the purchase or sale of securities for the Funds or whose functions relate to the making of any recommendations with respect to such purchases or sales. (f) CLASS 2 ACCESS PERSON. Any director of MIMI that is not an "interested person" of MIMI, as defined in the 1940 Act. No person shall be deemed to be an interested person of MIMI solely by reason of (i) his or her being a member of its board of directors or advisory board or an owner of less than 5% of its securities or the securities of Mackenzie Financial Corporation, or (ii) his or her membership in the Immediate Family of any person in clause (i). (g) SECURITY. Any security, as defined in Section 2(a)(36) of the 1940 Act, and any financial instrument related to a security or commodity, including futures, options on futures and other derivative instruments, and any security that is exchangeable for or convertible into any security that is held or to be acquired by a Fund. (h) IMMEDIATE FAMILY. Any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including any of the foregoing related by reason of adoption, sharing the same household as the Access Person. (i) INDEPENDENT FUND TRUSTEE. A trustee (or a director) of Ivy Fund who is not an "interested person" of Ivy Fund within the meaning of Section 2(a)(19) of the 1940 Act. - -------- (6) The difference between an "Advisory Person" and an "Investment Person" (see Section 7.2(j)) is that the definition of "Advisory Person" includes that class of persons who "obtain information" regarding the purchase or sale of Securities by a Fund, but who are not necessarily involved in the investment decisionmaking process. Unlike Advisory Persons who are also Investment Persons, these persons (who merely obtain information regarding Fund investments) do not have significant opportunities to influence investment decisions that may benefit them personally, and therefore they are not subject to the special preclearance requirements affecting Investment Persons (see Section 7.4(b)). -8- (j) INVESTMENT PERSON. (i) Any employee of a Fund or Mackenzie who in connection with his or her regular functions or duties makes or participates in making recommendations regarding the purchase or sale of Securities by a Fund; and (ii) any natural person in a control relationship (25% ownership) with respect to a Fund, IMI or MIMI who obtains information concerning recommendations made to the Fund with regard to its purchase or sale of Securities. 7.3. EXEMPTED TRANSACTIONS. (a) The trading restrictions, preauthorization and reporting provisions set forth in this Section 7 do not apply to purchases or sales of securities that: (1) are effected in an account or in a manner over which the Access Person has no direct or indirect influence or control; (2) the Funds are not permitted to purchase or sell, based on their investment policies and restrictions; (3) are effected pursuant to a systematic dividend reinvestment, cash purchase or withdrawal plan; (4) are effected in connection with the exercise or sale of rights to purchase additional Securities from an issuer and granted by such issuer pro rata to all holders of a class of its Securities; or (5) are (i) direct obligations of the U.S. Government, (ii) bankers' acceptances, bank certificates of deposit, commercial paper and high quality short-term debt instruments (including repurchase agreements); or (iii) shares of an open-end investment company registered under the 1940 Act (including shares of an exchange-traded fund (ETF) that is an open-end investment company (but see Section 7.3(b) below)). (b) The trading restrictions and preauthorization provisions set forth in this Section 7 do not apply to purchases or sales of shares of an ETF that is not an open-end investment company, but the reporting provisions of Section 7.5 shall apply. 7.4. POLICY ON PERSONAL INVESTMENTS (a) GENERAL RESTRICTIONS AFFECTING ACCESS PERSONS. (1) A Class 1 Access Person may not enter an order for the purchase or sale of a Security that a Fund or private account is, or is considering, purchasing or selling until two days after the Fund's or private account's transaction in the Security has been completed. (See also Section 7.4(b)(1) below.) (2) A Class 1 Access Person must obtain prior written authorization (see Section 7.5(b) below) for all Securities transactions in an Account. -9- In the event that a Class 1 Access Person desires to trade less than $10,000 of a Security that has either a market capitalization of at least $5 billion or an average per day trading volume of at least 5 million shares for the past five trading days, absent special circumstances, preauthorization will be granted and the two-day blackout period shall not apply. (b) ADDITIONAL RESTRICTIONS AFFECTING INVESTMENT PERSONS. (1) An Investment Person may not buy or sell a Security within seven days before a Fund or private account managed by the Investment Person trades in the Security. Any transactions in violation of this restriction must be unwound, if possible, and the profits must be disgorged (to a Fund or to a charity). (2) Investment Persons are prohibited from profiting in the sale and purchase, or purchase and sale, within 60 days of the same or equivalent Securities. Any profits from short-term trading must be disgorged (to a Fund or to a charity). Nothing in this restriction will be deemed to prohibit avoidance of loss through trading within a period shorter than 60 calendar days. (3) An Investment Person may not serve on the board of directors of a publicly traded company. (c) PRIVATE PLACEMENTS. (1) Any authorization with respect to a private placement transaction will take into account whether the investment opportunity in question should be reserved for a Fund or private account managed by MIMI or IMI, and whether the opportunity is being offered to the person by virtue of his or her position with the Fund. A record of any such authorization, including the reasons supporting it, will be maintained for at least five years after the end of the fiscal years in which it was granted. (2) An Investment Person who has been authorized to acquire securities in a private placement must disclose the investment if he or she is involved in any subsequent consideration of the securities of that issuer by a Fund or a private account managed by MIMI or IMI. Thereafter, any decision to acquire the issuer's securities on behalf of the Fund or private account must be reviewed and authorized by an Investment Person, after consultation with the Chief Compliance Officer, who has no personal interest in the issuer. 7.5. COMPLIANCE PROCEDURES (a) SECURITIES HOLDINGS AND ACTIVITY REPORTS BY ACCESS PERSONS. Following is a description of the reports that Access Persons must file periodically with MIMI's Compliance Department. Mackenzie will identify all Access Persons and inform them of their reporting obligations. Unless otherwise indicated, no -10- report shall be construed as an admission by the person making the report that he or she has any direct or indirect Beneficial Interest in the security to which the report relates. Each report submitted pursuant to this Section will be reviewed by the Chief Compliance Officer (or his or her duly appointed designee) and Mackenzie's Review Committee (see Section 8.1 below). (1) INITIAL AND ANNUAL HOLDINGS REPORTS: Within ten (10) days of becoming a Class 1 Access Person and annually thereafter (by January 31), each Class 1 Access Person must submit to MIMI's Compliance Department a report (substantially in the form of Schedules C and D hereto, respectively) that contains the following information(7): o The title, number of shares and principal amount of each Security in which the Class 1 Access Person has (or had during the relevant time period) a direct or indirect Beneficial Interest; and o the name of any broker, dealer or bank with whom the Class 1 Access Person maintains (or maintained during the relevant period) any Account. (2) QUARTERLY REPORTS: Subject to Subparagraph (c) below, within 10 days after the end of each calendar quarter each Access Person must submit to MIMI's Compliance Department a report (substantially in the form of Schedule E hereto) that contains the following information:(8) (i) WITH RESPECT TO ANY TRANSACTION DURING THE QUARTER IN A SECURITY IN WHICH THE ACCESS PERSON HAD ANY DIRECT OR INDIRECT BENEFICIAL INTEREST: o The date of the transaction, the title of the Security, the interest rate and maturity date (if applicable), the number of shares, and the principal amount; o the nature of the transaction (i.e., purchase, sale, etc.); o the price of the Security at which the transaction was effected; o the name of the broker, dealer or bank with or through which the transaction was effected; and o the date the report is submitted by the Access Person. - -------- (7) Any Class 2 Access Person who has a material business or professional relationship with MIMI is also required to prepare initial and annual holdings reports. (8) An Access Person need not make the quarterly transaction reports required by this Section if the information in the reports (i) would duplicate information that is already being recorded pursuant to Sections 204-2(a)(12) and/or 204-2(a)(13) of the Investment Advisers Act of 1940 and/or (ii) is contained in broker trade confirmations or account statements of the Access Person that have already been delivered to Mackenzie and/or the Funds. -11- (ii) WITH RESPECT TO ANY ACCOUNT ESTABLISHED BY THE ACCESS PERSON IN WHICH ANY SECURITIES WERE HELD DURING THE QUARTER FOR THE ACCESS PERSON'S DIRECT OR INDIRECT BENEFICIAL INTEREST: o The name of the broker, dealer or bank with whom the Access Person established the Account; o the date the Account was established; and o the date the report is submitted by the Access Person. (3) TRADE CONFIRMATIONS (CLASS 1 ACCESS PERSONS ONLY): In addition to the foregoing reports, each Class 1 Access Person must direct his or her broker to provide to MIMI's Compliance Department, on a timely basis, duplicate copies of confirmations of all personal securities transactions in the Class 1 Access Person's Account(s) and copies of periodic (e.g., quarterly) Account statements. If a Class 1 Access Person is unable to arrange for duplicate confirmations and periodic Account statements to be sent, he or she must notify the Compliance Department immediately. (b) PRE-CLEARANCE OF TRADES: Attached as Schedule B is a sample memorandum to be used by Class 1 Access Persons (including Investment Persons) for the purpose of obtaining prior authorization of transactions in Securities in an Account.(9) Such authorizations (i) may only be given by MIMI's President (or his or her duly appointed designee), (ii) must be in writing, and (iii) are valid for only 24 hours from the time authorization is granted.(10) MIMI's President (or his or her duly appointed designee) will send a copy of each completed authorization form to MIMI's Compliance Department and to the person seeking authorization. The 24 hour period during which the authorization is valid commences when the authorization is received by the person requesting it. No order for a securities transaction for which preauthorization is required may be placed prior to such receipt. MIMI'S PRESIDENT (OR HIS OR HER DULY APPOINTED DESIGNEE, IF APPLICABLE) IS NOT REQUIRED TO GIVE ANY EXPLANATION FOR REFUSING TO AUTHORIZE A GIVEN SECURITIES TRANSACTION. - -------- (9) Preclearance requests by Class 1 Access Persons must be accompanied by an affirmation that the Access Person (a) does not possess material non-public information relating to the listed security; (b) is not aware of any proposed trade or investment program relating to the security by any of the Funds; and (c) believes the proposed trade is available to any market participant on the same terms. In the case of Investment Persons, the request must also be accompanied by an affirmation that the Investment Person has considered the security for the Fund(s) that he or she manages. Such affirmation must also state the reason the Investment Person decided not to purchase the security for the Fund(s). (10) Electronic transmissions (such as e-mail) are considered valid for these purposes. -12- (c) SPECIAL RULES GOVERNING INDEPENDENT FUND TRUSTEES. The trading, preauthorization and reporting requirements set forth in this Section 7 will not apply to any Independent Fund Trustee, except with respect to the quarterly report described in Section 7.5.(a)(2) above in the case of an Independent Fund Trustee who knew, or in the ordinary course of fulfilling his or her official duties as an Independent Fund Trustee, should have known, that during the 15-day period immediately before or after the date of a given transaction in a Security by the Independent Fund Trustee a Fund purchased or sold the Security or the Fund (or IMI, on the Fund's behalf) considered purchasing or selling the Security. An Independent Fund Trustee may not purchase or sell any such Security until the day after a Fund's transaction in the Security has been completed, unless the Chief Compliance Officer determines that it is clear that, in view of the nature of the Security and the market for the Security, the Independent Fund Trustee's transaction is not likely to affect the price paid for or received by the Fund. Absent such a finding, the transaction is considered prohibited and any profits related thereto must be disgorged (to a Fund or to a charity). 8. REVIEW, ENFORCEMENT AND OTHER ADMINISTRATIVE MATTERS 8.1. INVESTIGATING AND REPORTING OF CODE VIOLATIONS; SANCTIONS. Mackenzie has established a Code of Ethics Review Committee (the "Review Committee") that is responsible for investigating (directly or through delegation) any reported or suspected violation of the Code, determining sanctions, and reporting such matters to the President of MIMI and to the Board of Trustees of the Funds.(11) If the Review Committee determines that an Access Person has violated the Code, the Committee may impose sanctions and take other actions as it deems appropriate, including (but not limited to) (i) issuing a letter of caution or warning, (ii) suspending personal trading rights, (iii) suspending or terminating employment (with or without compensation), (iv) assessing fines, and (v) referring the matter to the SEC (for possible civil action) or another appropriate prosecutorial authority (for possible criminal action). As part of any sanction, the Review Committee may require the Access Person to reverse the trade(s) in question and forfeit any profit (or absorb any loss) from the trade. The Review Committee has sole authority to determine the appropriate disposition of any monies so forfeited. Failure to abide by a directive to reverse a trade may result in the imposition of additional sanctions. The Review Committee will report to the Board of Trustees of Ivy Fund information relating to the investigation of the violation, including any sanctions imposed and disposition of any forfeited monies. The Board of Trustees of Ivy Fund will have the power to modify or increase the sanction as it deems appropriate, and may direct the reversal of any given trade with respect to affected Fund(s). 8.2. BOARD REVIEW AND APPROVAL. The Review Committee will review the Code at least once a year in light of legal and business developments and experience in implementing the Code. The Review Committee will prepare - -------- (11) The Review Committee is comprised of the President, Chief Compliance Officer and Chief Investment Officer of MIMI, and may take action at any meeting in which at least two members are present. Meetings may be held in person or by telephone conference. A Review Committee member whose actions are the subject of a given meeting may participate in the meeting but may not participate in any determination by the other members as to whether a Code violation has occurred and any associated sanctions. -13- and submit to the President of MIMI and the Board of Trustees of Ivy Fund for their consideration an annual written report that: (a) describes any issues arising under the Code since the last annual report, including information about material violations of the Code and sanctions imposed in response to the material violations; (b) identifies any recommended changes in existing restrictions or procedures based on experience under the Code, evolving industry practices, or developments in applicable laws or regulations; and (c) contains a certification to the effect that procedures have been adopted that are reasonably necessary to prevent Access Persons from violating the Code. The Board of Trustees of Ivy Fund shall approve any material change to the Code within six months after such change's adoption. 8.3. EXCEPTIONS TO THE CODE. Although exceptions to the Code will rarely, if ever, be granted, MIMI's President (or his or her duly appointed designee), after consultation with MIMI's Chief Compliance Officer, may make exceptions, on a case-by-case basis, to any of the provisions of this Code upon a determination that the conduct at issue involves a negligible opportunity for abuse or otherwise merits an exemption from the Code. All such exceptions must be in writing. MIMI's President (or his or her duly appointed designee) will immediately report the exception to the Review Committee and, in addition, will report the exception to the Board of Trustees of Ivy Fund at the next regularly scheduled Board meeting. 8.4. ALTERNATIVE COMPLIANCE REQUIREMENTS. The code of ethics, trading restrictions, and preauthorization and reporting procedures of the investment advisory firms listed below shall govern in the case of the individuals identified in the right-hand column: ------------------------------ ------------------------------------------------------------------------ Mackenzie Financial (i) MIMI's directors who are also officers or directors of MFC and are Corporation ("MFC"): located in Canada and (ii) any employee of MFC who in connection with his or her regular functions or duties makes, participates in, or obtains information regarding the purchase or sale of Securities by Ivy Global Natural Resources Fund. ------------------------------ ------------------------------------------------------------------------ Henderson Investment Any officer, director or employee of Henderson who in connection with Management Ltd. ("Henderson") his or her regular functions or duties makes, participates in, or obtains information regarding the purchase or sale of Securities by Ivy European Opportunities Fund or Ivy International Small Companies Fund. ------------------------------ ------------------------------------------------------------------------ Peter Cundill & Associates Any officer, director or employee of Cundill who in connection with (Bermuda) Ltd. ("Cundill") his or her regular functions or duties makes, participates in, or obtains information regarding the purchase or sale of Securities by Ivy Cundill Value Fund. ------------------------------ ------------------------------------------------------------------------
-14- 8.5. DISCLOSURE; FILING OF CODE WITH SEC. Each Fund's Statement of Additional Information shall state (i) that the Fund, MIMI, IMI and IMDI have adopted this Code and whether Access Persons may invest in Securities, including those in which the Fund may invest; (ii) that the Code (a) can be reviewed and copied at the SEC's public reference room, and (b) is available from the EDGAR database; and (iii) copies of the Code may be obtained from the SEC for a fee. This Code as well as the code of each investment advisory firm identified in the preceding table, and in each case any material amendments thereto, shall be filed as exhibits to the Funds' respective Registration Statements on Form N-1A. 8.6. ANNUAL CONFIRMATION. Each officer, director and employee of Mackenzie will be asked to sign an annual certificate (substantially in the form of Schedule A hereto) regarding his or her awareness of, and compliance with, the Code. 8.7. RECORDKEEPING. Mackenzie will maintain and preserve the records identified in Schedule F hereto. 8.8. INQUIRIES REGARDING THE CODE. Please speak with the Chief Compliance Officer if you have any questions about this Code or any other compliance-related matters. -15- SCHEDULE A CERTIFICATE/ACKNOWLEDGMENT 1. I hereby acknowledge receipt of the Mackenzie Code of Ethics and Business Conduct Policy dated February 3, 2000 (the "Code"), as amended on March 1, 2001, December 6, 2001 and February 28, 2002. 2. I hereby certify that I have read, understand and am in full compliance with the Code and agree to abide by its requirements and procedures. 3. I hereby acknowledge that failure to comply fully with the Code may subject me to disciplinary action, including, but not limited to, immediate dismissal. - --------------------------------------- ------------------------------ Signature Date Officer/Director/Employee (circle one) - --------------------------------------- Please print your name -16- SCHEDULE B MACKENZIE INVESTMENT MANAGEMENT INC. CODE OF ETHICS AND BUSINESS CONDUCT POLICY REQUEST FOR AUTHORIZATION OF SECURITIES TRANSACTION(S) TO: Keith J. Carlson (or his duly appointed designee) CC: Chief Compliance Officer FROM: _____________________ DATE: _____________________ Pursuant to Subsection 7.5(b) of Mackenzie's Code of Ethics and Business Conduct Policy (the "Code"), I hereby request that you authorize my purchase and/or sale of the following Securities (as defined in the Code):
- ---------------------------------------- ------------------------- --------------- ------------------- --------------- TITLE OF SECURITY NATURE OF TRANSACTION # OF SHARES PRICE PER SHARE BROKER/BANK - ---------------------------------------- ------------------------- --------------- ------------------- --------------- - ---------------------------------------- ------------------------- --------------- ------------------- --------------- - ---------------------------------------- ------------------------- --------------- ------------------- --------------- - ---------------------------------------- ------------------------- --------------- ------------------- --------------- - ---------------------------------------- ------------------------- --------------- ------------------- ---------------
AFFIRMATION: I affirm that I (a) do not possess material non-public information relating to any of the above-listed securities; (b) am not aware of any proposed trade or investment program relating to the securities by any of the Funds (as defined in the Code); and (c) believe the proposed trade is available to any market participant on the same terms. Further, insofar as I am considered under the Code to be an "Investment Person" I affirm that I have considered the security for the Fund(s) that I manage and the reason I decided not to purchase the security for the Fund(s) is: ------------------------------------------------------------- ------------------------------------------------------------- SIGNATURE: AUTHORIZED: ------------------------------ ----------------------- NOTE: This request may be communicated via E-mail, provided that this format is duplicated. - ------------------------------------------------------------------------------- COMPLIANCE DEPARTMENT USE Your trade request has been approved and is valid for 24 hours from the date and time shown below. By: ____________________________ Date:_______________, ______[am/pm]. Chief Compliance Officer - ------------------------------------------------------------------------------- -17- SCHEDULE C MACKENZIE INVESTMENT MANAGEMENT INC. CODE OF ETHICS AND BUSINESS CONDUCT POLICY INITIAL SECURITIES HOLDINGS REPORT BY CLASS 1 ACCESS PERSONS+ -------------------------------------------- (Date on which the undersigned became a Class 1 Access Person) 1. STATEMENT OF HOLDINGS: Please identify in the following table all Securities* in which you had, or by reason of which you had acquired, any direct or indirect Beneficial Interest* as of the date noted above. (If you held no such securities, answer "None".) NOTE: In lieu of entering the information requested below, you may attach a copy of an account statement received from the broker, dealer or bank; indicate the number of statements attached. ------------------------------------ ---------------- ----------------- TITLE OF SECURITY NUMBER OF SHARES PRINCIPAL AMOUNT ------------------------------------ ---------------- ----------------- ------------------------------------ ---------------- ----------------- ------------------------------------ ---------------- ----------------- ------------------------------------ ---------------- ----------------- 2. ACCOUNT INFORMATION: Please identify in the space provided below the name of any broker, dealer or bank with whom you maintain an Account.* -------------------------------------------------------------------- -------------------------------------------------------------------- -------------------------------------------------------------------- -------------------------------------------------------------------- + Class 2 Access Persons with a material business or professional relationship with MIMI must also complete this Report. * As defined in Section 7.2 of Mackenzie's Code of Ethics and Business Conduct Policy. Signature: Name: ---------------------------- ------------------------------ (Please Print) Date: ----------------------- -18- SCHEDULE D MACKENZIE INVESTMENT MANAGEMENT INC. CODE OF ETHICS AND BUSINESS CONDUCT POLICY ANNUAL SECURITIES HOLDINGS REPORT BY CLASS 1 ACCESS PERSONS+ JANUARY 31, 200__ 1. STATEMENT OF HOLDINGS: Please identify in the following table all Securities* in which you had, or by reason of which you had acquired, any direct or indirect Beneficial Interest* as of the date noted above. (If you held no such securities, answer "None".) NOTE: In lieu of entering the information requested below, you may attach a copy of an account statement received from the broker, dealer or bank; indicate the number of statements attached. ----------------------------- ----------------- ------------------- TITLE OF SECURITY NUMBER OF SHARES PRINCIPAL AMOUNT ----------------------------- ----------------- ------------------- ----------------------------- ----------------- ------------------- ----------------------------- ----------------- ------------------- ----------------------------- ----------------- ------------------- 2. ACCOUNT INFORMATION: Please identify in the space provided below the name of any broker, dealer or bank with whom you maintain an Account.* ----------------------------------------------------- ----------------------------------------------------- ----------------------------------------------------- ----------------------------------------------------- + Class 2 Access Persons with a material business or professional relationship with MIMI must also complete this Report. * As defined in Section 7.2 of Mackenzie's Code of Ethics and Business Conduct Policy. Signature: Name: ---------------------------- ------------------------------ (Please Print) Date: ----------------------- -19- SCHEDULE E MACKENZIE INVESTMENT MANAGEMENT INC. CODE OF ETHICS AND BUSINESS CONDUCT POLICY QUARTERLY REPORT OF SECURITIES TRANSACTIONS BY ACCESS PERSONS FOR THE QUARTER ENDING (CHECK ONE): MARCH ___/JUNE ___/SEPTEMBER ___/ DECEMBER ___, 200_ 1. TRANSACTION REPORT: Please identify in the following tables all transactions in Securities# during the calendar quarter noted above. If no reportable transactions have occurred, answer "None". (NOTE: In lieu of entering the information requested below, you may attach a copy of an account statement received from the broker, dealer or bank that includes all of the required information. Please indicate the number of statements so attached.)
- -------------- -------------------- ------------ ------------- ------------ ----------------- ---------------------------------- PRICE AT WHICH TRANSAC- NUMBER OF PRINCIPAL TRANSAC- TRANSACTION WAS BROKER/DEALER/BANK THROUGH WHICH TION DATE: TITLE OF SECURITY: SHARES: AMOUNT: TION TYPE: EFFECTED: TRANSACTION WAS EFFECTED: - -------------- -------------------- ------------ ------------- ------------ ----------------- ---------------------------------- - -------------- -------------------- ------------ ------------- ------------ ----------------- ---------------------------------- - -------------- -------------------- ------------ ------------- ------------ ----------------- ---------------------------------- - -------------- -------------------- ------------ ------------- ------------ ----------------- ----------------------------------
2. ACCOUNT INFORMATION: Please identify in the following table the name of any broker, dealer or bank with whom you established an Account in which any Securities# were held during the quarter noted above for your direct or indirect Beneficial Interest.#
- ------------------------------------------------------------------------------- ----------------------------------- BROKER, DEALER OR BANK: DATE ACCOUNT ESTABLISHED: - ------------------------------------------------------------------------------- ----------------------------------- - ------------------------------------------------------------------------------- ----------------------------------- - ------------------------------------------------------------------------------- ----------------------------------- - ------------------------------------------------------------------------------- -----------------------------------
AFFIRMATION: The information in Item 1 above is an accurate record of every transaction in a Security in which I had or by reason of which I acquired any direct or indirect Beneficial Interest during the quarter noted above. SIGNED: DATE: ---------------------------- --------------- # As defined in Mackenzie's Code of Ethics and Business Conduct Policy. -20- SCHEDULE F MACKENZIE INVESTMENT MANAGEMENT INC. CODE OF ETHICS AND BUSINESS CONDUCT POLICY RECORD RETENTION REQUIREMENTS The records listed in the following table must be maintained by Mackenzie at its principal place of business, and must be made available to any representative of the SEC at any time and from time to time for reasonable periodic, special or other examination:
- --------------------------------------------------------- ----------------------------------------------------------- DOCUMENT DESCRIPTION: RECORD RETENTION REQUIREMENT: - --------------------------------------------------------- ----------------------------------------------------------- A copy of the Code that is in effect or that was in Maintain in an easy accessible place. effect at any time during the last five years. - --------------------------------------------------------- ----------------------------------------------------------- A record of any violation of the Code and of any action Maintain in an easily accessible place for at least five taken as a result of the violation. years after the end of the fiscal year in which the violation occurred. - --------------------------------------------------------- ----------------------------------------------------------- A copy of each report made by an Access Person, Maintain for at least five years after the end of the including any information provided in lieu of the fiscal year in which the report is made or the reports required under the Code. information is provided, the first two years in an easily accessible place. - --------------------------------------------------------- ----------------------------------------------------------- A record of all persons, currently or within the last Maintain in an easily accessible place. five years, who are or were required to make reports under the Code, or who are or were responsible for reviewing such reports. - --------------------------------------------------------- ----------------------------------------------------------- A copy of each report prepared by the Review Committee Maintain for at least five years after the end of the in connection with the annual review by the Funds' fiscal year in which the report is made, the first two Board described in Section 8.2 of the Code. years in an easily accessible place. - --------------------------------------------------------- -----------------------------------------------------------
In addition, Mackenzie will maintain a record of any decision (and the supporting reasons therefor) to approve the acquisition by any Access Person of (i) securities issued in an IPO; (ii) founders stock, promoter stock, or any other similar stock of an issuer in the early stage of development; or (iii) Securities issued in a private placement. Such records shall be maintained for at least five years after the end of the fiscal year in which the approval is granted. -21- SCHEDULE G MACKENZIE INVESTMENT MANAGEMENT INC. CODE OF ETHICS AND BUSINESS CONDUCT POLICY SUMMARY OF RESPONSIBILITIES I. BOARD OF TRUSTEES OF IVY FUND: o Approves the Code (and the code of any Fund subadvisor) at least annually based upon a determination that the Code (and each subadvisor's code) contains provisions reasonably necessary to prevent Access Persons from violating the anti-fraud provisions of the 1940 Act and upon a consideration of the annual Review Committee report and certification o Approves, based upon a similar determination, any material change to the Code (and each subadvisor's code) within 6 months after such change's adoption o Receives reports of any exceptions to provisions of the Code granted by the President of MIMI o Reviews all investigation and sanction reports submitted by the Review Committee II. ACCESS PERSONS o (Class 1 Access Persons only+:) File initial and annual holdings reports with the Compliance Department o File quarterly reports detailing any security transactions and Accounts established o (Class 1 Access Persons only:) Direct their brokers to provide copies of all trade confirmations to the Compliance Department o (Class 1 Access Persons only:) Obtain prior written authorization for all Securities transactions in an Account III. COMPLIANCE DEPARTMENT: o Administer the Code o Receive and review all initial and annual holdings reports, quarterly reports and trade confirmations o Review all disclosures of conflicts of interest -22- o Respond to questions concerning conflicts of interest, the Insider Trading Policy, requirements or application of the Code, and other compliance related matters o File the Code (and the code each Fund subadvisor) with the SEC and prepare required Prospectus and/or Statement of Additional Information disclosure* o Coordinate with Fund subadvisors presentation of required information to Fund Trustees IV. CODE OF ETHICS REVIEW COMMITTEE: o Investigate any reported or suspected violation of the Code o Determine and impose appropriate sanctions for Code violations o Report all investigations and sanctions to the President of MIMI and the Board of Trustees of each affected Fund o Review the Code at least annually in light of legal and business developments and experience in implementing the Code o Submit an annual written report to the President of MIMI and the Board of Trustees of Ivy Fund describing any issues arising under the Code, identifying any recommended changes and containing a certification that procedures have been adopted that are reasonably necessary to prevent Access Persons from violating the Code o Receive and review reports of any exceptions to provisions of the Code granted by the President of MIMI - ------------------------------------------- + Class 2 Access Persons with a material business or professional relationship with MIMI must also file these reports. * Verify that Prospectus/SAI disclosure is consistent with any related disclosure in MIMI's and IMI's respective Forms ADV. -23- -----END PRIVACY-ENHANCED MESSAGE-----