-----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, KPdJfbISxnSE1GrwfuhlZqZtE2plYvcS4lmuS19sIyf2m2XJKgwwdJh1pvYX1SSb IPmdAhr53n/Yv5QB9oYzfg== 0000950144-97-002064.txt : 19970306 0000950144-97-002064.hdr.sgml : 19970306 ACCESSION NUMBER: 0000950144-97-002064 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970304 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: IVY FUND CENTRAL INDEX KEY: 0000052858 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 046006759 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-01028 FILM NUMBER: 97550514 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 N-30D 1 IVY FUNDS FORM N-30D 12/31/96 1 DECEMBER 31, 1996 IVY FUNDS IVY GROWTH WITH INCOME FUND ANNUAL REPORT This report and the financial statements contained herein are submitted for the general information of the shareholders. This report is not authorized for distribution to prospective investors unless preceded or accompanied by an effective prospectus. Ivy Management, Inc. Via Mizner Financial Plaza 700 South Federal Hwy. Boca Raton, FL 33432 1-800-456-5111 MARKET COMMENTARY: The US stock market got out of the starting blocks in strong fashion in 1996 and again finished the year with double-digit returns. Within this environment, the Ivy Growth with Income Fund outperformed the average general equity fund, as tracked by Lipper Analytical Services Inc., but slightly underperformed the S&P 500 index. For the twelve months ended December 31, 1996 the Ivy Growth with Income Fund had a total return of 20.46% compared to 19.47% for the average of general equity funds and 23.22% for the S&P 500. (For the Fund's total return with sales charge, and performance commentary, please refer to the following page.) The Ivy Growth with Income Fund is managed using a style called Growth at a Reasonable Price (GARP). Holdings generally must meet a valuation criterion whereby future growth rate expectations for earnings must be greater than the price/earnings ratio for the stock. This investment style falls somewhere between pure value and pure growth. For additional risk control, the overall price/earnings ratio of the Fund is kept below that of the S&P 500. Within this investment style, several themes are emphasized. The first is technology, which continues to contribute a larger proportion to GDP annually. Accordingly, the Ivy Growth with Income Fund is weighted heavily in this area. Representative holdings include IBM, Intel, Microsoft and Cisco Systems. A second important theme is based on demographics, the premise being as people get older they spend more money on services rather than goods. According to our research, these services are generally in the health care, financial and leisure areas. Examples of service companies benefitting from increased spending are Columbia/HCA and Carnival Corp. Another theme is global capital spending. As emerging economies grow, they must develop their infrastructures to stay competitive. We believe Caterpillar and Foster Wheeler are two good examples of companies that should benefit from increased capital spending at the global level. Finally, the Ivy Growth with Income Fund is invested in Real Estate Investment Trusts (REITs). Because of the positive fundamental changes taking place in the real estate industry, we believe REITs will continue to make positive contributions to the Fund. The supply of new construction in various sectors of this industry has declined and now is in greater balance with demand. As a result, pricing is at more of an equilibrium than in the recent past. These stocks embody the securitization of real estate and provide liquidity for real estate holdings. Key underlying fundamentals contributing to the expected future gains include the lack of new building and increasing lease and rental rates. We are currently finding attractive investments in the office, industrial, self-storage and apartment sectors. REITs continue to be a core holding for this Fund because of their strong income generating ability. These stocks tend to have yields higher than the overall market that may help to cushion the Fund during periods of prolonged market volatility. We believe over the long term, the Ivy Growth with Income Fund should continue to provide competitive returns while maintaining its strategy of risk control. This Fund should remain an excellent investment choice for conservative investors who seek equity exposure, combined with risk control. IVY MANAGEMENT, INC. BOARD OF TRUSTEES LEGAL COUNSEL TRANSFER AGENT MANAGER John S. Anderegg, Jr. Dechert Price & Rhoads Ivy Mackenzie Ivy Management, Inc. Paul H. Broyhill Boston, MA Services Corp. Boca Raton, FL Keith J. Carlson P.O. Box 3022 Stanley Channick OFFICERS Boca Raton, FL 33431-0922 DISTRIBUTOR Frank W. DeFriece, Jr. Michael G. Landry, Chairman 1-800-777-6472 Ivy Mackenzie Roy J. Glauber Keith J. Carlson, President Distributors, Inc. Michael G. Landry James W. Broadfoot, Vice President AUDITORS Via Mizner Financial Plaza Joseph G. Rosenthal C. William Ferris, Coopers & Lybrand L.L.P. 700 South Federal Highway Richard Silverman Secretary/Treasurer Fort Lauderdale, FL Boca Raton, FL 33432 J. Brendan Swan CUSTODIAN Brown Brothers Harriman & Co. Boston, MA
[LOGO] IVY MACKENZIE 2 IVY GROWTH WITH INCOME FUND PERFORMANCE COMMENTARY While the Ivy Growth with Income Fund did outperform the average of general equity funds as tracked by Lipper Analytical Services Inc. (20.46% as compared to 19.47%), it did slightly underperform the S&P 500 which was up 23.22%. This is the result of the Fund's risk-control strategy that provides the portfolio with downside protection in periods of market weakness but prevents the Fund from fully participating in a rising market. Since the Fund's inception twelve years ago, investors have benefitted from this risk-control strategy as the Fund has experienced negative performance in only two years, with the largest decline being 2.03%. PERFORMANCE COMPARISONS OF THE FUND SINCE INCEPTION (4/84) OF A $10,000 INVESTMENT CHART
- ------------------------------------------------------------------------------------ IVY GROWTH WITH INCOME FUND FOR PERIOD ENDING 12/31/96 Class A*-with sales charge Class B** & C*** & D**** Average Annual Total Return Average Annual Total Return -------------------------------------------------------------- w/Reimb. w/o Reimb. w/Reimb. w/o Reimb. -------------------------------------------------------------- w/ w/o w/ w/o CDSC CDSC CDSC CDSC --------------------------------------- B: B: B: B: 14.59% 19.59% 14.59% 19.59% D: D: D: D: 1 Yr. 13.53% 13.53% 19.41% 19.41% 19.41% 19.41% - ------------------------------------------------------------------------------------ 5 Yr. 10.41% 10.41% -- -- -- -- - ------------------------------------------------------------------------------------ 10 Yr. 12.48% 12.47% -- -- -- -- - ------------------------------------------------------------------------------------ B: B: B: B: 11.58% 12.31% 11.58% 12.31% C: C: C: C: 11.37% 12.37% 11.37% 12.37% D: D: D: D: Since Inception 14.99% 14.98% 13.74% 13.74% 13.74% 13.74% - ------------------------------------------------------------------------------------
*Class A performance figures include the maximum sales charge of 5.75%. **Class B performance figures are calculated with and without the applicable Contingent Deferred Sales Charge (CDSC) up to a maximum of 5%. ***Class C performance figures are calculated with and without the applicable Contingent Deferred Sales Charge (CDSC) up to a maximum of 1%. ****Class D shares are not available for sale. All charts and tables reflect past results and assume reinvestment of dividends and distributions from capital gains. Future results will, of course, be different. The investment return and principal value of the Ivy Growth with Income Fund will fluctuate and at redemption may be worth more or less than the amount of the original investment. The Lipper Average Growth With Income index and the S&P 500 are unmanaged indices of stocks which assume reinvestment of dividends and, unlike Fund returns, do not reflect any fees or expenses. It is not possible to invest in an index. Performance is calculated for Class A shares of the Fund unless otherwise noted. The performance of the Fund's Class B, Class C and Class D shares will vary relative to that of Class A shares based on differences in their respective sales loads and fees. - -------------------------------------------------------------------------------- 3 PORTFOLIO OF INVESTMENTS DECEMBER 31, 1996
COMMON STOCKS -- 77.1% SHARES VALUE - ------------------------------------------------------ BASIC INDUSTRIES -- 4.9% Crown Cork & Seal Company, Inc.......................... 15,000 $ 815,625 Du Pont (E.I.) De Nemours & Company...................... 12,500 1,179,687 Ferro Corporation.............. 14,000 397,250 Harsco Corporation............. 17,000 1,164,500 Union Carbide Corporation Holding Company.............. 6,000 245,250 ----------- 3,802,312 ----------- CAPITAL GOODS -- 9.6% AGCO Corporation............... 35,000 1,001,875 American Standard Companies, Inc.*........................ 16,500 631,125 Caterpillar, Inc............... 6,500 489,125 Fluor Corporation.............. 6,500 407,875 Foster Wheeler Corporation..... 35,500 1,317,938 General Electric Company....... 12,800 1,265,600 Johnson Controls, Inc.......... 14,000 1,160,250 Kaydon Corporation............. 14,000 659,750 Tecumseh Products Company...... 8,300 476,213 ----------- 7,409,751 ----------- CONSUMER NON-DURABLES -- 7.3% Allegiance Corporation*........ 32,800 906,100 Elan Corp. PLC -- Sponsored ADR*(a)...................... 36,000 1,197,000 Mattel, Inc.................... 32,000 888,000 Nabisco Holdings Corporation Class A...................... 21,000 816,375 PepsiCo, Inc................... 28,000 819,000 Tupperware Corporation......... 6,200 332,475 Warnaco Group, Inc............. 24,600 728,775 ----------- 5,687,725 ----------- CONSUMER SERVICES -- 11.5% ADT Limited*................... 37,500 857,812 Brunswick Corporation.......... 16,500 396,000 Carnival Corporation Class A... 42,900 1,415,700 Eckerd Corporation*............ 29,500 944,000 Federated Department Stores, Inc.*........................ 13,000 443,625 Harte-Hanks Communications..... 30,000 832,500 Lowe's Companies, Inc.......... 17,000 603,500 Pier 1 Imports, Inc............ 48,000 846,000 Royal Caribbean Cruises Ltd.... 4,000 93,500 Sears, Roebuck & Co,........... 22,000 1,014,750 Sun International Hotels Ltd... 20,000 730,000 Sunglass Hut International, Inc*......................... 100,000 725,000 ----------- 8,902,387 ----------- ENERGY -- 6.7% Basic Petroleum International, Ltd.*........................ 11,100 366,300 Dresser Industries, Inc........ 17,000 527,000 Enron Corporation.............. 12,000 517,500 Helmerich & Payne, Inc......... 12,000 625,500 Noble Drilling Corporation*.... 45,000 894,375 Nuevo Energy Company*.......... 16,800 873,600 Parker & Parsley Petroleum Company...................... 15,000 551,250 Schlumberger, Ltd.............. 8,000 799,000 ----------- 5,154,525 ----------- FINANCIAL SERVICES -- 17.0% AMBAC, Inc..................... 11,600 769,950 Donaldson, Lufkin & Jenrette, Inc.......................... 21,700 781,200 Exel Limited................... 28,000 1,060,500 Federal Home Loan Mortgage Corp......................... 9,200 1,013,150 Federal National Mortgage Association.................. 25,800 961,050 First Chicago NBD Corporation.................. 14,500 779,375 First Union Corporation........ 14,500 $ 1,073,000 J.P. Morgan & Company Inc...... 9,000 878,625 NationsBank Corporation........ 11,000 1,075,250 Norwest Corporation............ 11,200 487,200 Penncorp Financial Group, Inc.......................... 17,000 612,000 Providian Corporation.......... 15,000 770,625 Signet Banking Corporation..... 30,000 922,500 Terra Nova (Bermuda) Holdings Ltd.......................... 32,000 688,000 Travelers, Inc................. 29,800 1,352,175 ----------- 13,224,600 ----------- HEALTHCARE -- 5.8% Apria Healthcare Group, Inc.*........................ 27,500 515,625 Boston Scientific Corporation*................. 20,000 1,200,000 Columbia/HCA Healthcare Corp... 31,800 1,295,850 Humana, Inc.*.................. 8,000 153,000 Integrated Living Communities, Inc.*........................ 70,000 402,500 Pharmacia & Upjohn, Inc........ 24,000 951,000 ----------- 4,517,975 ----------- TECHNOLOGY -- 13.5% Bell & Howell Company*......... 36,000 855,000 Cabletron Systems, Inc.*....... 44,000 1,463,000 Cisco Systems, Inc.*........... 6,000 381,750 Hewlett-Packard Company........ 16,500 829,125 Informix Corporation*.......... 30,000 611,250 Intel Corp..................... 14,600 1,911,688 International Business Machines Corporation.................. 10,200 1,540,200 KLA Instruments Corporation*... 18,000 639,000 Microsoft Corporation*......... 21,000 1,735,125 Oracle Corporation*............ 12,300 513,525 ----------- 10,479,663 ----------- UTILITIES -- 0.8% Vodafone Group plc -- ADR (a).......................... 15,000 620,625 ----------- TOTAL COMMON STOCKS (Cost -- $50,203,642)........ 59,799,563 ----------- PREFERRED STOCK -- 0.4% - ------------------------------- Time Warner, Inc. (Cost -- $268,212)........... 7,000 271,250 ----------- REAL ESTATE INVESTMENT TRUSTS (REITS) -- 18.1% - ------------------------------- Amli Residential Properties Trust........................ 30,000 701,250 Apartment Investment & Management Co................ 65,000 1,836,250 Arden Realty Group, Inc........ 30,000 832,500 Beacon Properties Corporation.................. 13,800 505,425 Boykin Lodging Company*........ 60,000 1,440,000 Brandywine Realty Trust........ 10,000 195,000 Cali Realty Corp............... 15,000 463,125 Developers Diversified Realty Corporation.................. 14,000 519,750 Duke Realty Investments, Inc... 30,000 1,155,000 Equity Residential Properties Trust........................ 15,000 618,750 Essex Property Trust........... 30,000 881,250 First Industrial Realty Trust, Inc.......................... 30,000 911,250 Prentiss Properties Trust...... 60,700 1,517,500 Storage Trust Realty........... 40,000 1,080,000 Storage USA, Inc............... 16,000 602,000 Walden Residential Properties, Inc.......................... 30,000 746,250 ----------- TOTAL REITS (Cost -- $11,437,397)........ 14,005,300 -----------
(See Notes to Financial Statements) 4 PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 1996
NUMBER OF OPTIONS PURCHASED -- 0.2% CONTRACTS VALUE - -------------------------------------------------------- PURCHASED PUT OPTIONS Standard & Poors 500 Index, March/670/Put................ 120 $ 78,000 Standard & Poors 500 Index, March/675/Put................ 124 88,350 ----------- TOTAL OPTIONS PURCHASED (Cost -- $367,832)........... 166,350 ----------- TOTAL INVESTMENTS -- 95.8% (Cost -- $62,277,083)(b)..... 74,242,463 ----------- OPTIONS WRITTEN -- (0.5%) - ------------------------------- WRITTEN COVERED CALL OPTIONS ADT Limited, March/22.50/Call............. 125 (13,281) Allegiance Corporation, February/22.50/Call.......... 60 (33,750) American Standard Companies, Inc., April/40/Call.......... 30 (6,563) Boston Scientific Corporation, February/60/Call............. 40 (13,250) Cabletron Systems, Inc., April/45/Call................ 80 (4,500) Carnival Corporation Class A April/35/Call................ 80 (5,000) Caterpillar, Inc., February/80/Call............. 10 (1,125) Columbia/HCA Healthcare Corp., February/40/Call............. 60 (14,250) Dresser Industries, Inc., April/35/Call................ 35 (2,187) Du Pont (E.I.) De Nemours & Company, April/100/Call...... 35 (8,750) Eckerd Corporation, February/35/Call............. 295 (5,531) Enron Corporation, April/45/Call................ 25 (4,063) General Electric Company, March/105/Call............... 20 (5,750) Helmerich & Payne, Inc., March/55/Call................ 20 (3,312) Helmerich & Payne, Inc., March/60/Call................ 20 (875) Intel Corp., April/130/Call.... 20 (18,500) Intel Corp., April/140/Call.... 30 (41,625) International Business Machines Corporation, April/155/Call............... 20 (14,750) International Business Machines Corporation, April/160/Call............... 20 (20,000) Johnson Controls, Inc., April/85/Call................ 25 (8,281) Lowe's Companies, Inc., April/45/Call................ 45 (2,250) Mattel, Inc., April/30/Call.... 60 (8,250) Microsoft Corporation, April/80/Call................ 80 $ (66,000) Nabisco Holdings Corporation Class A, March/40/Call....... 60 (10,125) NationsBank Corporation, February/100/Call............ 20 (7,500) Norwest Corporation, April/45/Call................ 20 (4,750) Nuevo Energy Company, April/55/Call................ 35 (11,812) Parker & Parsley Petroleum Company, March/30/Call....... 30 (21,938) Schlumberger Ltd., February/105/Call............ 30 (6,563) Travelers, Inc., March/48.75/Call............. 80 (10,000) ----------- TOTAL OPTIONS WRITTEN (Premiums received -- $352,241)........ (374,531) ----------- OTHER ASSETS, LESS LIABILITIES -- 4.7%.......... 3,673,442 ----------- NET ASSETS -- 100%............. $77,541,374 ===========
* Non-income producing security. (a) Foreign security. (b) Cost is approximately the same for Federal income tax purposes. ADR -- American Depository Receipt OTHER INFORMATION: At December 31, 1996, net unrealized appreciation based on cost for financial statement and Federal income tax purposes is as follows: Gross unrealized appreciation......... $13,424,772 Gross unrealized depreciation......... (1,459,392) ----------- Net unrealized appreciation....... $11,965,380 ===========
Purchases and sales of securities (other than short-term obligations) aggregated $97,112,873 and $103,649,140, respectively, for the period ended December 31, 1996. Transactions in written call options during the year ended December 31, 1996 were:
PREMIUMS NUMBER OF RECEIVED/ CONTRACTS (PAID) --------- --------- Outstanding at December 31, 1995.......... 0 $ 0 Contracts written....................... 1,510 355,181 Contracts closed........................ (20) (2,940) ------ -------- Outstanding at December 31, 1996.......... 1,490 $352,241 ====== ========
(See Notes to Financial Statements) 5 STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 1996 ASSETS Investments, at value (identified cost -- $62,277,083)...... $74,242,463 Cash........................................................ 3,566,383 Receivables Fund shares sold.......................................... 10,901 Dividends and interest.................................... 172,964 Other assets................................................ 85,785 ----------- Total assets.............................................. 78,078,496 ----------- LIABILITIES Payables Dividends to shareholders................................. 21,204 Fund shares repurchased................................... 11,374 Management fee............................................ 56,699 12b-1 service and distribution fees....................... 24,591 Other payables to related parties......................... 34,779 Accrued expenses............................................ 13,944 Written options outstanding at market (premiums received -- $352,241)..................................... 374,531 ----------- Total liabilities......................................... 537,122 ----------- NET ASSETS.................................................. $77,541,374 =========== CLASS A Net asset value and redemption price per share ($63,219,192/5,555,826 shares outstanding)................ $ 11.38 =========== Maximum offering price per share ($11.38 X 100/94.25)*...... $ 12.07 =========== CLASS B Net asset value and offering price per share ($13,473,108/1,185,838 shares outstanding)**.............. $ 11.36 =========== CLASS C Net asset value and offering price per share ($28,315/2,491 shares outstanding)**..................................... $ 11.37 =========== CLASS D Net asset value and redemption price per share ($820,759 / 72,047 shares outstanding)................................ $ 11.39 =========== NET ASSETS CONSIST OF Capital paid-in........................................... $72,807,907 Accumulated net realized loss on investments.............. (7,258,212) Accumulated net investment income......................... 48,589 Net unrealized appreciation (depreciation) on Investments............................................. 12,166,862 Options................................................. (223,772) ----------- NET ASSETS.................................................. $77,541,374 ===========
* On sales of more than $50,000 the offering price is reduced. ** Redemption price per share is equal to the net asset value per share less any applicable contingent deferred sales charge. (See Notes to Financial Statements) 6 STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996 INVESTMENT INCOME Dividends................................................. $ 1,437,214 Interest.................................................. 404,471 ----------- 1,841,685 ----------- EXPENSES Management fee............................................ $629,322 Transfer agent............................................ 233,399 Administrative services fee............................... 74,038 Custodian fees............................................ 9,461 Blue Sky fees............................................. 25,013 Auditing and accounting fees.............................. 21,368 Shareholder reports....................................... 7,267 Fund accounting........................................... 87,182 Trustees' fees............................................ 4,480 12b-1 service and distribution fees....................... 249,766 Legal..................................................... 22,430 Other..................................................... 68,128 ----------- Total expenses.......................................... 1,431,854 ----------- NET INVESTMENT INCOME....................................... 409,831 ----------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS Net realized gain (loss) on Investments and foreign currency transactions........... 12,587,897 Options................................................. (136,689) Net unrealized appreciation (depreciation) during the period on Investments and foreign currency transactions........... 1,131,380 Options................................................. (223,772) ----------- Net gain on investment transactions..................... 13,358,816 ----------- INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $13,768,647 ===========
(See Notes to Financial Statements) 7 STATEMENT OF CHANGES IN NET ASSETS FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995 ----------- ----------- INCREASE IN NET ASSETS Operations Net investment income..................................... $ 409,831 $ 570,249 Net realized gain on Investments and foreign currency transactions........... 12,587,897 3,005,363 Options................................................. (136,689) -- Net unrealized appreciation (depreciation) during the period on Investments............................................. 1,131,380 10,477,958 Options................................................. (223,772) -- Forward foreign currency contracts...................... -- 8,082 ----------- ----------- Net increase resulting from operations.................. 13,768,647 14,061,652 ----------- ----------- Class A distributions From net investment income................................ (409,831) (448,998) In excess of net investment income........................ (170,374) -- From net realized gain.................................... (8,490,622) (1,323,702) ----------- ----------- Total distributions to Class A shareholders............. (9,070,827) (1,772,700) ----------- ----------- Class B distributions From net investment income................................ -- (6,337) In excess of net investment income........................ (84,427) -- From net realized gain.................................... (1,738,301) (198,573) ----------- ----------- Total distributions to Class B shareholders............. (1,822,728) (204,910) ----------- ----------- Class C distributions In excess of net investment income........................ (39) -- From net realized gain.................................... (3,730) -- ----------- ----------- Total distributions to Class C shareholders............. (3,769) -- ----------- ----------- Class D distributions From net investment income................................ -- (1,556) In excess of net investment income........................ (7,039) -- From net realized gain.................................... (103,094) (35,765) ----------- ----------- Total distributions to Class D shareholders............. (110,133) (37,321) ----------- ----------- Fund share transactions (Note 5) Class A................................................. 1,711,001 22,755,447 Class B................................................. 4,351,868 1,580,170 Class C................................................. 29,562 -- Class D................................................. (476,754) (2,088,473) ----------- ----------- Net increase resulting from Fund share transactions..... 5,615,677 22,247,144 ----------- ----------- Total increase in net assets................................ 8,376,867 34,293,865 NET ASSETS Beginning of period....................................... 69,164,507 34,870,642 ----------- ----------- END OF PERIOD............................................. $77,541,374 $69,164,507 =========== =========== ACCUMULATED NET INVESTMENT INCOME........................... $ 48,589 $ -- =========== ===========
(See Notes to Financial Statements) 8 FINANCIAL HIGHLIGHTS
CLASS A FOR THE YEAR ENDED DECEMBER 31, --------------------------------------------------- 1996 1995 1994 1993 1992 SELECTED PER SHARE DATA ------- ------- ------- ------- ------- Net asset value, beginning of period........................ $ 10.98 $ 9.08 $ 9.70 $ 9.21 $ 9.74 ------- ------- ------- ------- ------- Income (loss) from investment operations Net investment income..................................... .08 .11 .17 .08 .07 Net realized and unrealized gain (loss) on investment transactions............................................ 2.16 2.13 (.36) 1.30 .18 ------- ------- ------- ------- ------- Total from investment operations........................ 2.24 2.24 (.19) 1.38 .25 ------- ------- ------- ------- ------- Less distributions From net investment income................................ .08 .08 .17 .06 .07 In excess of net investment income........................ .03 -- .01 -- -- From net realized gain.................................... 1.73 .26 .25 .83 .71 ------- ------- ------- ------- ------- Total distributions..................................... 1.84 .34 .43 .89 .78 ------- ------- ------- ------- ------- Net asset value, end of period.............................. $ 11.38 $ 10.98 $ 9.08 $ 9.70 $ 9.21 ======= ======= ======= ======= ======= Total return(%)(a).......................................... 20.46 24.93 (2.03) 15.07 2.61 RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands).................... $63,219 $59,054 $26,017 $22,669 $19,045 Ratio of expenses to average net assets(%).................. 1.81 1.96 1.84 2.14 1.94 Ratio of net investment income to average net assets(%)..... .68 1.06 1.83 .88 .73 Portfolio turnover rate(%).................................. 138 81 36 85 163 Average commission rate(e).................................. $ .0580 N/A N/A N/A N/A
FOR THE PERIOD OCTOBER 23, 1993 CLASS B FOR THE YEAR ENDED (COMMENCEMENT) DECEMBER 31, TO DECEMBER 31, ------------------------------- ----------------- 1996 1995 1994 1993 SELECTED PER SHARE DATA ------- ------ ------ ----------------- Net asset value, beginning of period........................ $ 10.98 $ 9.08 $ 9.70 $10.43 ------- ------ ------ ------ Income (loss) from investment operations Net investment income (loss).............................. (.01) .03 .09 -- Net realized and unrealized gain (loss) on investment transactions............................................ 2.15 2.13 (.36) .05 ------- ------ ------ ------ Total from investment operations........................ 2.14 2.16 (.27) .05 ------- ------ ------ ------ Less distributions From net investment income................................ -- .01 .09 .01 In excess of net investment income........................ .08 -- .01 -- From net realized gain.................................... 1.68 .25 .25 .77 ------- ------ ------ ------ Total distributions..................................... 1.76 .26 .35 .78 ------- ------ ------ ------ Net asset value, end of period.............................. $ 11.36 $10.98 $ 9.08 $ 9.70 ======= ====== ====== ====== Total return(%)............................................. 19.59(a) 23.94(a) (2.88)(a) .61(b) RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands).................... $13,473 $8,868 $5,849 $ 888 Ratio of expenses to average net assets(%).................. 2.55 2.75 2.70 3.09(c) Ratio of net investment income (loss) to average net assets(%)................................................. (.06) .27 .97 (.07)(c) Portfolio turnover rate(%).................................. 138 81 36 85 Average commission rate(e).................................. $ .0580 N/A N/A N/A
FOR THE PERIOD APRIL 30, 1996 CLASS C (COMMENCEMENT) TO DECEMBER 31, ---------------- 1996 SELECTED PER SHARE DATA ---------------- Net asset value, beginning of period........................ $11.73 ------ Income from investment operations Net investment loss....................................... (.08) Net realized and unrealized gain on investment transactions............................................ 1.53 ------ Total from investment operations........................ 1.45 ------ Less distributions In excess of net investment income........................ .08 From net realized gain.................................... 1.73 ------ Total distributions..................................... 1.81 ------ Net asset value, end of period.............................. $11.37 ====== Total return(%)............................................. 12.37(b) RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands).................... $ 28 Ratio of expenses to average net assets(%).................. 3.02(c) Ratio of net investment loss to average net assets(%)....... (.53)(c) Portfolio turnover rate(%).................................. 138 Average commission rate(e).................................. $.0580
(See Notes to Financial Statements) 9 FINANCIAL HIGHLIGHTS (CONTINUED)
FOR THE PERIOD AUGUST 16, 1993 CLASS D(D) FOR THE YEAR ENDED (COMMENCEMENT) DECEMBER 31, TO DECEMBER 31, ------------------------------ ---------------- 1996 1995 1994 1993 SELECTED PER SHARE DATA ------ ------ ------ ---------------- Net asset value, beginning of period........................ $10.98 $ 9.08 $ 9.70 $ 9.83 ------ ------ ------ ------ Income (loss) from investment operations Net investment income (loss).............................. (.02) .03 .09 -- Net realized and unrealized gain (loss) on investment transactions............................................ 2.14 2.13 (.36) .73 ------ ------ ------ ------ Total from investment operations........................ 2.12 2.16 (.27) .73 ------ ------ ------ ------ Less distributions From net investment income................................ -- .01 .09 .06 In excess of net investment income........................ .08 -- .01 -- From net realized gain.................................... 1.63 .25 .25 .80 ------ ------ ------ ------ Total distributions..................................... 1.71 .26 .35 .86 ------ ------ ------ ------ Net asset value, end of period.............................. $11.39 $10.98 $ 9.08 $ 9.70 ====== ====== ====== ====== Total return(%)............................................. 19.41(a) 23.94(a) (2.88)(a) 7.59(b) RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands).................... $ 821 $1,242 $3,004 $5,185 Ratio of expenses to average net assets(%).................. 2.63 2.75 2.70 3.09(c) Ratio of net investment income (loss) to average net assets(%)................................................. (.14) .27 .97 (.07)(c) Portfolio turnover rate(%).................................. 138 81 36 85 Average commission rate(e).................................. $.0580 N/A N/A N/A
(a) Total return does not reflect a sales charge. (b) Total return represents aggregate total return and does not reflect a sales charge. (c) Annualized. (d) On April 30, 1996, Class C shares outstanding were redesignated Class D shares. Class D shares are not available for sale. (e) For fiscal years beginning on or after September 1, 1995, a fund is required to disclose its average commission rate per share for security trades on which commissions are charged. This amount may vary from period to period and fund to fund depending on the mix of trades executed in various markets where trading practices and commission rate structures may differ. (See Notes to Financial Statements) 10 NOTES TO FINANCIAL STATEMENTS Ivy Growth with Income Fund (the Fund), is a diversified series of shares of Ivy Fund. The shares of beneficial interest are assigned no par value and an unlimited number of shares of Class A, Class B and Class C are authorized; 638,129 Class D shares were authorized in connection with the acquisition of Mackenzie Growth & Income Fund on August 16, 1993. Ivy Fund was organized as a Massachusetts business trust under a Declaration of Trust dated December 21, 1983 and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. The policies are in conformity with generally accepted accounting principles. Preparation of the financial statements includes the use of management estimates. Actual results could differ from those estimates. SECURITY VALUATION -- Securities for which market quotations are readily available are valued at market. Short-term obligations and commercial paper are valued at amortized cost, which approximates market. Debt securities (other than short-term obligations and commercial paper) are valued on the basis of valuations furnished by a pricing service authorized by the Board of Trustees (the Board), which determines valuations based upon market transactions for normal, institutional-size trading units of such securities. For valuation purposes, quotations of foreign securities in foreign currencies are translated into U.S. dollar equivalents using the foreign exchange quotation in effect. All other securities are valued at their fair value as determined in good faith by the Valuation Committee of the Board; as of December 31, 1996, there were no such securities. SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Security transactions are accounted for on the trade date. Dividend income is recorded on the ex-dividend date, and interest income is accrued on a daily basis. Realized gains and losses from security transactions are calculated on an identified cost basis. OPTIONS -- The Fund may write (sell) put options on securities and stock indicies, and may write (sell) covered call options on securities held in its portfolio. When the Fund writes a call, it gives the purchaser of the call option the right to buy the underlying security at the price specified in the option (the "exercise price") at any time during the option period, generally ranging up to nine months. When the Fund holds covered call options, the underlying securities are held in a segregated account by the custodian. If the option expires unexercised, the Fund will realize income, in the form of a capital gain, to the extent of the amount received for the option (the "premium"). If the option is exercised, a decision over which the Fund has no control, the Fund must sell the underlying security to the option holder. For options on indices, cash settlement by the Fund will be required if the option is exercised. By writing a call option, the Fund forgoes, in exchange for the premium less the commission ("net premium"), the opportunity to profit during the option period from an increase in the market value of the underlying security or currency above the exercise price. The liability representing the Fund's obligation under an exchange traded written call option is valued at the last sale price or, in the absence of a sale, the last offering price. In addition, the Fund may purchase, put options on securities and stock indices. Exchange traded purchased options are valued at the last sales price or, in the absence of a sale, the last bid price. FEDERAL INCOME TAXES -- The Fund intends to qualify for tax treatment applicable to regulated investment companies under the Internal Revenue Code, as amended, and distribute all of its taxable income to its shareholders. Therefore, no provision has been recorded for Federal income or excise taxes. Pursuant to Section 852 of the Internal Revenue Code, the Fund designated $8,336,816 as capital gain dividends for its taxable year ended December 31, 1996. The Fund has a net tax basis capital loss carryforward of approximately $7,460,000 as of December 31, 1996, which may be applied against any realized net taxable capital gains of each succeeding fiscal year until fully utilized or until the expiration date, whichever occurs first. The Fund's capital loss carryforward was realized by Mackenzie North American Fund prior to the Fund's acquisition of all the net assets on April 1, 1995 (Note 4). The carryforward expires $1,808,000 in 1997, $3,616,000 in 1999 and $2,036,000 in 2003. DISTRIBUTIONS TO SHAREHOLDERS -- Distributions from net investment income are declared daily. Distributions are paid at the earlier of redemption or the last business day of the quarter. An additional distribution in December will include any remaining undistributed net investment income and net capital gain realized during the year. An additional distribution may be declared if necessary to avoid the payment of a four percent Federal excise tax. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency transactions from foreign investment activity are translated into U.S. dollars on the following basis: (i) market value of securities, and dividends and interest receivable are translated at the closing daily rate of exchange; and, (ii) purchases and sales of investment securities are translated at the rate at which related foreign contracts are obtained or at the exchange rate prevailing on the date of the transaction. The Fund does not isolate that portion of net gain or loss on investments which is due to changes in foreign exchange rates from that which is due to changes in market prices of securities 11 NOTES TO FINANCIAL STATEMENTS (CONTINUED) held. Such fluctuations are included with net realized and unrealized gain or loss on investments. Exchange gains or losses from currency translation of other assets and liabilities, if significant, are reported as a separate component of Net realized and unrealized gain (loss) on investment transactions. Section 988 of the Internal Revenue Code provides that gains and losses on certain transactions attributable to fluctuations in foreign currency exchange rates must be treated as ordinary income or loss. Accordingly, distributions for financial statement purposes may differ from the characterization of such distributions determined on a Federal income tax basis. FORWARD FOREIGN CURRENCY CONTRACTS -- Forward foreign currency contracts may be entered into for purposes of hedging specific securities denominated in foreign currencies. Forward contracts are marked to market daily, and the change in market value is recorded by the Fund as an unrealized gain or loss. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. The Fund could be exposed to risk if the counter parties are unable to meet the terms of the contracts. RECLASSIFICATIONS -- The timing and characterization of certain income and net capital gain distributions are determined annually in accordance with Federal tax regulations which may differ from generally accepted accounting principles. These differences primarily relate to investments in foreign denominated securities, foreign forward currency contracts, passive foreign investment companies, and certain securities sold at a loss. As a result, Net investment income (loss) and Net realized gain (loss) on investments and foreign currency transactions for a reporting period may differ significantly in amount and character from distributions during such period. Accordingly, the Fund may make reclassifications among certain of its capital accounts without impacting the net asset value of the Fund. 2. RELATED PARTIES Ivy Management, Inc. (IMI) is the Manager and Investment Adviser of the Fund. For its services, IMI receives a fee monthly at the annual rate of .85% of the Fund's average net assets. Mackenzie Investment Management Inc. (MIMI), of which IMI is a wholly owned subsidiary, provides certain administrative, accounting and pricing services for the Fund. For those services, the Fund pays MIMI fees plus certain out-of-pocket expenses. Such fees are reflected as Administrative services fee and Fund accounting in the Statement of Operations. Ivy Mackenzie Distributors, Inc. (IMDI), a wholly owned subsidiary of MIMI, is the underwriter and distributor of the Fund's shares, and as such, purchases shares from the Fund at net asset value to settle orders from investment dealers. For the year ended December 31, 1996, the net amount of underwriting discount retained by IMDI was $15,182. Under Service and Distribution Plans, the Fund reimburses IMDI for service fee payments made to brokers at an annual rate not to exceed .25% of its average net asset value of shares issued after December 31, 1991. Class B, Class C and Class D shares are also subject to an ongoing distribution fee at an annual rate of .75% of the average net asset value attributable to Class B, Class C and Class D shares. IMDI may use such distribution fee for purposes of advertising and marketing shares of the Fund. Such fees of $126,322, $114,350, $79 and $9,015 for Class A, Class B, Class C and Class D, respectively, are reflected as 12b-1 service and distribution fees in the Statement of Operations. Ivy Mackenzie Services Corp. (IMSC), a wholly owned subsidiary of MIMI, is the transfer and shareholder servicing agent for the Fund. For those services, the Fund pays IMSC a monthly fee plus certain out-of-pocket expenses. Such fees and expenses of $198,964, $31,195, $59 and $3,181 for Class A, Class B, Class C and Class D, respectively, are reflected as Transfer agent in the Statement of Operations. 3. BOARD'S COMPENSATION Trustees who are not affiliated with IMI or MIMI receive compensation from the Fund, which is reflected as Trustees' fees in the Statement of Operations. 4. ACQUISITION OF MACKENZIE NORTH AMERICAN FUND On April 1, 1995, the Fund acquired the net assets (valued at $27,815,572) of Mackenzie North American Fund (MNAF), approved by MNAF's shareholders on March 31, 1995. The acquisition was accomplished by a tax-free exchange, based on values computed as of the close of business on March 31, 1995 of 2,962,768 (NAV $9.39) shares of the Fund for the 4,368,536 (NAV $6.37) shares of MNAF outstanding. MNAF's net assets at that date, including $10,629,907 net realized capital loss and $778,631 unrealized depreciation, were combined with the Fund for total net assets after acquisition of $64,583,061. 12 NOTES TO FINANCIAL STATEMENTS (CONTINUED) 5. FUND SHARE TRANSACTIONS Fund share transactions for Class A, Class B, Class C and Class D were as follows:
YEAR ENDED YEAR ENDED DECEMBER 31, 1996 DECEMBER 31, 1995 ------------------------- ------------------------- CLASS A SHARES AMOUNT SHARES AMOUNT - ------- ---------- ------------ ---------- ------------ Sold..................... 771,160 $ 8,920,002 995,850 $ 9,779,465 Issued in connection with the acquisition of Mackenzie North American Fund.................... -- -- 2,962,768 27,815,572 Issued on reinvestment of distributions........... 673,234 7,657,806 132,508 1,422,527 Repurchased.............. (1,266,282) (14,866,807) (1,580,020) (16,262,117) ---------- ------------ ---------- ------------ Net increase............. 178,112 $ 1,711,001 2,511,106 $ 22,755,447 ========== ============ ========== ============
YEAR ENDED YEAR ENDED DECEMBER 31, 1996 DECEMBER 31, 1995 ------------------------- ------------------------- CLASS B SHARES AMOUNT SHARES AMOUNT - ------- ---------- ------------ ---------- ------------ Sold..................... 554,493 $ 6,504,150 478,516 $ 4,852,229 Issued on reinvestment of distributions........... 160,600 1,737,755 17,693 190,075 Repurchased.............. (337,018) (3,890,037) (332,940) (3,462,134) ---------- ------------ ---------- ------------ Net increase............. 378,075 $ 4,351,868 163,269 $ 1,580,170 ========== ============ ========== ============
FROM APRIL 30, 1996 (COMMENCEMENT) TO DECEMBER 31, 1996 ------------------------- CLASS C SHARES AMOUNT - ------- ---------- ------------ Sold..................... 3,952 $ 46,287 Issued on reinvestment of distributions........... 335 3,810 Repurchased.............. (1,796) (20,535) ---------- ------------ Net increase............. 2,491 $ 29,562 ========== ============
YEAR ENDED YEAR ENDED DECEMBER 31, 1996 DECEMBER 31, 1995 ------------------------- ------------------------- CLASS D* SHARES AMOUNT SHARES AMOUNT - -------- ---------- ------------ ---------- ------------ Issued on reinvestment of distributions........... 9,114 $ 103,727 3,107 $ 32,805 Repurchased.............. (50,213) (580,481) (220,936) (2,121,278) ---------- ------------ ---------- ------------ Net decrease............. (41,099) $ (476,754) (217,829) $ (2,088,473) ========== ============ ========== ============
* Class D shares are not available for sale. REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders and Board of Trustees of Ivy Growth with Income Fund (the Fund) We have audited the accompanying statement of assets and liabilities of the Fund, including the schedule of portfolio investments, as of December 31, 1996, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 1996, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Fund as of December 31, 1996, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated, in conformity with generally accepted accounting principles. COOPERS & LYBRAND L.L.P. Fort Lauderdale, Florida February 14, 1997 02IVYIX123196 13 DECEMBER 31, 1996 IVY FUNDS IVY GROWTH FUND ANNUAL REPORT This report and the financial statements contained herein are submitted for the general information of the shareholders. This report is not authorized for distribution to prospective investors unless preceded or accompanied by an effective prospectus. Ivy Management, Inc. Via Mizner Financial Plaza 700 South Federal Hwy. Boca Raton, FL 33432 1-800-456-5111 MARKET COMMENTARY: The US stock market got out of the starting blocks in strong fashion in 1996 once again providing investors with double-digit returns. Within this environment the Ivy Growth Fund performed well, although it trailed the average of general equity funds and the S&P 500. For the twelve months ended December 31, 1996, the total return of the Ivy Growth Fund was 17.22% on a net asset value basis as compared to the average of general equity funds as tracked by Lipper Analytical Service Inc. and the S&P 500, which were up 19.47% and 23.22% respectively. (For the Fund's total return with sales charge and performance commentary, please refer to the following page.) The strength of the US market continues to surprise most observers. It appears "as expected" or "better than expected" earnings reports are driving the market as not even a 0.40% rise in interest rates at year end had any meaningful negative impact on stock prices. The price/earnings ratio of the S&P 500 is around 18, which is not abnormally high from an historic perspective. Additionally, the demand for long-term financial assets continues to be strong as cash flows into mutual funds remain high. Interest rates and inflation are likely to remain low but we would expect the Federal Reserve Board to tighten monetary policy should there be any indications to the contrary. About half of the Ivy Growth Fund is invested in larger capitalization stocks which were very much in favor in 1996. Demographics, and in particular an aging population is one investment theme found in the Fund. The thesis is that as people get older, they tend to spend more money on services rather than goods. According to our research, these services are generally health care, financial and leisure time. Real estate investment trusts (REITs) were added in mid-1996 because the industry fundamentals became attractive and valuations were good. Global capital spending and technology are two other investment themes of the Ivy Growth Fund. US companies such as Caterpillar and Foster Wheeler should benefit from the need of countries around the world to build and rebuild their infrastructures. Within the technology sector, our research indicated that there was excess inventory for personal computers and semiconductors, particularly memory circuits at the start of 1996. This excess diminished earnings visibility and pressured valuations, even in those sectors unaffected by the inventory cycle. However, by mid- to late-summer, there was evidence of a gradual improvement which benefitted the technology portion of the Ivy Growth Fund. We continue to believe many markets outside the US are attractively priced and offer the added benefit of geographic diversification. The foreign stocks in the Fund are spread throughout Europe, Asia and Latin America and are selected using a long-term value approach. Most are large-capitalization issues located in developed markets. Despite the lackluster performance of many foreign markets in 1996, the international equities in the Ivy Growth Fund made a positive contribution to its overall return. Looking ahead, we believe this portion of the Fund should continue to reduce overall volatility and enhance long-term returns. IVY MANAGEMENT, INC. BOARD OF TRUSTEES LEGAL COUNSEL TRANSFER AGENT MANAGER John S. Anderegg, Jr. Dechert Price & Rhoads Ivy Mackenzie Ivy Management, Inc. Paul H. Broyhill Boston, MA Services Corp. Boca Raton, FL Keith J. Carlson P.O. Box 3022 Stanley Channick OFFICERS Boca Raton, FL 33431-0922 DISTRIBUTOR Frank W. DeFriece, Jr. Michael G. Landry, Chairman 1-800-777-6472 Ivy Mackenzie Roy J. Glauber Keith J. Carlson, President Distributors, Inc. Michael G. Landry James W. Broadfoot, Vice President AUDITORS Via Mizner Financial Plaza Joseph G. Rosenthal C. William Ferris, Coopers & Lybrand L.L.P. 700 South Federal Highway Richard Silverman Secretary/Treasurer Fort Lauderdale, FL Boca Raton, FL 33432 J. Brendan Swan CUSTODIAN Brown Brothers Harriman & Co. Boston, MA
[LOGO] IVY MACKENZIE 14 IVY GROWTH FUND PERFORMANCE COMMENTARY The Ivy Growth Fund provided investors with solid returns in 1996 although it did underperform the average of general equity funds as tracked by Lipper, and the S&P 500. For the twelve months ended December 31, 1996 the Fund was up 17.22% on a total return basis. This compares to 19.47% and 23.22% for the average of general equity funds and the S&P 500 respectively. The difference in performance is attributed to the investment strategy of the Fund as compared to its two benchmarks. The average Lipper general equity fund and the S&P 500 are primarily invested in large capitalization US companies. 10-YEAR PERFORMANCE COMPARISONS OF THE FUND OF A $10,000 INVESTMENT CHART All charts and tables reflect past results and assume reinvestment of dividends and distributions from capital gains. Future results will, of course, be different. The investment return and principal value of the Ivy Growth Fund will fluctuate and at redemption may be worth more or less than the amount of the original investment. The Lipper Average Growth Fund represents the performance of the average growth fund as measured by Lipper Analytical Services, Inc. The S&P 500 is an unmanaged index of stocks which assumes reinvestment of dividends and, unlike Fund returns, does not reflect any fees or expenses. It is not possible to invest in an index. Performance is calculated for Class A shares of the Fund unless otherwise noted. The performance of the Fund's Class B and Class C shares will vary relative to that of Class A shares based on differences in their respective sales loads and fees.
- ---------------------------------------------------------------------------------- IVY GROWTH FUND FOR PERIOD ENDING 12/31/96 Class A*-with sales charge Class B** & C*** Average Annual Total Return Average Annual Total Return ------------------------------------------------------- w/Reimb. w/o Reimb. w/Reimb. w/o Reimb. ------------------------------------------------------- w/ w/o w/ w/o CDSC CDSC CDSC CDSC -------------------------------------- B: B: B: B: 1 Yr. 10.48% 10.48% 11.02% 16.02% 11.02% 16.02% - ---------------------------------------------------------------------------------- 5 Yr. 10.03% 9.97% -- -- -- -- - ---------------------------------------------------------------------------------- 10 Yr. 11.09% 11.06% -- -- -- -- - ---------------------------------------------------------------------------------- B: B: B: B: 11.36% 12.09% 11.28% 12.02% C: C: C: C: Since Inception 10.75% 10.74% 4.20% 5.20% 4.20% 5.20% - ----------------------------------------------------------------------------------
*Class A performance figures include the maximum sales charge of 5.75%. **Class B performance figures are calculated with and without the applicable Contingent Deferred Sales Charge (CDSC) up to a maximum of 5%. ***Class C performance figures are calculated with and without the applicable Contingent Deferred Sales Charge (CDSC) up to a maximum of 1%. Total returns in some periods were higher due to reimbursement of the Fund's expenses. See Financial Highlights. - -------------------------------------------------------------------------------- 15 PORTFOLIO OF INVESTMENTS DECEMBER 31, 1996
EQUITY SECURITIES -- 97.8% SHARES VALUE - ----------------------------------------------------- BASIC INDUSTRIES -- 6.6% AKZO Nobel NV(a)............ 12,000 $ 1,637,243 Anglo-American Corporation of South Africa Limited(a)................ 6,000 330,305 AssiDoman AB(a)............. 24,200 673,401 BASF AG(a).................. 19,000 727,398 Bayer AG(a)................. 11,500 466,013 Cementos de Mexico S.A. 'B'(a).................... 118,750 461,604 Crown Cork & Seal Company, Inc....................... 30,000 1,631,250 Du Pont (E.I.) De Nemours & Company................... 27,000 2,548,125 Enso OY -- R(a)............. 72,000 577,998 Ferro Corporation........... 46,000 1,305,250 Fletcher Challenge Building(a)............... 183,750 564,742 Fletcher Challenge Forests(a)................ 104,286 174,626 Fletcher Challenge Paper(a).................. 184,500 379,335 Guangdong Tannery Ltd.(a)... 80,000 20,168 Harsco Corporation.......... 38,000 2,603,000 Holderbank Financiere Glaris AG(a)..................... 1,520 1,082,220 Imperial Chemical Industries PLC -- Sponsored ADR (a)....................... 19,000 988,000 Millenium Chemicals Inc.*(a).................. 2,285 40,559 Nampak Limited (a).......... 34,400 136,791 Philips Electronics NV(a)... 18,600 752,716 Semen Gresik(a)............. 110,000 353,862 Stora Kopparbergs Bergslags Aktiebolag(a)............. 46,200 636,026 Trelleborg AB B Free Shares(a)................. 116,300 1,541,463 Union Carbide Corporation Holding Company........... 19,000 776,625 UPM-Kymmene OY(a)........... 28,840 603,830 ------------ 21,012,550 ------------ BUSINESS SERVICES -- 2.3% Applied Graphics Technologies, Inc.*....... 28,000 815,500 BISYS Group, Inc.*.......... 18,000 667,125 Cohr, Inc.*................. 15,000 405,000 Copart, Inc.*............... 25,000 328,125 Corrections Corporation of America*.................. 51,300 1,571,063 Daisytek International Corporation*.............. 21,600 885,600 Dendrite International, Inc.*..................... 20,600 169,950 Employee Solutions, Inc.*... 24,000 492,000 Gartner Group, Inc.*........ 24,400 950,075 Profit Recovery Group International, Inc.*...... 32,000 512,000 Quick Response Services, Inc.*..................... 20,000 570,000 ------------ 7,366,438 ------------ CAPITAL GOODS -- 4.4% AGCO Corporation............ 77,000 2,204,125 American Standard Companies, Inc.*..................... 38,000 1,453,500 Caterpillar, Inc............ 13,000 978,250 Fluor Corporation........... 15,000 941,250 Foster Wheeler Corporation............... 75,000 2,784,375 Johnson Controls, Inc....... 25,000 2,071,875 Kaydon Corporation.......... 27,000 1,272,375 Schneider, S.A.(a).......... 24,379 1,124,989 Tecumseh Products Company... 19,000 1,090,125 ------------ 13,920,864 ------------ CONGLOMERATES -- 2.9% Benpres Holdings Corp. -- Sponsored GDR*(a)......... 57,000 427,500 Cheung Kong(a).............. 167,000 1,484,325 Guangdong Investments(a).... 1,600,000 1,541,048 Hanson PLC ADR(a)........... 32,000 216,000 Jardine Matheson Holdings Ltd.(a)................... 75,200 496,320 Jardine Strategic Holdings Ltd.(a)................... 171,562 621,054 Jardine Strategic Holdings Warrants 98*(a)........... 19,062 7,625 Metro Pacific Corporation(a)............ 1,500,000 $ 370,722 New World Development Company Ltd.(a)........... 247,000 1,668,488 Pacific Dunlop Ltd.(a)...... 215,000 546,447 Swire Pacific Ltd. Class A(a)...................... 184,000 1,754,364 ------------ 9,133,893 ------------ CONSUMER DURABLES -- 2.0% Brunswick Corp.............. 38,500 924,000 CIADEA S.A ADR*(a).......... 40,150 190,746 Electrolux AB(a)............ 12,500 724,953 Fiat SpA*(a)................ 265,000 799,967 PT Astra International(a)... 142,000 390,688 Perusahaan Otomobil Nasional Berhad(a)................. 78,000 494,158 Peugeot Citroen(a).......... 6,200 696,477 Volkswagen AG(a)............ 3,600 1,489,187 Volvo AB B.................. 28,000 617,162 ------------ 6,327,338 ------------ CONSUMER NON-DURABLES --6.3% Allegiance Corporation*..... 66,200 1,828,775 Cadbury Schweppes PLC(a).... 27,000 227,560 First Commonwealth, Inc.*... 18,000 355,500 Grand Metropolitan PLC ADR (a)....................... 27,104 857,164 Group Danone(a)............. 5,500 764,897 Imperial Tobacco Group PLC ADR*(a)................... 8,000 102,000 Integrated Living Communities, Inc.*........ 155,000 891,250 Mattel, Inc................. 95,000 2,636,250 Nabisco Holdings Corporation Class A................... 69,000 2,682,375 Nestle AG Registered (a).... 2,013 2,154,343 PepsiCo, Inc................ 62,000 1,813,500 Rembrandt Group Limited(a)................ 21,000 187,440 South African Breweries Ltd.(a)................... 5,287 133,941 South African Breweries Ltd. Sponsored ADR(a).......... 5,200 130,000 Time Warner, Inc. Preferred................. 23,000 891,250 Tsingtao Brewery Series H(a)...................... 1,176,000 448,507 Tupperware Corporation...... 18,500 992,062 Unilever NV ADR(a).......... 4,700 823,675 Vina Concha y Toro S.A.(a)................... 13,400 314,900 Warnaco Group, Inc. Class A......................... 69,400 2,055,975 ------------ 20,291,364 ------------ CONSUMER SERVICES -- 10.9% ADT Limited *............... 75,000 1,715,625 Barnes & Noble, Inc.*....... 13,000 351,000 Boston Chicken, Inc.*....... 48,000 1,722,000 Carnival Corporation Class A......................... 80,000 2,640,000 Comcast UK Cable Partners Ltd.*..................... 30,000 408,750 CompUSA, Inc.*.............. 27,200 561,000 Corporate Express, Inc.*.... 31,400 924,338 Cuc International Inc....... 61,750 1,466,563 Eckerd Corporation *........ 70,500 2,256,000 Extended Stay America, Inc.*..................... 46,000 925,750 Federated Department Stores, Inc.*..................... 30,000 1,023,750 Galeries Lafayette *(a)..... 2,060 731,478 Genting Berhad(a)........... 70,000 482,280 Harte-Hanks Communications............ 60,000 1,665,000 International Speedway Corp. -- Class A*......... 37,000 758,500 Julius Meinl International AG(a)..................... 3,900 111,536 Just for Feet, Inc.*........ 18,500 485,625 Lowe's Companies, Inc....... 40,000 1,420,000 Lusomundo-SGPS S.A. Preferred Shares(a)....... 26,200 238,964 Northland Cranberries Inc. Class A................... 30,000 690,000 Petco Animal Supplies, Inc.*..................... 25,000 518,750 PetsMart Inc.*.............. 16,000 350,000
(See Notes to Financial Statements) 16 PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 1996
EQUITY SECURITIES SHARES VALUE - ----------------------------------------------------- Pier 1 Imports, Inc....... 87,000 $ 1,533,375 Planet Hollywood International, Inc.*.... 42,600 841,350 Premier Parks, Inc.*...... 15,000 481,875 Rio Hotel and Casino, Inc.*................... 50,000 731,250 Robinson Department Store Public Company Limited(a).............. 272,100 527,963 Royal Caribbean Cruises Ltd..................... 9,300 217,387 Santa Isabel S.A. ADR(a).................. 8,800 199,100 Scandinavian Broadcasting System S.A.*............ 11,000 191,125 Sears, Roebuck & Co....... 50,000 2,306,250 Station Casinos, Inc.*.... 25,000 253,125 Stewart Enterprises Inc Class A................. 21,000 714,000 Sun International Hotels Ltd.*................... 30,000 1,095,000 Sunglass Hut International, Inc.*.... 200,000 1,450,000 Sylvan Learning Systems, Inc.*................... 26,100 743,850 TRM Copy Centers Corporation *........... 62,000 604,500 Tourism Holdings Limited(a).............. 421,000 803,118 Viking Office Products, Inc.*................... 10,000 266,875 West Marine Inc.*......... 10,000 282,500 ------------ 34,689,552 ------------ ENERGY -- 6.7% Basic Petroleum International, Ltd.*.... 22,200 732,600 Dresser Industries, Inc... 58,000 1,798,000 Elf Aquitaine S.A.(a)..... 20,000 1,816,980 Enron Corporation......... 38,000 1,638,750 Fletcher Challenge Energy(a)............... 263,750 764,029 Helmerich & Payne, Inc.... 41,500 2,163,187 Noble Drilling Corporation*............ 90,000 1,788,750 Norsk Hydro A.S. ADR(a)... 37,500 2,010,938 Nuevo Energy Company*..... 33,300 1,731,600 Parker & Parsley Petroleum Company................. 50,000 1,837,500 Schlumberger, Ltd......... 27,000 2,696,625 Shell Transport & Trading Co.(a).................. 65,000 1,125,137 Total S.A. ADR(a)......... 20,155 811,239 YPF S.A. Sponsored ADR(a).................. 22,000 555,500 ------------ 21,470,835 ------------ FINANCIAL SERVICES --14.6% ABN Amro Bank(a).......... 8,700 565,335 A.F.P. Provida S.A. ADR(a).................. 10,300 193,125 AMBAC, Inc................ 27,000 1,792,125 Advanta Corporation Class B....................... 19,000 776,625 Arab Malaysian Corporation Berhad(a)............... 189,000 942,940 Asia Credit Company PLC(a).................. 17,000 67,960 Australia & New Zealand Banking Group Ltd.(a)... 78,000 491,278 Bank of Ireland(a)........ 89,175 814,150 Bank of Scotland(a)....... 180,000 950,285 Bankok Bank Public Company Limited(a).............. 45,000 435,257 Banque Nationale De Paris(a)................ 13,500 521,434 Barclays PLC(a)........... 30,500 522,207 CS Holding AG(a).......... 6,500 665,626 Capital One Financial Corp.................... 5,900 212,400 Compagnie Financiere de Paribas (a)............. 12,455 840,678 Credit Acceptance Corporation*............ 7,200 169,200 DCB Holdings Berhad (a)... 103,000 352,781 Dhana Siam Finance & Secs. Public Co. Ltd (a)...... 55,000 130,850 Donaldson, Lufkin & Jenrette, Inc.*......... 49,400 1,778,400 Exel Limited.............. 60,000 2,272,500 Federal Home Loan Mortgage Corp.................... 21,000 2,312,625 Federal National Mortgage Association............. 50,000 1,862,500 First Chicago NBD Corporation............. 26,000 1,397,500 First Union Corporation... 33,500 2,479,000 Fortis Amev NV(a)......... 24,500 856,923 Green Tree Financial Corp.................... 17,000 656,625 HSBC Holdings PLC(a)...... 115,997 2,481,902 ING Groep NV(a)........... 28,257 $ 1,016,082 J.P. Morgan & Company Inc..................... 18,000 1,757,250 Krung Thai Bank Public Company Limited (a)..... 75,000 144,793 Krung Thai Thanakit PLC(a).................. 26,000 66,420 Litchfield Financial Corp.................... 31,500 464,625 National Australia Bank Ltd.(a)................. 42,000 493,708 National Westminster Bank PLC(a).................. 41,500 486,835 NationsBank Corporation... 26,300 2,570,825 Nava Finance and Securities Public Company Limited*(a)..... 40,000 54,992 Norwest Corporation....... 27,000 1,174,500 PennCorp Financial, Inc... 39,000 1,404,000 Peregrine Investment Holdings(a)............. 828,000 1,418,359 Peregrine Investment Holdings Warrants*(a)... 82,800 26,494 Providian Corporation..... 35,000 1,798,125 Signet Banking Corporation............. 60,000 1,845,000 Societe Generale.......... 4,700 507,181 Terra Nova (Bermuda) Holdings Ltd............ 70,000 1,505,000 Travelers, Inc............ 60,000 2,722,500 Westpac Banking Corp. Ltd.(a)................. 84,000 477,696 ------------ 46,476,616 ------------ HEALTHCARE -- 12.8% Access Health, Inc.*...... 25,000 1,118,750 American Medical Response, Inc.*................... 25,100 815,750 Apria Healthcare Group, Inc.*................... 60,000 1,125,000 Arbor Health Care Company *....................... 24,200 629,200 Astra AB B Free Shares(a)............... 33,000 1,590,064 Autoimmune, Inc.*......... 15,000 230,625 Biochem Pharma, Inc.*..... 25,500 1,281,375 Biopsys Medical, Inc.*.... 15,000 326,250 Boston Scientific Corporation*............ 40,000 2,400,000 CIMA Labs, Inc.*.......... 21,600 132,300 Cardiovascular Dynamics*............... 25,000 325,000 Centocor, Inc.*........... 8,000 286,000 Cephalon, Inc.*........... 15,000 307,500 Columbia/HCA Healthcare Corp.................... 69,300 2,823,975 Compdent Corporation*..... 24,000 846,000 Depotech Corporation*..... 12,000 196,500 Dura Pharmaceuticals, Inc.*................... 33,600 1,604,400 Elan Corp. PLC -- Sponsored ADR*(a)................. 117,000 3,890,250 Express Scripts, Inc. -- Class A*........ 10,000 358,750 Geltex Pharmaceuticals, Inc.*................... 30,000 727,500 Genzyme Corp. -- General Division*............... 36,000 783,000 Genzyme Corp. -- Tissue Repair*................. 3,104 22,116 Health Management Associates, Inc.*....... 25,000 562,500 Horizon Mental Health Management, Inc.*....... 15,000 416,250 Humana, Inc.*............. 27,000 516,375 Liposome Company, Inc.*... 94,000 1,797,750 Medpartners/Mullikin, Inc.*................... 15,000 315,000 Merck KGaA(a)............. 24,000 861,978 NABI, Inc.*............... 50,000 437,500 Neurex Corporation*....... 26,000 442,000 Norland Medical Systems, Inc.*................... 15,000 101,250 Omnicare, Inc............. 35,200 1,130,800 Orthodontic Centers of America, Inc.*................... 102,000 1,632,000 OrthoLogic Corp.*......... 20,000 112,500 Penederm, Inc.*........... 5,500 68,063 Pharmacia & Upjohn, Inc... 60,000 2,377,500 PhyCor, Inc.*............. 30,988 879,270 Physician Support Systems, Inc.*................... 44,000 847,000 Renal Treatment Centers Inc.*................... 40,000 1,020,000 Sepracor, Inc.*........... 25,000 415,625 Serologicals Corporation*............ 18,000 636,750 Sonus Pharmaceuticals, Inc.*................... 22,500 669,375 Spine-Tech, Inc.*......... 10,000 250,000 Total Renal Care Holdings, Inc.*................... 15,000 543,750
(See Notes to Financial Statements) 17 PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 1996
EQUITY SECURITIES SHARES VALUE - ------------------------------------------------------ Trinity Biotech PLC ADR Warrants A*............. 60,000 $ 90,000 Trinity Biotech PLC ADR Warrants B*............. 30,000 37,500 United Dental Care, Inc.*................... 12,000 364,500 Uromed Corporation*....... 52,500 511,875 Vencor, Inc.*............. 13,000 411,125 VidaMed, Inc.*............ 30,000 386,250 Vivra, Inc.*.............. 19,500 706,875 Vivus, Inc.*.............. 19,500 538,688 ------------ 40,900,354 ------------ INDUSTRIAL -- 2.0% Clipsal Industries Ltd.(a)................. 252,000 917,280 General Electric Company................. 16,500 1,631,437 Hunter Douglas NV(a)...... 9,900 666,778 Lyonnaise Des Eaux -- Dumez (a)....... 9,399 873,054 SMH AG(a)................. 1,000 614,424 United Waste Systems Inc.*................... 39,000 1,340,625 Waste Management International PLC*(a)................. 51,400 404,775 ------------ 6,448,373 ------------ MISCELLANEOUS -- 0.5% Fidelity Advisor Korea Fund *.................. 80,000 760,000 ROC Taiwan Fund *......... 48,000 492,000 Taiwan Fund, Inc.......... 22,000 489,500 ------------ 1,741,500 ------------ PROPERTY DEVELOPERS & INVESTMENT -- 0.3% DBS Land Limited(a)....... 157,000 578,023 Land & General Berhad(a)............... 150,000 359,334 ------------ 937,357 ------------ TECHNOLOGY -- 19.1% 3Com Corporation *........ 20,150 1,478,506 ASM Lithography Holding NV *(a).................... 8,000 398,500 Aerial Communications, Inc.*................... 40,000 325,000 Altera Corporation *...... 12,400 901,325 ANADIGICS, Inc.*.......... 10,000 392,500 Analog Devices, Inc.*..... 28,000 948,500 Applix, Inc.*............. 12,000 262,500 Arch Communications Group, Inc.*................... 43,000 403,125 Baan Company, NV *(a)..... 11,000 382,250 Bell & Howell Holdings Company *............... 84,000 1,995,000 CBT Group PLC ADR *....... 17,000 922,250 Cabletron Systems, Inc.*................... 100,000 3,325,000 Cascade Communications, Corp.*.................. 21,600 1,190,700 Checkfree Corporation *... 48,000 822,000 Cisco Systems, Inc.*...... 66,000 4,199,250 Citrix Systems, Inc.*..... 8,600 335,937 DSP Communications, Inc.*................... 26,000 503,750 Elec & Eltek International Co. Ltd.(a)............. 145,000 551,000 FileNet Corporation *..... 17,000 544,000 Gemstar International Group Limited *............... 47,200 826,000 Heartland Wireless Communications, Inc.*... 20,000 262,500 Hewlett-Packard Company... 38,000 1,909,500 IKOS Systems, Inc.*....... 23,000 460,000 Informix Corporation *.... 88,200 1,797,075 Integrated Process Equipment Corporation *....................... 10,000 180,000 Intel Corp................ 43,500 5,695,781 Interlink Computer Sciences, Inc.*......... 69,500 1,164,125 International Business Machines Corp........... 23,100 3,488,100 KLA Instruments Corporation............. 36,000 1,278,000 Komag, Inc.*.............. 15,000 406,875 Lattice Semiconductor Corp.*.................. 21,000 966,000 Legato Systems, Inc.*..... 11,000 358,875 Linear Technology Corporation............. 8,000 351,000 Maxim Integrated Products, Inc.*................... 20,000 $ 865,000 McAfee Associates, Inc.*................... 18,000 792,000 Microsoft Corporation *... 40,000 3,305,000 Omnipoint Corporation *... 18,000 346,500 Optika Imaging Systems, Inc.*................... 113,800 570,778 Oracle Systems Corp.*..... 28,800 1,202,400 P-COM, Inc................ 24,000 711,000 Paging Network Inc.*...... 65,000 991,250 Pairgain Technologies, Inc.*................... 54,400 1,655,800 Peoplesoft, Inc.*......... 13,000 623,187 Premisys Communications, Inc.*................... 12,000 405,000 Project Software & Development, Inc.*................... 17,000 720,375 Proxim, Inc.*............. 38,000 874,000 QUALCOMM, Inc.*........... 28,400 1,132,450 RadiSys Corporation *..... 13,600 663,000 Red Brick Systems, Inc.*................... 11,800 271,400 S3 Incorporated *......... 43,000 698,750 Sawtek Inc.*.............. 19,300 764,762 Security Dynamics Technologies, Inc.*................... 12,000 378,000 Sykes Enterprises, Inc.*................... 16,500 618,750 Synopsys, Inc.*........... 23,000 1,063,750 Systemsoft Corporation *....................... 35,000 520,625 Transaction Network Services, Inc.*......... 63,750 733,125 Ultratech Stepper, Inc.*................... 10,000 237,500 Veritas Software Corporation *........... 22,500 1,119,375 VideoServer, Inc.*........ 8,000 340,000 Xylan Corporation *....... 11,000 310,750 ------------ 60,939,451 ------------ TELEPHONE & ELECTRIC -- 3.1% Cia. de Telecomunicaciones de Chile S.A.(a)........ 2,500 252,813 Empresa Nacional de Electricidad -- ADR(a).................. 21,900 1,533,000 Empresa Nacional de Electridad S.A.(a)................. 11,800 182,900 PT Telekomunikasi Indonesia -- Foreign Reg.(a)................. 280,000 482,963 Portugal Telecom S.A. -- ADR(a).......... 10,800 305,100 Telecomunicacoes Brasileiras S.A. Telebras(a)............. 24,700 1,889,550 Telefonica de Argentina -- ADS(a)..... 9,100 235,462 Telefonica de Espana S.A. -- ADR(a).......... 39,200 2,714,600 Vodafone Group PLC -- ADR(a)........... 35,000 1,448,125 Western Wireless Corp.*... 19,000 263,625 WinStar Communications, Inc.*................... 26,500 556,500 ------------ 9,864,638 ------------ TRANSPORTATION -- 0.7% Genesee & Wyoming Inc. Class A *............... 20,700 719,325 Offshore Logistics, Inc.*................... 24,146 467,829 RailTex, Inc.*............ 15,000 378,750 Wisconsin Central Transportation Corporation *........... 15,000 594,375 ------------ 2,160,279 ------------ TOTAL EQUITY SECURITIES (Cost --$234,701,222)... 303,681,402 ------------ REAL ESTATE INVESTMENT TRUSTS (REITS) -- 2.6% Amli Residential Properties Trust........ 60,000 1,402,500 Beacon Properties Corporation............. 28,000 1,025,500 First Industrial Realty Trust, Inc. ............ 60,000 1,822,500 Prentiss Properties Trust*.................. 100,000 2,500,000 Walden Residential Properties, Inc. ....... 60,000 1,492,500 ------------ TOTAL REITS (Cost -- $7,223,343).... 8,243,000 ------------
(See Notes to Financial Statements) 18 PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 1996
NUMBER OF OPTIONS PURCHASED -- 0.1% CONTRACTS VALUE - ----------------------------------------------------- Standard & Poors 500 Index, March/670/Put.... 240 $ 156,000 Standard & Poors 500 Index, March/675/Put.... 264 188,100 ------------ TOTAL OPTIONS PURCHASED (Cost -- $759,612)...... 344,100 ------------ TOTAL INVESTMENTS -- 97.9% (Cost -- $242,684,177)(b)... 312,268,502 ------------ OPTIONS WRITTEN -- (0.3%) - -------------------------- ADT Limited, March/22.50/Call........ 250 (26,562) Allegiance Corporation, February/22.50/Call..... 130 (73,125) American Standard Companies, Inc., April/40/Call........... 75 (16,406) Boston Scientific Corporation, February/60/Call........ 90 (29,813) Cabletron Systems, Inc., April/45/Call........... 200 (11,250) Carnival Corporation Class A, April/35/Call........ 200 (12,500) Caterpillar, Inc., February/80/Call........ 25 (2,813) Columbia/HCA Healthcare Corp., February/40/Call........ 140 (33,250) Dresser Industries, Inc., April/35/Call........... 115 (7,187) Du Pont (E.I.) De Nemours & Company, April/100/Call.......... 75 (18,750) Eckerd Corporation, February/35/Call........ 705 (13,219) Enron Corporation, April/45/Call........... 75 (12,188) General Electric Company, March/105/Call.......... 50 (14,375) Helmerich & Payne, Inc., March/55/Call........... 85 (14,077) Helmerich & Payne, Inc., March/60/Call........... 85 (3,719) Intel Corp., April/130/Call.......... 90 (124,875) Intel Corp., April/140/Call.......... 45 (41,625) International Business Machines Corp., April/155/Call.......... 45 (45,000) International Business Machines Corp., April/160/Call.......... 45 (33,187) Johnson Controls, Inc., April/85/Call........... 100 (33,125) Lowe's Companies, Inc., April/45/Call........... 100 (5,000) Mattel, Inc., April/30/Call........... 200 (27,500) Microsoft Corporation, April/80/Call........... 200 (165,000) Nabisco Holdings Corporation Class A, March/40/Call........... 210 (35,438) NationsBank Corporation, February/100/Call....... 50 (18,750) Norwest Corporation, April/45/Call........... 55 (13,063) Nuevo Energy Company, April/55/Call........... 65 (21,937) Parker & Parsley Petroleum Company, March/30/Call........... 100 $ (73,125) Schlumberger, Ltd., February/105/Call....... 110 (24,062) Travelers, Inc., March/48.75/Call........ 200 (25,000) ------------ TOTAL OPTIONS WRITTEN (Premiums received -- $918,726)... (975,921) ------------ OTHER ASSETS, LESS LIABILITIES -- 2.4%..... 7,554,850 ------------ NET ASSETS -- 100%........ $318,847,431 ============ ADR -- American Depository Receipt ADS -- American Depository Share GDR -- Global Depository Receipt NV -- Non-voting * Non-income producing security. (a) Foreign security. (b) Cost is approximately the same for Federal income tax purposes. OTHER INFORMATION: At December 31, 1996, net unrealized appreciation based on cost for financial statement and Federal income tax purposes is as follows: Gross unrealized appreciation.................... $ 81,136,127 Gross unrealized depreciation.................... (11,551,802) ------------ Net unrealized appreciation.................. $ 69,584,325 ============ Purchases and sales of securities other than short-term obligations aggregated $211,736,167 and $231,152,800, respectively, for the period ended December 31, 1996. Forward foreign currency contracts at December 31, 1996 were:
FORWARD CONTRACTS UNREALIZED (CURRENCY/ PRINCIPAL VALUE OF APPRECIATION/ EXPIRATION/COMMITMENT) AMOUNT OBLIGATION (DEPRECIATION) - -------------------------------------------------------------------------------- Deutsch Marks/March 97/Sell....... 2,174,423 US $ (2,191,715) $(17,292) French Francs/March 97/Sell....... 5,588,804 US (5,654,490) (65,686) Netherland Guilders/March 97/Sell.......................... 3,737,478 US (3,756,920) (19,442) Swiss Francs/March 97/Sell........ 2,578,541 US (2,546,277) 32,264 ------------ -------- Total forward foreign currency exchange contracts sold.......... $(14,149,402) $(70,156) ============ ========
Transactions in written call options during the year ended December 31, 1996 were:
PREMIUMS NUMBER OF RECEIVED/ CONTRACTS (PAID) --------- --------- Outstanding at December 31, 1995.......... 0 $ 0 Contracts written....................... 3,915 926,076 Contracts closed........................ (50) (7,350) ----- -------- Outstanding at December 31, 1996.......... 3,865 $918,726 ===== ========
(See Notes to Financial Statements) 19 STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 1996 ASSETS Investments, at value (identified cost -- $242,684,177)..... $312,268,502 Cash........................................................ 8,984,594 Receivables Fund shares sold.......................................... 5,718 Dividends and interest.................................... 355,778 Other assets................................................ 122,716 ------------ Total assets.............................................. 321,737,308 ------------ LIABILITIES Payables Distributions to shareholders............................. 2,059 Open forward foreign currency contracts................... 70,156 Investments purchased..................................... 1,417,851 Fund shares repurchased................................... 21,194 Management fee............................................ 230,673 12b-1 service and distribution fees....................... 20,190 Other payables to related parties......................... 111,949 Accrued expenses............................................ 39,884 Written options outstanding, at value (premiums received -- $918,726)..................................... 975,921 ------------ Total liabilities......................................... 2,889,877 ------------ NET ASSETS.................................................. $318,847,431 ============ CLASS A Net asset value and redemption price per share ($314,907,567/17,730,592 shares outstanding).............. $ 17.76 ============ Maximum offering price per share ($17.76 X 100/94.25)*...... $ 18.84 ============ CLASS B Net asset value and offering price per share ($3,849,718/217,627 shares outstanding)**................. $ 17.69 ============ CLASS C Net asset value and offering price per share ($90,146 / 5,124 shares outstanding)**............................... $ 17.59 ============ NET ASSETS CONSIST OF Capital paid-in........................................... $248,919,219 Accumulated net realized gain on investments.............. 421,731 Accumulated net investment income......................... 50,714 Net unrealized appreciation (depreciation) on Investments and foreign currency transactions........... 69,998,630 Options................................................. (472,707) Forward foreign currency contracts...................... (70,156) ------------ NET ASSETS.................................................. $318,847,431 ============
* On sales of more than $50,000 the offering price is reduced. ** Redemption price per share is equal to the net asset value per share less any applicable contingent deferred sales charge. (See Notes to Financial Statements) 20 STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996 INVESTMENT INCOME Dividends, net of $249,706 foreign taxes withheld......... $ 4,027,582 Interest.................................................. 820,474 ----------- 4,848,056 ----------- EXPENSES Management fee............................................ $2,608,378 Transfer agent............................................ 897,128 Administrative services fee............................... 306,868 Custodian fees............................................ 103,350 Blue Sky fees............................................. 30,979 Auditing and accounting fees.............................. 61,764 Shareholder reports....................................... 14,700 Fund accounting........................................... 131,740 Trustees' fees............................................ 3,446 12b-1 service and distribution fees....................... 186,300 Legal fees................................................ 27,156 Other..................................................... 125,831 ----------- 4,497,640 Expenses reimbursed by manager............................ (12,486) ----------- Net expenses............................................ 4,485,154 ----------- NET INVESTMENT INCOME....................................... 362,902 ----------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS Net realized gain (loss) on Investments and foreign currency transactions........... 29,676,848 Options................................................. (480,845) Forward foreign currency contracts...................... 1,468,478 Net unrealized appreciation (depreciation) during the period on Investments and foreign currency transactions........... 18,302,190 Options................................................. (472,707) Forward foreign currency contracts...................... 167,966 ----------- Net gain on investment transactions..................... 48,661,930 ----------- INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $49,024,832 ===========
(See Notes to Financial Statements) 21 STATEMENT OF CHANGES IN NET ASSETS FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995 ------------ ------------ INCREASE IN NET ASSETS Operations Net investment income..................................... $ 362,902 $ 835,987 Net realized gain (loss) on Investments and foreign currency transactions........... 31,145,326 15,071,628 Options................................................. (480,845) (345,250) Net unrealized appreciation (depreciation) during the period on Investments and foreign currency transactions........... 18,302,190 49,271,083 Options................................................. (472,707) -- Forward foreign currency contracts...................... 167,966 (149,842) ------------ ------------ Net increase resulting from operations.................. 49,024,832 64,683,606 ------------ ------------ Class A distributions From net investment income................................ (389,158) (393,729) In excess of net investment income........................ (1,722,867) -- From net realized gain.................................... (28,336,336) (14,615,580) In excess of net realized gain............................ -- (521,353) ------------ ------------ Total distributions to Class A shareholders............. (30,448,361) (15,530,662) ------------ ------------ Class B distributions From net realized gain.................................... (346,890) (110,798) In excess of net realized gain............................ -- (9,479) ------------ ------------ Total distributions to Class B shareholders............. (346,890) (120,277) ------------ ------------ Class C distributions In excess of net investment income........................ (395) -- From net realized gain.................................... (8,094) -- ------------ ------------ Total distributions to Class C shareholders............. (8,489) -- ------------ ------------ Fund share transactions (Note 5) Class A................................................. 6,870,702 9,822,759 Class B................................................. 1,041,023 922,346 Class C................................................. 91,198 -- ------------ ------------ Net increase resulting from Fund share transactions..... 8,002,923 10,745,105 ------------ ------------ TOTAL INCREASE IN NET ASSETS................................ 26,224,015 59,777,772 NET ASSETS Beginning of period....................................... 292,623,416 232,845,644 ------------ ------------ END OF PERIOD............................................. $318,847,431 $292,623,416 ============ ============ ACCUMULATED NET INVESTMENT INCOME........................... $ 50,714 $ 25,339 ============ ============
(See Notes to Financial Statements) 22 FINANCIAL HIGHLIGHTS
CLASS A FOR THE YEAR ENDED DECEMBER 31, ---------------------------------------------------------------- 1996 1995 1994 1993 1992 SELECTED PER SHARE DATA -------- -------- -------- -------- -------- Net asset value, beginning of period........................ $ 16.75 $ 13.91 $ 15.14 $ 14.98 $ 16.91 -------- -------- -------- -------- -------- Income (loss) from investment operations Net investment income(a).................................. .02 .05 .05 .10 .17 Net realized and unrealized gain (loss) on investment transactions............................................ 2.86 3.73 (.49) 1.74 .70 -------- -------- -------- -------- -------- Total from investment operations........................ 2.88 3.78 (.44) 1.84 .87 -------- -------- -------- -------- -------- Less distributions From net investment income................................ .02 .02 .05 .10 .15 In excess of net investment income........................ .11 -- -- -- -- From net realized gain.................................... 1.74 .89 .74 1.58 2.65 In excess of net realized gain............................ -- .03 -- -- -- -------- -------- -------- -------- -------- Total distributions..................................... 1.87 .94 .79 1.68 2.80 -------- -------- -------- -------- -------- Net asset value, end of period.............................. $ 17.76 $ 16.75 $ 13.91 $ 15.14 $ 14.98 ======== ======== ======== ======== ======== Total return(%)(b).......................................... 17.22 27.33 (2.97) 12.29 5.21 RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands).................... $314,908 $289,954 $231,446 $268,533 $226,068 Ratio of expenses to average net assets With expense reimbursement(%)............................. 1.45 1.59 1.38 1.33 1.32 Without expense reimbursement(%).......................... 1.45 1.60 1.49 1.43 1.40 Ratio of net investment income to average net assets(%)(a).............................................. .13 .32 .32 .64 .98 Portfolio turnover rate(%).................................. 72 41 39 77(e) 138 Average commission rate(f).................................. $ .0439 N/A N/A N/A N/A
(See Notes to Financial Statements) 23 FINANCIAL HIGHLIGHTS (CONTINUED)
FOR THE PERIOD OCTOBER 23, 1993 CLASS B FOR THE YEAR ENDED (COMMENCEMENT) TO DECEMBER 31, DECEMBER 31, ------------------------------ ----------------- 1996 1995 1994 1993 SELECTED PER SHARE DATA ------ ------ ------ ----------------- Net asset value, beginning of period........................ $16.75 $13.91 $15.14 $ 16.42 ------ ------ ------ -------- Income (loss) from investment operations Net investment loss(a).................................... (.13) (.08) (.04) -- Net realized and unrealized gain (loss) on investment transactions............................................ 2.81 3.71 (.54) .37 ------ ------ ------ -------- Total from investment operations........................ 2.68 3.63 (.58) .37 ------ ------ ------ -------- Less distributions From net investment income................................ -- -- -- .07 From net realized gain.................................... 1.74 .73 .52 1.58 In excess of net realized gain............................ -- .06 .13 -- ------ ------ ------ -------- Total distributions..................................... 1.74 .79 .65 1.65 ------ ------ ------ -------- Net asset value, end of period.............................. $17.69 $16.75 $13.91 $ 15.14 ====== ====== ====== ======== Total return(%)............................................. 16.02(b) 26.13(b) (3.90)(b) 2.34(c) RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands).................... $3,850 $2,669 $1,399 $ 65 Ratio of expenses to average net assets With expense reimbursement(%)............................. 2.37 2.55 2.34 2.31(d) Without expense reimbursement(%).......................... 2.37 2.56 2.45 2.44(d) Ratio of net investment loss to average net assets(%)(a).... (.79) (.64) (.64) (.33)(d) Portfolio turnover rate(%).................................. 72 41 39 77(e) Average commission rate(f).................................. $.0439 N/A N/A N/A
(See Notes to Financial Statements) 24 FINANCIAL HIGHLIGHTS (CONTINUED)
FOR THE PERIOD APRIL 30, 1996 CLASS C (COMMENCEMENT) TO DECEMBER 31, ----------------- 1996 SELECTED PER SHARE DATA ----------------- Net asset value, beginning of period........................ $18.46 ------ Loss from investment operations Net investment loss(a).................................... (.06) Net realized and unrealized gain on investment transactions............................................ 1.02 ------ Total from investment operations........................ .96 ------ Less distributions In excess of net investment income........................ .09 From net realized gain.................................... 1.74 ------ Total distributions..................................... 1.83 ------ Net asset value, end of period.............................. $17.59 ====== Total return(%)............................................. 5.20(c) RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands).................... $ 90 Ratio of expenses to average net assets With expense reimbursement(%)............................. 2.44(d) Without expense reimbursement(%).......................... 2.44(d) Ratio of net investment loss to average net assets(%)(a).... (.86)(d) Portfolio turnover rate(%).................................. 72 Average commission rate(f).................................. $.0439 (a) Net investment income (loss) is net of expenses reimbursed by manager. (b) Total return does not reflect a sales charge. (c) Total return represents aggregate total return and does not reflect a sales charge. (d) Annualized. (e) The portfolio turnover rate excludes sales of portfolio securities made following the February 1, 1993 reorganization between the Fund and American Investors Growth Fund, Inc. to realign the Fund's portfolio and reflects an adjustment to the monthly average value of the portfolio securities owned by the Fund during the year ended December 31, 1993. (f) For fiscal years beginning on or after September 1, 1995, a fund is required to disclose its average commission rate per share for security trades on which commissions are charged. This amount may vary from period to period and fund to fund depending on the mix of trades executed in various markets where trading practices and commission rate structures may differ.
(See Notes to Financial Statements) 25 NOTES TO FINANCIAL STATEMENTS Ivy Growth Fund (the Fund), is a diversified series of shares of Ivy Fund. The shares of beneficial interest are assigned no par value and an unlimited number of shares of Class A, Class B and Class C are authorized. Ivy Fund was organized as a Massachusetts business trust under a Declaration of Trust dated December 21, 1983 and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. The policies are in conformity with generally accepted accounting principles. Preparation of the financial statements includes the use of management estimates. Actual results could differ from those estimates. SECURITY VALUATION -- Securities for which market quotations are readily available are valued at market. Short-term obligations and commercial paper are valued at amortized cost, which approximates market. Debt securities (other than short-term obligations and commercial paper) are valued on the basis of valuations furnished by a pricing service authorized by the Board of Trustees (the Board), which determines valuations based upon market transactions for normal, institutional-size trading units of such securities. For valuation purposes, quotations of foreign securities in foreign currencies are translated into U.S. dollar equivalents using the foreign exchange quotation in effect. All other securities are valued at their fair value as determined in good faith by the Valuation Committee of the Board; as of December 31, 1996, there were no such securities. SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Security transactions are accounted for on the trade date. Dividend income is recorded on the ex-dividend date, and interest income is accrued on a daily basis. Realized gains and losses from security transactions are calculated on an identified cost basis. OPTIONS -- The Fund may write (sell) put options on securities and stock indicies, and may write (sell) covered call options on securities held in its portfolio. When the Fund writes a call, it gives the purchaser of the call option the right to buy the underlying security at the price specified in the option (the "exercise price") at any time during the option period, generally ranging up to nine months. When the Fund holds covered call options, the underlying securities are held in a segregated account by the custodian. If the option expires unexercised, the Fund will realize income, in the form of a capital gain, to the extent of the amount received for the option (the "premium"). If the option is exercised, a decision over which the Fund has no control, the Fund must sell the underlying security to the option holder. For options on indices, cash settlement by the Fund will be required if the option is exercised. By writing a call option, the Fund forgoes, in exchange for the premium less the commission ("net premium"), the opportunity to profit during the option period from an increase in the market value of the underlying security or currency above the exercise price. The liability representing the Fund's obligation under an exchange traded written call option is valued at the last sale price or, in the absence of a sale, the last offering price. In addition, the Fund may purchase, put options on securities and stock indices. Exchange traded purchased options are valued at the last sales price or, in the absence of a sale, the last bid price. FEDERAL INCOME TAXES -- The Fund intends to qualify for tax treatment applicable to regulated investment companies under the Internal Revenue Code, as amended, and distribute all of its taxable income to its shareholders. Therefore, no provision has been recorded for Federal income or excise taxes. Pursuant to Section 852 of the Internal Revenue Code, the Fund designates $28,776,451 as capital gain dividends for its taxable year ended December 31, 1996. DISTRIBUTIONS TO SHAREHOLDERS -- Distributions from net investment income and net realized capital gains, if any, are declared in December. An additional distribution may be declared if necessary to avoid the payment of a four percent Federal excise tax. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency transactions from foreign investment activity are translated into U.S. dollars on the following basis: (i) market value of securities, and dividends and interest receivable are translated at the closing daily rate of exchange; and, (ii) purchases and sales of investment securities are translated at the rate at which related foreign contracts are obtained or at the exchange rate prevailing on the date of the transaction. The Fund does not isolate that portion of net gain or loss on investments which is due to changes in foreign exchange rates from that which is due to changes in market prices of securities held. Such fluctuations are included with net realized and unrealized gain or loss on investments. Exchange gains or losses from currency translation of other assets and liabilities, if significant, are reported as a separate component of Net realized and unrealized gain (loss) on investment transactions. 26 NOTES TO FINANCIAL STATEMENTS (CONTINUED) Section 988 of the Internal Revenue Code provides that gains and losses on certain transactions attributable to fluctuations in foreign currency exchange rates must be treated as ordinary income or loss. Accordingly, distributions for financial statement purposes may differ from the characterization of such distributions determined on a Federal income tax basis. FORWARD FOREIGN CURRENCY CONTRACTS -- Forward foreign currency contracts may be entered into for purposes of hedging specific securities denominated in foreign currencies. Forward contracts are marked to market daily, and the change in market value is recorded by the Fund as an unrealized gain or loss. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. The Fund could be exposed to risk if the counter parties are unable to meet the terms of the contracts. RECLASSIFICATIONS -- The timing and characterization of certain income and net capital gain distributions are determined annually in accordance with Federal tax regulations which may differ from generally accepted accounting principles. These differences primarily relate to investments in foreign denominated securities, investments in forward foreign currency contracts, passive foreign investment companies, and certain securities sold at a loss. As a result, Net investment income (loss) and Net realized gain (loss) on investments and foreign currency transactions for a reporting period may differ significantly in amount and character from distributions during such period. Accordingly, the Fund may make reclassifications among certain of its capital accounts without impacting the net asset value of the Fund. 2. RELATED PARTIES Ivy Management, Inc. (IMI) is the Manager and Investment Adviser of the Fund. For its services, IMI receives a fee monthly at the annual rate of .85% of the Fund's average net assets. Mackenzie Investment Management Inc. (MIMI), of which IMI is a wholly-owned subsidiary, provides certain administrative, accounting and pricing services for the Fund. For those services, the Fund pays MIMI fees plus certain out-of-pocket expenses. Such fees are reflected as Administrative services fee and Fund accounting in the Statement of Operations. Ivy Mackenzie Distributors, Inc. (IMDI), a wholly owned subsidiary of MIMI, is the underwriter and distributor of the Fund's shares, and as such, purchases shares from the Fund at net asset value to settle orders from investment dealers. For the year ended December 31, 1996, the net amount of underwriting discount retained by IMDI was $20,448. Under Service and Distribution Plans, the Fund reimburses IMDI for service fee payments made to brokers at an annual rate not to exceed .25% of its average net asset value of shares issued after December 31, 1991. Class B and Class C shares are also subject to an ongoing distribution fee at an annual rate of .75% of the average net asset value of Class B and Class C shares. IMDI may use such distribution fee for purposes of advertising and marketing shares of the Fund. Such fees of $153,152, $32,851 and $297 for Class A, Class B and Class C, respectively, are reflected as 12b-1 service and distribution fees in the Statement of Operations. Ivy Mackenzie Services Corp. (IMSC), a wholly owned subsidiary of MIMI, is the transfer and shareholder servicing agent for the Fund. For those services, the Fund pays IMSC a monthly fee plus certain out-of-pocket expenses. Such fees and expenses of $888,356, $8,674 and $98 for Class A, Class B and Class C, respectively, are reflected as Transfer agent in the Statement of Operations. 3. BOARD'S COMPENSATION Trustees who are not affiliated with IMI or MIMI receive compensation from the Fund, which is reflected as Trustees' fees in the Statement of Operations. 4. ACQUISITION OF MACKENZIE AMERICAN FUND On April 1, 1995, the Fund acquired the net assets (valued at $22,845,039) of Mackenzie American Fund (MAF), approved by MAF's shareholders on March 31, 1995. The acquisition was accomplished by a tax-free exchange, based on values computed as of the close of business on March 31, 1995 of 1,558,771 (NAV $14.66) shares (1,556,917 Class A and 1,854 Class B) of the Fund for 2,170,282 (NAV $10.53) shares (2,167,700 Class A and 2,582 Class B) of MAF outstanding. MAF's net assets at that date, including $604,631 unrealized appreciation on investments, were combined with the Fund for total net assets after acquisition of $264,077,723. 27 NOTES TO FINANCIAL STATEMENTS (CONTINUED) 5. FUND SHARE TRANSACTIONS Fund share transactions for Class A, Class B and Class C were as follows:
YEAR ENDED YEAR ENDED DECEMBER 31, 1996 DECEMBER 31, 1995 ------------------------- ------------------------- CLASS A SHARES AMOUNT SHARES AMOUNT - ------- ---------- ------------ ---------- ------------ Sold..................... 1,496,693 $ 27,187,211 1,293,661 $ 20,326,652 Issued in connection with the acquisition of Mackenzie American Fund.................... -- -- 1,556,917 22,817,867 Issued on reinvestment of distributions........... 1,580,308 28,065,960 854,211 14,217,886 Repurchased.............. (2,657,170) (48,382,469) (3,036,434) (47,539,646) ---------- ------------ ---------- ------------ Net increase............. 419,831 $ 6,870,702 668,355 $ 9,822,759 ========== ============ ========== ============
YEAR ENDED YEAR ENDED DECEMBER 31, 1996 DECEMBER 31, 1995 ------------------------- ------------------------- CLASS B SHARES AMOUNT SHARES AMOUNT - ------- ---------- ------------ ---------- ------------ Sold..................... 103,139 $ 1,850,267 274,170 $ 4,147,548 Issued in connection with the acquisition of Mackenzie American Fund.................... -- -- 1,854 27,172 Issued on reinvestment of distributions........... 18,721 331,192 7,166 119,052 Repurchased.............. (63,589) (1,140,436) (224,460) (3,371,426) ---------- ------------ ---------- ------------ Net increase............. 58,271 $ 1,041,023 58,730 $ 922,346 ========== ============ ========== ============
FROM APRIL 30, 1996 (COMMENCEMENT) TO DECEMBER 31, 1996 ------------------------- CLASS C SHARES AMOUNT - ------- ---------- ------------ Sold..................... 5,921 $ 105,632 Issued on reinvestment of distributions........... 482 8,487 Repurchased.............. (1,279) (22,921) ---------- ------------ Net increase............. 5,124 $ 91,198 ========== ============
28 REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders and Board of Trustees of Ivy Growth Fund (the Fund) We have audited the accompanying statement of assets and liabilities of the Fund, including the schedule of portfolio investments, as of December 31, 1996, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 1996, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Fund as of December 31, 1996, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated, in conformity with generally accepted accounting principles. COOPERS & LYBRAND L.L.P. Fort Lauderdale, Florida February 14, 1997 02IVYFX123196 29 DECEMBER 31, 1996 IVY FUNDS IVY GLOBAL SCIENCE & TECHNOLOGY FUND ANNUAL REPORT This report and the financial statements contained herein are submitted for the general information of the shareholders. This report is not authorized for distribution to prospective investors unless preceded or accompanied by an effective prospectus. Ivy Management, Inc. Via Mizner Financial Plaza 700 South Federal Hwy. Boca Raton, FL 33432 1-800-456-5111 MARKET COMMENTARY: We would like to take this opportunity to welcome you as a shareholder of the new Ivy Global Science & Technology Fund. From its inception date of July 22, 1996 through December 31, 1996 the Fund's total return was 64.34% on a net asset value basis. This compares favorably to the S&P 500, which had a total return of 18.29% over the same period. (For the Fund's total return with sales charge, and performance commentary, please refer to the following page.) Hindsight confirms the inception date of the Fund coincided with the bottom for most technology stocks. During the first half of 1996 investors focused on excess inventories of personal computers and semiconductors. By late summer these concerns, which had been overhanging the entire technology sector, began to lift and earnings visibility increased. Improving fundamentals and a favorable overall market environment drove most technology stocks higher through year end. While technology is a global phenomenon, it has emerged as one of the major growth engines of the US economy representing more than 10% of GDP. This compares to only 4% in the late 1970s. We believe in no other sector of the economy is the pace of change so rapid, nor the opportunity for growth so great. In just the last ten years, billions of dollars of wealth have been created by young companies like Intel, Microsoft, Cisco, and Oracle. Our research supports our belief that we are still in the early part of the growth curve. On a macro level, we expect several factors to drive further growth. One of the most important is the continuing improvement in the price/performance characteristics of semiconductors and the resulting decline in the cost of computing power. We believe it is likely to continue over several more generations of chips and drive the cost of computing power even lower. We expect this process to generate numerous opportunities for both equipment and software companies. Global competition is another factor we expect to stimulate demand. Companies seeking to maintain or improve their competitive position often look to new technology as the solution. For instance, some of the fastest growing niches within the software industry include applications like help desk automation, electronic data interchange, data warehousing for decision support, and sales force automation. Early adopters are buying these and other products in their quest to gain a competitive advantage. We also believe that over the next few years we will see data transmitted at higher speeds, substantially enhancing the performance and utility of computer networks, including the Internet. The pace at which these improvement occur will likely be stimulated by deregulation and increased competition among telecommunication providers. The Ivy Global Science & Technology Fund focuses on areas that we believe have the best prospects for rapid and sustainable growth. This includes leading companies, both large and small, both domestic and global, in sectors such as software, computer networking, telecom equipment, and semiconductors, as well as indirect beneficiaries of technology growth such as distributors, systems integrators, and information service companies. The Fund also seeks participation in the growth of medical technology through investments in biotechnology, pharmaceutical, and medical device companies. IVY MANAGEMENT, INC. BOARD OF TRUSTEES LEGAL COUNSEL TRANSFER AGENT MANAGER John S. Anderegg, Jr. Dechert Price & Rhoads Ivy Mackenzie Ivy Management, Inc. Paul H. Broyhill Boston, MA Services Corp. Boca Raton, FL Keith J. Carlson P.O. Box 3022 Stanley Channick OFFICERS Boca Raton, FL 33431-0922 DISTRIBUTOR Frank W. DeFriece, Jr. Michael G. Landry, Chairman 1-800-777-6472 Ivy Mackenzie Roy J. Glauber Keith J. Carlson, President Distributors, Inc. Michael G. Landry James W. Broadfoot, Vice President AUDITORS Via Mizner Financial Plaza Joseph G. Rosenthal C. William Ferris, Coopers & Lybrand L.L.P. 700 South Federal Highway Richard Silverman Secretary/Treasurer Fort Lauderdale, FL Boca Raton, FL 33432 J. Brendan Swan CUSTODIAN Brown Brothers Harriman & Co. Boston, MA
[LOGO] IVY MACKENZIE 30 IVY GLOBAL SCIENCE & TECHNOLOGY FUND PERFORMANCE COMMENTARY From the Fund's inception on July 22, 1996 through year-end 1996, the Ivy Global Science & Technology Fund was up 64.34% and outperformed the S&P 500, which was up 18.29% for the same period. The outperformance of the Fund compared to the S&P 500 is due primarily to the Fund's focus on the technology sector which outperformed the broader US market (the S&P 500). PERFORMANCE COMPARISONS OF THE FUND SINCE INCEPTION (7/22/96) OF A $10,000 INVESTMENT CHART
- ------------------------------------------------------------------------------------ IVY GLOBAL SCIENCE AND TECHNOLOGY FUND FOR PERIOD ENDING 12/31/96 Class A*-with sales charge Class B** & C*** Average Annual Total Return Average Annual Total Return -------------------------------------------------------------- w/Reimb. w/o Reimb. w/Reimb. w/o Reimb. -------------------------------------------------------------- w/ w/o w/ w/o CDSC CDSC CDSC CDSC --------------------------------------- 1 Yr. -- -- -- -- - ------------------------------------------------------------------------------------ B: B: B: B: 59.59% 64.59% 59.46% 64.46% C: C: C: C: Since Inception 54.89% 54.63% 63.84% 64.84% 63.71% 64.71% - ------------------------------------------------------------------------------------
*Class A performance figures include the maximum sales charge of 5.75%. **Class B performance figures are calculated with and without the applicable Contingent Deferred Sales Charge (CDSC) up to a maximum of 5%. ***Class C performance figures are calculated with and without the applicable Contingent Deferred Sales Charge (CDSC) up to a maximum of 1%. Total returns in some periods were higher due to reimbursement of the Fund's expenses and a capital contribution by the Manager. See Financial Highlights. All charts and tables reflect past results and assume reinvestment of dividends and distributions from capital gains. Future results will, of course, be different. The investment return and principal value of Ivy Global Science & Technology Fund will fluctuate and at redemption may be worth more or less than the amount of the original investment. The S&P 500 is an unmanaged index of stocks which assumes reinvestment of dividends and, unlike Fund returns, does not reflect any fees or expenses. It is not possible to invest in an index. Performance is calculated for Class A shares of the Fund unless otherwise noted. The performance of the Fund's Class B and Class C shares will vary relative to that of Class A shares based on differences in their respective sales loads and fees. - -------------------------------------------------------------------------------- 31 PORTFOLIO OF INVESTMENTS DECEMBER 31, 1996
EQUITY SECURITIES -- 83.3% SHARES VALUE - ------------------------------------------------------- BIOTECHNOLOGY -- 6.4% Alkermes, Inc.*............. 3,100 $ 72,075 Autoimmune, Inc.*........... 3,700 56,888 Biochem Pharma, Inc.*....... 2,000 100,500 Centocor, Inc.*............. 1,900 67,925 Ergo Science Corporation*... 9,700 127,312 Geltex Pharmaceuticals, Inc.*..................... 5,800 140,650 Liposome Company Inc.*...... 7,200 137,700 Neurex Corporation*......... 7,500 127,500 ViroPharma Inc.*............ 6,000 52,500 ----------- 883,050 ----------- BUSINESS & FINANCIAL SERVICES -- 15.6% Abacus Direct Corporation*.............. 1,400 26,250 Applied Graphics Technologies, Inc.*....... 4,400 128,150 BISYS Group, Inc............ 3,000 111,188 CBT Group PLC ADR*(a)....... 3,200 173,600 CCC Information Services Group*.................... 200 3,200 CFI Proservices Inc.*....... 2,200 31,350 CHS Electronics, Inc.*...... 3,900 66,787 CompUSA, Inc.*.............. 200 4,125 Computer Learning Centers, Inc.*..................... 1,000 28,500 Cotelligent Group, Inc.*.... 6,000 144,750 Cuc International, Inc.*.... 3,000 71,250 Daisytek International Corporation*.............. 2,700 110,700 Desktop Data, Inc.*......... 5,400 103,950 Fair Issac and Company Inc....................... 2,500 97,812 Forrester Research, Inc.*... 5,000 128,750 Gartner Group, Inc. -- Class A*........................ 1,400 54,513 Ingram Micro Inc. -- Class A*........................ 6,900 158,700 Intelligroup, Inc.*......... 2,500 27,500 International Telecommunication Data Systems, Inc.*............ 2,000 48,500 LCC International, Inc. -- Class A........... 3,700 68,450 Lason Holdings, Inc.*....... 3,100 63,550 Meta Group, Inc.*........... 1,200 32,400 Profit Recovery Group International, Inc. (The)*.................... 6,000 96,000 Quickresponse Services Inc.*..................... 2,300 65,550 Sabre Group Holdings Inc.... 400 11,150 Superior Consultant Holdings Corporation*.............. 4,100 101,475 Sykes Enterprises, Inc.*(a).................. 3,400 127,500 Whittman-Hart, Inc.*........ 3,200 82,000 ----------- 2,167,650 ----------- COMPUTER SOFTWARE -- 17.5% Aspect Development, Inc.*... 1,900 51,775 Baan Company, NV*(a)........ 2,500 86,875 Carnegie Group, Inc.*....... 2,800 19,600 Citrix Systems, Inc.*....... 2,100 82,031 DataWorks Corporation*...... 5,200 131,300 Dendrite International, Inc.*..................... 5,600 46,200 Forte Software, Inc.*....... 200 6,550 Indus Group, Inc.*.......... 3,200 82,400 Infinity Financial Technology, Inc.*......... 2,400 41,400 Interlink Computer Sciences, Inc.*..................... 11,800 197,650 JDA Software Group, Inc.*... 2,700 76,950 Legato Systems, Inc.*....... 2,400 78,300 McAfee Associates, Inc.*.... 1,500 66,000 Memco Software Ltd.*........ 10,000 176,250 Microsoft Corporation*...... 1,600 132,200 Optika Imaging Systems, Inc.*..................... 20,300 101,817 Oracle Corporation*......... 1,200 $ 50,100 Planning Sciences International PLC*........ 5,100 61,200 Project Software & Development, Inc.*........ 900 38,137 Rational Software Corporation*.............. 2,200 87,038 Red Brick Systems, Inc.*.... 3,400 78,200 Remedy Corporation*......... 400 21,500 Rogue Wave Software*........ 4,600 72,450 SPSS, Inc.*................. 3,300 91,988 SQA, Inc.*.................. 300 9,975 Saville Systems Ireland ADR*(a)................... 2,200 89,375 Security Dynamics Technologies, Inc.*....... 600 18,900 Segue Software*............. 500 9,125 Select Software Tools ADR*(a)................... 5,700 104,025 Siebel Systems, Inc.*....... 1,800 48,600 Systemsoft Corporation*..... 6,600 98,175 Veritas Software Corp.*..... 1,500 74,625 Versant Object Technology Corp.*.................... 4,000 74,500 White Pine Software, Inc.*..................... 3,000 21,750 ----------- 2,426,961 ----------- HEALTHCARE -- 8.5% Aksys, Ltd.*................ 1,300 11,212 Amisys Managed Care Systems*.................. 4,600 78,200 Biopsys Medical, Inc.*...... 2,000 43,500 Cambridge Heart Inc......... 3,000 33,750 Cardiovascular Dynamics, Inc.*..................... 3,000 39,000 Cytec Corporation*.......... 800 21,600 EndoSonics Corporation*..... 6,700 102,175 Endovascular Technologies, Inc.*..................... 1,800 17,550 FemRx, Inc.*................ 8,600 38,700 Heartstream, Inc.*.......... 3,000 37,500 HemaSure, Inc.*............. 8,300 51,875 Intelligent Medical Imaging, Inc.*..................... 9,000 56,250 MedQuist Inc.*.............. 1,900 47,025 Molecular Devices Corporation*.............. 500 7,781 OrthoLogic Corp.*........... 6,300 35,438 Physician Support Systems, Inc.*..................... 6,400 123,200 Serologicals Corporation*... 1,500 53,063 Spine-Tech, Inc.*........... 1,700 42,500 Sunquest Information Systems, Inc.*............ 4,600 65,550 Uromed Corporation*......... 3,900 38,025 VidaMed, Inc.*.............. 10,200 131,325 Vivus, Inc.*................ 2,800 101,500 ----------- 1,176,719 ----------- MISCELLANEOUS TECHNOLOGY -- 12.9% Biacore International AB Sponsored ADR*(a)......... 10,000 220,000 EPIC Design Technology, Inc.*..................... 400 10,000 Gemstar International Group Ltd.*..................... 6,100 106,750 IKOS Systems, Inc.*......... 3,500 70,000 Intel Corporation........... 2,800 366,625 Komag, Inc.*................ 200 5,425 ONTRACK Data International, Inc.*..................... 11,300 169,500 Periphonics Corp.*.......... 2,400 70,200 QIAGEN NV................... 4,600 118,450 RadiSys Corporation*........ 2,000 97,500 SBS Technologies, Inc.*..... 4,500 166,500 SeaChange International, Inc.*..................... 1,500 38,250 Synopsys, Inc.*............. 2,300 106,375 Technology Modeling Associates, Inc.*......... 5,400 71,550 Viisage Technology, Inc.*... 11,600 168,200 ----------- 1,785,325 -----------
(See Notes to Financial Statements) 32 PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 1996
EQUITY SECURITIES SHARES VALUE - ------------------------------------------------------- NETWORK & TELECOMMUNICATION EQUIPMENT -- 8.9% 3Com Corporation*........... 300 $ 22,013 ACT Networks, Inc.*......... 800 29,200 Aware, Inc.*................ 2,400 24,300 Cascade Communications Corp.*.................... 1,100 60,638 Cisco Systems, Inc.*........ 5,100 324,487 DSP Communications, Inc.*... 5,100 98,813 Harmonic Lightwaves, Inc.*..................... 1,600 24,600 International Network Services*................. 1,800 54,337 NetVantage, Inc.*........... 800 7,200 Network Appliance, Inc.*.... 3,100 157,712 Orckit Communications Ltd.*..................... 6,700 65,325 P-COM, Inc.................. 2,000 59,250 Pairgain Technologies, Inc.*..................... 1,800 54,788 Premisys Communications, Inc.*..................... 2,200 74,250 Proxim, Inc.*............... 4,000 92,000 Sawtek Inc.*................ 700 27,738 Xylan Corporation*.......... 2,000 56,500 ----------- 1,233,151 ----------- PHARMACEUTICALS -- 3.7% Anesta Corp.*............... 6,100 117,425 Applied Analytical Industries, Inc.*......... 500 9,562 Calypte Biomedical Corporation*.............. 900 7,425 Dura Pharmaceuticals, Inc.*..................... 1,600 76,400 Penederm Inc.*.............. 12,000 148,500 Sepracor, Inc.*............. 3,200 53,200 Sonus Pharmaceuticals, Inc.*..................... 3,500 104,125 ----------- 516,637 ----------- SEMICONDUCTORS & EQUIPMENT -- 5.8% ASM Lithography Holding NV*(a).................... 2,700 134,494 Actel Corporation*.......... 400 9,500 Altera Corporation*......... 700 50,881 Analog Devices*............. 1,700 57,587 Benchmarq Microelectronics, Inc.*..................... 4,000 85,500 Cymer, Inc.*................ 1,700 81,812 Etec Systems, Inc.*......... 3,900 149,175 Lattice Semiconductor Corp.*.................... 200 9,200 Maxim Integrated Products, Inc.*..................... 1,000 43,250 Micrel, Inc.*............... 2,000 63,250 Pri Automation, Inc.*....... 1,000 45,500 S3 Inc.*.................... 1,500 24,375 Trident Microsystems, Inc.*..................... 3,000 50,625 ----------- 805,149 ----------- TELECOMMUNICATION SERVICES -- 4.0% Advanced Fibre Communications*........... 700 $ 38,938 Aerial Communications, Inc.*..................... 400 3,250 Arch Communications Group, Inc.*..................... 4,500 42,187 FaxSav Incorporated*........ 3,700 20,350 Lightbridge, Inc.*.......... 13,500 115,594 Omnipoint Corporation*...... 2,000 38,500 Paging Network, Inc.*....... 5,700 86,925 Transaction Network Services, Inc.*........... 5,500 63,250 Univision Communications Inc.*..................... 800 29,600 Western Wireless Corp.*..... 1,900 26,362 WinStar Communications, Inc.*..................... 3,900 81,900 ----------- 546,856 ----------- TOTAL EQUITY SECURITIES -- 83.3% (Cost --$10,533,391)(b)... 11,541,498 OTHER ASSETS, LESS LIABILITIES -- 16.7%...... 2,313,590 ----------- NET ASSETS -- 100%.......... $13,855,088 ===========
ADR -- American Depository Receipt NV -- Non-voting * Non-income producing security. (a) Foreign security. (b) Cost is approximately the same Federal income tax purposes. OTHER INFORMATION: At December 31, 1996, net unrealized appreciation based on cost for financial statement and Federal income tax purposes is as follows: Gross unrealized appreciation...................... $1,535,482 Gross unrealized depreciation...................... (527,375) ---------- Net unrealized appreciation.................... $1,008,107 ==========
Purchases and sales of securities other than short-term obligations aggregated $11,296,686 and $825,212, respectively, for the period ended December 31, 1996. (See Notes to Financial Statements) 33 STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 1996 ASSETS Investments, at value (identified cost -- $10,533,391)...... $11,541,498 Cash........................................................ 2,199,985 Receivables Fund shares sold.......................................... 149,399 Deferred organization expenses.............................. 54,503 Other assets................................................ 828 ----------- Total assets.............................................. 13,946,213 ----------- LIABILITIES Payables Distributions to shareholders............................. 252 Investments purchased..................................... 54,378 Fund shares repurchased................................... 4,775 Management fee............................................ 10,872 12b-1 service and distribution fees....................... 5,930 Other payables to related parties......................... 5,388 Accrued expenses............................................ 9,530 ----------- Total liabilities......................................... 91,125 ----------- NET ASSETS.................................................. $13,855,088 =========== CLASS A Net asset value and redemption price per share ($8,324,366/507,461 shares outstanding)................... $ 16.40 =========== Maximum offering price per share ($16.40 X 100/94.25)*...... $ 17.40 =========== CLASS B Net asset value and offering price per share ($3,424,686/208,309 shares outstanding)**................. $ 16.44 =========== CLASS C Net asset value and offering price per share ($2,106,036/127,942 shares outstanding)**................. $ 16.46 =========== NET ASSETS CONSIST OF Capital paid-in........................................... $12,860,136 Accumulated net realized loss on investments.............. (13,155) Net unrealized appreciation on investments................ 1,008,107 ----------- NET ASSETS.................................................. $13,855,088 ===========
* On sales of more than $50,000 the offering price is reduced. ** Redemption price per share is equal to the net asset value per share less any applicable contingent deferred sales charge. STATEMENT OF OPERATIONS FOR THE PERIOD JULY 22, 1996 (COMMENCEMENT) TO DECEMBER 31, 1996 INVESTMENT INCOME Dividends................................................. $ 140 Interest.................................................. 61 ----------- 201 ----------- EXPENSES Management fee............................................ $ 20,965 Transfer agent............................................ 2,446 Administrative services fee............................... 2,096 Custodian fees............................................ 2,643 Blue Sky fees............................................. 4,129 Auditing and accounting fees.............................. 2,200 Amortization of organization expenses..................... 2,642 Fund accounting........................................... 9,171 Trustees' fees............................................ 2,964 12b-1 service and distribution fees....................... 10,186 Legal..................................................... 5,439 Other..................................................... 1,000 ----------- 65,881 Expenses reimbursed by manager............................ (14,813) ----------- Net expenses............................................ 51,068 ----------- NET INVESTMENT LOSS......................................... (50,867) ----------- NET REALIZED AND UNREALIZED GAIN ON INVESTMENT TRANSACTIONS Net realized gain on investments.......................... 61,918 Net unrealized appreciation during the period on investments............................................. 1,008,107 ----------- Net gain on investment transactions..................... 1,070,025 ----------- INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $ 1,019,158 ===========
(See Notes to Financial Statements) 34 STATEMENT OF CHANGES IN NET ASSETS FOR THE PERIOD JULY 22, 1996 (COMMENCEMENT) TO DECEMBER 31, 1996 INCREASE IN NET ASSETS Operations Net investment loss....................................... $ (50,867) Net realized gain on investments.......................... 61,918 Net unrealized appreciation during the period on investments............................................. 1,008,107 ----------- Net increase resulting from operations.................. 1,019,158 ----------- Distributions from net realized gain Class A................................................... (17,214) Class B................................................... (3,926) Class C................................................... (3,066) ----------- Total distribution paid to shareholders................. (24,206) ----------- Fund share transactions (Note 4) Class A................................................... 7,567,192 Class B................................................... 3,263,292 Class C................................................... 2,029,658 Class I................................................... (6) ----------- Net increase resulting from Fund share transactions............................... 12,860,136 ----------- NET ASSETS AT END OF PERIOD................................. $13,855,088 ===========
FINANCIAL HIGHLIGHTS
CLASS A CLASS B CLASS C -------- -------- -------- SELECTED PER SHARE DATA FOR THE PERIOD JULY 22, 1996 (COMMENCEMENT) TO DECEMBER 31, 1996 -------------------------------------------- Net asset value, beginning of period........................ $10.00 $10.00 $10.00 ------ ------ ------ Income from investment operations Net investment loss(a).................................... (.06) (.06) (.05) Net realized and unrealized gain on investment transactions............................................ 6.49 6.52 6.53 ------ ------ ------ Total from investment operations........................ 6.43 6.46 6.48 ------ ------ ------ Less distributions From net realized gain.................................... .03 .02 .02 ------ ------ ------ Total distributions..................................... .03 .02 .02 ------ ------ ------ Net asset value, end of period.............................. $16.40 $16.44 $16.46 ====== ====== ====== Total return(%)(b).......................................... 64.34 64.59 64.84 RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands).................... $8,324 $3,425 $2,106 Ratio of expenses to average net assets With expense reimbursement(%)(c).......................... 2.19 2.99 2.95 Without expense reimbursement(%)(c)....................... 2.90 3.70 3.66 Ratio of net investment loss to average net assets(%)(a)(c)........................................... (2.18) (2.98) (2.94) Portfolio turnover rate(%).................................. 23 23 23 Average commission rate(d).................................. $.0600 $.0600 $.0600
(a) Net investment loss is net of expenses reimbursed by manager. (b) Total return represents aggregate total return and does not reflect a sales charge. (c) Annualized. (d) This amount may vary from period to period and fund to fund depending on the mix of trades executed in various markets where trading practices and commission rate structures may differ. (See Notes to Financial Statements) 35 NOTES TO FINANCIAL STATEMENTS Ivy Global Science & Technology Fund (the Fund), is a diversified series of shares of Ivy Fund. The shares of beneficial interest are assigned no par value and an unlimited number of shares of Class A, Class B, Class C and Class I are authorized. Ivy Fund was organized as a Massachusetts business trust under a Declaration of Trust dated December 21, 1983 and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. The policies are in conformity with generally accepted accounting principles. Preparation of the financial statements includes the use of management estimates. Actual results could differ from those estimates. SECURITY VALUATION -- Securities for which market quotations are readily available are valued at market. Short-term obligations and commercial paper are valued at amortized cost, which approximates market. Debt securities (other than short-term obligations and commercial paper) are valued on the basis of valuations furnished by a pricing service authorized by the Board of Trustees (the Board), which determines valuations based upon market transactions for normal, institutional-size trading units of such securities. For valuation purposes, quotations of foreign securities in foreign currencies are translated into U.S. dollar equivalents using the foreign exchange quotation in effect. All other securities are valued at their fair value as determined in good faith by the Valuation Committee of the Board; as of December 31, 1996, there were no such securities. SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Security transactions are accounted for on the trade date. Dividend income is recorded on the ex-dividend date, and interest income is accrued on a daily basis. Realized gains and losses from security transactions are calculated on an identified cost basis. FEDERAL INCOME TAXES -- The Fund intends to qualify for tax treatment applicable to regulated investment companies under the Internal Revenue Code, as amended, and distribute all of its taxable income to its shareholders. Therefore, no provision has been recorded for Federal income or excise taxes. DISTRIBUTIONS TO SHAREHOLDERS -- Distributions from net investment income and net realized capital gains, if any, are declared in December. An additional distribution may be declared if necessary to avoid the payment of a four percent Federal excise tax. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency transactions from foreign investment activity are translated into U.S. dollars on the following basis: (i) market value of securities, and dividends and interest receivable are translated at the closing daily rate of exchange; and, (ii) purchases and sales of investment securities are translated at the rate at which related foreign contracts are obtained or at the exchange rate prevailing on the date of the transaction. The Fund does not isolate that portion of net gain or loss on investments which is due to changes in foreign exchange rates from that which is due to changes in market prices of securities held. Such fluctuations are included with net realized and unrealized gain or loss on investments. Exchange gains or losses from currency translation of other assets and liabilities, if significant, are reported as a separate component of Net realized and unrealized gain (loss) on investment transactions. Section 988 of the Internal Revenue Code provides that gains and losses on certain transactions attributable to fluctuations in foreign currency exchange rates must be treated as ordinary income or loss. Accordingly, distributions for financial statement purposes may differ from the characterization of such distributions determined on a Federal income tax basis. DEFERRED ORGANIZATION EXPENSES -- Expenses incurred by the Fund in connection with its organization have been deferred and are being amortized on a straight-line basis over a five year period. RECLASSIFICATIONS -- The timing and characterization of certain income and net capital gain distributions are determined annually in accordance with Federal tax regulations which may differ from generally accepted accounting principles. These differences primarily relate to certain securities sold at a loss. As a result, Net investment income (loss) and Net realized gain (loss) on investments and foreign currency transactions for a reporting period may differ significantly in amount and character from distributions during such period. Accordingly, the Fund may make reclassifications among certain of its capital accounts without impacting the net asset value of the Fund. 2. RELATED PARTIES Ivy Management, Inc. (IMI) is the Manager and Investment Adviser of the Fund. For its services, IMI receives a fee monthly at the annual rate of 1.00% of the Funds's average net assets. Currently, IMI voluntarily limits the Fund's total operating expenses (excluding taxes, 12b-1 fees, brokerage commissions, interest, litigation and indemnification expenses, and other extraordinary expenses) to an annual rate of 1.95% of its average net assets. The voluntary expense limitation may be terminated or revised at any time. Mackenzie Investment Management Inc. (MIMI), of which IMI is a wholly owned subsidiary, provides certain administrative, accounting and pricing services for the Fund. For those services, the Fund pays MIMI fees plus certain out-of-pocket expenses. Such fees are reflected as Administrative services fee and Fund accounting in the Statement of Operations. Ivy Mackenzie Distributors, Inc. (IMDI), a wholly owned subsidiary of MIMI, is the underwriter and distributor of the Fund's shares, and as such, purchases shares from the Fund at net asset value to settle orders from investment dealers. For the period ended December 31, 1996, the net amount of underwriting discount retained by IMDI was $16,160. Under Service and Distribution Plans, the Fund reimburses IMDI for service fee payments made to brokers at an annual rate not to exceed .25% of its average net asset value. Class B and Class C shares are also subject to an ongoing distribution fee at an annual rate 36 NOTES TO FINANCIAL STATEMENTS (CONTINUED) of .75% of the average net asset value attributable to Class B and Class C shares. IMDI may use such distribution fee for purposes of advertising and marketing shares of the Fund. Such fees of $3,592, $4,377 and $2,217 for Class A, Class B and Class C, respectively, are reflected as 12b-1 service and distribution fees in the Statement of Operations. Ivy Mackenzie Services Corp. (IMSC), a wholly owned subsidiary of MIMI, is the transfer and shareholder servicing agent for the Fund. For those services, the Fund pays IMSC a monthly fee plus certain out-of-pocket expenses. Such fees and expenses of $1,499, $696 and $251 for Class A, Class B and Class C, respectively, are reflected as Transfer agent in the Statement of Operations. 3. BOARD'S COMPENSATION Trustees who are not affiliated with IMI or MIMI receive compensation from the Fund, which is reflected as Trustees' fees in the Statement of Operations. 4. FUND SHARE TRANSACTIONS Fund share transactions from July 22, 1996 (Commencement) to December 31, 1996, for Class A, Class B, Class C and Class I were as follows:
CLASS A SHARES AMOUNT - ------- ------- ---------- Sold........................................ 513,259 $7,659,940 Issued on reinvestment of distributions..... 995 16,325 Repurchased................................. (6,793) (109,073) ------- ---------- Net increase................................ 507,461 $7,567,192 ======= ==========
CLASS B SHARES AMOUNT - ------- ------- ---------- Sold........................................ 228,288 $3,587,953 Issued on reinvestment of distributions..... 228 3,741 Repurchased................................. (20,207) (328,402) ------- ---------- Net increase................................ 208,309 $3,263,292 ======= ==========
CLASS C SHARES AMOUNT - ------- ------- ---------- Sold........................................ 128,623 $2,040,762 Issued on reinvestment of distributions..... 178 2,937 Repurchased................................. (859) (14,041) ------- ---------- Net increase................................ 127,942 $2,029,658 ======= ==========
CLASS I SHARES AMOUNT - ------- ------- ---------- Sold........................................ 1 $ 10 Repurchased................................. (1) (16) ------- ---------- Net decrease................................ -- $ (6) ======= ==========
REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders and Board of Trustees of Ivy Global Science & Technology Fund (the Fund) We have audited the accompanying statement of assets and liabilities of the Fund, including the schedule of portfolio investments, as of December 31, 1996, and the related statements of operations, the statement of changes in net assets and the financial highlights for the period July 22, 1996 (commencement) to December 31, 1996. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audit. We conducted our audit in accordance with generally accepted auditing standard. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 1996, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Fund as of December 31, 1996, the results of its operations, the changes in its net assets and the financial highlights for the period July 22, 1996 (commencement) to December 31, 1996, in conformity with generally accepted accounting principles. COOPERS & LYBRAND L.L.P. Fort Lauderdale, Florida February 14, 1997 02IVTAX123196 37 DECEMBER 31, 1996 IVY FUNDS IVY BOND FUND ANNUAL REPORT This report and the financial statements contained herein are submitted for the general information of the shareholders. This report is not authorized for distribution to prospective investors unless preceded or accompanied by an effective prospectus. Ivy Management, Inc. Via Mizner Financial Plaza 700 South Federal Hwy. Boca Raton, FL 33432 1-800-456-5111 MARKET COMMENTARY: A combination of moderate economic growth with stable inflation provided the best of both worlds for corporate bond investors in 1996. Within this environment, the Ivy Bond Fund performed very well. For the twelve months ended December 31, 1996, the Ivy Bond Fund was up 8.06% on a net asset value basis. This compares favorably to the general corporate bond fund average as tracked by Morningstar Inc., which was up 3.64%. The Fund invested primarily in corporate bonds, which provided better returns to investors than other fixed income assets. (For the Fund's total return with sales charge, and performance commentary, please refer to the following page.) Looking at the US economy, we expect to see continued moderate economic growth with low and contained inflation. We believe the Federal Reserve Board will tighten monetary policy if it perceives an inflationary threat from rising labor costs. Labor costs, the primary factor that drives inflation, continue to be pressured by the ongoing substitution of capital (in the form of technology) for labor, in both the manufacturing and service industries. These costs have been declining for the past ten years in developed markets and have just recently begun to creep up. Tighter labor markets will result in higher wage costs; however, we don't expect these higher costs to be passed on to consumers. We believe the more likely scenario will be corporate profitability will fall victim to these higher costs. If labor costs increase too much, companies always have the option of moving operations to a lower cost location and/or continuing to automate. This scenario is more likely to happen in a world of low trade barriers, which is the world we live in now. Additionally, if the Federal Reserve Board were to perceive rising labor costs as a threat to price stability, the financial markets would expect preemptive tightening by the Federal Reserve Board. Higher interest rates resulting from this action would dampen economic growth, which would ultimately send interest rates lower. Currently, however, we don't believe there is any threat on the horizon to a positive environment for the bond market. We expect interest rates to remain in a trading range over the next year. And, we will continue our efforts to seek the best yield and return opportunities for Ivy Bond Fund. The Ivy Bond Fund continues to be invested in bonds rated BBB by Standard & Poor's or the equivalent rating by Moody's Investors Services. These bonds are issued by a widely diversified group of companies in many different industries. We believe the best values in the corporate bond market, however, tend to be among those companies whose credit ratings are below BBB. The Fund has and will continue to invest in these bonds. Positioning in these bonds, together with higher rated bonds, has been a key factor in the Fund's strong performance. A portion of the Fund invests in US dollar denominated bonds issued by companies in high-growth nations. Many of these bonds are issued by companies in Latin America where governments have successfully engineered economic reforms. These companies are able to tap the global capital markets to finance long-term projects because they have achieved credibility in world markets since the peso crisis in late 1994. These companies have consistently paid their coupon interest as it has become due and defaults have been rare. These bonds have made significant contributions to the overall performance of the Ivy Bond Fund. We believe the economic climate, both at home and abroad, has created a favorable environment for bond investors. And, as always, we will continue to utilize the broad spectrum of fixed income vehicles to provide the greatest balance of volatility and return. IVY MANAGEMENT, INC. BOARD OF TRUSTEES LEGAL COUNSEL TRANSFER AGENT MANAGER John S. Anderegg, Jr. Dechert Price & Rhoads Ivy Mackenzie Ivy Management, Inc. Paul H. Broyhill Boston, MA Services Corp. Boca Raton, FL Keith J. Carlson P.O. Box 3022 Stanley Channick OFFICERS Boca Raton, FL 33431-0922 DISTRIBUTOR Frank W. DeFriece, Jr. Michael G. Landry, Chairman 1-800-777-6472 Ivy Mackenzie Roy J. Glauber Keith J. Carlson, President Distributors, Inc. Michael G. Landry James W. Broadfoot, Vice President AUDITORS Via Mizner Financial Plaza Joseph G. Rosenthal C. William Ferris, Coopers & Lybrand L.L.P. 700 South Federal Highway Richard Silverman Secretary/Treasurer Fort Lauderdale, FL Boca Raton, FL 33432 J. Brendan Swan CUSTODIAN Brown Brothers Harriman & Co. Boston, MA
[LOGO] IVY MACKENZIE 38 IVY BOND FUND PERFORMANCE COMMENTARY For the twelve months ended December 31, 1996, the Ivy Bond Fund was up 8.06% on a total return basis. This compares very favorably to the Morningstar general corporate bond fund category, which includes the Ivy Bond Fund and was up 3.64% for the same period. While the Morningstar category also includes fixed income securities of various quality ratings, the difference in the Fund's performance is due primarily to the difference in bond quality weightings as compared to Morningstar. PERFORMANCE COMPARISONS OF THE FUND SINCE INCEPTION (9/85) OF A $10,000 INVESTMENT (GRAPH) ONE-, THREE-, FIVE- AND TEN-YEAR CUMULATIVE PERFORMANCE LOGO The chart above reflects performance without the maximum sales charge of 5.75%. - ------------------------------------------------------------------------------------ IVY BOND FUND FOR PERIOD ENDING 12/31/96 Class A*-with sales charge Average Annual Class B** & C*** Total Return Average Annual Total Return -------------------------------------------------------------- w/Reimb. w/o Reimb. w/Reimb. w/o Reimb. -------------------------------------------------------------- w/ w/o w/ w/o CDSC CDSC CDSC CDSC --------------------------------------- B: B: B: B: 1 Yr. 2.93% 2.93% 2.25% 7.25% 2.25% 7.25% - ------------------------------------------------------------------------------------ 5 Yr. 7.67% 7.66% -- -- -- -- - ------------------------------------------------------------------------------------ 10 Yr. 9.30% 6.88% -- -- -- -- - ------------------------------------------------------------------------------------ B: B: B: B: 6.62% 7.59% 6.62% 7.59% C: C: C: C: Since Inception 8.73% 1.41% 7.81% 8.81% 7.81% 8.81% - ------------------------------------------------------------------------------------
*Class A performance figures include the maximum sales charge of 4.75%. **Class B performance figures are calculated with and without the applicable Contingent Deferred Sales Charge (CDSC) up to a maximum of 5%. ***Class C performance figures are calculated with and without the applicable Contingent Deferred Sales Charge (CDSC) up to a maximum of 1%. Total returns in some periods were higher due to reimbursement of the Fund's expenses. See Financial Highlights. All charts and tables reflect past results and assume reinvestment of dividends and distributions from capital gains. Future results will, of course, be different. The principal value of the Ivy Bond Fund will fluctuate and at redemption may be worth more or less than the amount of the original investment. The Morningstar Corporate Bond-General Fund index is an unmanaged index of fixed-income securities, primarily corporate bonds of various quality ratings. The index assumes reinvestment of dividends and, unlike Fund returns, does not reflect any fees or expenses. It is not possible to invest in an index. Performance is calculated for Class A shares of the Fund unless otherwise noted. The performance of the Fund's Class B and Class C shares will vary relative to that of Class A shares based on differences in their respective sales loads and fees. - -------------------------------------------------------------------------------- 39 PORTFOLIO OF INVESTMENTS DECEMBER 31, 1996
CORPORATE BONDS -- 77.5% PRINCIPAL VALUE CORPORATE BONDS PRINCIPAL VALUE - --------------------------------------------------------------------------------------------------------------------------------- 360 Communications Co., 7.50%, 03/01/06.......... $2,000,000 $ 1,980,000 Affinity Group Inc., 11.50%, 10/15/03*........ 1,000,000 1,048,750 American President Co. Ltd., 8.00%, 01/15/24.... 1,000,000 977,500 Cobb Theatres, 10.625%, 03/01/03*................ 1,000,000 1,051,250 Conseco Inc., 10.50%, 12/15/04................. 1,500,000 1,760,625 Cyprus Amax Minerals, 8.375%, 02/01/23......... 1,000,000 1,020,000 Delphi Financial Group Inc., 8.00%, 10/01/03.... 2,500,000 2,478,125 Delta Air Lines, 9.59%, 01/12/17................. 1,500,000 1,749,375 Developers Diversified Realty Corp., 7.28%, 11/24/05................. 1,000,000 960,000 Duty Free International Inc., 7.00%, 01/15/04.... 2,000,000 1,895,000 Farmers Insurance Exchange, 8.625%, 05/01/24......... 1,500,000 1,550,625 Fort Howard Corp., 10.92%, 02/15/12*................ 1,500,000 1,516,875 Freeport-McMoran C&G, 7.50%, 11/15/06.......... 2,000,000 1,960,000 Great Atlantic & Pacific Tea Inc., 7.70%, 01/15/04................. 1,000,000 952,500 HMC Acquisition Properties Inc., 9.00%, 12/15/07*... 1,000,000 1,012,500 ISP Holdings Inc., 9.00%, 10/15/03*................ 1,000,000 1,016,250 Indianapolis Life Insurance Co., 8.66%, 04/01/11..... 1,000,000 1,053,750 International Knife & Saw 144A, 11.375%, 11/15/06*................ 1,000,000 1,037,500 K-III Communication Corp., 8.50%, 02/01/06*......... 1,000,000 987,500 Leucadia National Corp., 8.25%, 06/15/05.......... 2,000,000 2,040,000 Long Island Lighting Co., 8.625%, 04/15/04......... 2,000,000 2,050,000 Lumbermens Mutual Casualty 144A, 9.15%, 07/01/26.... 2,000,000 2,180,000 Maxus Energy Corp, 10.83%, 09/01/04*................ 1,000,000 1,067,500 Metrocall, Inc., 10.375%, 10/01/07*................ 500,000 428,750 Mitchell Energy & Development Corp., 6.75%, 02/15/04................. 1,000,000 960,000 Motors and Gears Inc., 10.75%, 11/15/06*........ 1,000,000 1,031,250 News America Holdings, 7.75%, 01/20/24.......... 2,000,000 1,907,500 News America Holdings, 7.70%, 10/30/25.......... 1,000,000 945,000 Ocwen Federal Bank, 12.00%, 06/15/05*................ 500,000 548,750 Overseas Shipholding Group, Inc., 8.75%, 12/01/13.... 4,000,000 4,120,000 PDV America Inc., 7.875%, 08/01/03................. 3,000,000 2,932,500 Pegasus Media & Communications, 12.50%, 07/01/05*................ 1,000,000 1,080,000 Pioneer-Standard, 8.50%, 08/01/06................. 3,000,000 3,052,500 RHG Finance Corp., 8.875%, 10/01/05................. 2,000,000 2,082,500 RJR Nabisco Inc., 8.75%, 07/15/07................. 3,600,000 3,573,000 RJR Nabisco Inc., 9.25%, 08/15/13................. 2,000,000 2,022,500 RSL Communications Ltd., 12.25%, 11/15/06*........ 1,000,000 1,005,000 Shop Vac Corp. 144A, 10.625%, 09/01/03*....... 1,000,000 1,052,500 Sithe/Independence Funding, 8.50%, 06/30/07.......... 1,000,000 1,010,000 Sprint Spectrum, 11.00%, 08/15/06*................ 1,000,000 1,082,500 Stuart Entertainment 144A, 12.50%, 11/15/04*........ 1,000,000 1,017,500 TCI Communications, Inc., 8.75%, 08/01/15.......... 1,000,000 985,000 TCI Communications, Inc., 9.25%, 01/15/23.......... $2,000,000 $ 1,985,000 Terex Corp., 13.25%, 05/15/02*................ 1,000,000 1,077,500 Time Warner Inc., 8.18%, 08/15/07................. 750,000 772,500 Time Warner Inc., 9.125%, 01/15/13................. 1,500,000 1,614,375 Time Warner Inc., 9.15%, 02/01/23................. 2,000,000 2,167,500 Turner Broadcasting System, 8.40%, 02/01/24.......... 1,000,000 961,250 USX Marathon Group, 9.375%, 05/15/22................. 1,000,000 1,147,500 USX Marathon Group, 8.50%, 03/01/23................. 1,000,000 1,057,500 Unisys Corp., 11.75%, 10/15/04*................ 500,000 531,250 United Air Lines, 9.75%, 08/15/21................. 2,500,000 2,946,875 Willcox & Gibbs Inc., 12.25%, 12/15/03*........ 2,000,000 1,980,000 ------------ TOTAL CORPORATE BONDS (Cost -- $78,146,851).... 80,423,625 ------------ U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS -- 6.4% - --------------------------- Federal National Mortgage Assoc., 5.25%, 01/02/97................. 4,700,000 4,699,315 U.S. Treasury Note, 6.25%, 10/31/01................. 1,000,000 1,000,500 U.S. Treasury Note, 6.50%, 11/15/26................. 1,000,000 981,190 ------------ TOTAL U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS (Cost -- $6,687,283)..... 6,681,005 ------------ U.S. DOLLAR DENOMINATED FOREIGN BONDS -- 15.7% - --------------------------- APP International Finance, 11.75%, 10/01/05*........ 500,000 535,000 Acindar Industries, 11.30% FRN, 11/12/98............ 500,000 487,500 Banco Ganadero S.A., 9.75%, 08/26/99................. 1,000,000 1,055,000 Bombril S.A., 8.00%, 08/26/98*................ 500,000 486,250 Buenos Aires Embotelladora 144A, 8.50%, 12/29/00*... 1,000,000 731,250 Cemex S.A. 144A, 12.75%, 07/15/06................. 500,000 558,750 Companhia Suzano Papel 144A REGD, 10.25%, 10/06/01*................ 900,000 901,125 Comtel Brasiliera 144A, 10.75%, 09/26/04......... 400,000 411,000 General Electric Capital Corp., FRN, 03/10/97..... 1,000,000 405,920(a) Grupo Industrial Durango, 12.00%, 07/15/01*........ 500,000 538,125 Grupo Televisa S.A. 144A, 13.25%, 05/15/08*........ 1,000,000 663,750 Guangdong Enterprises, 8.75%, 12/15/03*......... 1,500,000 1,470,000 Inco Ltd., 9.60%, 06/15/22................. 1,000,000 1,101,250 Industrias Unidas, 8.50%, 01/27/99*................ 1,000,000 953,750 Iochpe-Maxion S.A. 144A, 12.375%, 11/08/02*....... 900,000 893,250 Mechala Group 144A, 12.75%, 12/30/99*................ 1,000,000 1,007,500 Metalurgica Gerdau S.A., 10.25%, 11/23/01*........ 500,000 503,750 Metalurgica Gerdau S.A., 11.125%, 05/24/04*....... 500,000 511,250 Petroleo Brasileiro S.A. 144A, 10.00%, 10/17/06*................ 1,125,000 1,119,375 Polysindo International Finance, 11.375%, 06/15/06*................ 500,000 539,375 Singer Co. NV, 7.00%, 04/01/03................. 1,500,000 1,413,750 ------------ TOTAL U.S. DOLLAR DENOMINATED FOREIGN BONDS (Cost -- $16,356,457).... 16,286,920 ------------
(See Notes to Financial Statements) 40
COMMON STOCK AND RIGHTS -- 0.0% SHARES VALUE - -------------------------------------------------------------------- Pegasus Media Class B.................... 2,256 $ 31,025 Terex Corp. -- Appreciation Rights(c).... 4,000 8,000 ------------ TOTAL COMMON STOCK AND RIGHTS (Cost -- $12,500)...................... 39,025 ------------ NUMBER OF OPTIONS PURCHASED -- 0.1% CONTRACTS - ----------------------------------------- ---------- U.S. Long Bond, March/112/Put (Cost -- $70,687)...................... 500 47,656 ------------ TOTAL INVESTMENTS -- 99.7% (Cost -- $101,273,778)(b).............. 103,478,231 OTHER ASSETS, LESS LIABILITIES -- 0.3%... 321,060 ------------ NET ASSETS -- 100%....................... $103,799,291 ============ * Below investment grade security. (a) Security valued in good faith by the Valuation Committee of the Board of Trustees. The cost of this security at December 31, 1996 aggregated $687,870. See Note 1 of the Notes to the Financial Statements.
COMMON STOCK AND RIGHTS -- 0.0% SHARES VALUE (b) Cost for Federal income tax purposes is $101,438,718. (c) Non-income producing security. FRN -- Floating Rate Note REGD -- Registered OTHER INFORMATION: At December 31, 1996, net unrealized appreciation based on cost for Federal income tax purposes is as follows: Gross unrealized appreciation.................... $ 3,397,790 Gross unrealized depreciation.................... (1,358,277) ------------ Net unrealized appreciation.................. $ 2,039,513 ============ Purchases and sales of securities other than U.S. Government securities and short-term obligations aggregated $92,109,762 and $103,552,516, respectively, for the period ended December 31, 1996. Purchases and sales of U.S. Government and Government Agency obligations aggregated $10,940,782 and $9,944,345, respectively, for the period ended December 31, 1996.
41 STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 1996 ASSETS Investments, at value (identified cost -- $101,273,778)..... $103,478,231 Cash........................................................ 10,914 Receivables Fund shares sold.......................................... 18,589 Interest.................................................. 2,364,131 Other assets................................................ 61,194 ------------ Total assets............................................ 105,933,059 ------------ LIABILITIES Payables Distributions to shareholders............................. 1,352 Investments purchased..................................... 1,965,000 Fund shares repurchased................................... 1,184 Management fee............................................ 66,406 12b-1 service and distribution fees....................... 26,632 Other payables to related parties......................... 32,020 Accrued expenses............................................ 41,174 ------------ Total liabilities....................................... 2,133,768 ------------ NET ASSETS.................................................. $103,799,291 ============ CLASS A Net asset value and redemption price per share ($97,881,161 / 9,988,507 shares outstanding).............. $ 9.80 ============ Maximum offering price per share ($9.80 x 100 / 95.25)*..... $ 10.29 ============ CLASS B Net asset value and offering price per share ($5,299,990 / 540,977 shares outstanding)**............... $ 9.80 ============ CLASS C Net asset value and offering price per share ($618,140 / 62,961 shares outstanding)**.................. $ 9.82 ============ NET ASSETS CONSIST OF Capital paid-in........................................... $107,251,442 Accumulated net realized loss on investments.............. (5,667,549) Accumulated net investment income......................... 10,945 Net unrealized appreciation (depreciation) on Investments............................................. 2,227,484 Options................................................. (23,031) ------------ NET ASSETS.................................................. $103,799,291 ============
* On sales of more than $100,000 the offering price is reduced. ** Redemption price per share is equal to the net asset value per share less any applicable contingent deferred sales charge. (See Notes to Financial Statements) 42 STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996 INVESTMENT INCOME Interest.................................................. $9,290,175 ---------- EXPENSES Management fee............................................ $781,647 Transfer agent............................................ 189,205 Administrative services fee............................... 104,220 Custodian fees............................................ 45,074 Blue Sky fees............................................. 27,003 Auditing and accounting fees.............................. 49,426 Shareholder reports....................................... 9,202 Fund accounting........................................... 95,017 Trustees' fees............................................ 4,539 12b-1 service and distribution fees....................... 299,723 Legal..................................................... 24,079 Other..................................................... 32,301 ---------- Total expenses.......................................... 1,661,436 ---------- NET INVESTMENT INCOME....................................... 7,628,739 ---------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain (loss) on Investments............................................. 647,584 Options................................................. (173,422) Net unrealized depreciation during the period on Investments............................................. (339,684) Options................................................. (23,031) ---------- Net gain on investments................................. 111,447 ---------- INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $7,740,186 ==========
(See Notes to Financial Statements) 43 STATEMENT OF CHANGES IN NET ASSETS FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995 ------------ ------------ INCREASE (DECREASE) IN NET ASSETS Operations: Net investment income..................................... $ 7,628,739 $ 8,001,078 Net realized gain (loss) on Investments............................................. 647,584 (2,940,340) Options................................................. (173,422) -- Net unrealized appreciation (depreciation) during the period on Investments............................................. (339,684) 13,121,035 Options................................................. (23,031) -- ------------ ------------ Net increase resulting from operations................ 7,740,186 18,181,773 ------------ ------------ Class A distributions From net investment income................................ (7,282,279) (7,254,790) In excess of net investment income........................ (143,137) -- From capital paid-in...................................... -- (1,327,021) ------------ ------------ Total distributions to Class A shareholders........... (7,425,416) (8,581,811) ------------ ------------ Class B distributions From net investment income................................ (332,726) (213,541) In excess of net investment income........................ (9,105) -- From capital paid-in...................................... -- (47,497) ------------ ------------ Total distributions to Class B shareholders........... (341,831) (261,038) ------------ ------------ Class C distributions From net investment income................................ (13,734) -- In excess of net investment income........................ (1,753) -- ------------ ------------ Total distributions to Class C shareholders........... (15,487) -- ------------ ------------ Fund share transactions (Note 4) Class A................................................... (10,914,806) (10,437,361) Class B................................................... 126,355 2,470,240 Class C................................................... 606,878 -- ------------ ------------ Net decrease resulting from Fund share transactions... (10,181,573) (7,967,121) ------------ ------------ TOTAL INCREASE (DECREASE) IN NET ASSETS..................... (10,224,121) 1,371,803 NET ASSETS Beginning of period....................................... 114,023,412 112,651,609 ------------ ------------ END OF PERIOD............................................. $103,799,291 $114,023,412 ============ ============ ACCUMULATED NET INVESTMENT INCOME........................... $ 10,945 $ -- ============ ============
(See Notes to Financial Statements) 44 FINANCIAL HIGHLIGHTS
FOR THE SIX CLASS A FOR THE YEAR ENDED MONTHS ENDED DECEMBER 31, DECEMBER 31, FOR THE YEAR ENDED JUNE 30, --------------------- ------------- ------------------------------------ 1996 1995 1994 1994 1993 1992 SELECTED PER SHARE DATA ------- -------- ------------- -------- -------- -------- Net asset value, beginning of period......... $ 9.78 $ 9.01 $ 9.38 $ 10.34 $ 9.95 $ 9.61 ------- -------- -------- -------- -------- -------- Income from investment operations Net investment income...................... .72 .67(a) .33(a) .63 .55 .63(a) Net realized and unrealized gain (loss) on investments.............................. .03 .84 (.29) (.60) 1.00 .73 ------- -------- -------- -------- -------- -------- Total from investment operations......... .75 1.51 .04 .03 1.55 1.36 ------- -------- -------- -------- -------- -------- Less distributions From net investment income................. .72 .63 .32 .61 .64 .63 In excess of net investment income......... .01 -- -- -- -- -- From net realized gain..................... -- -- -- .38 .52 .25 In excess of net realized gain............. -- -- .09 -- -- -- From capital paid-in....................... -- .11 -- -- -- .14 ------- -------- -------- -------- -------- -------- Total distributions...................... .73 .74 .41 .99 1.16 1.02 ------- -------- -------- -------- -------- -------- Net asset value, end of period............... $ 9.80 $ 9.78 $ 9.01 $ 9.38 $ 10.34 $ 9.95 ======= ======== ======== ======== ======== ======== Total return(%).............................. 8.06(b) 17.41(b) .43(c) 0.00(b) 16.29(b) 14.77(b) RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands)..... $97,881 $108,840 $110,232 $120,073 $132,721 $102,328 Ratio of expenses to average net assets With expense reimbursement(%).............. -- 1.54 1.50(d) -- -- 1.50 Without expense reimbursement(%)........... 1.56 1.54 1.52(d) 1.45 1.49 1.55 Ratio of net investment income to average net assets(%).................................. 7.36 7.09(a) 6.92(a)(d) 6.19 6.42 6.92(a) Portfolio turnover rate(%)................... 90 93 44(d) 78 134 129
(See Notes to Financial Statements) 45 FINANCIAL HIGHLIGHTS -- (CONTINUED)
FOR THE PERIOD FOR THE SIX APRIL 1, 1994 CLASS B FOR THE YEAR ENDED MONTHS ENDED (COMMENCEMENT) TO DECEMBER 31, DECEMBER 31, JUNE 30, -------------------- ------------ ----------------- 1996 1995 1994 1994 SELECTED PER SHARE DATA ------ ------ ------------ ----------------- Net asset value, beginning of period........................ $ 9.78 $ 9.01 $ 9.38 $ 9.82 ------ ------ ------ ------ Income (loss) from investment operations Net investment income..................................... .64 .60(a) .30(a) .10 Net realized and unrealized gain on investments........... .04 .84 (.29) (.32) ------ ------ ------ ------ Total from investment operations........................ .68 1.44 .01 (.22) ------ ------ ------ ------ Less distributions From net investment income................................ .64 .56 .29 .14 In excess of net investment income........................ .02 -- -- -- From net realized gain.................................... -- -- -- .08 In excess of net realized gain............................ -- -- .09 -- From capital paid-in...................................... -- .11 -- -- ------ ------ ------ ------ Total distributions..................................... .66 .67 .38 .22 ------ ------ ------ ------ Net asset value, end of period.............................. $ 9.80 $ 9.78 $ 9.01 $ 9.38 ====== ====== ====== ====== Total return(%)............................................. 7.25(b) 16.54(b) .06(c) (2.24)(c) RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands) Ratio of expenses to average net assets..................... $5,300 $5,184 $2,420 $ 761 With expense reimbursement(%)............................. -- 2.29 2.25(d) -- Without expense reimbursement(%).......................... 2.29 2.29 2.27(d) 2.20(d) Ratio of net investment income to average net assets(%)... 6.62 6.34(a) 6.17 (a)(d 5.44(d) Portfolio turnover rate(%).................................. 90 93 44(d) 78
FOR THE PERIOD APRIL 30, 1996 CLASS C (COMMENCEMENT) TO DECEMBER 31, ----------------- 1996 SELECTED PER SHARE DATA ----------------- Net asset value, beginning of period........................ $ 9.44 ------ Income from investment operations Net investment income..................................... .39 Net realized and unrealized gain on investments........... .43 ------ Total from investment operations........................ .82 ------ Less distributions From net investment income................................ .39 In excess of net investment income........................ .05 ------ Total distributions..................................... .44 ------ Net asset value, end of period.............................. $ 9.82 ====== Total return(%)............................................. 8.81(c) RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands).................... $ 618 Ratio of expenses to average net assets(%).................. 2.35(d) Ratio of net investment income to average net assets(%)..... 6.56(d) Portfolio turnover rate(%).................................. 90 (a) Net investment income is net of expenses reimbursed by manager. (b) Total return does not reflect a sales charge. (c) Total return represents aggregate total return and does not reflect a sales charge. (d) Annualized.
(See Notes to Financial Statements) 46 NOTES TO FINANCIAL STATEMENTS Ivy Bond Fund (the Fund), is a diversified series of shares of Ivy Fund. The shares of beneficial interest are assigned no par value and an unlimited number of shares of Class A, Class B, Class C and Class I are authorized. Ivy Fund was organized as a Massachusetts business trust under a Declaration of Trust dated December 21, 1983 and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. The policies are in conformity with generally accepted accounting principles. Preparation of the financial statements includes the use of management estimates. Actual results could differ from those estimates. SECURITY VALUATION -- Securities for which market quotations are readily available are valued at market. Short-term obligations and commercial paper are valued at amortized cost, which approximates market. Debt securities (other than short-term obligations and commercial paper) are valued on the basis of valuations furnished by a pricing service authorized by the Board of Trustees (the Board), which determines valuations based upon market transactions for normal, institutional-size trading units of such securities. For valuation purposes, quotations of foreign securities in foreign currencies are translated into U.S. dollar equivalents using the foreign exchange quotation in effect. All other securities are valued at their fair value as determined in good faith by the Valuation Committee of the Board. As of December 31, 1996, securities valued in good faith by the Valuation Committee of the Board amounted to $405,920 (.39% of net assets) and have been noted as such in the investment portfolio. SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Security transactions are accounted for on the trade date. Interest income is accrued on a daily basis. Realized gains and losses from security transactions are calculated on an identified cost basis. OPTIONS -- The Fund may write (sell) covered put options and covered call options on securities and stock indicies on securities held in its portfolio. When the Fund writes a call, it gives the purchaser of the call option the right to buy the underlying security at the price specified in the option (the "exercise price") at any time during the option period, generally ranging up to nine months. If the option expires unexercised, the Fund will realize income, in the form of a capital gain, to the extent of the amount received for the option (the "premium"). If the option is exercised, a decision over which the Fund has no control, the Fund must sell the underlying security to the option holder. For options on indices, cash settlement by the Fund will be required if the option is exercised. By writing a call option, the Fund forgoes, in exchange for the premium less the commission ("net premium"), the opportunity to profit during the option period from an increase in the market value of the underlying security or currency above the exercise price. The liability representing the Fund's obligation under an exchange traded written call option is valued at the last sale price or, in the absence of a sale, the last offering price. In addition, the Fund may purchase put and call options on securities and stock indices, and engage in options on interest rate and currency futures contracts. Exchange traded purchased options are valued at the last sale price or, in the absence of a sale, the last bid price. FEDERAL INCOME TAXES -- The Fund intends to qualify for tax treatment applicable to regulated investment companies under the Internal Revenue Code, as amended, and distribute all of its taxable income to its shareholders. Therefore, no provision has been recorded for Federal income or excise taxes. The Fund has a net tax-basis capital loss carryforward of approximately $5,411,000 as of December 31, 1996 which may be applied against any realized net taxable gain of each succeeding fiscal year until fully utilized or until the expiration date, whichever occurs first. The carryforward expires $1,985,000 in 1997, $984,000 in 1999 and $2,442,000 in 2003. DISTRIBUTIONS TO SHAREHOLDERS -- Distributions from net investment income are declared monthly. Distributions of net realized capital gains, if any, are declared in December. An additional distribution may be declared if necessary to avoid the payment of a four percent Federal excise tax. RECLASSIFICATIONS -- The timing and characterization of certain income and net capital gain distributions are determined annually in accordance with Federal tax regulations which may differ from generally accepted accounting principles. These differences primarily relate to certain securities sold at a loss. As a result, Net investment income (loss) and Net realized gain (loss) on investments and foreign currency transactions for a reporting period may differ significantly in amount and character from distributions during such period. Accordingly, the Fund may make reclassifications among certain of its capital accounts without impacting the net asset value of the Fund. 2. RELATED PARTIES Ivy Management, Inc. (IMI) is the Manager and Investment Adviser of the Fund. For its services, IMI receives a fee monthly at the annual rate of .75% of its first $500 million of average net assets; .60% of its next 47 NOTES TO FINANCIAL STATEMENTS (CONTINUED) $500 million of average net assets; and .40% of its average net assets in excess of $1 billion. Effective January 1, 1997, the fee was lowered to 0.75% of the first $100 million in average net assets, and 0.50% of average net assets in excess of $100 million. Mackenzie Investment Management Inc. (MIMI), of which IMI is a wholly owned subsidiary, provides certain administrative, accounting and pricing services for the Fund. As compensation for those services, the Fund pays MIMI fees plus certain out-of-pocket expenses. Such fees are reflected as Administrative services fee and Fund accounting in the Statement of Operations. Ivy Mackenzie Distributors, Inc. (IMDI), a wholly owned subsidiary of MIMI, is the underwriter and distributor of the Fund's shares, and as such, purchases shares from the Fund at net asset value to settle orders from investment dealers. For the year ended December 31, 1996, the net amount of underwriting discount retained by IMDI was $18,170. Under Service and Distribution Plans, the Fund reimburses IMDI for service fee payments made to brokers at an annual rate not to exceed .25% of its average net asset value. Class B and Class C shares are also subject to an ongoing distribution fee at an annual rate of .75% of the average net asset value attributable to Class B and Class C shares. IMDI may use such distribution fee for purposes of advertising and marketing shares of the Fund. Such fees of $247,382, $50,248 and $2,093 for Class A, Class B and Class C, respectively, are reflected as 12b-1 service and distribution fees in the Statement of Operations. Ivy Mackenzie Services Corp. (IMSC), a wholly owned subsidiary of MIMI, is the transfer and shareholder servicing agent for the Fund. For those services, the Fund pays IMSC a monthly fee plus certain out-of-pocket expenses. Such fees and expenses of $180,263, $8,467 and $475 for Class A, Class B and Class C, respectively, are reflected as Transfer agent in the Statement of Operations. 3. BOARD'S COMPENSATION Trustees who are not affiliated with IMI or MIMI receive compensation from the Fund, which is reflected as Trustees' fees in the Statement of Operations. 4. FUND SHARE TRANSACTIONS Fund share transactions for Class A, Class B, Class C and Class I* were as follows:
YEAR ENDED YEAR ENDED DECEMBER 31, 1996 DECEMBER 31, 1995 ------------------------- ------------------------- CLASS A SHARES AMOUNT SHARES AMOUNT - ------- ---------- ------------ ---------- ------------ Sold..................... 1,351,568 $ 13,152,817 1,092,290 $ 10,252,225 Issued on reinvestment of distributions........... 478,725 4,613,419 551,438 5,173,367 Repurchased.............. (2,965,988) (28,681,042) (2,753,354) (25,862,953) ---------- ------------ ---------- ------------ Net decrease............. (1,135,695) $(10,914,806) (1,109,626) $(10,437,361) ========== ============ ========== ============
YEAR ENDED YEAR ENDED DECEMBER 31, 1996 DECEMBER 31, 1995 ------------------------- ------------------------- CLASS B SHARES AMOUNT SHARES AMOUNT - ------- ---------- ------------ ---------- ------------ Sold..................... 224,963 $ 2,188,764 359,904 $ 3,357,250 Issued on reinvestment of distributions........... 27,331 263,390 20,582 194,470 Repurchased.............. (241,113) (2,325,799) (119,296) (1,081,480) ---------- ------------ ---------- ------------ Net increase............. 11,181 $ 126,355 261,190 $ 2,470,240 ========== ============ ========== ============
FROM APRIL 30, 1996 (COMMENCEMENT) TO DECEMBER 31, 1996 ------------------------- CLASS C SHARES AMOUNT - ------- ---------- ------------ Sold..................... 64,693 $ 624,316 Issued on reinvestment of distributions........... 1,029 9,839 Repurchased.............. (2,761) (27,277) ---------- ------------ Net increase............. 62,961 $ 606,878 ========== ============
* There were no Class I shares outstanding during the periods. 48 REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders and Board of Trustees of Ivy Bond Fund (the Fund) We have audited the accompanying statement of assets and liabilities of the Fund, including the schedule of portfolio investments, as of December 31, 1996, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 1996, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Fund as of December 31, 1996, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated, in conformity with generally accepted accounting principles. COOPERS & LYBRAND L.L.P. Fort Lauderdale, Florida February 14, 1997 02MCFIX123196 49 DECEMBER 31, 1996 IVY FUNDS IVY GLOBAL FUND ANNUAL REPORT This report and the financial statements contained herein are submitted for the general information of the shareholders. This report is not authorized for distribution to prospective investors unless preceded or accompanied by an effective prospectus. Ivy Management, Inc. Via Mizner Financial Plaza 700 South Federal Hwy. Boca Raton, FL 33432 1-800-456-5111 MARKET COMMENTARY: Global economic expansion has created an increased demand for goods and services from every corner of the world. As a result, investment opportunities exist today that could not be imagined only a decade ago. Within this environment, the Ivy Global Fund is positioned to capitalize on economic growth world wide. For the twelve months ended December 31, 1996, the total return of the Ivy Global Fund was 16.21% on a net asset value basis. This compares favorably to Morgan Stanley Capital International's (MSCI) World and EAFE (Europe, Australia and Far East) indices, which were up 13.62% and 6.05% respectively for the same period. (For the Fund's total return with sales charge, and performance commentary, please refer to the following page.) While we are not looking for a major correction in the US market, valuations appear to be extended and we expect corporate profit growth will slow. Accordingly, the Ivy Global Fund, with only 10% of its assets invested in the US, is positioned to perform strongly when the countries comprising the EAFE index take over leadership. We believe the stage is set in Europe for corporate profit growth to pick up. According to our research, core European countries should see lower interest rates as their governments pursue loose monetary policy to spur growth. Currently, 31% of the Fund's equity assets are allocated to Europe. The two markets we favor the most are France, which has the greatest leverage to lower rates, and Sweden, where we expect earnings growth to continue to be strong. The Ivy Global Fund's Asian investments (32%) are spread throughout many countries where our research indicates economies are growing at double and triple the rates of the world's more mature nations. The Fund's largest Asian investment is in Hong Kong. Its transition to Chinese rule should go smoothly as China takes every step to protect its own investments in Hong Kong and to show the world it can manage on par with the British. Additionally, without good relations with Hong Kong, China risks losing access to much needed foreign direct investment and the possibility of peacefully integrating Taiwan. The Fund continues to avoid Japan where valuations are simply too high and prospects are questionable as the necessary reforms continue to be delayed. According to our research, prospects for Latin America are improving as a result of broad-based economic restructuring at various stages of development in each of the major Latin American countries. The Ivy Global Fund's investments in this region are concentrated in Argentina, Brazil and Chile. In Argentina, the current recovery is being led by export growth and investment, rather than consumer spending. We see this as an indication that recovery will be healthy and sustainable. Brazil remains one of the most attractive Latin American markets in terms of corporate earnings growth and valuations. And Chile, which is furthest along the economic reform curve, is clearly one of the best managed countries in the region. We believe the momentum that carried the broad US market for the past few years is unsustainable and would encourage investors with a longer term horizon to take a more global approach to investing. IVY MANAGEMENT, INC. BOARD OF TRUSTEES LEGAL COUNSEL TRANSFER AGENT MANAGER John S. Anderegg, Jr. Dechert Price & Rhoads Ivy Mackenzie Ivy Management, Inc. Paul H. Broyhill Boston, MA Services Corp. Boca Raton, FL Keith J. Carlson P.O. Box 3022 Stanley Channick OFFICERS Boca Raton, FL 33431-0922 DISTRIBUTOR Frank W. DeFriece, Jr. Michael G. Landry, Chairman 1-800-777-6472 Ivy Mackenzie Roy J. Glauber Keith J. Carlson, President Distributors, Inc. Michael G. Landry James W. Broadfoot, Vice President AUDITORS Via Mizner Financial Plaza Joseph G. Rosenthal C. William Ferris, Coopers & Lybrand L.L.P. 700 South Federal Highway Richard Silverman Secretary/Treasurer Fort Lauderdale, FL Boca Raton, FL 33432 J. Brendan Swan CUSTODIAN Brown Brothers Harriman & Co. Boston, MA
[LOGO] IVY MACKENZIE 50 IVY GLOBAL FUND PERFORMANCE COMMENTARY For the twelve months ended December 31, 1996 the total return of the Ivy Global Fund was 16.21%. This compares to the MSCI World Index (including the US), which was up 13.62% for the same period and the MSCI EAFE (non-US) Index which was up 6.05%. The Fund outperformed both indices because it is invested taking into consideration the global efficient frontier. This has meant a higher concentration of investments in high-growth nations than either MSCI index. This strategy has historically optimized return while reducing risk. (The most relevant comparison of the Ivy Global Fund is the MSCI World Index because of the Fund's global perspective. Reference to EAFE is for comparative purposes only.) PERFORMANCE COMPARISONS OF THE FUND SINCE INCEPTION (4/91) OF A $10,000 INVESTMENT CHART ONE-, THREE-, FIVE-YEAR AND SINCE INCEPTION CUMULATIVE PERFORMANCE CHART The chart above reflects performance at Net Asset Value.
- ------------------------------------------------------------------------------------ IVY GLOBAL FUND FOR PERIOD ENDING 12/31/96 Class A*-with sales charge Average Annual Class B** & C*** Total Return Average Annual Total Return -------------------------------------------------------------- w/Reimb. w/o Reimb. w/Reimb. w/o Reimb. -------------------------------------------------------------- w/ w/o w/ w/o CDSC CDSC CDSC CDSC --------------------------------------- B: B: B: B: 1 Yr. 9.53% 9.53% 10.30% 15.30% 10.30% 15.30% - ------------------------------------------------------------------------------------ 5 Yr. 9.30% 8.97% -- -- -- -- - ------------------------------------------------------------------------------------ B: B: B: B: 7.83% 8.78% 7.72% 8.67% C: C: C: C: Since Inception 9.44% 8.57% 2.07% 3.07% 2.07% 3.07% - ------------------------------------------------------------------------------------
*Class A performance figures include the maximum sales charge of 5.75%. **Class B performance figures are calculated with and without the applicable Contingent Deferred Sales Charge (CDSC) up to a maximum of 5%. ***Class C performance figures are calculated with and without the applicable Contingent Deferred Sales Charge (CDSC) up to a maximum of 1%. Total returns in some periods were higher due to reimbursement of the Fund's expenses. See Financial Highlights. All charts and tables reflect past results and assume reinvestment of dividends and distributions from capital gains. Future results will, of course, be different. The principal value of the Ivy Global Fund will fluctuate and at redemption may be worth more or less than the amount of the original investment. The MSCI is an unmanaged index of stocks which assumes reinvestment of dividends and, unlike Fund returns, does not reflect any fees or expenses. It is not possible to invest in an index. Performance is calculated for Class A shares of the Fund unless otherwise noted. The performance of the Fund's Class B and Class C shares will vary relative to that of Class A shares based on differences in their respective sales loads and fees. - -------------------------------------------------------------------------------- 51 PORTFOLIO OF INVESTMENTS DECEMBER 31, 1996
EQUITY SECURITIES -- 91.4% SHARES VALUE - ------------------------------------------------------ AFRICA -- 2.3% - ---------------------------- SOUTH AFRICA -- 2.3% Anglo American Corporation of South Africa Ltd. ADR....................... 6,400 $ 352,325 Rembrandt Group Ltd......... 35,300 315,078 South African Breweries Ltd....................... 4,072 103,160 ----------- 770,563 ----------- ASIA/PACIFIC -- 35.4% - ---------------------------- AUSTRALIA -- 0.7% Pacific Dunlop Limited...... 88,100 223,916 ----------- CHINA -- 1.1% Shanghai Diesel Class B*.... 120,000 56,880 Shenzhen Konka Electronics Group Ltd. Class B........ 260,000 294,118 ----------- 350,998 ----------- HONG KONG -- 10.5% Cheung Kong (Holdings) Ltd....................... 99,000 879,929 Citic Pacific Ltd........... 90,000 522,431 Esprit Asia Holdings Ltd.... 534,000 236,451 HSBC Holdings............... 13,539 289,684 Hong Kong Telecommunications Ltd. -- Sponsored ADR..... 11,400 185,250 Hopewell Holdings Ltd....... 156,833 101,379 National Mutual Asia Ltd.... 360,000 342,082 New World Development Company Ltd............... 60,000 405,301 Peregrine Investment Holdings Limited.......... 140,000 239,819 Peregrine Investment Holdings Limited Warrants*................. 14,000 4,480 Swire Pacific Ltd........... 29,500 281,270 ----------- 3,488,076 ----------- INDIA -- 0.9% The India Fund Incorporated*............. 40,000 305,000 ----------- INDONESIA -- 1.6% PT Astra International -- Foreign Registered........ 77,500 213,227 PT Mulia Industrindo -- Foreign Registered........ 96,600 100,178 Semen Gresik -- Foreign Registered................ 66,000 212,317 ----------- 525,722 ----------- KOREA -- 4.0% Fidelity Advisor Korea Fund*..................... 58,000 551,000 Hyundai Motor Company Ltd... 1,500 39,740 Hyundai Motor GDR........... 5,000 37,500 Keum Kang Development Ind. Company*.................. 11,600 190,704 Korea Electric Power Corporation............... 6,400 186,209 Korea Fund Inc.............. 16,000 240,000 Pohang Iron & Steel Company Ltd....................... 500 28,708 Samsung Electronics Company GDS*...................... 2,338 43,253 Samsung Electronics Company Rights*................... 239 9,709 Samsung Heavy Industries.... 337 3,488 ----------- 1,330,311 ----------- MALAYSIA -- 3.9% Arab Malaysian Corporation*.............. 59,000 294,357 DCB Holdings Berhad......... 60,000 205,503 Land & General Berhad....... 83,000 198,831 London & Pacific Insurance Company Berhad............ 75,600 469,973 Technology Resources Industries Berhad*........ 63,000 124,229 ----------- 1,292,893 ----------- NEW ZEALAND -- 2.5% Fletcher Challenge Building.................. 21,500 66,078 Fletcher Challenge Energy... 21,500 62,281 Fletcher Challenge Forests................... 12,202 20,432 Fletcher Challenge Paper.... 43,000 88,409 Lion Nathan Ltd............. 121,000 289,814 Tourism Holdings Limited.... 162,300 309,611 ----------- 836,625 ----------- PHILIPPINES -- 1.7% Bacnotan Cement Corporation*.............. 150,000 $ 76,996 Benpres Holdings Corporation GDR*...................... 24,100 180,750 Philippine National Bank*... 10,000 118,821 Universal Robina Corporation............... 310,000 173,859 ----------- 550,426 ----------- SINGAPORE -- 3.6% Clipsal Industries Ltd...... 118,000 429,520 DBS Land Limited............ 71,000 261,399 Fraser & Neave Ltd.......... 15,200 156,475 Jardine Strategic Holdings Ltd....................... 91,187 330,097 Jardine Strategic Holdings Ltd. Warrants*............ 4,687 1,875 ----------- 1,179,366 ----------- TAIWAN -- 1.7% ROC Taiwan Fund*............ 28,000 287,000 Taiwan Fund Inc............. 13,000 289,250 ----------- 576,250 ----------- THAILAND -- 3.2% Bank Of Ayudhya Public Company Limited........... 83,750 197,616 Krung Thai Bank Public Company Limited................... 90,000 173,752 Robinson Department Store Public Company Limited -- Foreign Registered................ 177,000 343,437 Siam Cement Public Co. Ltd. (The)..................... 5,600 175,600 Siam Makro Public Company Limited -- Foreign Registered................ 41,800 176,068 ----------- 1,066,473 ----------- EUROPE -- 31.2% - ---------------------------- AUSTRIA -- 0.7% OMV AG...................... 2,000 225,286 ----------- FINLAND -- 1.1% Enso OY -- R Shares......... 20,000 160,555 Scandinavian Broadcast System S.A.*.............. 3,500 60,813 UPM -- Kymmene Corp......... 7,420 155,354 ----------- 376,722 ----------- FRANCE -- 7.8% Compagnie Financiere de Paribas................... 7,189 485,237 Elf Gabon................... 650 165,665 Galeries Lafayette*......... 720 255,662 Groupe Danone............... 1,700 236,423 Lyonnaise Des Eaux -- Dumez............. 3,554 330,124 Schneider S.A............... 8,704 401,653 Societe Generale............ 6,519 703,471 ----------- 2,578,235 ----------- GERMANY -- 0.6% Volkswagen AG............... 500 206,832 ----------- IRELAND -- 1.0% Bank of Ireland............. 36,000 328,672 ----------- ITALY -- 1.7% Banca Popolare Di Brescia... 73,250 395,998 Fiat Sp A*.................. 61,000 184,143 ----------- 580,141 ----------- NETHERLANDS -- 1.9% Akzo Nobel NV............... 1,100 150,081 Akzo Nobel NV ADR........... 900 60,750 Hunter Douglas NV........... 2,400 161,643 ING Groep NV................ 7,422 266,889 ----------- 639,363 ----------- NORWAY -- 1.2% Norsk Hydro Sponsored ADR... 3,900 209,138 UNI Storebrand Fria AS*..... 31,700 183,685 ----------- 392,823 ----------- PORTUGAL -- 2.3% Lusomundo -- SGPS S.A....... 9,400 108,138 Lusomundo -- SGPS S.A. Preferred Shares.......... 13,000 118,570 Portugal Telecom S.A. ADR... 9,000 254,250 Sonae Industria E Investimentos............. 9,100 287,800 ----------- 768,758 -----------
(See Notes to Financial Statements) 52 PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 1996
EQUITY SECURITIES SHARES VALUE - ------------------------------------------------------ SPAIN -- 2.1% Telefonica de Espana S.A. ADR....................... 10,300 $ 713,275 ----------- SWEDEN -- 5.8% AssiDoman AB................ 6,600 183,655 Astra AB "B" Shares......... 6,400 308,376 Electrolux AB............... 5,600 324,779 S.K.F. AB Series "B"........ 12,400 293,291 Sandvik AB -- "B" Shares.... 13,500 365,772 Stora Kopparbergs Bergslags Aktiebolag (STORA)........ 11,600 159,695 Trelleborg AB "B" Free Shares.................... 21,700 287,616 ----------- 1,923,184 ----------- SWITZERLAND -- 2.3% Holderbank Financiere Glaris AG........................ 190 135,278 Nestle AG REGD.............. 276 295,379 S.M.H. AG-PC -- REGD*....... 300 184,327 Swiss Bank Corportation Bearer.................... 750 142,155 ----------- 757,139 ----------- UNITED KINGDOM -- 2.7% Bank of Scotland............ 40,000 211,174 Barclays PLC ADR............ 1,500 103,125 Cadbury Schweppes PLC ADR... 25,000 210,704 National Westminster Bank PLC ADR................... 2,400 166,800 RTZ Corporation PLC ADR..... 3,089 197,696 ----------- 889,499 ----------- NORTH AMERICA -- 13.8% - ---------------------------- CANADA -- 3.7% Alcan Aluminium Ltd......... 4,472 150,371 Brascan, Ltd................ 9,600 213,621 Dofasco Inc................. 12,000 226,753 Inco Limited................ 5,337 170,117 Methanex Corporation........ 25,000 227,082 Power Financial Corp........ 6,500 231,423 ----------- 1,219,367 ----------- UNITED STATES -- 10.1% Air Express International Corp...................... 6,800 219,300 Aluminum Company of America................... 2,600 165,750 American Standard Companies, Inc.*..................... 5,000 191,250 Ameron International Corp... 4,200 216,825 Apria Healthcare Group, Inc.*..................... 13,000 243,750 Basic Petroleum International Ltd.*....... 8,600 283,800 Carnival Corporation........ 7,000 231,000 Developers Diversified Realty Corporation........ 3,800 141,075 Ford Motor Company.......... 4,700 149,813 General Motors Corp......... 2,700 150,525 Homestead Village, Inc...... 678 12,204 Kimco Realty Corporation.... 4,200 146,475 Phelps Dodge Corp........... 2,700 182,250 Royal Caribbean Cruises Ltd....................... 7,500 175,313 Security Capital Pacific Trust..................... 5,400 123,525 Semi-Tech Corporation....... 34,000 125,269 Storage USA, Inc............ 3,700 139,212 Sunglass Hut International, Inc.*..................... 27,000 195,750 United Dominion Realty Trust..................... 8,700 134,850 Weingarten Realty Investors................. 3,200 130,000 ----------- 3,357,936 ----------- SOUTH AMERICA -- 8.7% - ---------------------------- ARGENTINA -- 2.1% CIADEA S.A.*................ 47,000 223,289 Perez Companc S.A.*......... 25,000 175,781 Telefonica De Argentina S.A....................... 3,100 80,213 YPF S.A. Sponsored ADR...... 8,200 207,050 ----------- 686,333 ----------- BRAZIL -- 3.4% Brasmotor S.A............... 240,000 $ 66,635 Louis Dreyfus Citrus........ 4,300 140,612 Petroleo Brasileiro S.A. (Petrobras)............... 1,700,000 270,763 Telecomunicacoes Brasileiras S.A. ADR (Telebras)....... 8,300 634,950 ----------- 1,112,960 ----------- CHILE -- 3.2% Genesis Chile Fund.......... 21,700 797,475 Santa Isabel S.A. ADR....... 5,400 122,175 Vina Concha y Toro S.A. ADR....................... 6,000 141,000 ----------- 1,060,650 ----------- TOTAL EQUITY SECURITIES (Cost -- $25,581,476)..... 30,313,794 ----------- BONDS -- 1.2% PRINCIPAL - ---------------------------- ---------- Banco Commercial De Portugal, 8.75%, 05/21/02(a)............... $ 80,000 103,226 International Knife & Saw 144A, 11.375%, 11/15/06(a)............... 300,000 311,250 ----------- TOTAL BONDS (Cost -- $402,720)........ 414,476 ----------- TOTAL INVESTMENTS -- 92.6% (Cost --$25,984,196)(b)... 30,728,270 OTHER ASSETS, LESS LIABILITIES -- 7.4%....... 2,463,287 ----------- NET ASSETS -- 100%.......... $33,191,557 ===========
ADR -- American Depository Receipt GDR -- Global Depository Receipt GDS -- Global Depository Share NV -- Non-voting REGD -- Registered * Non-Income producing security. (a) Below investment grade. (b) Cost is approximately the same for Federal income tax purposes. OTHER INFORMATION: At December 31, 1996, net unrealized appreciation based on cost for financial statement and Federal income tax purposes is as follows: Gross unrealized appreciation..................... $ 6,541,989 Gross unrealized depreciation..................... (1,797,915) ----------- Net unrealized appreciation................... $ 4,744,074 ===========
Purchases and sales of securities other than short-term obligations aggregated $13,964,267 and $12,434,848, respectively, for the period ended December 31, 1996. Forward foreign currency exchange contracts at December 31, 1996 were:
FORWARD CONTRACTS UNREALIZED (CURRENCY/ PRINCIPAL VALUE OF APPRECIATION/ EXPIRATION/COMMITMENT) AMOUNT OBLIGATION (DEPRECIATION) - -------------------------------------------------------------------------------- Deutch Marks/March 97/Sell........ 96,507 US $ (97,274) $ (767) French Francs/March 97/Sell....... 2,504,114 US (2,533,545) (29,431) Netherland Guilders/ March 97/Sell.................... 111,822 US (112,404) (582) Swiss Francs/March 97/Sell........ 520,541 US (514,028) 6,513 ----------- -------- Total forward foreign currency contracts sold................... $(3,257,251) $(24,267) =========== ========
(See Notes to Financial Statements) 53 STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 1996 ASSETS Investments, at value (identified cost -- $25,984,196)...... $30,728,270 Cash........................................................ 2,376,143 Receivables Fund shares sold.......................................... 87,001 Dividends and interest.................................... 60,895 Other assets................................................ 33,735 ----------- Total assets............................................ 33,286,044 ----------- LIABILITIES Payables Distributions to shareholders............................. 822 Open forward foreign currency contracts................... 24,267 Management fee............................................ 27,513 12b-1 service and distribution fees....................... 12,758 Other payables to related parties......................... 12,166 Accrued expenses............................................ 16,961 ----------- Total liabilities....................................... 94,487 ----------- NET ASSETS.................................................. $33,191,557 =========== CLASS A Net asset value and redemption price per share ($24,152,486 / 1,834,549 shares outstanding).............. $ 13.17 =========== Maximum offering price per share ($13.17 x 100 / 94.25)*.... $ 13.97 =========== CLASS B Net asset value and offering price per share ($8,968,089 / 683,398 shares outstanding)**............... $ 13.12 =========== CLASS C Net asset value and offering price per share ($70,982 / 5,485 shares outstanding)**.................... $ 12.94 =========== NET ASSETS CONSIST OF Capital paid-in........................................... $28,433,902 Accumulated net realized gain on investments.............. 14,462 Accumulated net investment income......................... 23,685 Net unrealized appreciation (depreciation) on Investments and foreign currency transactions........... 4,743,775 Forward foreign currency contracts...................... (24,267) ----------- NET ASSETS.................................................. $33,191,557 ===========
* On sales of more than $50,000 the offering price is reduced. ** Redemption price per share is equal to the net asset value per share less any applicable contingent deferred sales charge. (See Notes to Financial Statements) 54 STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996 INVESTMENT INCOME Dividends, net of $27,747 foreign taxes withheld.......... $ 780,034 Interest.................................................. 53,390 ---------- 833,424 ---------- EXPENSES Management fee............................................ $301,433 Transfer agent............................................ 68,182 Administrative services fee............................... 30,143 Custodian fees............................................ 61,257 Blue Sky fees............................................. 24,718 Auditing and accounting fees.............................. 19,716 Shareholder reports....................................... 6,010 Fund accounting........................................... 34,802 Trustees' fees............................................ 4,693 12b-1 service and distribution fees....................... 123,751 Legal..................................................... 21,770 Other..................................................... 9,781 ---------- Total expenses.......................................... 706,256 ---------- NET INVESTMENT INCOME....................................... 127,168 ---------- NET REALIZED AND UNREALIZED GAIN ON INVESTMENT TRANSACTIONS Net realized gain on Investments and foreign currency transactions........... 1,174,530 Forward foreign currency contracts...................... 386,726 Net unrealized appreciation during the period on Investments and foreign currency transactions........... 2,597,411 Forward foreign currency contracts...................... 34,667 ---------- Net gain on investment transactions..................... 4,193,334 ---------- INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $4,320,502 ==========
(See Notes to Financial Statements) 55 STATEMENT OF CHANGES IN NET ASSETS FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995 ------------ ------------ INCREASE IN NET ASSETS Operations Net investment income..................................... $ 127,168 $ 143,490 Net realized gain on investments and foreign currency transactions............................................ 1,561,256 998,646 Net unrealized appreciation (depreciation) during the period on Investments and foreign currency transactions........... 2,597,411 1,649,554 Forward foreign currency contracts...................... 34,667 (41,767) ----------- ----------- Net increase resulting from operations.................. 4,320,502 2,749,923 ----------- ----------- CLASS A DISTRIBUTIONS From net investment income................................ (138,320) (71,425) In excess of net investment income........................ (317,957) -- From net realized gain.................................... (832,444) (827,783) In excess of net realized gain............................ -- (120,215) ----------- ----------- Total distributions to Class A shareholders............. (1,288,721) (1,019,423) ----------- ----------- CLASS B DISTRIBUTIONS In excess of net investment income........................ (131,831) -- From net realized gain.................................... (310,417) (170,863) In excess of net realized gain............................ -- (24,814) ----------- ----------- Total distributions to Class B shareholders............. (442,248) (195,677) ----------- ----------- CLASS C DISTRIBUTIONS In excess of net investment income........................ (1,191) -- From net realized gain.................................... (1,888) -- ----------- ----------- Total distributions to Class C shareholders............. (3,079) -- ----------- ----------- Fund share transactions (Note 4) Class A................................................... 730,562 591,261 Class B................................................... 3,726,274 1,665,995 Class C................................................... 73,059 -- ----------- ----------- Net increase resulting from Fund share transactions..... 4,529,895 2,257,256 ----------- ----------- TOTAL INCREASE IN NET ASSETS................................ 7,116,349 3,792,079 NET ASSETS Beginning of period....................................... 26,075,208 22,283,129 ----------- ----------- END OF PERIOD............................................. $33,191,557 $26,075,208 =========== =========== ACCUMULATED NET INVESTMENT INCOME........................... $ 23,685 $ 53,270 =========== ===========
(See Notes to Financial Statements) 56 FINANCIAL HIGHLIGHTS
FOR THE SIX CLASS A FOR THE YEAR ENDED MONTHS ENDED DECEMBER 31, DECEMBER 31, FOR THE YEAR ENDED JUNE 30, -------------------- ------------ -------------------------------- 1996 1995 1994 1994 1993 1992 SELECTED PER SHARE DATA ------- ------- ------------ ------- ------- ------ Net asset value, beginning of period............... $ 11.97 $ 11.23 $ 11.52 $ 10.62 $ 10.55 $ 9.40 ------- ------- ------- ------- ------- ------ Income (loss) from investment operations Net investment income............................ .08 .09(a) -- -- .03(a) .06(a) Net realized and unrealized gain (loss) on investment transactions........................ 1.86 1.25 (.10) 1.79 .44 1.79 ------- ------- ------- ------- ------- ------ Total from investment operations............... 1.94 1.34 (.10) 1.79 .47 1.85 ------- ------- ------- ------- ------- ------ Less distributions From net investment income....................... .08 .04 -- .01 .03 .06 In excess of net investment income............... .18 -- -- -- -- -- From net realized gain........................... .48 .49 .09 .88 .37 .62 In excess of net realized gain................... -- .07 -- -- -- -- From capital paid-in............................. -- -- .10 -- -- .02 ------- ------- ------- ------- ------- ------ Total distributions............................ .74 .60 .19 .89 .40 .70 ------- ------- ------- ------- ------- ------ Net asset value, end of period..................... $ 13.17 $ 11.97 $ 11.23 $ 11.52 $ 10.62 $10.55 ======= ======= ======= ======= ======= ====== Total return(%).................................... 16.21(b) 12.08(b) (1.00)(c) 16.71(b) 4.54(b) 19.91(b) RATIOS AND SUPPLEMENTAL DATA Net Assets, end of period (in thousands)........... $24,152 $21,264 $19,327 $17,393 $12,391 $8,780 Ratio of expenses to average net assets With expense reimbursement(%).................... -- 2.20 2.20(d) 2.20 1.95 2.02 Without expense reimbursement(%)................. 2.18 2.46 2.34(d) 2.42 2.76 2.97 Ratio of net investment income (loss) to average net assets(%).................................... .58 .71(a) (.06)(a)(d) .01(a) .38(a) .82(a) Portfolio turnover rate(%)......................... 43 53 23(d) 85 67 59 Average commission rate(e)......................... $ .0181 N/A N/A N/A N/A N/A
FOR THE PERIOD FOR THE YEAR FOR THE SIX APRIL 1, 1994 CLASS B ENDED MONTHS ENDED (COMMENCEMENT) TO DECEMBER 31, DECEMBER 31, JUNE 30, ------------------ ------------ ----------------- 1996 1995 1994 1994 SELECTED PER SHARE DATA ------ ------ ------------ ----------------- Net asset value, beginning of period........................ $11.97 $11.23 $11.52 $12.12 ------ ------ ------ ------ Income (loss) from investment operations Net investment loss....................................... (.02) -- (.03)(a) (.01)(a) Net realized and unrealized gain (loss) on investment transactions............................................ 1.85 1.25 (.12) (.04) ------ ------ ------ ------ Total from investment operations........................ 1.83 1.25 (.15) (.05) ------ ------ ------ ------ Less distributions In excess of net investment income........................ .20 -- -- -- From net realized gain.................................... .48 .45 .08 .55 In excess of net realized gain............................ -- .06 -- -- From capital paid-in...................................... -- -- .06 -- ------ ------ ------ ------ Total distributions..................................... .68 .51 .14 .55 ------ ------ ------ ------ Net asset value, end of period.............................. $13.12 $11.97 $11.23 $11.52 ====== ====== ====== ====== Total return(%)............................................. 15.30(b) 11.25(b) (1.37)(c) .38(c) RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands).................... $8,968 $4,811 $2,956 $ 376 Ratio of expenses to average net assets With expense reimbursement(%)............................. -- 2.95 2.95(d) 2.95(d) Without expense reimbursement(%).......................... 2.94 3.21 3.09(d) 3.17(d) Ratio of net investment loss to average net assets(%)....... (.17) (.04)(a) (.81)(a)(d) (.74)(a)(d) Portfolio turnover rate(%).................................. 43 53 23(d) 85 Average commission rate(e).................................. $.0181 N/A N/A N/A
(See Notes to Financial Statements) 57 FINANCIAL HIGHLIGHTS (CONTINUED)
FOR THE PERIOD APRIL 30, 1996 CLASS C (COMMENCEMENT) TO DECEMBER 31, ----------------- 1996 SELECTED PER SHARE DATA ----------------- Net asset value, beginning of period........................ $ 13.31 -------- Income from investment operations Net investment loss....................................... (.01) Net realized and unrealized gain (loss) on investment transactions............................................ .42 -------- Total from investment operations........................ .41 -------- Less distributions In excess of net investment income........................ .30 From net realized gain.................................... .48 -------- Total distributions..................................... .78 -------- Net asset value, end of period.............................. $ 12.94 ======== Total return(%)............................................. 3.07(c) RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands).................... $ 71 Ratio of expenses to average net assets without expense reimbursement(%).......................... 3.77(d) Ratio of net investment income to average net assets(%)(a).............................................. (1.01)(d) Portfolio turnover rate(%).................................. 43 Average commission rate(e).................................. $ .0181
(a) Net investment income is net of expenses reimbursed by manager. (b) Total return does not reflect a sales charge. (c) Total return represents aggregate total return and does not reflect a sales charge. (d) Annualized. (e) For fiscal years beginning on or after September 1, 1995, a fund is required to disclose its average commission rate per share for security trades on which commissions are charged. This amount may vary from period to period and fund to fund depending on the mix of trades executed in various markets where trading practices and commission rate structures may differ. (See Notes to Financial Statements) 58 NOTES TO FINANCIAL STATEMENTS Ivy Global Fund (the Fund), is a diversified series of shares of Ivy Fund. The shares of beneficial interest are assigned no par value and an unlimited number of shares of Class A, Class B and Class C are authorized. Ivy Fund was organized as a Massachusetts business trust under a Declaration of Trust dated December 21, 1983 and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. The policies are in conformity with generally accepted accounting principles. Preparation of the financial statements includes the use of management estimates. Actual results could differ from those estimates. SECURITY VALUATION -- Securities for which market quotations are readily available are valued at market. Short-term obligations and commercial paper are valued at amortized cost, which approximates market. Debt securities (other than short-term obligations and commercial paper) are valued on the basis of valuations furnished by a pricing service authorized by the Board of Trustees (the Board), which determines valuations based upon market transactions for normal, institutional-size trading units of such securities. For valuation purposes, quotations of foreign securities in foreign currencies are translated into U.S. dollar equivalents using the foreign exchange quotation in effect. All other securities are valued at their fair value as determined in good faith by the Valuation Committee of the Board; as of December 31, 1996, there were no such securities. SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Security transactions are accounted for on the trade date. Dividend income is recorded on the ex-dividend date, and interest income is accrued on a daily basis. Realized gains and losses from security transactions are calculated on an identified cost basis. FEDERAL INCOME TAXES -- The Fund intends to qualify for tax treatment applicable to regulated investment companies under the Internal Revenue Code, as amended, and distribute all of its taxable income to its shareholders. Therefore, no provision has been recorded for Federal income or excise taxes. The Fund earned foreign source dividends of $822,901. These dividends were subject to withholding tax in the amount of $27,747. The Fund intends to elect to pass through to its shareholders their proportionate share of such taxes. Shareholders may apply their proportionate share of such foreign taxes paid as either a tax credit or itemized deduction. Pursuant to Section 852 of the Internal Revenue Code, the Fund designates $839,035 as capital gain dividends for its taxable year ended December 31, 1996. DISTRIBUTIONS TO SHAREHOLDERS -- Distributions from net investment income and net realized capital gains, if any, are declared in December. An additional distribution may be declared if necessary to avoid the payment of a four percent Federal excise tax. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency transactions from foreign investment activity are translated into U.S. dollars on the following basis: (i) market value of securities, and dividends and interest receivable are translated at the closing daily rate of exchange; and, (ii) purchases and sales of investment securities are translated at the rate at which related foreign contracts are obtained or at the exchange rate prevailing on the date of the transaction. The Fund does not isolate that portion of net gain or loss on investments which is due to changes in foreign exchange rates from that which is due to changes in market prices of securities held. Such fluctuations are included with net realized and unrealized gain or loss on investments. Exchange gains or losses from currency translation of other assets and liabilities, if significant, are reported as a separate component of Net realized and unrealized gain (loss) on investment transactions. Section 988 of the Internal Revenue Code provides that gains and losses on certain transactions attributable to fluctuations in foreign currency exchange rates must be treated as ordinary income or loss. Accordingly, distributions for financial statement purposes may differ from the characterization of such distributions determined on a Federal income tax basis. FORWARD FOREIGN CURRENCY CONTRACTS -- Forward foreign currency contracts may be entered into for purposes of hedging specific securities denominated in foreign currencies. Forward contracts are marked to market daily, and the change in market value is recorded by the Fund as an unrealized gain or loss. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. The Fund could be exposed to risk if the counter parties are unable to meet the terms of the contracts. RECLASSIFICATIONS -- The timing and characterization of certain income and net capital gain distributions are determined annually in accordance with Federal tax regulations which may differ from generally accepted accounting principles. These differences primarily relate to investments in foreign denominated securities, passive foreign investment companies, and certain securities sold at a loss. As a result, Net investment income 59 NOTES TO FINANCIAL STATEMENTS (CONTINUED) (loss) and Net realized gain (loss) on investments and foreign currency transactions for a reporting period may differ significantly in amount and character from distributions during such period. Accordingly, the Fund may make reclassifications among certain of its capital accounts without impacting the net asset value of the Fund. 2. RELATED PARTIES Ivy Management, Inc. (IMI) is the Manager and Investment Adviser of the Fund. For its services, IMI receives a fee monthly at the annual rate of 1.00% on its first $500 million of average net assets, and .75% of its average net assets in excess of $500 million. Currently, IMI voluntarily limits the Fund's total operating expenses (excluding taxes, 12b-1 fees, brokerage commissions, interest, litigation and indemnification expenses, and other extraordinary expenses) to an annual rate of 1.95% of its average net assets. The voluntary expense limitation may be terminated or revised at any time. Mackenzie Investment Management Inc. (MIMI), of which IMI is a wholly owned subsidiary, provides certain administrative, accounting and pricing services for the Fund. For those services, the Fund pays MIMI fees plus certain out-of-pocket expenses. Such fees are reflected as Administrative services fee and Fund accounting in the Statement of Operations. Ivy Mackenzie Distributors, Inc. (IMDI), a wholly owned subsidiary of MIMI, is the underwriter and distributor of the Fund's shares, and as such, purchases shares from the Fund at net asset value to settle orders from investment dealers. For the year ended December 31, 1996, the net amount of underwriting discount retained by IMDI was $23,164. Under Service and Distribution Plans, the Fund reimburses IMDI for service fee payments made to brokers at an annual rate not to exceed .25% of its average net asset value. Class B and Class C shares are also subject to an ongoing distribution fee at an annual rate of .75% of the average net asset value attributable to Class B and Class C shares. IMDI may use such distribution fee for purposes of advertising and marketing shares of the Fund. Such fees of $59,251, $64,463 and $37 for Class A, Class B and Class C, respectively, are reflected as 12b-1 service and distribution fees in the Statement of Operations. Ivy Mackenzie Services Corp. (IMSC), a wholly owned subsidiary of MIMI, is the transfer and shareholder servicing agent for the Fund. For those services, the Fund pays a monthly fee plus certain out-of-pocket expenses. Such fees and expenses of $53,345, $14,798 and $39 for Class A, Class B and Class C, respectively, are reflected as Transfer agent in the Statement of Operations. 3. BOARD'S COMPENSATION Trustees who are not affiliated with IMI or MIMI receive compensation from the Fund, which is reflected as Trustees' fees in the Statement of Operations. 4. FUND SHARE TRANSACTIONS Fund share transactions for Class A, Class B and Class C were as follows:
YEAR ENDED YEAR ENDED DECEMBER 31, 1996 DECEMBER 31, 1995 --------------------- ------------------------ CLASS A SHARES AMOUNT SHARES AMOUNT - ------- -------- ---------- ---------- ----------- Sold.......................... 486,908 $6,383,105 2,228,655 $24,282,852 Issued on reinvestment of distributions................ 96,662 1,267,635 74,044 885,461 Repurchased................... (525,829) (6,920,178) (2,247,642) (24,577,052) -------- ---------- ---------- ----------- Net increase.................. 57,741 $ 730,562 55,057 $ 591,261 ======== ========== ========== ===========
YEAR ENDED YEAR ENDED DECEMBER 31, 1996 DECEMBER 31, 1995 --------------------- ------------------------ CLASS B SHARES AMOUNT SHARES AMOUNT - ------- -------- ---------- ---------- ----------- Sold.......................... 350,672 $4,642,668 424,399 $ 4,741,733 Issued on reinvestment of distributions................ 29,736 390,147 14,695 175,609 Repurchased................... (99,033) (1,306,541) (300,410) (3,251,347) -------- ---------- ---------- ----------- Net increase.................. 281,375 $3,726,274 138,684 $ 1,665,995 ======== ========== ========== ===========
FROM APRIL 30, 1996 (COMMENCEMENT) TO DECEMBER 31, 1996 --------------------- CLASS C SHARES AMOUNT - ------- -------- ---------- Sold.......................... 5,866 $ 78,416 Issued on reinvestment of distributions................ 219 2,832 Repurchased................... (600) (8,189) -------- ---------- Net increase.................. 5,485 $ 73,059 ======== ==========
60 REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders and Board of Trustees of Ivy Global Fund (the Fund) We have audited the accompanying statement of assets and liabilities of the Fund, including the schedule of portfolio investments, as of December 31, 1996, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 1996, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Fund as of December 31, 1996, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated, in conformity with generally accepted accounting principles. COOPERS & LYBRAND L.L.P. Fort Lauderdale, Florida February 14, 1997 02MCGLX123196 61 DECEMBER 31, 1996 IVY FUNDS IVY CANADA FUND ANNUAL REPORT This report and the financial statements contained herein are submitted for the general information of the shareholders. This report is not authorized for distribution to prospective investors unless preceded or accompanied by an effective prospectus. Ivy Management, Inc. Via Mizner Financial Plaza 700 South Federal Hwy. Boca Raton, FL 33432 1-800-456-5111 Market Commentary: The Ivy Canada Fund has historically been positioned as a country/sector fund focusing on metals, energy, precious metals and forest products. Three of these four sectors came under pressure in 1996 providing single-digit returns and yet within this more difficult environment, the Ivy Canada Fund's total return for the twelve months ended December 31, 1996 was 23.86% on a net asset value basis. The Toronto Stock Exchange 300 (TSE 300), a much broader index, was 27.93% for the same period. For the Fund's total return with sales charge, and performance commentary, please refer to the following page.) According to our research, Canadian stocks began to outperform the US in 1996, reflecting in just three years an improvement in the government deficit, which went from being among the worst of the G-7 nations to among the best. This remarkable improvement came largely through reductions in program spending of Canadian provincial and federal governments and not through higher taxes. In addition to interest rates, which are at a 40-year low, and inflation holding at about half the rate of the US, the Canadian dollar has gotten steadily stronger. While improved, the Canadian dollar is still considered undervalued which helped Canada post record levels of exports in 1996. In August, Canada posted its largest trade surplus ever led by exports of vehicles and agriculture. At the same time, imports dropped, with imports from the US failing most. We believe global economic expansion will continue to provide strong demand for Canadian resources and basic commodities. In addition to having large petroleum reserves, Canada is a leading producer of nickel, zinc and potash, as well as a major source of uranium, aluminum, titanium, cobalt, gold, silver, copper, platinum, iron ore and lead. Canada's forests provide more than one-third of the world's supply of newsprint. In an environment where many financial assets have risen to lofty levels, it is encouraging to find resources like papers and base metals can be bought today with the commodities at multi-year lows. Within the resource sectors, in addition to the rising trend in the price of grains, gold and energy, there were a few spectacular discoveries made by Canadian companies of nickel, copper, gold and diamonds, both in Canada and elsewhere around the world. With a vastly improved and more healthy economy, we believe Canada now also offers attractive investment opportunities outside the resource sector. These include, among others, banking and technology. The additional diversification these industries will provide to the Ivy Canada Fund should help reduce volatility implicit with investing in a country/sector fund. Canada remains the greatest ally and trading partner of the US. And because it's just next door, investors often overlook Canada as a viable investment opportunity. We believe now may be a good time for investors to focus on the opportunities Canada offers. IVY MANAGEMENT, INC. BOARD OF TRUSTEES LEGAL COUNSEL TRANSFER AGENT MANAGER John S. Anderegg, Jr. Dechert Price & Rhoads Ivy Mackenzie Ivy Management, Inc. Paul H. Broyhill Boston, MA Services Corp. Boca Raton, FL Keith J. Carlson P.O. Box 3022 Stanley Channick OFFICERS Boca Raton, FL 33431-0922 DISTRIBUTOR Frank W. DeFriece, Jr. Michael G. Landry, Chairman 1-800-777-6472 Ivy Mackenzie Roy J. Glauber Keith J. Carlson, President Distributors, Inc. Michael G. Landry James W. Broadfoot, Vice President AUDITORS Via Mizner Financial Plaza Joseph G. Rosenthal C. William Ferris, Coopers & Lybrand L.L.P. 700 South Federal Highway Richard Silverman Secretary/Treasurer Fort Lauderdale, FL Boca Raton, FL 33432 J. Brendan Swan CUSTODIAN Brown Brothers Harriman & Co. Boston, MA
[LOGO] IVY MACKENZIE 62 IVY CANADA FUND PERFORMANCE COMMENTARY The Ivy Canada Fund was up 23.86% in 1996. This compares favorably to the four focus sectors in which the Fund is most heavily concentrated -- metals, energy, precious metals and forest products. As a group, these sectors averaged 16% for the twelve months ended December 31, 1996. The Fund did underperform the broader TSE index, which was up 27.93% for the same period. The banking sector, a component of the TSE 300, was up 56% and made a significant contribution to the index's outperformance. PERFORMANCE COMPARISONS OF THE FUND SINCE INCEPTION (11/87) OF A $10,000 INVESTMENT CHART
- ------------------------------------------------------------------------------------ IVY CANADA FUND FOR PERIOD ENDING 12/31/96 Class A*-with sales charge Class B** & C*** Average Annual Total Return Average Annual Total Return -------------------------------------------------------------- w/Reimb. w/o Reimb. w/Reimb. w/o Reimb. -------------------------------------------------------------- w/ w/o w/ w/o CDSC CDSC CDSC CDSC --------------------------------------- B: B: B: B: 1 Yr. 16.73% 16.73% 18.26% 23.26% 18.26% 23.26% - ------------------------------------------------------------------------------------ 5 Yr. 9.62% 9.55% -- -- -- -- - ------------------------------------------------------------------------------------ B: B: B: B: 3.93% 4.93% 3.80% 4.81% C: C: C: C: Since Inception 3.43% 3.00% 5.51% 6.51% 5.51% 6.51% - ------------------------------------------------------------------------------------
*Class A performance figures include the maximum sales charge of 5.75%. **Class B performance figures are calculated with and without the applicable Contingent Deferred Sales Charge (CDSC) up to a maximum of 5%. ***Class C performance figures are calculated with and without the applicable Contingent Deferred Sales Charge (CDSC) up to a maximum of 1%. Total returns in some periods were higher due to reimbursement of the Fund's expenses. See Financial Highlights. All charts and tables reflect past results and assume reinvestment of dividends and distributions from capital gains. Future results will, of course, be different. The investment return and principal value of the Ivy Canada Fund will fluctuate and at redemption may be worth more or less than the amount of the original investment. The Toronto Stock Exchange 300 is an unmanaged index of Canadian stocks which assumes reinvestment of dividends and, unlike Fund returns, does not reflect any fees or expenses. It is not possible to invest in an index. Performance is calculated for Class A shares of the Fund unless otherwise noted. The performance of the Fund's Class B and Class C shares will vary relative to that of Class A shares based on differences in their respective sales loads and fees. - -------------------------------------------------------------------------------- 63 PORTFOLIO OF INVESTMENTS DECEMBER 31, 1996
EQUITY SECURITIES -- 97.6% SHARES VALUE - ------------------------------------------------------ CONSUMER PRODUCTS -- 0.4% Schneider Corporation Class A........................... 8,500 $ 68,991 Sport Specific International, Inc.*....................... 112,500 9,849 ----------- 78,840 ----------- GOLD & PRECIOUS MINERALS -- 21.8% Agnico-Eagle Mines, Ltd....... 25,000 351,110 Barrick Gold Corporation...... 15,000 429,540 Battle Mountain Canada........ 50,000 346,550 Dakota Mining Corp.*.......... 130,000 218,144 Goldcorp Inc. Class A*........ 20,000 171,451 Golden Knight Resources, Inc.*....................... 100,000 481,522 Orvana Minerals Corporation*................ 150,000 793,418 Prime Resources Group, Inc.... 50,000 353,846 REA Gold Corporation*......... 119,000 148,462 William Resources, Inc.*...... 500,000 514,353 ----------- 3,808,396 ----------- INDUSTRIAL PRODUCTS -- 14.7% Offshore Systems International Ltd.*....................... 308,824 470,901 Offshore Systems International Ltd. Special*............... 75,000 7,661(a) PC Docs Group International, Inc.*....................... 30,000 292,196 Simmonds Capital Ltd.*........ 100,000 310,071 Slater Industries Inc......... 56,200 610,935 Speedy Muffler King, Inc.*.... 50,000 410,388 Stelco Inc. Series A Convertible*................ 75,000 459,635 ----------- 2,561,787 ----------- MERCHANDISING -- 5.3% Semi-Tech Corporation......... 250,000 921,094 ----------- METALS & MINERALS -- 18.4% Aber Resources, Ltd.*......... 40,000 542,807 Breakwater Resources, Ltd.*... 163,000 310,385 Consolidated Eurocan Ventures Ltd.*....................... 100,000 419,508 Inco Ltd...................... 12,500 398,989 Noranda Inc................... 30,000 668,660 Redfern Resources Ltd.*....... 105,500 134,699 Teck Corp. Class B............ 20,000 463,283 Western Garnet Company Ltd.*....................... 70,000 275,781 ----------- 3,214,112 ----------- OIL & GAS -- 15.3% Canadian Conquest Exploration Co Ltd.*.................... 75,000 134,060 Cimarron Petroleum Ltd.*...... 40,000 507,787 HCO Ltd. Energy*.............. 134,400 151,986 Hurricane Hydrocarbons Ltd. Series 1*................... 50,000 156,860(a) Hurricane Hydrocarbons Ltd. Series 2*................... 125,000 360,230(a) Morrison Petroleums Ltd....... 50,000 300,951 Olympia Energy, Inc Class A*.......................... 725,000 333,235 Penn West Petroleum Ltd.*..... 20,000 204,282 Petro-Canada.................. 37,500 529,401 ----------- 2,678,792 ----------- PAPER & FOREST PRODUCTS -- 17.9% Ainsworth Lumber Company*..... 100,000 $ 445,043 Alliance Forest Products, Inc.*....................... 35,000 619,231 Donohue, Inc.................. 44,500 803,540 St. Laurent Paperboard Inc.*....................... 20,000 323,933 Sino-Forest Corp. Class A..... 200,000 180,936 Tembec Inc. Class A*.......... 20,000 131,324 Timberwest Forest Ltd......... 10,000 134,972 West Fraser Timber Co. Ltd.... 15,000 481,522 ----------- 3,120,501 ----------- TRANSPORTATION & ENVIRONMENTAL -- 3.8% CHC Helicopter Corporation Class A..................... 150,000 656,621 ----------- TOTAL EQUITY SECURITIES (Cost -- $17,528,111)....... 17,040,143 ----------- SHORT-TERM OBLIGATIONS -- 2.8% PRINCIPAL - ------------------------------ -------- U.S. Treasury Bill, 4.94%, 03/27/97 (Cost -- $494,168).......... $500,000 494,168 ----------- TOTAL INVESTMENTS -- 100.4% (Cost -- $18,022,279)(b).... 17,534,311 OTHER ASSETS, LESS LIABILITIES -- (0.4%)....... (72,430) ----------- NET ASSETS -- 100%............ $17,461,881 ===========
* Non-income producing security. (a) Securities valued in good faith by the Valuation Committee of the Board of Trustees. The cost of these securities at December 31, 1996 aggregated $385,706. See Note 1 of the Notes to the Financial Statements. (b) Cost for Federal income tax purposes is $18,200,315. OTHER INFORMATION: At December 31, 1996, net unrealized depreciation based on cost for financial statement and Federal income tax purposes is as follows: Gross unrealized appreciation....... $ 2,240,190 Gross unrealized depreciation....... (2,906,194) ----------- Net unrealized depreciation..... $ (666,004) ===========
Purchases and sales of investments (excluding short-term obligations) aggregated $9,963,758 and $12,318,380 respectively, for the period ended December 31, 1996. (See Notes to Financial Statements) 64 STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 1996 ASSETS Investments, at value (identified cost -- $18,022,279)...... $17,534,311 Receivables Fund shares sold.......................................... 29,058 Dividends and interest.................................... 10,852 Other assets................................................ 26,199 ----------- Total assets.............................................. 17,600,420 ----------- LIABILITIES Payables Distributions to shareholders............................. 7,450 Fund shares repurchased................................... 40,049 Management and advisory fees.............................. 13,228 12b-1 service and distribution fees....................... 7,808 Other payables to related parties......................... 12,983 Due to custodian............................................ 45,727 Accrued expenses............................................ 11,294 ----------- Total liabilities......................................... 138,539 ----------- NET ASSETS.................................................. $17,461,881 =========== CLASS A Net asset value and redemption price per share ($15,249,401 / 1,581,638 shares outstanding).............. $ 9.64 =========== Maximum offering price per share ($9.64 x 100 / 94.25)*..... $ 10.23 =========== CLASS B Net asset value and offering price per share ($2,039,603 / 212,746 shares outstanding)**............................. $ 9.59 =========== CLASS C Net asset value and offering price per share ($172,877 / 17,969 shares outstanding)**.............................. $ 9.62 =========== NET ASSETS CONSIST OF Capital paid-in........................................... $17,906,958 Accumulated net realized gain on investments.............. 43,038 Net unrealized depreciation on investments and foreign currency transactions................................... (488,115) ----------- NET ASSETS.................................................. $17,461,881 ===========
* On sales of more than $50,000 the offering price is reduced. ** Redemption price per share is equal to the net asset value per share less any applicable contingent deferred sales charge. (See Notes to Financial Statements) 65 STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996 INVESTMENT INCOME Dividends, net of $12,691 foreign taxes withheld.......... $ 113,445 Interest.................................................. 73,283 ---------- 186,728 ---------- EXPENSES Management fee............................................ $ 93,270 Advisory fee.............................................. 65,289 Transfer agent............................................ 100,986 Administrative services fee............................... 18,654 Custodian fees............................................ 32,163 Blue Sky fees............................................. 25,096 Auditing and accounting fees.............................. 27,465 Shareholder reports....................................... 6,472 Fund accounting........................................... 33,091 Trustees' fees............................................ 4,655 12b-1 service and distribution fees....................... 83,396 Legal..................................................... 22,786 Other..................................................... 13,633 ---------- Total expenses............................................ 526,956 ---------- NET INVESTMENT LOSS......................................... (340,228) ---------- NET REALIZED AND UNREALIZED GAIN ON INVESTMENT TRANSACTIONS Net realized gain on investments and foreign currency transactions............................................ 2,677,225 Net unrealized appreciation during the period on investments and foreign currency transactions........... 1,776,983 ---------- Net gain on investment transactions..................... 4,454,208 ---------- INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $4,113,980 ==========
(See Notes to Financial Statements) 66 STATEMENT OF CHANGES IN NET ASSETS FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995 ------------ ------------ DECREASE IN NET ASSETS Operations Net investment loss....................................... $ (340,228) $ (413,829) Net realized gain on investments and foreign currency transactions............................................ 2,677,225 1,423,512 Net unrealized appreciation during the period on investments and foreign currency transactions........... 1,776,983 20,707 ----------- ----------- Net increase resulting from operations.................. 4,113,980 1,030,390 ----------- ----------- Distributions from net realized gain Class A................................................... (2,405,970) (519,054) Class B................................................... (251,588) (23,912) Class C................................................... (14,472) -- ----------- ----------- Total distributions paid to shareholders................ (2,672,030) (542,966) ----------- ----------- Fund share transactions (Note 4) Class A................................................... (5,559,037) (4,372,745) Class B................................................... 906,002 343,265 Class C................................................... 178,392 -- ----------- ----------- Net decrease resulting from Fund share transactions..... (4,474,643) (4,029,480) ----------- ----------- TOTAL DECREASE IN NET ASSETS................................ (3,032,693) (3,542,056) NET ASSETS Beginning of period....................................... 20,494,574 24,036,630 ----------- ----------- END OF PERIOD............................................. $17,461,881 $20,494,574 =========== =========== ACCUMULATED NET INVESTMENT LOSS............................. $ -- $ (185,467) =========== ===========
(See Notes to Financial Statements) 67 FINANCIAL HIGHLIGHTS
FOR THE FOR THE SIX CLASS A YEAR ENDED MONTHS ENDED DECEMBER 31, DECEMBER 31, FOR THE YEAR ENDED JUNE 30, -------------------- ------------ --------------------------------- 1996 1995 1994 1994 1993 1992 SELECTED PER SHARE DATA ------- ------- ------------ ------- ------- ------- Net asset value, beginning of period............ $ 9.21 $ 8.90 $ 9.85 $ 10.04 $ 7.43 $ 8.89 ------- ------- ------- ------- ------- ------- Income (loss) from investment operations Net investment loss........................... (.21) (.19)(a) (.11) (.11) (.01) (.12) Net realized and unrealized gain (loss) on investment transactions..................... 2.29 .75 (.81) .24 3.35 (1.34) ------- ------- ------- ------- ------- ------- Total from investment operations............ 2.08 .56 (.92) .13 3.34 (1.46) ------- ------- ------- ------- ------- ------- Less distributions From net realized gain........................ 1.65 .25 -- .31 .73 -- From capital paid-in.......................... -- -- .03 .01 -- -- ------- ------- ------- ------- ------- ------- Total distributions......................... 1.65 .25 .03 .32 .73 -- ------- ------- ------- ------- ------- ------- Net asset value, end of period.................. $ 9.64 $ 9.21 $ 8.90 $ 9.85 $ 10.04 $ 7.43 ======= ======= ======= ======= ======= ======= Total return(%)................................. 23.86(b) 6.37(b) (9.38)(c) 1.05(b) 47.10(b) (16.42)(b) RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands)........ $15,249 $19,353 $23,296 $34,549 $30,971 $11,280 Ratio of expenses to average net assets(%)...... 2.79 2.90(f) 2.44(d) 2.05 2.63 2.70 Ratio of net investment loss to average net assets(%)..................................... (1.78) (2.13)(a) (1.85)(d) (1.09) (1.41) (1.39) Portfolio turnover rate(%)...................... 56 21 36(d) 62 32 2 Average commission rate(e)...................... $ .0134 N/A N/A N/A N/A N/A
(See Notes to Financial Statements) 68 FINANCIAL HIGHLIGHTS (CONTINUED)
FOR THE PERIOD FOR THE FOR THE SIX APRIL 1, 1994 CLASS B YEAR ENDED MONTHS ENDED (COMMENCEMENT) TO DECEMBER 31, DECEMBER 31, JUNE 30, ------------------ ------------ ----------------- 1996 1995 1994 1994 SELECTED PER SHARE DATA ------ ------ ------------ ----------------- Net asset value, beginning of period........................ $ 9.21 $ 8.90 $ 9.85 $10.16 ------ ------ ------ ------ Income (loss) from investment operations Net investment loss....................................... (.17) (.20)(a) (.09) (.02) Net realized and unrealized gain (loss) on investment transactions............................................ 2.19 .71 (.86) (.29) ------ ------ ------ ------ Total from investment operations........................ 2.02 .51 (.95) (.31) ------ ------ ------ ------ Less distributions From net realized gain.................................... 1.64 .20 -- -- ------ ------ ------ ------ Total distributions..................................... 1.64 .20 -- -- ------ ------ ------ ------ Net asset value, end of period.............................. $ 9.59 $ 9.21 $ 8.90 $ 9.85 ====== ====== ====== ====== Total return(%)............................................. 23.26(b) 5.74(b) (9.64)(c) (3.05)(c) RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands).................... $2,040 $1,142 $ 741 $ 227 Ratio of expenses to average net assets(%).................. 3.30 3.50(f) 3.03(d) 2.68(d) Ratio of net investment loss to average net assets (%)...... (2.30) (2.73)(a) (2.44)(d) (1.72)(d) Portfolio turnover rate(%).................................. 56 21 36(d) 62 Average commission rate(e).................................. $.0134 N/A N/A N/A
(See Notes to Financial Statements) 69 FINANCIAL HIGHLIGHTS (CONTINUED)
FOR THE PERIOD APRIL 30, 1996 CLASS C (COMMENCEMENT) TO DECEMBER 31, ----------------- 1996 SELECTED PER SHARE DATA ----------------- Net asset value, beginning of period........................ $10.67 ------ Income from investment operations Net investment loss....................................... (.14) Net realized and unrealized gain on investment transactions............................................ .72 ------ Total from investment operations........................ .58 ------ Less distributions From net realized gain.................................... 1.63 ------ Total distributions..................................... 1.63 ------ Net asset value, end of period.............................. $ 9.62 ====== Total return(%)............................................. 6.51(c) RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands).................... $ 173 Ratio of expenses to average net assets(%).................. 3.15(d) Ratio of net investment loss to average net assets(%)....... (2.15)(d) Portfolio turnover rate(%).................................. 56 Average commission rate(e).................................. $.0134
(a) Net investment loss is net of expenses reimbursed by manager. (b) Total return does not reflect a sales charge. (c) Total return represents aggregate total return and does not reflect a sales charge. (d) Annualized. (e) For fiscal years beginning on or after September 1, 1995, a fund is required to disclose its average commission rate per share for security trades on which commissions are charged. This amount may vary from period to period and fund to fund depending on the mix of trades executed in various markets where trading practices and commission rate structures may differ. (f) The ratio of expenses to average net assets is net of expenses reimbursed by manager. Without the expense reimbursement, the ratio of expenses to average net assets would have been 3.23% and 3.83% for Class A and Class B, respectively, for the year ended December 31, 1995. (See Notes to Financial Statements) 70 NOTES TO FINANCIAL STATEMENTS Ivy Canada Fund (the Fund), is a diversified series of shares of Ivy Fund. The shares of beneficial interest are assigned no par value and an unlimited number of shares of Class A, Class B and Class C are authorized. Ivy Fund was organized as a Massachusetts business trust under a Declaration of Trust dated December 21, 1983 and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. The policies are in conformity with generally accepted accounting principles. Preparation of the financial statements includes the use of management estimates. Actual results could differ from those estimates. SECURITY VALUATION -- Securities for which market quotations are readily available are valued at market. Short-term obligations and commercial paper are valued at amortized cost, which approximates market. Debt securities (other than short-term obligations and commercial paper) are valued on the basis of valuations furnished by a pricing service authorized by the Board of Trustees (the Board), which determines valuations based upon market transactions for normal, institutional-size trading units of such securities. For valuation purposes, quotations of foreign securities in foreign currencies are translated into U.S. dollar equivalents using the foreign exchange quotation in effect. All other securities are valued at their fair value as determined in good faith by the Valuation Committee of the Board. As of December 31, 1996, securities valued in good faith by the Valuation Committee of the Board amounted to $524,751 (.03% of net assets) and have been noted as such in the investment portfolio. SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Security transactions are accounted for on the trade date. Dividend income is recorded on the ex-dividend date, and interest income is accrued on a daily basis. Realized gains and losses from security transactions are calculated on an identified cost basis. FEDERAL INCOME TAXES -- The Fund intends to qualify for tax treatment applicable to regulated investment companies under the Internal Revenue Code, as amended, and distribute all of its taxable income to its shareholders. Therefore, no provision has been recorded for Federal income or excise taxes. The Fund earned Canadian source dividends of $113,445. These dividends were subject to Canadian withholding tax in the amount of $12,691. The Fund intends to elect to pass through to its shareholders their proportionate share of such taxes. Shareholders may apply their proportionate share of such foreign taxes paid as either a tax credit or itemized deduction. Pursuant to Section 852 of the Internal Revenue Code, the Fund designates $826,672 as capital gain dividends for its taxable period ended December 31, 1996. DISTRIBUTIONS TO SHAREHOLDERS -- Distributions from net investment income and net realized capital gains, if any, are declared in June. An additional distribution may be declared in December if necessary to avoid the payment of a four percent Federal excise tax. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency transactions from foreign investment activity are translated into U.S. dollars on the following basis: (i) market value of securities, and dividends and interest receivable are translated at the closing daily rate of exchange; and, (ii) purchases and sales of investment securities are translated at the rate at which related foreign contracts are obtained or at the exchange rate prevailing on the date of the transaction. The Fund does not isolate that portion of net gain or loss on investments which is due to changes in foreign exchange rates from that which is due to changes in market prices of securities held. Such fluctuations are included with net realized and unrealized gain or loss on investments. Exchange gains or losses from currency translation of other assets and liabilities, if significant, are reported as a separate component of Net realized and unrealized gain (loss) on investment transactions. Section 988 of the Internal Revenue Code provides that gains and losses on certain transactions attributable to fluctuations in foreign currency exchange rates must be treated as ordinary income or loss. Accordingly, distributions for financial statement purposes may differ from the characterization of such distributions determined on a Federal income tax basis. RECLASSIFICATIONS -- The timing and characterization of certain income and net capital gain distributions are determined annually in accordance with Federal tax regulations which may differ from generally accepted accounting principles. These differences primarily relate to investments in foreign denominated securities, passive foreign investment companies, and certain securities sold at a loss. As a result, Net investment income (loss) and Net realized gain (loss) on investments and foreign currency transactions for a reporting period may differ significantly in amount and character from distributions during such period. Accordingly, the Fund may make reclassifications among certain of its capital accounts without impacting the net asset value of the Fund. 71 NOTES TO FINANCIAL STATEMENTS (CONTINUED) 2. RELATED PARTIES Mackenzie Financial Corporation (MFC) in Toronto, Ontario, Canada is the Investment Advisor of the Fund. For its services, MFC receives a fee monthly at the annual rate of .35% of the Fund's average net assets. The fee is collected from the Fund and remitted to MFC by Mackenzie Investment Management Inc. (MIMI), a subsidiary of MFC. The Fund pays Ivy Management, Inc. (IMI), a wholly owned subsidiary of MIMI, a management fee monthly at the annual rate of .50% of its average net assets. MIMI also provides certain administrative, accounting and pricing services for the Fund. For those services, the Fund pays MIMI fees plus certain out-of-pocket expenses. Such fees are reflected as Administrative services fee and Fund accounting in the Statement of Operations. Ivy Mackenzie Distributors, Inc. (IMDI), a wholly owned subsidiary of MIMI, is the underwriter and distributor of the Fund's shares, and as such, purchases shares from the Fund at net asset value to settle orders from investment dealers. For the year ended December 31, 1996, the net amount of underwriting discount retained by IMDI was $12,272. Under Service and Distribution Plans, the Fund reimburses IMDI for service fee payments made to brokers at an annual rate not to exceed .25% of its average net asset value. Class A shares are also subject to an ongoing distribution fee at an annual rate of .15% of the average net asset value of Class A shares. Class B and Class C shares are also subject to an ongoing distribution fee at an annual rate of .75% of the average net asset value attributable to Class B and Class C shares. IMDI may use such distribution fee for purposes of advertising and marketing shares of the Fund. Such fees of $68,732, $13,674 and $990 for Class A, Class B and Class C, respectively, are reflected as 12b-1 service and distribution fees in the Statement of Operations. Ivy Mackenzie Services Corp. (IMSC), a wholly owned subsidiary of MIMI, is the transfer and shareholder servicing agent for the Fund. For those services, the Fund pays IMSC a monthly fee plus certain out-of-pocket expenses. Such fees and expenses of $94,309, $6,368 and $309 for Class A, Class B and Class C, respectively, are reflected as Transfer agent in the Statement of Operations. 3. BOARD'S COMPENSATION Trustees who are not affiliated with IMI or MIMI receive compensation from the Fund, which is reflected as Trustees' fees in the Statement of Operations. 4. SHARE TRANSACTIONS Fund share transactions for Class A, Class B and Class C were as follows:
YEAR ENDED YEAR ENDED DECEMBER 31, 1996 DECEMBER 31, 1995 ------------------------- ------------------------- CLASS A SHARES AMOUNT SHARES AMOUNT - ------- ---------- ------------ ---------- ------------ Sold..................... 1,404,805 $ 13,996,192 926,528 $ 8,132,834 Issued on reinvestment of distributions........... 238,777 2,234,621 46,215 419,175 Repurchased.............. (2,163,206) (21,789,850) (1,490,048) (12,924,754) ---------- ------------ ---------- ------------ Net decrease............. (519,624) ($ 5,559,037) (517,305) ($ 4,372,745) ========== ============ ========== ============
YEAR ENDED YEAR ENDED DECEMBER 31, 1996 DECEMBER 31, 1995 ------------------------- ------------------------- CLASS B SHARES AMOUNT SHARES AMOUNT - ------- ---------- ------------ ---------- ------------ Sold..................... 180,509 $ 1,783,269 73,447 $ 630,818 Issued on reinvestment of distributions........... 21,699 203,806 2,291 20,775 Repurchased.............. (113,445) (1,081,073) (35,009) (308,328) ---------- ------------ ---------- ------------ Net increase............. 88,763 $ 906,002 40,729 $ 343,265 ========== ============ ========== ============
FROM APRIL 30, 1996 (COMMENCEMENT) TO DECEMBER 31, 1996 ------------------------- CLASS C SHARES AMOUNT - ------- ---------- ------------ Sold..................... 49,422 $ 495,277 Issued on reinvestment of distributions........... 795 7,533 Repurchased.............. (32,248) (324,418) ---------- ------------ Net increase............. 17,969 $ 178,392 ========== ============
72 REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders and Board of Trustees of Ivy Canada Fund (the Fund) We have audited the accompanying statement of assets and liabilities of the Fund, including the schedule of portfolio investments, as of December 31, 1996, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 1996, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Fund as of December 31, 1996, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated, in conformity with generally accepted accounting principles. COOPERS & LYBRAND L.L.P. Fort Lauderdale, Florida February 14, 1997 02MCCNX123196 73 DECEMBER 31, 1996 IVY FUNDS IVY LATIN AMERICA STRATEGY FUND ANNUAL REPORT This report and the financial statements contained herein are submitted for the general information of the shareholders. This report is not authorized for distribution to prospective investors unless preceded or accompanied by an effective prospectus. Ivy Management, Inc. Via Mizner Financial Plaza 700 South Federal Hwy. Boca Raton, FL 33432 1-800-456-5111 MARKET COMMENTARY: The Latin American region, overall, performed well in 1996 gaining 22.2%, as measured by the Morgan Stanley Capital International (MSCI) Latin America "Free" Index. Within this environment, the Ivy Latin America Strategy Fund outperformed the index, returning 24.2% for the twelve months ended December 31, 1996 on a net asset value basis. (For the Fund's total return with sales charge, and performance commentary, please refer to the followingpage.) Brazil was the region's best performing market in 1996, up 38% for the year. Returns were concentrated mostly among large capitalization issues, while smaller companies underperformed. We are continuing to find value in the banking sector, electric and telephone utilities and select manufacturing companies. The Ivy Latin America Strategy Fund has approximately 43% of its portfolio invested in Brazil. In 1996, tight monetary policy in Chile, directed at lowering inflation, put a temporary damper on corporate profit growth and caused the stock market to underperform the rest of the region. With these measures taking hold, inflation is trending toward the central bank's target of 6.5%, and interest rates have started to come down. Lower rates are likely to be the catalyst to move stock prices higher and we believe Chile will continue on its steady growth path. Chile represents 17% of the Ivy Latin America Strategy Fund. We used periods of market weakness to invest the Fund's cash position. Specifically, we increased our exposure to Argentina to 20% of the portfolio. The Argentine market experienced a dramatic sell off in the summer following the news of Finance Minister Cavallo's resignation. This raised concerns over the sustainability of the convertibility plan that forms the foundation of Argentina's economic policy. Fears of the plan's collapse have subsided and at the same time, positive economic statistics have been released, which has been positive for the Merval. Real GDP grew 6.6% in the third quarter and by some estimates is on track to grow faster than 5% in 1997. The Ivy Latin America Strategy Fund remains significantly underweight in Mexico (5% of assets) due to concerns over progress of economic reform and political stability. On the macro-front, we are apprehensive about peso weakness, a deteriorating trade balance, political instability, and lack of progress on structural reform. In addition, we feel that many investors in Mexico are not focusing on true economic earnings and instead are relying on reported profits which are composed primarily of accounting gains. For many Mexican companies, increases in 1996 earnings will have come largely from a stronger peso rather than stronger operations. This invites the question: what happens to reported earnings when the peso weakens? Overall, we believe that structural reform in most Latin American countries is well on track. Continued progress on privatization, an ongoing focus on fiscal responsibility, and addressing much needed issues like labor reform are setting the stage for what we expect to be a prolonged period of stability and prosperity across much of the region. While there are no guarantees and investing in Latin America is not without risk, we believe this more favorable environment should be reflected in higher, more consistent economic growth and investment returns. IVY MANAGEMENT, INC. BOARD OF TRUSTEES LEGAL COUNSEL TRANSFER AGENT MANAGER John S. Anderegg, Jr. Dechert Price & Rhoads Ivy Mackenzie Ivy Management, Inc. Paul H. Broyhill Boston, MA Services Corp. Boca Raton, FL Keith J. Carlson P.O. Box 3022 Stanley Channick OFFICERS Boca Raton, FL 33431-0922 DISTRIBUTOR Frank W. DeFriece, Jr. Michael G. Landry, Chairman 1-800-777-6472 Ivy Mackenzie Roy J. Glauber Keith J. Carlson, President Distributors, Inc. Michael G. Landry James W. Broadfoot, Vice President AUDITORS Via Mizner Financial Plaza Joseph G. Rosenthal C. William Ferris, Coopers & Lybrand L.L.P. 700 South Federal Highway Richard Silverman Secretary/Treasurer Fort Lauderdale, FL Boca Raton, FL 33432 J. Brendan Swan CUSTODIAN Brown Brothers Harriman & Co. Boston, MA
[LOGO] IVY MACKENZIE 74 IVY LATIN AMERICA STRATEGY FUND PERFORMANCE COMMENTARY For the twelve months ended December 31, 1996, the Ivy Latin America Strategy Fund outperformed its most relevant benchmark, the MSCI Latin America "Free" Index, 24.2% compared to 22.2%. The Fund's outperformance is, in part, attributable to the difference in country weightings to the index. Industry and company selection were also a factor. PERFORMANCE COMPARISONS OF THE FUND SINCE INCEPTION (11/94) OF A $10,000 INVESTMENT CHART
- ----------------------------------------------------------------------------------- IVY LATIN AMERICA STRATEGY FUND FOR PERIOD ENDING 12/31/96 Class A*-with sales charge Class B** & C*** Average Annual Total Return Average Annual Total Return ------------------------------------------------------------- w/Reimb. w/o Reimb. w/Reimb. w/o Reimb. ------------------------------------------------------------- w/ w/o w/ w/o CDSC CDSC CDSC CDSC --------------------------------------- B: B: B: B: 1 Yr. 17.07% 14.83% 18.26% 23.26% 16.04% 21.04% - ----------------------------------------------------------------------------------- B: B: B: B: (8.84)% (7.40)% (13.85)% (12.41)% C: C: C: C: Since Inception (9.13)% (14.38)% 5.66% 6.66% 4.66% 5.66% - -----------------------------------------------------------------------------------
*Class A performance figures include the maximum sales charge of 5.75%. **Class B performance figures are calculated with and without the applicable Contingent Deferred Sales Charge (CDSC), up to a maximum of 5%. ***Class C performance figures are calculated with and without the applicable Contingent Deferred Sales Charge (CDSC) up to a maximum of 1%. Total returns in some periods were higher due to reimbursement of the Fund's expenses. See Financial Highlights. All charts and tables reflect past results and assume reinvestment of dividends and distributions from capital gains. Future results will, of course, be different. The investment return and principal value of the Ivy Latin America Strategy Fund will fluctuate and at redemption may be worth more or less than the amount of the original investment. The Morgan Stanley Latin America "Free" index is an unmanaged index of stocks which assumes reinvestment of dividends and, unlike Fund returns, does not reflect any fees or expenses. It is not possible to invest in an index. Performance is calculated for Class A shares of the Fund unless otherwise noted. The performance of the Fund's Class B and Class C shares will vary relative to that of Class A shares based on differences in their respective sales loads and fees. - -------------------------------------------------------------------------------- 75 PORTFOLIO OF INVESTMENTS DECEMBER 31, 1996
EQUITY SECURITIES -- 96.5% SHARES VALUE - ------------------------------------------------------ ARGENTINA -- 19.6% Acindar Ind Argentina S.A.*...................... 54,000 $ 75,613 Astra Cia Argentina De Petro (C.A.P.S.A.)............... 51,130 97,675 Banco Frances del Rio de la Plata S.A.................. 3,128 29,252 Bansud S.A.*................. 14,400 172,542 Central Costanera S.A. 'B'... 15,500 47,438 Cia Naviera Perez Companc.... 11,706 82,308 CIADEA S.A.*................. 17,113 81,303 Comercial del Plata S.A.*.... 11,800 30,213 Disco S.A. ADR*.............. 2,000 56,500 Dragados y Construcciones Argentina 'B'.............. 10,400 38,487 Inversiones y Representacion (IRSA)..................... 18,107 58,134 Juan Minnetti S.A............ 11,924 49,613 Quilmes Industrial S.A.*..... 8,750 79,844 Telecom Argentina............ 1,500 60,562 Telefonica de Argentina S.A. ADR........................ 3,000 77,625 Transportadora de Gas Sur.... 27,400 67,416 YPF S.A. Sponsored ADR....... 3,900 98,475 ---------- 1,203,000 ---------- BRAZIL -- 42.9% Aracruz Celulose S.A. ADR.... 7,700 63,525 Banco Bradesco S.A........... 14,936,032 108,236 Banco Nacional S.A........... 1,600,000 --(a) Brasmotor S.A................ 280,000 77,740 Casa Anglo................... 650,000 19,705 Centrais Electricas Brasileiras S.A.(Electrobras).......... 457,000 169,764 Centrais Electricas de Santa Catarina S.A. -- CELESC.... 83,201 77,668 Cia Brasileira de Distribuicao Grupo Pao de Acucar..................... 3,000,000 53,412 Cia Cervejaria Brahma Rights..................... 91,551 50,044 Companhia Cimento Portland Itau....................... 320,000 112,396 Companhia Energetica de Minas Gerais (CEMIG)............. 1,480,000 50,421 Companhia Siderurgica de Tubarao.................... 4,200,000 64,712 Companhia Paranaense de Energia -- Copel........... 6,800,000 71,985 Companhia Paulista de Forca e Luz -- CPFL................ 500,000 59,186 Companhia Paulista de Forca e Luz -- CPFL Rights*........ 2,905 100 Companhia Vale do Rio Doce Preferred Shares........... 2,900 55,818 Electricidade de Sao Paulo S.A. -- Eletropaulo................ 500,000 73,862 Elevadores Atlas S.A. 144A... 6,200 60,860 Iochpe Maxion S.A. -- ADR*... 3,000 4,125 Iparanga Brasileira de Petroleo................... 4,700,000 68,254 Itabanco..................... 326,000 141,180 Louis Dreyfus Citrus......... 1,300 42,510 Marco Polo S.A............... 610,000 102,146 OSA S.A...................... 9,700,000 53,256 Petroleo Brasileiro S.A. (Petrobras)................ 1,184,000 188,579 Refripar S.A................. 37,100,000 83,904 Tam Transport Aeros Reg...... 2,450,000 135,574 Telecomunicacoes Brasileiras S.A. ADR (Telebras)........ 2,300 175,950 Telecomunicacoes de Minas Gerais (Telemig)........... 364,861 45,120 Telecomunicacoes de Sao Paulo S.A. (Telesp).............. 6,856 1,481 Telecomunicacoes de Sao Paulo S.A. (Telesp) Preferred.... 310,000 $ 67,125 Telecomunicacoes do Parana (Telepar).................. 80,000 44,739 Telecomunicacoes do Rio Janeiro S.A. (Telerj)*..... 497,724 62,983 Uniao de Bancos Brasileiros................ 4,959,694 161,807 Usinas Siderurgicas de Minas Gerais (USIMINAS).......... 86,100,000 87,832 ---------- 2,635,999 ---------- CHILE -- 16.6% A.F.P. Provida S.A. ADR...... 3,100 58,125 Antofagasta Holdings PLC..... 9,900 57,602 Banco O'Higgins ADR.......... 1,700 39,312 Banco Santander Chile Sponsored ADR.............. 4,200 63,000 Chilgener S.A. ADR........... 1,300 27,138 Cia de Telecomunicaciones de Chile S.A. ADR*............ 700 70,788 Cristalerias de Chile Sponsored ADR.............. 4,500 82,125 Empresa Nacional Electricidad S.A. Sponsored ADR.............. 3,400 52,700 Genesis Chile Fund........... 5,500 202,125 Laboratorio Chile S.A. ADR... 3,400 56,100 Madeco S.A. ADR.............. 1,700 41,225 Maderas y Sinteticos Sociedad Anonima S.A. Sponsored ADR........................ 4,300 60,200 Quimica Minera Chile S.A. Sponsored ADR.............. 1,200 64,950 Santa Isabel S.A. ADR........ 2,700 61,088 Vina Concha y Toro S.A. ADR........................ 3,600 84,600 ---------- 1,021,078 ---------- COLOMBIA -- 4.2% Banco Ganadero S.A. ADR...... 2,400 63,300 Banco Industrial Colombiano ADR........................ 6,900 143,175 Cememtos Diamante ADR 144A... 4,100 53,300 ---------- 259,775 ---------- MEXICO -- 5.1% Banacci Series 'B'*.......... 4,000 8,364 Banacci Series 'L'*.......... 326 620 Cementos de Mexico S.A. 'B'........................ 19,800 76,966 Corporacion GEO, S.A. 'B'*... 22,912 107,837 Grupo Elektra, S.A. de C.V... 1,000 7,863 Groupo Posadas S.A. -- Series A*......................... 193,500 99,552 Vitro Sociedad Anonima ADR... 2,400 13,200 ---------- 314,402 ---------- PANAMA -- 3.3% Banco Latinamericano de Exportaciones S.A. -- E*... 1,700 86,275 Panamerican Beverages Inc.... 2,500 117,188 ---------- 203,463 ---------- PERU -- 4.8% Banco Wiese ADR.............. 10,200 59,925 CPT Telefonica del Peru S.A. -- B*................. 42,500 79,092 Credicorp Limited............ 5,162 95,497 Southern Peru Copper Corp.... 4,100 59,963 ---------- 294,477 ---------- TOTAL EQUITY SECURITIES -- 96.5% (COST -- $5,442,463)....... 5,932,194 ----------
(See Notes to Financial Statements) 76 PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 1996
CONVERTIBLE BONDS -- 0.6% PRINCIPAL VALUE - ------------------------------------------------------ Inversiones y Representaciones S.A. (IRSA) "Parcks" 144A Floating Rate, 4.50%, 07/04/03 (Cost -- $40,000).......... $ 40,000 $ 39,850 ---------- TOTAL INVESTMENTS -- 97.1% (Cost -- $5,482,463)(b).... 5,972,044 OTHER ASSETS, LESS LIABILITIES -- 2.9%........ 179,725 ---------- NET ASSETS -- 100%........... $6,151,769 ========== ADR -- American Depository Receipt * Non-income producing security. (a) Security valued in good faith by the Valuation Committee of the Board of Trustees. The cost of this security at December 31, 1996 aggregated $39,649. See Note 1 of the Notes to the Financial Statements. (b) Cost is approximately the same for Federal income tax purposes. OTHER INFORMATION: At December 31, 1996, net unrealized appreciation based on cost for financial statement and Federal income tax purposes is as follows: Gross unrealized appreciation........ $ 873,878 Gross unrealized depreciation........ (384,297) ---------- Net unrealized appreciation...... $ 489,581 ========== Purchases and sales of securities other than short-term obligations aggregated $3,746,893 and $762,161, respectively, for the period ended December 31, 1996.
(See Notes to Financial Statements) 77 STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 1996 ASSETS Investments, at value (identified cost -- $5,482,463)....... $5,972,044 Cash........................................................ 145,436 Receivables Fund shares sold.......................................... 6,988 Dividends................................................. 10,117 Manager for expense reimbursement......................... 6,516 Deferred organization expenses.............................. 35,188 Other assets................................................ 4,301 ---------- Total assets.............................................. 6,180,590 ---------- LIABILITIES Payables Fund shares repurchased................................... 5,217 Management fee............................................ 5,159 12b-1 service and distribution fees....................... 2,691 Other payables to related parties......................... 3,836 Accrued expenses............................................ 11,918 ---------- Total liabilities......................................... 28,821 ---------- NET ASSETS.................................................. $6,151,769 ========== CLASS A Net asset value and redemption price per share ($4,015,716/471,791 shares outstanding)................... $ 8.51 ========== Maximum offering price per share ($8.51 X 100/94.25)*....... $ 9.03 ========== CLASS B Net asset value and offering price per share ($2,024,689/238,781 shares outstanding)**................. $ 8.48 ========== CLASS C Net asset value and offering price per share ($111,364/13,169 shares outstanding)**.................... $ 8.46 ========== NET ASSETS CONSIST OF Capital paid-in........................................... $5,662,800 Accumulated net realized loss on investments.............. (578) Net unrealized appreciation on investments and foreign currency transactions................................... 489,547 ---------- NET ASSETS.................................................. $6,151,769 ==========
*On sales of more than $50,000 the offering price is reduced. **Redemption price per share is equal to the net asset value per share less any applicable contingent deferred sales charge. (See Notes to Financial Statements) 78 STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996 INVESTMENT INCOME Dividends, net of $5,008 foreign taxes withheld........... $102,477 Interest.................................................. 800 -------- 103,277 -------- EXPENSES Management fee............................................ $42,550 Transfer agent............................................ 14,143 Administrative services fee............................... 4,255 Custodian fees............................................ 36,449 Blue Sky fee.............................................. 22,681 Auditing and accounting fees.............................. 14,811 Shareholder reports....................................... 3,345 Amortization of organization expenses..................... 12,489 Fund accounting........................................... 16,731 Trustees' fees............................................ 4,753 12b-1 service and distribution fees....................... 20,797 Legal..................................................... 21,964 Other..................................................... 3,593 -------- 218,561 Expenses reimbursed by manager............................ (99,630) Fees paid indirectly...................................... (15,167) -------- Net expenses............................................ 103,764 -------- NET INVESTMENT LOSS......................................... (487) -------- NET REALIZED AND UNREALIZED GAIN ON INVESTMENT TRANSACTIONS Net realized gain on investments and foreign currency transactions............................................ 58,873 Net unrealized appreciation during the period on investments and foreign currency transactions........... 660,305 -------- Net gain on investment transactions..................... 719,178 -------- INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $718,691 ========
(See Notes to Financial Statements) 79 STATEMENT OF CHANGES IN NET ASSETS FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995 ---------- ---------- INCREASE IN NET ASSETS Operations Net investment income (loss).............................. $ (487) $ 353 Net realized gain (loss) on investments and foreign currency transactions................................... 58,873 (42,053) Net unrealized appreciation (depreciation) during the period on investments and foreign currency transactions............................................ 660,305 (56,614) ---------- ---------- Net increase (decrease) resulting from operations....... 718,691 (98,314) ---------- ---------- Class A distributions From net realized gain.................................... (17,179) -- From capital paid-in...................................... -- (7,792) ---------- ---------- Total distributions to Class A shareholders............. (17,179) (7,792) ---------- ---------- Class C distributions From net realized gain.................................... (370) -- ---------- ---------- Total distributions to Class C shareholders............. (370) -- ---------- ---------- Fund share transactions (Note 5) Class A................................................... 1,503,651 1,545,520 Class B................................................... 1,138,431 565,794 Class C................................................... 109,902 -- ---------- ---------- Net increase resulting from Fund share transactions..... 2,751,984 2,111,314 ---------- ---------- TOTAL INCREASE IN NET ASSETS................................ 3,453,126 2,005,208 NET ASSETS Beginning of period....................................... 2,698,643 693,435 ---------- ---------- END OF PERIOD............................................. $6,151,769 $2,698,643 ========== ==========
(See Notes to Financial Statements) 80 FINANCIAL HIGHLIGHTS
FOR THE PERIOD FOR THE NOVEMBER 1, 1994 CLASS A YEAR ENDED (COMMENCEMENT) DECEMBER 31, TO DECEMBER 31, --------------------- ---------------- 1996 1995 1994 SELECTED PER SHARE DATA ------ ------- ---------------- Net asset value, beginning of period........................ $ 6.88 $ 8.37 $ 10.00 ------ ------- -------- Income (loss) from investment operations Net investment income(a).................................. .01 .01 -- Net realized and unrealized gain (loss) on investment transactions............................................ 1.66 (1.45) (1.63) ------ ------- -------- Total from investment operations........................ 1.67 (1.44) (1.63) ------ ------- -------- Less distributions From net realized gain.................................... .04 -- -- From capital paid-in...................................... -- .05 -- ------ ------- -------- Total distributions..................................... .04 .05 -- ------ ------- -------- Net asset value, end of period.............................. $ 8.51 $ 6.88 $ 8.37 ====== ======= ======== Total return(%)............................................. 24.22(c) (17.28)(c) (16.10)(b) RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands).................... $4,016 $ 2,015 $ 571 Ratio of expenses to average net assets With expense reimbursement(%)(e).......................... 2.55 2.61 2.20(d) Without expense reimbursement(%)(e)....................... 4.89 9.26 16.22(d) Ratio of net investment income(%)(a)........................ .24 .22 .21(d) Portfolio turnover rate(%).................................. 20 45 82(d) Average commission rate(f).................................. $.0002 N/A N/A
FOR THE PERIOD FOR THE NOVEMBER 1, 1994 CLASS B YEAR ENDED (COMMENCEMENT) DECEMBER 31, TO DECEMBER 31, --------------------- ---------------- 1996 1995 1994 SELECTED PER SHARE DATA ------ ------- ---------------- Net asset value, beginning of period........................ $ 6.88 $ 8.37 $ 10.00 ------ ------- -------- Income (loss) from investment operations Net investment loss(a).................................... (.03) (.02) (.01) Net realized and unrealized gain (loss) on investment transactions............................................ 1.63 (1.47) (1.62) ------ ------- -------- Total from investment operations........................ 1.60 (1.49) (1.63) ------ ------- -------- Net asset value, end of period.............................. $ 8.48 $ 6.88 $ 8.37 ====== ======= ======== Total return(%)............................................. 23.26(c) (17.90)(c) (16.20)(b) RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands).................... $2,025 $ 684 $ 122 Ratio of expenses to average net assets With expense reimbursement(%)(e).......................... 3.33 3.36 2.95(d) Without expense reimbursement(%)(e)....................... 5.67 10.01 16.97(d) Ratio of net investment loss to average net assets(%)(a).... (.54) (.53) (.54)(d) Portfolio turnover rate(%).................................. 20 45 82(d) Average commission rate(f).................................. $.0002 N/A N/A
(See Notes to Financial Statements) 81 FINANCIAL HIGHLIGHTS (CONTINUED)
FOR THE PERIOD APRIL 30, 1996 CLASS C (COMMENCEMENT) TO DECEMBER 31, ---------------- 1996 SELECTED PER SHARE DATA ---------------- Net asset value, beginning of period........................ $ 7.96 -------- Income from investment operations Net investment loss(a).................................... (.02) Net realized and unrealized gain on investment transactions............................................ .55 -------- Total from investment operations........................ .53 -------- Less distributions From net realized gain.................................... .03 -------- Total distributions..................................... .03 -------- Net asset value, end of period.............................. $ 8.46 ======== Total return(%)............................................. 6.66(b) RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands).................... $ 111 Ratio of expenses to average net assets With expense reimbursement(%)(e).......................... 3.46(d) Without expense reimbursement(%)(e)....................... 5.80(d) Ratio of net investment loss to average net assets(%)(a).... (.68)(d) Portfolio turnover rate(%).................................. 20 Average commission rate(f).................................. $ .0002 (a) Net investment income (loss) is net of expenses reimbursed by manager. (b) Total return represents aggregate total return and does not reflect a sales charge. (c) Total return does not reflect a sales charge. (d) Annualized. (e) Beginning in 1995, total expenses include any fees paid indirectly. The ratio of expenses to average net assets with expense reimbursement has been restated for 1995. (f) For fiscal years beginning on or after September 1, 1995, a fund is required to disclose its average commission rate per share for security trades on which commissions are charged. This amount may vary from period to period and fund to fund depending on the mix of trades executed in various markets where trading practices and commission rate structures may differ.
(See Notes to Financial Statements) 82 NOTES TO FINANCIAL STATEMENTS Ivy Latin America Strategy Fund (the Fund), is a non-diversified series of shares of Ivy Fund. The shares of beneficial interest are assigned no par value and an unlimited number of shares of Class A, Class B and Class C are authorized. Ivy Fund was organized as a Massachusetts business trust under a Declaration of Trust dated December 21, 1983 and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. The policies are in conformity with generally accepted accounting principles. Preparation of the financial statements includes the use of management estimates. Actual results could differ from those estimates. SECURITY VALUATION -- Securities for which market quotations are readily available are valued at market. Short-term obligations and commercial paper are valued at amortized cost, which approximates market. Debt securities (other than short-term obligations and commercial paper) are valued on the basis of valuations furnished by a pricing service authorized by the Board of Trustees (the Board), which determines valuations based upon market transactions for normal, institutional-size trading units of such securities. For valuation purposes, quotations of foreign securities in foreign currencies are translated into U.S. dollar equivalents using the foreign exchange quotation in effect. All other securities are valued at their fair value as determined in good faith by the Valuation Committee of the Board. As of December 31, 1996, securities valued in good faith by the Valuation Committee of the Board were determined to have no market value, and have been noted as such in the investment portfolio. SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Security transactions are accounted for on the trade date. Dividend income is recorded on the ex-dividend date, and interest income is accrued on a daily basis. Realized gains and losses from security transactions are calculated on an identified cost basis. FEDERAL INCOME TAXES -- The Fund intends to qualify for tax treatment applicable to regulated investment companies under the Internal Revenue Code, as amended, and distribute all of its taxable income to its shareholders. Therefore, no provision has been recorded for Federal income or excise taxes. The Fund earned foreign source dividends of $108,235. These dividends were subject to withholding tax in the amount of $5,008. The Fund intends to elect to pass through to its shareholders their proportionate share of such taxes. Shareholders may apply their proportionate share of such foreign taxes paid as either a tax credit or itemized deduction. DISTRIBUTIONS TO SHAREHOLDERS -- Distributions from net investment income and net realized capital gains, if any, are declared in December. An additional distribution may be declared if necessary to avoid the payment of a four percent Federal excise tax. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency transactions from foreign investment activity are translated into U.S. dollars on the following basis: (i) market value of securities, and dividends and interest receivable are translated at the closing daily rate of exchange; and, (ii) purchases and sales of investment securities are translated at the rate at which related foreign contracts are obtained or at the exchange rate prevailing on the date of the transaction. The Fund does not isolate that portion of net gain or loss on investments which is due to changes in foreign exchange rates from that which is due to changes in market prices of securities held. Such fluctuations are included with net realized and unrealized gain or loss on investments. Exchange gains or losses from currency translation of other assets and liabilities, if significant, are reported as a separate component of Net realized and unrealized gain (loss) on investment transactions. Section 988 of the Internal Revenue Code provides that gains and losses on certain transactions attributable to fluctuations in foreign currency exchange rates must be treated as ordinary income or loss. Accordingly, distributions for financial statement purposes may differ from the characterization of such distributions determined on a Federal income tax basis. DEFERRED ORGANIZATION EXPENSES -- Expenses incurred by the Fund in connection with its organization have been deferred and are being amortized on a straight-line basis over a five year period. RECLASSIFICATIONS -- The timing and characterization of certain income and net capital gain distributions are determined annually in accordance with Federal tax regulations which may differ from generally accepted accounting principles. These differences primarily relate to investments in foreign denominated securities and certain securities sold at a loss. As a result, Net investment income (loss) and Net realized gain (loss) on investments and foreign currency transactions for a reporting period may differ significantly in amount and character from distributions during such period. Accordingly, the Fund may make reclassifications among certain of its capital accounts without impacting the net asset value of the Fund. FEES PAID INDIRECTLY -- The Fund has an arrangement whereby a certain percentage of quarterly cumula- 83 NOTES TO FINANCIAL STATEMENTS (CONTINUED) tive credits resulting from cash balances on deposit with the custodian are used to offset custody fees, including transaction and out-of-pocket expenses. For the year, custody fees were reduced by $15,167 under this arrangement. 2. RELATED PARTIES Ivy Management, Inc. (IMI) is the Manager and Investment Adviser of the Fund. For its services, IMI receives a fee monthly at the annual rate of 1.00% of the Fund's average net assets. Currently, IMI voluntarily limits the Fund's total operating expenses (excluding taxes, 12b-1 fees, brokerage commissions, interest, litigation and indemnification expenses, and other extraordinary expenses) to an annual rate of 1.95% of its average net assets. The voluntary expense limitation may be terminated or revised at any time. Mackenzie Investment Management Inc. (MIMI), of which IMI is a wholly owned subsidiary, provides certain administrative, accounting and pricing services for the Fund. For those services, the Fund pays MIMI fees plus certain out-of-pocket expenses. Such fees are reflected as Administrative services fee and Fund accounting in the Statement of Operations. Ivy Mackenzie Distributors, Inc. (IMDI), a wholly owned subsidiary of MIMI, is the underwriter and distributor of the Fund's shares, and as such, purchases shares from the Fund at net asset value to settle orders from investment dealers. For the year ended December 31, 1996, the net amount of underwriting discount retained by IMDI was $10,932. Under Service and Distribution Plans, the Fund reimburses IMDI for service fee payments made to brokers at an annual rate not to exceed .25% of its average net asset value. Class B and Class C shares are also subject to an ongoing distribution fee at an annual rate of .75% of the average net asset value attributable to Class B and Class C shares. IMDI may use such distribution fee for purposes of advertising and marketing shares of the Fund. Such fees of $7,251, $13,229 and $317 for Class A, Class B and Class C, respectively, are reflected as 12b-1 service and distribution fees in the Statement of Operations. Ivy Mackenzie Services Corp. (IMSC), a wholly owned subsidiary of MIMI, is the transfer and shareholder servicing agent for the Fund. For those services, the Fund pays IMSC a monthly fee plus certain out-of-pocket expenses. Such fees and expenses of $9,954, $4,049 and $140 for Class A, Class B and Class C, respectively, are reflected as Transfer agent in the Statement of Operations. 3. BOARD'S COMPENSATION Trustees who are not affiliated with IMI or MIMI receive compensation from the Fund, which is reflected as Trustees' fees in the Statement of Operations. 4. CONCENTRATION OF CREDIT RISK The Fund primarily invests in equity securities of companies in Latin America. Therefore, the Fund is more susceptible to factors adversely affecting securities in Latin America than is an equity fund that is not concentrated in such securities to the same extent. 5. FUND SHARE TRANSACTIONS Fund share transactions for Class A, Class B and Class C were as follows:
YEAR ENDED YEAR ENDED DECEMBER 31, 1996 DECEMBER 31, 1995 ---------------------- ---------------------- CLASS A SHARES AMOUNT SHARES AMOUNT - ------- -------- ----------- -------- ----------- Sold.......................... 321,787 $ 2,648,064 442,664 $ 2,994,237 Issued on reinvestment of distributions................ 1,568 13,506 834 5,772 Repurchased................... (144,190) (1,157,919) (219,064) (1,454,489) -------- ----------- -------- ----------- Net increase.................. 179,165 $ 1,503,651 224,434 $ 1,545,520 ======== =========== ======== ===========
YEAR ENDED YEAR ENDED DECEMBER 31, 1996 DECEMBER 31, 1995 ---------------------- ---------------------- CLASS B SHARES AMOUNT SHARES AMOUNT - ------- -------- ----------- -------- ----------- Sold.......................... 164,935 $ 1,349,112 86,962 $ 581,025 Repurchased................... (25,510) (210,681) (2,256) (15,231) -------- ----------- -------- ----------- Net increase.................. 139,425 $ 1,138,431 84,706 $ 565,794 ======== =========== ======== ===========
FROM APRIL 30, 1996 (COMMENCEMENT) TO DECEMBER 31, 1996 ---------------------- CLASS C SHARES AMOUNT - ------- -------- ----------- Sold.......................... 13,400 $ 111,758 Issued on reinvestment of distributions................ 5 42 Repurchased................... (236) (1,898) -------- ----------- Net increase.................. 13,169 $ 109,902 ======== ===========
84 REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders and Board of Trustees of Ivy Latin America Strategy Fund (the Fund) We have audited the accompanying statement of assets and liabilities of the Fund, including the schedule of portfolio investments, as of December 31, 1996, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 1996, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Fund as of December 31, 1996, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated, in conformity with generally accepted accounting principles. COOPERS & LYBRAND L.L.P. Fort Lauderdale, Florida February 14, 1997 02IVLAX123196 85 DECEMBER 31, 1996 IVY FUNDS IVY NEW CENTURY FUND ANNUAL REPORT This report and the financial statements contained herein are submitted for the general information of the shareholders. This report is not authorized for distribution to prospective investors unless preceded or accompanied by an effective prospectus. Ivy Management, Inc. Via Mizner Financial Plaza 700 South Federal Hwy. Boca Raton, FL 33432 1-800-456-5111 Market Commentary: The Ivy New Century Fund performed well in 1996, outperforming its most relevant benchmarks-the Morgan Stanley Capital International (MSCI) Emerging Markets "Free" Index and its Lipper Analytical Services' peer group. For the twelve months ended December 31, 1996 the Fund's total return on a net asset value basis was 11.83%. This compares to 6.03% for the MSCI index and 11.21% for its peer group. (For the Fund's total return with sales charge, and performance commentary, please refer to the following page) The Fund's greatest concentration of equities is in the high-growth nations of Asia (52%) where our research confirms economies are growing at double and triple the rates of the world's more mature nations. The largest single country investment is in Hong Kong (21%). We believe its transition to Chinese rule should go very smoothly as China will take every step to protect its own investments in Hong Kong and to show the world it can manage on par with the British. Additionally, without good relations with Hong Kong, China risks losing access to much needed foreign direct investment and the possibility of peacefully integrating Taiwan. Taiwan, an economy almost twice the size of Hong Kong, is an important manufacturing center whose significance should not be overlooked. As for other Asian countries, we believe the "Asian Miracle" is not over. Rather, we believe declining growth rates are primarily cyclical and not a sudden end to the region's growth prospects. After three years of above- trend growth, we believe this cyclical down-turn is necessary and expect regional economies to re-emerge with improving fundamentals. According to our research, prospects for Latin America are improving as a result of broad-based economic restructuring at various stages of development in each of the major Latin American countries. The Ivy New Century Fund holds 23% of its assets in Latin America with the highest concentration divided between Argentina, Brazil and Chile (5%, 6% and 8% respectively). In Argentina, the current recovery is being led by export growth and investment, rather than consumer spending. We see this as an indication that recovery will be healthy and sustainable. Brazil remains one of the most attractive Latin American markets in terms of corporate earnings growth and valuations. And Chile, which is furthest along the economic reform curve, is clearly one of the best managed countries in the region. The Ivy New Century Fund remains underweight in Mexico (1%), where we believe valuations have yet to reflect the true risk to investors. We maintain our conviction that growth rates among the world's emerging economies should, surpass those in the more developed world in the years to come. Predicted low interest rates and low inflation in the US should be a steadying force and may actually precipitate the redirection of investments toward high-growth nations. Investors with longer term horizons and in pursuit of higher returns should consider that historically there has been a direct relationship between economic growth and stock market returns. IVY MANAGEMENT, INC. BOARD OF TRUSTEES LEGAL COUNSEL TRANSFER AGENT MANAGER John S. Anderegg, Jr. Dechert Price & Rhoads Ivy Mackenzie Ivy Management, Inc. Paul H. Broyhill Boston, MA Services Corp. Boca Raton, FL Keith J. Carlson P.O. Box 3022 Stanley Channick OFFICERS Boca Raton, FL 33431-0922 DISTRIBUTOR Frank W. DeFriece, Jr. Michael G. Landry, Chairman 1-800-777-6472 Ivy Mackenzie Roy J. Glauber Keith J. Carlson, President Distributors, Inc. Michael G. Landry James W. Broadfoot, Vice President AUDITORS Via Mizner Financial Plaza Joseph G. Rosenthal C. William Ferris, Coopers & Lybrand L.L.P. 700 South Federal Highway Richard Silverman Secretary/Treasurer Fort Lauderdale, FL Boca Raton, FL 33432 J. Brendan Swan CUSTODIAN Brown Brothers Harriman & Co. Boston, MA
[LOGO] IVY MACKENZIE 86 IVY NEW CENTURY FUND PERFORMANCE COMMENTARY With investor sentiment improving, the Ivy New Century Fund performed well in 1996. For the twelve months ended December 31, 1996 the Fund's total return was 11.83% as compared to 6.03% for the MSCI Emerging Markets "Free" Index. In the Lipper universe of diversified emerging market funds, the average fund returned 11.21% for the same period. Country selection and respective weightings in the Fund contributed to its strong performance. For example, Hong Kong, which represents 22% of the Ivy New Century Fund was up 28.9% in 1996; the Fund's allocation to Eastern and Central Europe (8%), where markets across the region were strong, was also a factor. PERFORMANCE COMPARISONS OF THE FUND SINCE INCEPTION (11/94) OF A $10,000 INVESTMENT CHART All charts and tables reflect past results and assume reinvestment of dividends and distributions from capital gains. Future results will, of course, be different. The investment return and principal value of the Ivy New Century Fund will fluctuate and at redemption may be worth more or less than the amount of the original investment. The Morgan Stanley Emerging Markets "Free" index is an unmanaged index of stocks which assumes reinvestment of dividends and, unlike Fund returns, does not reflect any fees or expenses. It is not possible to invest in an index. Performance is calculated for Class A shares of the Fund unless otherwise noted. The performance of the Fund's Class B and Class C shares will vary relative to that of Class A shares based on differences in their respective sales loads and fees. ONE- AND TWO-YEAR CUMULATIVE PERFORMANCE CHART The chart above reflects performance at Net Asset Value.
- ----------------------------------------------------------------------------------- IVY NEW CENTURY FUND FOR PERIOD ENDING 12/31/96 Class A*-with sales charge Class B** & C*** Average Annual Total Return Average Annual Total Return ------------------------------------------------------------- w/Reimb. w/o Reimb. w/Reimb. w/o Reimb. ------------------------------------------------------------- w/ w/o w/ w/o CDSC CDSC CDSC CDSC --------------------------------------- B: B: B: B: 1 Yr. 5.40% 4.98% 5.95% 10.95% 5.61% 10.61% - ----------------------------------------------------------------------------------- B: B: B: B: (.81)% .57% (3.47)% (2.12)% C: C: C: C: Since Inception (1.39)% (4.10)% .73% 1.73% .63% 1.63% - -----------------------------------------------------------------------------------
*Class A performance figures include the maximum sales charge of 5.75%. **Class B performance figures are calculated with and without the applicable Contingent Deferred Sales Charge (CDSC) up to a maximum of 5%. ***Class C performance figures are calculated with and without the applicable Contingent Deferred Sales Charge (CDSC) up to a maximum of 1%. Total returns in some periods were higher due to reimbursement of the Fund's expenses. See Financial Highlights. - -------------------------------------------------------------------------------- 87 PORTFOLIO OF INVESTMENTS DECEMBER 31, 1996
EQUITY SECURITIES -- 95.8% SHARES VALUE - ------------------------------------------------------ AFRICA -- 5.2% - ----------------------------- SOUTH AFRICA -- 5.2% Anglo American Corporation S.A........................ 6,900 $ 379,851 Nampak Ltd................... 13,700 54,478 Rembrandt Group Ltd.......... 15,000 133,886 South African Breweries Ltd........................ 14,735 373,297 ---------- 941,512 ---------- ASIA/PACIFIC -- 51.9% - ----------------------------- CHINA -- 2.1% Huaneng Power International, Inc. ADR*.................. 1,200 27,000 Inner Mongolia Erdos Cashmere Products Co. 'B'........... 64,000 40,320 Qingling Motors Company Ltd........................ 67,000 37,030 Shanghai Dazhong Taxi Company 'B'........................ 56,400 46,586 Shanghai Diesel Engine Co. Ltd. 'B'*.................. 81,200 38,489 Shanghai Posts & Telecommunications Equipment 'B'.............. 43,000 18,146 Shanghai Shangling Electric Appliances Co. Ltd. 'B'.... 101,600 44,094 Shenzen Konka Electronic Group Limited -- 'B'............. 42,900 48,529 Tingyi (Cayman Islands) Holding Co.*............... 128,000 33,510 Zhenhai Refining and Chemical Co. Limited................ 100,000 36,846 ---------- 370,550 ---------- HONG KONG -- 21.2% C.P. Pokphand................ 400,000 156,432 Cheung Kong (Holdings) Ltd... 47,000 417,744 Citic Pacific................ 29,000 168,339 Esprit Asia Holdings Ltd..... 350,000 154,977 Gold Peak Industries......... 306,000 209,670 Guangdong Investments........ 302,000 290,873 Guangdong Tannery Ltd*....... 9,600 2,420 HSBC Holdings................ 17,441 373,172 Hong Kong Telecommunications Ltd........................ 11,700 190,125 Jardine Strategic............ 109,062 394,804 Jardine Strategic Warrants*.................. 562 225 Li & Fung.................... 376,000 332,980 National Mutual Asia Ltd..... 228,000 216,652 New World Development Company Ltd........................ 63,000 425,566 Peregrine Investment Holdings Ltd........................ 121,000 207,272 Peregrine Investment Holdings Ltd. Warrants*............. 14,900 4,768 Union Bank of Hong Kong Ltd........................ 218,000 274,790 ---------- 3,820,809 ---------- INDONESIA -- 3.5% Astra International -- Foreign Registered................. 29,000 79,788 Bank Dagang Nasional Indonesia.................. 86,250 87,619 PT Citatah -- Foreign Registered*................ 65,000 45,397 PT Matahari Putra Prima -- Foreign Registered................. 73,000 84,974 PT Mulia Industrindo -- Foreign Registered................. 119,950 124,393 PT Telekomunikasi Indonesia -- Foreign Registered................. 46,000 79,344 PT Tempo Scan Pacific -- Foreign Registered................. 46,000 84,698 Semen Gresik -- Foreign Registered................. 12,000 38,603 ---------- 624,816 ---------- ISRAEL -- 1.9% Koor Industries Ltd.......... 20,200 343,400 ---------- KOREA -- 4.3% Hana Bank.................... 1,708 $ 25,384 Hyundai Motor Company Ltd. GDR........................ 6,362 47,715 Hyundai Motor Company Ltd. GDR 144A................... 500 3,750 Keum Kang Development Ind. Company*................... 3,800 62,472 Korea Electric Power Corporation................ 10,400 213,200 Pohang Iron & Steel Ltd. ADR........................ 9,800 198,450 Samsumg Electronics.......... 2,000 107,629 Samsung Electronics Co. -- GDR*................ 31 1,259 Samsung Electronics Co. -- GDR 144A REGD....... 662 12,247 Shinhan Bank................. 1,270 20,383 Ssangyong Oil Refining Co. Ltd........................ 3,600 78,770 ---------- 771,259 ---------- MALAYSIA -- 4.8% Arab Malaysian Corporation Berhad*.................... 15,000 74,836 Arab Malaysian Finance Foreign.................... 29,000 161,908 DCB Holdings Berhad.......... 22,400 76,721 Genting Berhad............... 16,000 110,235 Land & General Berhad........ 32,000 76,658 Lion Land Berhad*............ 100,000 103,346 London & Pacific Insurance Company Berhad............. 7,200 44,759 Malayan Banking Berhad....... 4,000 44,348 Technology Resources Industries Berhad*......... 54,000 106,482 Tenaga Nasional Berhad....... 14,000 67,076 ---------- 866,369 ---------- PHILIPPINES -- 3.0% Bacnotan Cement Corporation*............... 180,000 92,395 Benpres Holdings Corp. GDR*....................... 15,000 112,500 Metropolitan Bank & Trust Company.................... 4,500 111,217 Philippine National Bank..... 8,900 105,751 Universal Robina Corporation................ 201,000 112,728 ---------- 534,591 ---------- SINGAPORE -- 2.6% Clipsal Industries Limited... 56,000 203,840 DBS Land Limited............. 26,000 95,724 Elec & Eltek International Co. Ltd.................... 23,000 87,400 Jardine Matheson Holdings Ltd........................ 13,500 89,100 ---------- 476,064 ---------- TAIWAN -- 3.1% ROC Taiwan Fund*............. 25,000 256,250 Taiwan Fund Inc.............. 13,750 305,938 ---------- 562,188 ---------- THAILAND -- 5.3% Asia Credit Company PLC...... 21,100 84,350 Bank of Ayudhya Ltd.......... 43,450 102,524 Bangkok Bank Public Company Ltd........................ 9,500 91,888 Dhana Siam Finance & Securities Public Company Ltd........................ 32,000 76,131 Krung Thai Bank Public Company Limited............ 34,300 66,219 Krung Thai Thanakit PLC...... 24,000 61,310 Nava Finance & Securities Public Company Limited..... 35,000 48,118 Robinson Department Store Public Company Limited -- Foreign Registered................. 104,000 201,794 Siam Cement Public Co. Ltd. (The)...................... 3,300 103,479 Siam Makro Public Company Limited -- Foreign Registered................. 29,800 125,522 ---------- 961,335 ----------
(See Notes to Financial Statements) 88 PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 1996
EQUITY SECURITIES SHARES VALUE - ------------------------------------------------------ VIETNAM -- 0.1% Beta Vietnam Fund*........... 1,850 $ 15,262 Beta Vietnam Fund Warrants*.................. 370 925 The Vietnam Fund Limited*.... 1,100 9,075 ---------- 25,262 ---------- EUROPE -- 13.3% - ----------------------------- AUSTRIA -- 0.5% Julius Meinl International AG......................... 3,000 85,797 ---------- CZECH REPUBLIC -- 2.1% CKD Praha Holding a.s.*...... 4,600 69,098 Komercni Banka a.s.*......... 900 74,901 Komercni Banka I.F.*......... 1,300 32,849 Restitucni Invest Fund*...... 1,000 31,071 SPT Telekom a.s.............. 200 24,871 Skoda Plzen a.s.*............ 2,000 70,883 Zivnobanka -- Investicni Fond....................... 4,400 74,982 ---------- 378,655 ---------- FRANCE -- 0.5% Lyonnaise Des Eaux S.A....... 749 69,573 Schneider S.A.*.............. 609 28,103 ---------- 97,676 ---------- GERMANY -- 0.1% Volkswagen AG................ 40 16,547 ---------- HUNGARY -- 1.9% BorsodChem Rt GDR*........... 6,000 147,900 Pick Szeged Rt............... 3,200 189,446 ---------- 337,346 ---------- POLAND -- 0.3% Bank Rozwoju Eksportu S.A.... 1,550 46,600 ---------- PORTUGAL -- 2.3% Companhia De Seguros Mundial Confianca S.A.*............ 8,000 79,871 Investec-Consultoria Internacional S.A.*........ 2,100 64,928 Lusomundo SGPS S.A.*......... 5,800 66,723 Lusomundo SGPS S.A. Preferred Shares..................... 800 7,297 Portugal Telecom S.A. ADR.... 4,200 118,650 Sonae Industria E Investimentos.............. 2,400 75,903 ---------- 413,372 ---------- RUSSIA -- 2.5% LUKoil Holding ADR........... 6,500 303,875 Mosenergo Sponsored ADR 144A....................... 5,200 152,750 ---------- 456,625 ---------- SPAIN -- 0.8% Telefonica de Espana ADR..... 2,200 152,350 ---------- SWITZERLAND -- 1.4% Holderbank Financiere Glarus AG Bearer.................. 283 201,492 Nestle AG Registered......... 49 52,441 ---------- 253,933 ---------- TURKEY -- 0.9% Cimentas A.S................. 224,690 23,915 Otokar Otobus Karoseri....... 455,000 69,485 Turkiye Garanti Bankasi A.S........................ 1,422,000 64,490 ---------- 157,890 ---------- NORTH AMERICA -- 2.0% - ----------------------------- MEXICO -- 0.6% Banacci Series 'B'*.......... 7,200 15,055 Banacci Series 'L'*.......... 587 1,116 Cementos de Mexico S.A. 'B'........................ 3,600 13,994 Grupo Mexicano Series 'L' ADS*....................... 1,400 2,275 Grupo Posadas S.A. -- 'A'*... 83,785 43,106 Telefonos de Mexico S.A. ADR Class L.................... 1,000 33,000 ---------- 108,546 ---------- UNITED STATES -- 1.4% Amway Asia Pacific Ltd....... 1,700 $ 72,037 Basic Petroleum International, Ltd......... 2,400 79,200 Semi-Tech Corporation........ 18,000 66,319 The Singer Company NV........ 1,300 29,088 ---------- 246,644 ---------- SOUTH AND CENTRAL AMERICA -- 23.4% - ----------------------------- ARGENTINA -- 5.4% Acindar Industria Argentina S.A.*...................... 60,000 84,015 Bansud S.A.*................. 14,200 170,146 CIADEA S.A.*................. 47,960 227,850 Cia Naviera Perez Compancciones 'B'.......... 18,920 133,031 Disco S.A. ADR*.............. 2,600 73,450 Inversiones y Representaciones S.A. (IRSA)..................... 22,000 70,632 Quilmes Industrial S.A....... 12,400 113,150 YPF S.A. Sponsored ADR....... 4,100 103,525 ---------- 975,799 ---------- BRAZIL -- 6.1% Aracruz Celulose S.A. ADR.... 7,700 63,525 Banco Nacional S.A........... 2,100,000 --(a) Brasmotor S.A................ 360,000 99,952 Casa Anglo Brasileiras S.A.*...................... 700,000 21,220 Centrais Electricas Brasileiras S.A. (Electrobras) -- B......... 138,000 51,264 Centrais Electricas de Santa Catarina S.A. -- CELESC.... 25,000 23,338 Companhia Cimento Portland Itau....................... 180,000 63,223 Companhia Energetica de Minas Gerais (CEMIG)............. 800,000 27,254 Companhia Energetica de Sao Paulo -- CESP.............. 900,000 35,087 Companhia Paranaense de Energia -- Copel........... 2,200,000 23,289 Companhia Paulista de Forca e Luz -- CPFL................ 270,000 31,960 Companhia Paulista de Forca e Luz -- CPFL Rights*........ 1,568 54 Companhia Siderurgica de Tubarao.................... 4,900,000 75,497 Electricidade de Sao Paulo S.A. -- Eletropaulo........ 250,000 36,931 Itabanco..................... 266,000 115,196 Marcopolo S.A. -- B.......... 400,000 66,981 OSA S.A...................... 5,200,000 28,550 Petrobras.................... 610,000 97,156 Refripar S.A.*............... 24,000,000 54,278 Tam Transport Aereos......... 1,000,000 55,336 Telecomunicacoes Brasileiras S.A. (Telebras) ADR........ 1,600 122,400 ---------- 1,092,491 ---------- CHILE -- 7.7% A.F.P. Provida S.A. ADR...... 2,000 37,500 Antofagasta Holdings PLC..... 10,700 62,257 Banco Santander Chile Sponsored ADR.............. 2,000 30,000 Chilgener S.A. ADR........... 2,700 56,362 Embotelladora Andina S.A. Sponsored ADR.............. 3,400 103,700 Empresa Nacional Electricidad S.A. Sponsored ADR......... 4,900 75,950 Genesis Chile Fund........... 16,937 622,435 Laboratorio Chile ADR........ 4,000 66,000 Santa Isabel S.A. ADR........ 6,000 135,750 Sociedad Quimica y Minera de Chile ADR.................. 1,400 75,775 Vina Concha y Toro S.A. ADR........................ 5,500 129,250 ---------- 1,394,979 ----------
(See Notes to Financial Statements) 89 PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 1996
EQUITY SECURITIES SHARES VALUE - ---------------------------------------------------------------- COLOMBIA -- 2.2% Banco Ganadero S.A. ADR.... 4,700 $ 123,962 Banco Industrial Colombiano ADR...................... 8,400 174,300 Cementos Diamante ADR 144A..................... 8,200 106,600 ----------- 404,862 ----------- PANAMA -- 0.3% Panamerican Beverages, Inc -- A................. 1,200 56,250 ----------- PERU -- 1.7% Banco Wiese ADR............ 18,800 110,450 CPT Telefonica del Peru S.A. -- 'B'*............. 60,000 111,660 Credicorp Ltd.............. 4,890 90,465 ----------- 312,575 ----------- TOTAL EQUITY SECURITIES (Cost -- $16,312,592).... 17,287,092 -----------
CONVERTIBLE CORPORATE BONDS -- 0.6% PRINCIPAL VALUE - ---------------------------------------------------------------- (IRSA) "Parcks" 144A Floating Rate, 4.50%, 07/04/03................. $ 60,000 $ 59,775 Piltel International Holding Corp., 1.75%, 07/17/06................. 50,000 49,250 ----------- TOTAL CORPORATE BONDS (Cost -- $110,000)....... 109,025 ----------- TOTAL INVESTMENTS -- 96.4% (Cost -- $16,422,592)(b)... 17,396,117 OTHER ASSETS, LESS LIABILITIES -- 3.6%...... 651,025 ----------- NET ASSETS -- 100%......... $18,047,142 ===========
ADR -- American Depository Receipt ADS -- American Depository Share GDR -- Global Depository Receipt NV -- Non-voting * Non-income producing security. (a) Security valued in good faith by the Valuation Committee of the Board of Trustees. The cost of this security at December 31, 1996 aggregated $42,742. See Note 1 of the Notes to the Financial Statements. (b) Cost is approximately the same for Federal income tax purposes. OTHER INFORMATION: At December 31, 1996, net unrealized appreciation based on cost for financial statement and Federal income tax purposes is as follows: Gross unrealized appreciation...................... $2,014,700 Gross unrealized depreciation...................... (1,041,175) ---------- Net unrealized appreciation.................... $ 973,525 ==========
Purchases and sales of securities other than short-term obligations aggregated $15,413,487 and $2,700,980, respectively, for the period ended December 31, 1996. (See Notes to Financial Statements) 90 STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 1996 ASSETS Investments, at value (identified cost -- $16,422,592)...... $17,396,117 Cash........................................................ 602,356 Receivables Fund shares sold.......................................... 61,644 Dividends and interest.................................... 32,166 Deferred organization expenses.............................. 27,929 Other assets................................................ 4,660 ----------- Total assets.............................................. 18,124,872 ----------- LIABILITIES Payables Investments purchased..................................... 31,309 Management fee............................................ 14,759 12b-1 service and distribution fees....................... 8,849 Other payables to related parties......................... 7,727 Accrued expenses............................................ 15,086 ----------- Total liabilities......................................... 77,730 ----------- NET ASSETS.................................................. $18,047,142 =========== CLASS A Net asset value and redemption price per share ($9,924,633/981,082 shares outstanding)................... $ 10.12 =========== Maximum offering price per share ($10.12 X 100/94.25)*...... $ 10.74 =========== CLASS B Net asset value and offering price per share ($6,268,911/624,281 shares outstanding)**................. $ 10.04 =========== CLASS C Net asset value and offering price per share ($1,853,598/184,186 shares outstanding)**................. $ 10.06 =========== NET ASSETS CONSIST OF Capital paid-in........................................... $17,120,124 Accumulated net realized loss on investments.............. (46,396) Net unrealized appreciation on investments and foreign currency transactions................................... 973,414 ----------- NET ASSETS.................................................. $18,047,142 ===========
*On sales of more than $50,000 the offering price is reduced. **Redemption price per share is equal to the net asset value per share less any applicable contingent deferred sales charge. STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996 Investment income Dividends, net of $10,373 foreign taxes withheld.......... $213,717 Interest.................................................. 1,594 -------- 215,311 -------- Expenses Management fee............................................ $109,125 Transfer agent............................................ 25,994 Administrative services fee............................... 10,912 Custodian fees............................................ 54,121 Blue Sky fee.............................................. 22,521 Auditing and accounting fees.............................. 14,436 Shareholder reports....................................... 3,898 Amortization of organization expenses..................... 9,900 Fund accounting........................................... 25,951 Trustees' fees............................................ 4,750 12b-1 service and distribution fees....................... 56,539 Legal..................................................... 21,812 Other..................................................... 4,342 -------- 364,301 Expenses reimbursed by manager............................ (67,600) Fees paid indirectly...................................... (27,390) -------- Net expenses............................................ 269,311 -------- NET INVESTMENT LOSS......................................... (54,000) -------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS Net realized loss on investments and foreign currency transactions............................................ (46,120) Net unrealized appreciation during the period on investments and foreign currency transactions........... 948,226 -------- Net gain on investment transactions..................... 902,106 -------- INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $848,106 ========
(See Notes to Financial Statements) 91 STATEMENT OF CHANGES IN NET ASSETS FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995 ----------- ---------- INCREASE IN NET ASSETS Operations Net investment income (loss).............................. $ (54,000) $ 1,544 Net realized gain (loss) on investments and foreign currency transactions................................... (46,120) 36,055 Net unrealized appreciation during the period on investments............................................. 948,226 112,073 ----------- ---------- Net increase resulting from operations.................. 848,106 149,672 ----------- ---------- Class A distributions From net investment income................................ -- (1,544) In excess of net investment income........................ (984) -- From net realized gain.................................... -- (28,547) In excess of net realized gain............................ -- (9,760) ----------- ---------- Total distributions to Class A shareholders............. (984) (39,851) ----------- ---------- Class B distributions In excess of net investment income........................ (623) -- From net realized gain.................................... -- (7,427) ----------- ---------- Total distributions to Class B shareholders............. (623) (7,427) ----------- ---------- Class C distributions In excess of net investment income........................ (186) -- ----------- ---------- Total distributions to Class C shareholders............. (186) -- ----------- ---------- Fund share transactions (Note 4) Class A................................................... 5,914,397 2,771,336 Class B................................................... 5,096,850 774,690 Class C................................................... 1,808,893 -- ----------- ---------- Net increase resulting from Fund share transactions..... 12,820,140 3,546,026 ----------- ---------- TOTAL INCREASE IN NET ASSETS................................ 13,666,453 3,648,420 NET ASSETS Beginning of period....................................... 4,380,689 732,269 ----------- ---------- END OF PERIOD............................................. $18,047,142 $4,380,689 =========== ==========
(See Notes to Financial Statements) 92 FINANCIAL HIGHLIGHTS
FOR THE PERIOD FOR THE NOVEMBER 1, 1994 CLASS A YEAR ENDED (COMMENCEMENT) DECEMBER 31, TO DECEMBER 31, -------------------- ---------------- 1996 1995 1994 SELECTED PER SHARE DATA ------ ------ ---------------- Net asset value, beginning of period........................ $ 9.05 $ 8.64 $ 10.00 ------ ------ -------- Income (loss) from investment operations Net investment income (loss)(a)........................... (.02) .01 -- Net realized and unrealized gain (loss) on investment transactions............................................ 1.09 .54 (1.36) ------ ------ -------- Total from investment operations........................ 1.07 .55 (1.36) ------ ------ -------- Less distributions From net investment income................................ -- .01 -- From net realized gain.................................... -- .10 -- In excess of net realized gain............................ -- .03 -- ------ ------ -------- Total distributions..................................... -- .14 -- ------ ------ -------- Net asset value, end of period.............................. $10.12 $ 9.05 $ 8.64 ====== ====== ======== Total return(%)............................................. 11.83(b) 6.40(b) (13.50)(c) RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands).................... $9,925 $3,435 $ 611 Ratio of expenses to average net assets With expense reimbursement(%)(e).......................... 2.45 2.55 2.20(d) Without expense reimbursement(%)(e)....................... 2.82 7.18 20.74(d) Ratio of net investment income (loss) to average net assets(%)(a).............................................. (.23) .24 .52(d) Portfolio turnover rate(%).................................. 27 14 -- Average commission rate(f).................................. $.0018 N/A N/A
FOR THE PERIOD FOR THE NOVEMBER 1, 1994 CLASS B YEAR ENDED (COMMENCEMENT) DECEMBER 31, TO DECEMBER 31, ------------------- ---------------- 1996 1995 1994 SELECTED PER SHARE DATA ------ ----- ---------------- Net asset value, beginning of period........................ $ 9.05 $8.64 $ 10.00 ------ ----- -------- Income (loss) from investment operations Net investment loss(a).................................... (.06) (.02) -- Net realized and unrealized gain (loss) on investment transactions............................................ 1.05 .51 (1.36) ------ ----- -------- Total from investment operations........................ .99 .49 (1.36) ------ ----- -------- Less distributions From net realized gain.................................... -- .08 -- ------ ----- -------- Total distributions..................................... -- .08 -- ------ ----- -------- Net asset value, end of period.............................. $10.04 $9.05 $ 8.64 ====== ===== ======== Total return (%)............................................ 10.95(b) 5.62(b) (13.60)(c) RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands).................... $6,269 $ 945 $ 121 Ratio of expenses to average net assets With expense reimbursement(%)(e).......................... 3.20 3.30 2.95(d) Without expense reimbursement(%)(e)....................... 3.57 7.93 21.49(d) Ratio of net investment loss to average net assets(%)(a).... (.98) (.51) (.23)(d) Portfolio turnover rate(%).................................. 27 14 -- Average commission rate(f).................................. $.0018 N/A N/A
(See Notes to Financial Statements) 93 FINANCIAL HIGHLIGHTS (CONTINUED)
FOR THE PERIOD APRIL 30, 1996 CLASS C (COMMENCEMENT) TO DECEMBER 31, ---------------- 1996 SELECTED PER SHARE DATA ---------------- Net asset value, beginning of period........................ $ 9.89 ------ Income from investment operations Net investment loss(a).................................... (.02) Net realized and unrealized gain on investment transactions............................................ .19 ------ Total from investment operations........................ .17 ------ Net asset value, end of period.............................. $10.06 ====== Total return(%)............................................. 1.73(c) RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands).................... $1,854 Ratio of expenses to average net assets With expense reimbursement(%)(e).......................... 3.16(d) Without expense reimbursement(%)(e)....................... 3.53(d) Ratio of net investment loss to average net assets(%)(a).... (.94)(d) Portfolio turnover rate(%).................................. 27 Average commission rate(f).................................. $.0018
(a) Net investment income (loss) is net of expenses reimbursed by manager. (b) Total return does not reflect a sales charge. (c) Total return represents aggregate total return and does not reflect a sales charge. (d) Annualized. (e) Beginning in 1995, total expenses include any fees paid indirectly. The ratio of expenses to average net assets with expense reimbursement has been restated for 1995. (f) For fiscal years beginning on or after September 1, 1995, a fund is required to disclose its average commission rate per share for security trades on which commissions are charged. This amount may vary from period to period and fund to fund depending on the mix of trades executed in various markets where trading practices and commission rate structures may differ. (See Notes to Financial Statements) 94 NOTES TO FINANCIAL STATEMENTS Ivy New Century Fund (the Fund), is a diversified series of shares of Ivy Fund. The shares of beneficial interest are assigned no par value and an unlimited number of shares of Class A, Class B and Class C are authorized. Ivy Fund was organized as a Massachusetts business trust under a Declaration of Trust dated December 21, 1983 and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. The policies are in conformity with generally accepted accounting principles. Preparation of the financial statements includes the use of management estimates. Actual results could differ from those estimates. SECURITY VALUATION -- Securities for which market quotations are readily available are valued at market. Short-term obligations and commercial paper are valued at amortized cost, which approximates market. Debt securities (other than short-term obligations and commercial paper) are valued on the basis of valuations furnished by a pricing service authorized by the Board of Trustees (the Board), which determines valuations based upon market transactions for normal, institutional-size trading units of such securities. For valuation purposes, quotations of foreign securities in foreign currencies are translated into U.S. dollar equivalents using the foreign exchange quotation in effect. All other securities are valued at their fair value as determined in good faith by the Valuation Committee of the Board. As of December 31, 1996, securities valued in good faith by the Valuation Committee of the Board were determined to have no market value, and have been noted as such in the investment portfolio. SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Security transactions are accounted for on the trade date. Dividend income is recorded on the ex-dividend date, and interest income is accrued on a daily basis. Realized gains and losses from security transactions are calculated on an identified cost basis. FEDERAL INCOME TAXES -- The Fund intends to qualify for tax treatment applicable to regulated investment companies under the Internal Revenue Code, as amended, and distribute all of its taxable income to its shareholders. Therefore, no provision has been recorded for Federal income or excise taxes. The Fund earned foreign source dividends of $230,738. These dividends were subject to withholding tax in the amount of $10,373. The Fund intends to elect to pass through to its shareholders their proportionate share of such taxes. Shareholders may apply their proportionate share of such foreign taxes paid as either a tax credit or itemized deduction. The Fund has a net tax-basis capital loss carryforward of approximately $46,000 as of December 31, 1996, which may be applied against realized net taxable gain of each succeeding fiscal year until fully utilized or until the expiration date, whichever occurs first. The carryforward expires in 2004. DISTRIBUTIONS TO SHAREHOLDERS -- Distributions from net investment income and net realized capital gains, if any, are declared in December. An additional distribution may be declared if necessary to avoid the payment of a four percent Federal excise tax. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency transactions from foreign investment activity are translated into U.S. dollars on the following basis: (i) market value of securities, and dividends and interest receivable are translated at the closing daily rate of exchange; and, (ii) purchases and sales of investment securities are translated at the rate at which related foreign contracts are obtained or at the exchange rate prevailing on the date of the transaction. The Fund does not isolate that portion of net gain or loss on investments which is due to changes in foreign exchange rates from that which is due to changes in market prices of securities held. Such fluctuations are included with net realized and unrealized gain or loss on investments. Exchange gains or losses from currency translation of other assets and liabilities, if significant, are reported as a separate component of Net realized and unrealized gain (loss) on investment transactions. Section 988 of the Internal Revenue Code provides that gains and losses on certain transactions attributable to fluctuations in foreign currency exchange rates must be treated as ordinary income or loss. Accordingly, distributions for financial statement purposes may differ from the characterization of such distributions determined on a Federal income tax basis. DEFERRED ORGANIZATION EXPENSES -- Expenses incurred by the Fund in connection with its organization have been deferred and are being amortized on a straight-line basis over a five year period. RECLASSIFICATIONS -- The timing and characterization of certain income and net capital gain distributions are determined annually in accordance with Federal tax regulations which may differ from generally accepted accounting principles. These differences primarily relate to investments in foreign denominated securities, passive foreign investment companies, and certain securities sold at a loss. As a result, Net investment income (loss) and Net realized gain (loss) on investments and foreign currency transactions for a reporting period may 95 NOTES TO FINANCIAL STATEMENTS (CONTINUED) differ significantly in amount and character from distributions during such period. Accordingly, the Fund may make reclassifications among certain of its capital accounts without impacting the net asset value of the Fund. FEES PAID INDIRECTLY -- The Fund has an arrangement with its custodian whereby a certain percentage of quarterly cumulative credits resulting from cash balances on deposit with the custodian are used to offset custody fees, including transaction and out-of-pocket expenses. For the year, custody fees were reduced by $27,390 under this arrangement. 2. RELATED PARTIES Ivy Management, Inc. (IMI) is the Manager and Investment Adviser of the Fund. For its services, IMI receives a fee monthly at the annual rate of 1.00% of the Fund's average net assets. Currently, IMI voluntarily limits the Fund's total operating expenses (excluding taxes, 12b-1 fees, brokerage commissions, interest, litigation and indemnification expenses, and other extraordinary expenses) to an annual rate of 1.95% of its average net assets. The voluntary expense limitation may be terminated or revised at any time. Mackenzie Investment Management Inc. (MIMI), of which IMI is a wholly owned subsidiary, provides certain administrative, accounting and pricing services for the Fund. For those services, the Fund pays MIMI fees plus certain out-of-pocket expenses. Such fees are reflected as Administrative services fee and Fund accounting in the Statement of Operations. Ivy Mackenzie Distributors, Inc. (IMDI), a wholly owned subsidiary of MIMI, is the underwriter and distributor of the Fund's shares, and as such, purchases shares from the Fund at net asset value to settle orders from investment dealers. For the year ended December 31, 1996, the net amount of underwriting discount retained by IMDI was $28,765. Under Service and Distribution Plans, the Fund reimburses IMDI for service fee payments made to brokers at an annual rate not to exceed .25% of its average net asset value. Class B and Class C shares are also subject to an ongoing distribution fee at an annual rate of .75% of the average net asset value attributable to Class B and Class C shares. IMDI may use such distribution fee for purposes of advertising and marketing shares of the Fund. Such fees of $17,525, $35,654 and $3,360 for Class A, Class B and Class C, respectively, are reflected as 12b-1 service and distribution fees in the Statement of Operations. Ivy Mackenzie Services Corp. (IMSC), a wholly owned subsidiary of MIMI, is the transfer and shareholder servicing agent for the Fund. For those services, the Fund pays IMSC a monthly fee plus certain out-of-pocket expenses. Such fees and expenses of $16,682, $8,634 and $678 for Class A, Class B and Class C, respectively, are reflected as Transfer agent in the Statement of Operations. 3. BOARD'S COMPENSATION Trustees who are not affiliated with IMI or MIMI receive compensation from the Fund, which is reflected as Trustees' fees in the Statement of Operations. 4. FUND SHARE TRANSACTIONS Fund share transactions for Class A, Class B and Class C were as follows:
YEAR ENDED YEAR ENDED DECEMBER 31, 1996 DECEMBER 31, 1995 ---------------------- -------------------- CLASS A SHARES AMOUNT SHARES AMOUNT - ------- -------- ----------- ------- ---------- Sold............................ 770,476 $ 7,578,070 347,829 $3,107,775 Issued on reinvestment of distributions.................. -- -- 4,320 38,927 Repurchased..................... (169,014) (1,663,673) (43,244) (375,366) -------- ----------- ------- ---------- Net increase.................... 601,462 $ 5,914,397 308,905 $2,771,336 ======== =========== ======= ==========
YEAR ENDED YEAR ENDED DECEMBER 31, 1996 DECEMBER 31, 1995 ---------------------- -------------------- CLASS B SHARES AMOUNT SHARES AMOUNT - ------- -------- ----------- ------- ---------- Sold............................ 605,573 $ 5,942,047 95,175 $ 816,806 Issued on reinvestment of distributions.................. 39 388 798 7,193 Repurchased..................... (85,800) (845,585) (5,547) (49,309) -------- ----------- ------- ---------- Net increase.................... 519,812 $ 5,096,850 90,426 $ 774,690 ======== =========== ======= ==========
FROM APRIL 30, 1996 (COMMENCEMENT) TO DECEMBER 31, 1996 ----------------------- CLASS C SHARES AMOUNT - ------- -------- ----------- Sold............................ 186,226 $ 1,829,278 Issued on reinvestment of distributions.................. 14 142 Repurchased..................... (2,054) (20,527) -------- ----------- Net increase.................... 184,186 $ 1,808,893 ======== ===========
96 REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders and Board of Trustees of Ivy New Century Fund (the Fund) We have audited the accompanying statement of assets and liabilities of the Fund, including the schedule of portfolio investments, as of December 31, 1996, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 1996, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Fund as of December 31, 1996, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated, in conformity with generally accepted accounting principles. COOPERS & LYBRAND L.L.P. Fort Lauderdale, Florida February 14, 1997 02IVCAX123196 97 DECEMBER 31, 1996 (IVY FUNDS LOGO) IVY MONEY MARKET FUND MARKET COMMENTARY: Overall, fixed income markets in 1996 were marked by unfulfilled expectations and interest rate volatility. Following a quarter point decrease in the discount rate in January 1996, there were several indicators pointing to increased economic growth--increased wage pressure, higher petroleum and grain prices, a strong dollar and full employment--and bond markets responded by pushing interest rates higher. Later in the year, market participants watched guardedly for inflation to rear its head. However, US Gross Domestic Product (GDP) and the Consumer Price Index (CPI) continued to reflect moderate growth which resulted in interest rates coming down, only to rise again by year end. Looking at the US economy, we expect to see continued moderate economic growth with low and contained inflation. We believe the Federal Reserve Board will tighten monetary policy if it perceives an inflationary threat from rising labor costs. Labor costs, the primary factor that drives inflation, continue to be pressured by the ongoing substitution of capital (in the form of technology) for labor, in both the manufacturing and service industries. These costs have been declining for the past ten years in developed markets and have just recently begun to creep up. Tighter labor markets will result in higher wage costs; however, we don't expect these higher costs to be passed down to consumers. We believe the more likely scenario will be corporate profitability will fall victim to these higher costs. If labor costs increase too much, companies always have the option of moving operations to a lower cost location and/or continuing to automate. This scenario is more likely to happen in a world of low trades barriers, which is the world we live in now. Additionally, if the Federal Reserve Board were to perceive rising labor costs as a threat to price stability, the financial markets would expect preemptive tightening by the Federal Reserve Board. Higher interest rates resulting from this action would dampen economic growth, which would ultimately send interest rates lower. We expect interest rates to remain in a trading range over the next year. And, we will continue our efforts to seek the best yield opportunities for Ivy Money Market Fund. IVY MANAGEMENT INC. BOARD OF TRUSTEES LEGAL COUNSEL TRANSFER AGENT MANAGER John S. Anderegg, Jr. Dechert Price & Rhoads Ivy Mackenzie Ivy Management, Inc. Paul H. Broyhill Boston, MA Services Corp. Boca Raton, FL Keith J. Carlson P.O. Box 3022 Stanley Channick OFFICERS Boca Raton, FL 33431-0922 DISTRIBUTOR Frank W. DeFriece, Jr. Michael G. Landry, Chairman 1-800-777-6472 Ivy Mackenzie Roy J. Glauber Keith J. Carlson, President Distributors, Inc. Michael G. Landry James W. Broadfoot, Vice President AUDITORS Via Mizner Financial Plaza Joseph G. Rosenthal C. William Ferris, Coopers & Lybrand L.L.P. 700 South Federal Highway Richard Silverman Secretary/Treasurer Fort Lauderdale, FL Boca Raton, FL 33432 J. Brendan Swan CUSTODIAN Brown Brothers Harriman & Co. Boston, MA
98 PORTFOLIO OF INVESTMENTS DECEMBER 31, 1996
COMMERCIAL PAPER -- 34.4% PRINCIPAL VALUE - ------------------------------------------------------ Abbott Laboratories, 5.25%, 01/24/97................. $ 850,000 $ 849,876 Associates Corp. of North America, 5.28%, 01/03/97.......... 700,000 697,741 Chevron Oil Finance Company, 5.33%, 02/05/97................. 900,000 895,470 Clorox Co., 5.25%, 03/06/97................. 900,000 891,731 Colonial Pipeline Co., 5.28%, 01/10/97.......... 800,000 799,061 General Electric Capital Corp., 5.29%, 01/27/97... 900,000 896,694 Kellogg Co., 5.25%, 01/29/97................. 1,000,000 1,004,825 National Rural Utilities, 5.25%, 03/05/97................. 800,000 792,767 Prudential Funding Corp., 5.30%, 01/06/97.......... 850,000 849,499 Yale University, 5.25%, 03/04/97................. 900,000 891,994 ----------- TOTAL COMMERCIAL PAPER (Cost -- $8,569,658)..... 8,569,658 ----------- U.S. GOVERNMENT AGENCIES AND OBLIGATIONS -- 55.4% - --------------------------- Federal National Mortgage Association, 5.25%, 01/02/97................. 7,100,000 7,100,000 Federal National Mortgage Association, 5.45%, 01/15/97................. 1,700,000 1,696,654 Student Loan Marketing Association, 4.76%, 01/02/97(a).............. 1,000,000 999,355 Tennessee Valley Authority, 5.16%, 01/22/97.......... $ 2,000,000 $ 1,994,267 U.S. Treasury Bill, 4.95%, 01/09/97................. 2,000,000 1,998,075 ----------- TOTAL U.S. GOVERNMENT AGENCIES AND OBLIGATIONS (Cost -- $13,788,351).... 13,788,351 ----------- TOTAL INVESTMENTS -- 89.8% (Cost -- $22,358,009)(b)... 22,358,009 OTHER ASSETS, LESS LIABILITIES -- 10.2%..... 2,549,042 ----------- NET ASSETS -- 100%......... $24,907,051 ===========
(a) Floating rate note; reflects variable rate as of the latest reset date, December 17, 1996. (b) Cost is the same for Federal income tax purposes. (See Notes to Financial Statements) 99 STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 1996 ASSETS Investments, at value (identified cost -- $22,358,009)...... $22,358,009 Cash........................................................ 2,529,035 Receivables -- Manager for expense reimbursement............ 26,555 Other assets................................................ 25,766 ----------- Total assets.............................................. 24,939,365 ----------- LIABILITIES Payables Distributions to shareholders............................. 4,296 Management fee............................................ 6,800 Other payables to related parties......................... 14,111 Accrued expenses............................................ 7,107 ----------- Total liabilities......................................... 32,314 ----------- Net assets.................................................. $24,907,051 =========== CLASS A Net asset value, offering price, and redemption price per share ($21,359,067/21,359,067 shares outstanding)......... $ 1.00 =========== CLASS B Net asset value and offering price per share ($3,474,373/3,474,373 shares outstanding)*................ $ 1.00 =========== CLASS C Net asset value and offering price per share ($73,611/73,611 shares outstanding)*...................................... $ 1.00 =========== NET ASSETS CONSIST OF Capital paid-in........................................... $24,907,051 ----------- NET ASSETS.................................................. $24,907,051 ===========
* Redemption price per share is equal to the net asset value per share less any applicable contingent deferred sales charge. STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996 INVESTMENT INCOME Interest.................................................. $1,065,070 ---------- EXPENSES Management fee............................................ $ 80,302 Transfer agent............................................ 109,444 Administrative services fee............................... 20,075 Custodian fees............................................ 15,865 Blue Sky fees............................................. 38,502 Auditing and accounting fees.............................. 11,428 Shareholder reports....................................... 4,983 Fund accounting........................................... 27,774 Trustees' fees............................................ 4,628 Legal..................................................... 31,132 Other..................................................... 25,496 ---------- 369,629 Expenses reimbursed by manager............................ (199,546) ---------- Net expenses............................................ 170,083 ---------- NET INVESTMENT INCOME AND INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........................................... $ 894,987 ==========
(See Notes to Financial Statements) 100 STATEMENT OF CHANGES IN NET ASSETS FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995 ----------- ----------- INCREASE (DECREASE) IN NET ASSETS Operations Net investment income....................................... $ 894,987 $ 1,359,236 ----------- ----------- Net increase resulting from operations...................... 894,987 1,359,236 ----------- ----------- Distributions to shareholders from net investment income Class A................................................... (794,505) (1,359,236) Class B................................................... (95,901) -- Class C................................................... (4,581) -- ----------- ----------- Total distributions to shareholders..................... (894,987) (1,359,236) ----------- ----------- Fund share transactions (Note 4) Class A................................................... (3,249,695) (2,218,643) Class B................................................... 3,474,373 -- Class C................................................... 73,611 -- ----------- ----------- Net increase (decrease) resulting from fund share transactions........................................... 298,289 (2,218,643) ----------- ----------- TOTAL INCREASE (DECREASE) IN NET ASSETS..................... 298,289 (2,218,643) NET ASSETS Beginning of period....................................... 24,608,762 26,827,405 ----------- ----------- END OF PERIOD............................................. $24,907,051 $24,608,762 =========== ===========
(See Notes to Financial Statements) 101 FINANCIAL HIGHLIGHTS
CLASS A FOR THE YEAR ENDED DECEMBER 31, ----------------------------------------------------------- 1996 1995 1994 1993 1992 SELECTED PER SHARE DATA ------- ------- ------- ------- ------- Net asset value, beginning of period........................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ------- ------- ------- ------- ------- Income from investment operations Net investment income(a).................................. .04 .05 .04 .02 .03 Less distributions From net investment income................................ (.04) (.05) (.04) (.02) (.03) ------- ------- ------- ------- ------- Net asset value, end of period.............................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ======= ======= ======= ======= ======= Total return(%)............................................. 4.47 4.80 4.21 2.42 2.81 RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands).................... $21,359 $24,609 $26,827 $25,782 $18,839 Ratio of expenses to average net assets With expense reimbursement(%)............................. .86 .85 .85 .85 .85 Without expense reimbursement(%).......................... 1.86 1.39 1.24 1.56 1.45 Ratio of net investment income to average net assets(%)(a).............................................. 4.47 4.91 3.29 2.22 2.75
CLASS B FOR THE YEAR ENDED DECEMBER 31, ------------------ 1996 SELECTED PER SHARE DATA ------------------ Net asset value, beginning of period........................ $ 1.00 ------ Income from investment operations Net investment income(a).................................. .05 Less distributions From net investment income................................ (.05) ------ Net asset value, end of period.............................. $ 1.00 ====== Total return(%)............................................. 4.57 RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands).................... $3,474 Ratio of expenses to average net assets With expense reimbursement(%)............................. .77 Without expense reimbursement(%).......................... 1.77 Ratio of net investment income to average net assets(%)(a).............................................. 4.57
FROM APRIL 30, 1996 CLASS C (COMMENCEMENT) TO DECEMBER 31, ------------------- 1996 SELECTED PER SHARE DATA ------------------- Net asset value, beginning of period........................ $ 1.00 ------ Income from investment operations Net investment income(a).................................. .03 Less distributions From net investment income................................ (.03) ------ Net asset value, end of period.............................. $ 1.00 ====== Total return(%)............................................. 4.78(b) RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands).................... $ 74 Ratio of expenses to average net assets With expense reimbursement(%)............................. .56(c) Without expense reimbursement(%).......................... 1.56(c) Ratio of net investment income to average net assets(%)(a).............................................. 4.78(c)
(a) Net investment income is net of expenses reimbursed by manager. (b) Total return represents aggregate total return. (c) Annualized. Note: The seven day yield as of December 31, 1996 was 4.38%. The thirty day yield as of December 31, 1996 was 4.40%. (See Notes to Financial Statements) 102 NOTES TO FINANCIAL STATEMENTS Ivy Money Market Fund (the Fund), is a diversified series of shares of Ivy Fund. The shares of beneficial interest are assigned no par value and an unlimited number of shares of Class A, Class B and Class C are authorized. Ivy Fund was organized as a Massachusetts business trust under a Declaration of Trust dated December 21, 1983 and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. The policies are in conformity with generally accepted accounting principles. Preparation of the financial statements includes the use of management estimates. Actual results could differ from those estimates. SECURITY VALUATION -- Short-term obligations and commercial paper are valued at amortized cost, which approximates market. SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Security transactions are accounted for on the trade date. Interest income is accrued on a daily basis. FEDERAL INCOME TAXES -- The Fund intends to qualify for tax treatment applicable to regulated investment companies under the Internal Revenue Code, as amended, and distribute all of its taxable income to its shareholders. Therefore, no provision has been recorded for Federal income or excise taxes. DISTRIBUTIONS TO SHAREHOLDERS -- Distributions of net investment income are declared daily, and are paid at the earlier of redemption or the last business day of the month. 2. RELATED PARTIES Ivy Management, Inc. (IMI) is the Manager and Investment Adviser of the Fund. For its services, IMI receives a fee monthly at the annual rate of .40% of the Fund's average net assets. Currently, IMI voluntarily limits the Fund's total operating expenses (excluding taxes, brokerage commissions, interest, litigation and indemnification expenses, and other extraordinary expenses) to an annual rate of 0.85% of its average net assets. The voluntary expense limitation may be terminated or revised at any time. Mackenzie Investment Management Inc. (MIMI), of which IMI is a wholly owned subsidiary, provides certain administrative, accounting and pricing services for the Fund. For those services, the Fund pays MIMI fees plus certain out-of-pocket expenses. Such fees are reflected as Administrative services fee and Fund accounting in the Statement of Operations. Ivy Mackenzie Services Corp. (IMSC), a wholly owned subsidiary of MIMI, is the transfer and shareholder servicing agent for the Fund. For those services, the Fund pays IMSC a monthly fee plus certain out-of-pocket expenses. Such fees and expenses of $99,400, $9,798 and $246 for Class A, Class B and Class C, respectively, are reflected as Transfer agent in the Statement of Operations. 3. BOARD'S COMPENSATION Trustees who are not affiliated with IMI or MIMI receive compensation from the Fund, which is reflected as Trustees' fees in the Statement of Operations. 4. FUND SHARE TRANSACTIONS Fund share transactions and equivalent dollar amounts for Class A, Class B and Class C were as follows:
YEAR ENDED YEAR ENDED CLASS A DECEMBER 31, 1996 DECEMBER 31, 1995 - ------- ----------------- ----------------- Sold............................ 67,870,418 67,708,114 Issued on reinvestment of distributions.................. 682,663 1,245,290 Repurchased..................... (71,802,776) (71,172,047) ----------- ----------- Net decrease.................... (3,249,695) (2,218,643) =========== ===========
FROM JANUARY 1, 1996 (COMMENCEMENT) TO CLASS B DECEMBER 31, 1996 - ------- -------------------- Sold.............................................. 24,768,901 Issued on reinvestment of distributions........... 68,338 Repurchased....................................... (21,362,866) ----------- Net increase...................................... 3,474,373 ===========
FROM APRIL 30, 1996 (COMMENCEMENT) TO CLASS C DECEMBER 31, 1996 - ------- -------------------- Sold.............................................. 668,573 Issued on reinvestment of distributions........... 2,270 Repurchased....................................... (597,232) ----------- Net increase...................................... 73,611 ===========
103 REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders and Board of Trustees of Ivy Money Market Fund (the Fund) We have audited the accompanying statement of assets and liabilities of the Fund, including the schedule of portfolio investments, as of December 31, 1996, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 1996, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Fund as of December 31, 1996, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated, in conformity with generally accepted accounting principles. COOPERS & LYBRAND L.L.P. Fort Lauderdale, Florida February 14, 1997 02IMMFX123196 104 DECEMBER 31, 1996 IVY FUNDS IVY CHINA REGION FUND ANNUAL REPORT This report and the financial statements contained herein are submitted for the general information of the shareholders. This report is not authorized for distribution to prospective investors unless preceded or accompanied by an effective prospectus. Ivy Management, Inc. Via Mizner Financial Plaza 700 South Federal Hwy. Boca Raton, FL 33432 1-800-456-5111 MARKET COMMENTARY: The Ivy China Region Fund performed well in 1996, returning 20.5% on a net asset value basis. This compares to a total return of 11.1% for the Lipper Analytical Services universe of Pacific ex-Japan funds. The performance of the Ivy China Region Fund was driven by Hong Kong, which on average represented about 50% of the Fund's assets in 1996 and was up 35% for the year. The Hang Seng Index (Hong Kong) performed well on the back of a strong US stock market, low US interest rates, improving corporate earnings in Hong Kong, and a gradual change in the perception of investors of Hong Kong/China risk. (For the Fund's total return with sales charge, and performance commentary, please refer to the following page.) The strategy for the Ivy China Region Fund remained unchanged throughout the year. At year end, approximately 67% of its assets were invested in Hong Kong, 16% in mainland Chinese companies, 6% in Taiwan, and the rest (11%) in Southeast Asian companies selected for what we believe to be their outstanding value or their exposure to the China region. The Fund's investments in mainland China also performed well as local investors aggressively participated in both Shanghai and Shenzhen markets. The B-shares in Shanghai and Shenzhen also performed well. Peoples Republic of China (PRC) investors, who found better value in foreign shares than their domestic A-shares, bought B-shares throughout the year, driving prices higher. Also, as China's credit policy loosened in 1996, investors were buying stocks in anticipation of better corporate profits in the months ahead. Elsewhere in Asia, recent reports of failing export growth have raised concern the region, where export strength forms the backbone of economic policy, may not only be losing competitiveness but may, in fact, be at the start of a structural economic slowdown. Given the tremendous economic success Asia has experienced in only 20 or 30 years, we believe it is unlikely progress will stop here. According to our research, the Likelihood of Asian countries making a successful transition from low value-added manufacturing to high value-added manufacturing has been increased by governmental leaders' greater emphasis on education, the increasing requirement for technology transfer agreements by corporations and economic policy makers' insistence on domestic savings programs to fund future development. These factors, combined with the tremendous work ethic found throughout the region, should allow Asia to continue on its prosperous path. We remain optimistic on the prospects for the China region. We believe Hong Kong's transition back to Chinese rule on July 1, 1997 will be smooth and investor sentiment should improve as the date approaches. Our research indicates Hong Kong is still trading at a 30-40% discount to the rest of the region and we believe this discount could narrow as investors increasingly perceive China as an opportunity, not a threat. The combination of a price/earnings ratio expansion from 13 to 20 (a level reached several times in the past 20 years when optimism was high) and corporate earnings growth of at least 20% per annum could make Hong Kong one of the best performing markets in the world in the coming years. IVY MANAGEMENT, INC. BOARD OF TRUSTEES LEGAL COUNSEL TRANSFER AGENT MANAGER John S. Anderegg, Jr. Dechert Price & Rhoads Ivy Mackenzie Ivy Management, Inc. Paul H. Broyhill Boston, MA Services Corp. Boca Raton, FL Keith J. Carlson P.O. Box 3022 Stanley Channick OFFICERS Boca Raton, FL 33431-0922 DISTRIBUTOR Frank W. DeFriece, Jr. Michael G. Landry, Chairman 1-800-777-6472 Ivy Mackenzie Roy J. Glauber Keith J. Carlson, President Distributors, Inc. Michael G. Landry James W. Broadfoot, Vice President AUDITORS Via Mizner Financial Plaza Joseph G. Rosenthal C. William Ferris, Coopers & Lybrand L.L.P. 700 South Federal Highway Richard Silverman Secretary/Treasurer Fort Lauderdale, FL Boca Raton, FL 33432 J. Brendan Swan CUSTODIAN Brown Brothers Harriman & Co. Boston, MA
[LOGO] IVY MACKENZIE 105 IVY CHINA REGION FUND PERFORMANCE COMMENTARY For the twelve months ended December 31, 1996, the Ivy China Region Fund outperformed the Lipper Analytical Services universe of Pacific ex-Japan funds. The total return of the Fund was 20.5% as compared to 11.1% for the Lipper universe. The Fund's outperformance is due primarily to the strong performance of the markets of Hong Kong, China and Taiwan and its higher concentration of investments in these three countries. The Lipper category is more broadly diversified throughout the region. PERFORMANCE COMPARISONS OF THE FUND SINCE INCEPTION (10/93) OF A $10,000 INVESTMENT (GRAPH) ONE- AND TWO-YEAR CUMULATIVE PERFORMANCE (GRAPH) The chart above reflects performance at Net Asset Value.
- ------------------------------------------------------------------------------------ IVY CHINA REGION FUND FOR PERIOD ENDING 12/31/96 Class A*-with sales charge Class B** & C*** Average Annual Total Return Average Annual Total Return -------------------------------------------------------------- w/Reimb. w/o Reimb. w/Reimb. w/o Reimb. -------------------------------------------------------------- w/ w/o w/ w/o CDSC CDSC CDSC CDSC --------------------------------------- B: B: B: B: 1 Yr. 13.57% 13.22% 14.67% 19.67% 14.32% 19.30% - ------------------------------------------------------------------------------------ B: B: B: B: .28% 1.21% (.15)% .78% C: C: C: C: Since Inception .07% (.38)% 8.39% 9.39% 8.39% 9.39% - ------------------------------------------------------------------------------------
*Class A performance figures include the maximum sales charge of 5.75%. **Class B performance figures are calculated with and without the applicable Contingent Deferred Sales Charge (CDSC) up to a maximum of 5%. ***Class C performance figures are calculated with and without the applicable Contingent Deferred Sales Charge (CDSC) up to a maximum of 1%. Total returns in some periods were higher due to reimbursement of the Fund's expenses. See Financial Highlights. All charts and tables reflect past results and assume reinvestment of dividends and distributions from capital gains. Future results will, of course, be different. The investment return and principal value of the Ivy China Region Fund will fluctuate and at redemption may be worth more or less than the amount of the original investment. The International Finance Corporation China Region Index and the International Finance Corporation China Region Index with Hong Kong are unmanaged indices and assume the reinvestment of dividends and, unlike Fund returns, do not reflect any fees or expenses. The IFC with Hong Kong represents the market cap weighting of the IFC China index and includes the Hang Seng index. It is not possible to invest in an index. Performance is calculated for Class A shares of the Fund unless otherwise noted. The performance of the Fund's Class B and Class C shares will vary relative to that of Class A shares based on differences in their respective sales loads and fees. - -------------------------------------------------------------------------------- 106 PORTFOLIO OF INVESTMENTS DECEMBER 31, 1996
EQUITY SECURITIES -- 100.6% SHARES VALUE - ------------------------------------------------------ AMERICAS -- 0.4% - --------------------------- UNITED STATES -- 0.4% Amway Asia Pacific Ltd..... 2,500 $ 105,938 ----------- ASIA / PACIFIC -- 100.2% - --------------------------- CHINA -- 15.8% China Southern Glass Co. -- Class B........... 305,890 189,822 Huaneng Power International, Inc. ADR*..................... 15,000 337,500 Inner Mongolia Erdos Cashmere Products Co. -- Class B........... 276,000 173,880 Qinling Motors Company Ltd...................... 1,100,000 607,951 Shanghai Dazhong Taxi Company -- Class B....... 390,000 322,140 Shanghai Diesel Engine Co. Ltd. -- Class B*......... 648,000 307,152 Shanghai Erfangji Company Limited -- Class B*...... 907,500 156,090 Shanghai Industrial Sewing Machine Co. Ltd. -- Class B........................ 600,000 114,000 Shanghai Narcissus Electric Appliances Industrial Company Ltd. -- Class B*....................... 467,500 98,175 Shanghai Post & Telecom Eq. -- Class B........... 393,000 165,846 Shanghai Shangling Electric Appliances Co. Ltd. -- Class B*......... 312,000 135,408 Shanghai Yaohua Pilkington Glass Class B*........... 200,000 95,200 Shenzhen China Bicycles -- Class B...... 865,800 376,094 Shenzhen Konka Electronics Group Limited -- Class B........................ 260,000 294,118 Tingyi (Cayman Island) Holding Co.*............. 810,000 212,056 Zhenhai Refining and Chemical Company Limited.................. 900,000 331,610 ----------- 3,917,042 ----------- HONG KONG -- 67.0% Asia Satellite Telecom ADR*..................... 4,000 93,500 C.P. Pokphand.............. 1,242,000 485,721 Chen Hsong Holdings*....... 450,000 273,433 Cheung Kong (Holdings) Ltd...................... 123,000 1,093,246 Cheung Kong Infrastructure Holdings*................ 36,000 95,410 China Travel International Investment Hong Kong Ltd...................... 762,000 337,408 China Travel International Investment Hong Kong Ltd. Warrants*................ 102,400 20,387 Citic Pacific Ltd.......... 161,000 934,571 Consoldiated Electric Power Asia Ltd................. 375 880 Esprit Asia Holdings Ltd... 696,000 308,184 Founder Hong Kong Ltd.*.... 290,000 111,539 Giordano Holdings Ltd...... 476,000 406,154 Gold Peak Industries....... 923,000 632,437 Guangdong Investments...... 799,000 769,561 Guangdong Tannery Ltd.*.... 39,950 10,071 HSBC Holdings.............. 46,867 1,002,779 Hang Seng Bank............. 27,900 339,056 Henderson Land Development Company Ltd.............. 52,000 524,370 Hong Kong & China Gas Company Ltd.............. 186,000 359,496 Hong Kong Land Holdings Ltd...................... 152,000 422,560 Hong Kong Telecommunications Limited.................. 299,600 482,226 Jardine International Motor Holdings Co.............. 136,000 181,978 Jardine Strategic Holdings Ltd...................... 100,250 362,905 Jardine Strategic Holdings Warrants*................ 13,250 5,300 Johnson Electric Holdings Ltd...................... 237,000 655,695 Kumagai Gumi (Hong Kong) Ltd...................... 300,000 349,063 Kumagai Gumi (Hong Kong) Ltd. Warrants*........... 60,000 25,598 Lamex Holdings............. 76,000 27,511 Li & Fung.................. 615,800 545,344 M.C. Packaging (Hong Kong) Ltd...................... 648,000 $ 224,098 Manhattan Card Company Ltd...................... 868,000 440,453 Melco International Development Ltd.*........ 15,900 5,550 National Mutual Asia Ltd... 440,000 418,100 New World Development Company Ltd.............. 80,000 540,401 New World Infrastructure Ltd.*.................... 133 389 Peregrine Investment Holdings Limited......... 262,000 448,804 Peregrine Investment Holdings Limited Warrants*................ 26,200 8,383 Realty Development 'A'..... 5,000 20,814 Semi-Tech (Global)......... 78,000 129,076 Shangri-La Asia Ltd........ 230,000 340,466 Sime Darby (Hong Kong)..... 92,000 115,966 Siu-Fung Ceramics Holdings, Ltd. (with 444,130 rights).... 1,110,327 81,821 Sun Hung Kai Properties Ltd...................... 42,800 524,279 Swire Pacific Ltd Class A........................ 59,500 567,308 Techtronic Industries Co... 1,888,000 280,698 Tsingtao Brewery Co. Ltd Series H................. 600,000 228,830 Union Bank of Hong Kong Ltd...................... 355,000 447,479 Wharf (Holdings) Ltd....... 80,000 399,225 Wo Kee Hong Holdings Ltd... 562,000 45,774 Wo Kee Hong Holdings Ltd Warrants*................ 112,400 1,250 Yue Yuen Industrial Holdings................. 1,146,000 437,065 ----------- 16,562,612 ----------- INDONESIA -- 2.2% Bank Niaga*................ 60,000 142,222 PT Astra International..... 28,000 77,037 PT Chareon Pokphand Indonesia................ 48,000 42,413 Semen Gresik -- Foreign Registered............... 84,000 270,222 ----------- 531,894 ----------- KOREA -- 4.0% Daewoo Corporation......... 400 3,051 Hyundai Motor Co, Ltd...... 2,500 66,233 Keum Kang Development Ind. Company*................. 8,800 144,672 Korea Electric Power Corporation.............. 6,300 183,300 Korea Fund Inc............. 10,100 151,500 L.G. Electronics (with 422 rights).................. 8,000 101,242 Pohang Iron & Steel Co. Ltd...................... 2,000 114,831 Samsung Electronics Co. -- GDR............... 640 11,840 Samsung Electronics Co. -- GDR 144A Registered*.............. 296 12,025 Samsung Electronics Co. -- New Common........ 1,423 75,761 Samsung Heavy Industries... 509 5,268 Shinhan Bank............... 8,000 128,397 ----------- 998,120 ----------- MALAYSIA -- 1.5% Leader Universal Holdings -- Class A...... 61,666 129,412 London & Pacific Insurance Company.................. 38,200 237,473 ----------- 366,885 ----------- SINGAPORE -- 2.0% Clipsal Industries Limited.................. 100,000 364,000 Elec & Eltek International Co. Ltd.................. 35,000 133,000 ----------- 497,000 ----------- TAIWAN -- 6.3% ROC Taiwan Fund*........... 70,600 723,650 Taiwan Fund Inc............ 38,000 845,500 ----------- 1,569,150 ----------- THAILAND -- 1.1% Bank of Ayudhya -- Foreign Registered............... 68,750 162,222 Krung Thai Bank Public Company Limited.......... 50,000 96,529 ----------- 258,751 -----------
(See Notes to Financial Statements) 107 PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 1996
EQUITY SECURITIES SHARES VALUE - ------------------------------------------------------ VIETNAM -- 0.3% The Vietnam Fund Limited*................. 7,800 $ 64,350 ----------- TOTAL EQUITY SECURITIES (Cost -- $23,362,298)(a)... 24,871,742 ----------- CONVERTIBLE CORPORATE BONDS -- 0.9% PRINCIPAL - --------------------------- ----------- Piltel International Holding Corp., 1.75%, 07/17/06 (Cost -- $240,000)....... $ 240,000 236,400 ----------- TOTAL INVESTMENTS -- 101.5% (Cost -- $23,602,298)(a)... 25,108,142 OTHER ASSETS, LESS LIABILITIES -- (1.5%).... (374,601) ----------- NET ASSETS -- 100%......... $24,733,541 =========== * Non-income producing security. (a) Cost for Federal income tax purposes is $23,773,646. ADR -- American Depository Receipt GDR -- Global Depository Receipt OTHER INFORMATION: At December 31, 1996, net unrealized appreciation based on cost for Federal income tax purposes is as follows: Gross unrealized appreciation...................... $5,004,799 Gross unrealized depreciation...................... (3,670,303) ---------- Net unrealized appreciation.................... $1,334,496 ========== Purchases and sales of securities other than short-term obligations aggregated $6,477,333 and $4,955,833, respectively, for the period ended December 31, 1996.
(See Notes to Financial Statements) 108 STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 1996 ASSETS Investments, at value (identified cost -- $23,602,298)...... $25,108,142 Cash........................................................ 85,451 Receivables Investments sold.......................................... 1,095,832 Fund shares sold.......................................... 16,086 Dividends and interest.................................... 30,597 Manager for expense reimbursement......................... 9,024 Other assets................................................ 26,325 ----------- Total assets.............................................. 26,371,457 ----------- LIABILITIES Payables Distributions to shareholders............................. 183 Investments purchased..................................... 1,571,540 Fund shares repurchased................................... 1,506 Management fee............................................ 21,074 12b-1 service and distribution fees....................... 11,652 Other payables to related parties......................... 16,301 Accrued expenses............................................ 15,660 ----------- Total liabilities......................................... 1,637,916 ----------- NET ASSETS.................................................. $24,733,541 =========== CLASS A Net asset value and redemption price per share ($15,289,612/1,484,596 shares outstanding)................ $ 10.30 =========== Maximum offering price per share ($10.30 X 100/94.25)*...... $ 10.93 =========== CLASS B Net asset value and offering price per share ($8,994,683/875,128 shares outstanding)**................. $ 10.28 =========== CLASS C Net asset value and offering price per share ($449,246/43,873 shares outstanding)**.................... $ 10.24 =========== NET ASSETS CONSIST OF Capital paid-in........................................... $24,826,143 Accumulated net realized loss on investments.............. (1,598,521) Net unrealized appreciation on investments and foreign currency transactions................................... 1,505,919 ----------- NET ASSETS.................................................. $24,733,541 ===========
* On sales of more than $50,000 the offering price is reduced. ** Redemption price per share is equal to the net asset value per share less any applicable contingent deferred sales charge. (See Notes to Financial Statements) 109 STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996 INVESTMENT INCOME Dividends, net of $10,099 foreign taxes withheld.......... $ 582,858 Interest.................................................. 6,056 ----------- 588,914 ----------- EXPENSES Management fee............................................ $233,804 Transfer agent............................................ 105,576 Administrative services fee............................... 23,381 Custodian fees............................................ 32,492 Blue Sky fees............................................. 24,939 Auditing and accounting fees.............................. 14,186 Shareholder reports....................................... 5,750 Fund accounting........................................... 35,038 Trustees' fees............................................ 4,628 12b-1 service and distribution fees....................... 122,631 Legal..................................................... 22,799 Other..................................................... 18,880 ----------- 644,104 Expenses reimbursed by manager............................ (65,675) ----------- Net expenses............................................ 578,429 ----------- NET INVESTMENT INCOME....................................... 10,485 ----------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS Net realized loss on investments and foreign currency transactions............................................ (1,001,126) Net unrealized appreciation during the period on investments and foreign currency transactions........... 5,263,221 ----------- Net gain on investment transactions..................... 4,262,095 ----------- INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $ 4,272,580 ===========
(See Notes to Financial Statements) 110 STATEMENT OF CHANGES IN NET ASSETS FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995 ----------- ----------- INCREASE (DECREASE) IN NET ASSETS Operations Net investment income..................................... $ 10,485 $ 269,887 Net realized loss on investments and foreign currency transactions............................................ (1,001,126) (304,802) Net unrealized appreciation during the period on investments and foreign currency transactions........... 5,263,221 370,010 ----------- ----------- Net increase resulting from operations.................. 4,272,580 335,095 ----------- ----------- Class A distributions From net investment income................................ (46,722) (209,871) In excess of net investment income........................ (30,983) -- In excess of net realized gain............................ -- (20,020) ----------- ----------- Total distributions to Class A shareholders............. (77,705) (229,891) ----------- ----------- Class B distributions From net investment income................................ -- (60,016) In excess of net realized gain............................ -- (12,354) ----------- ----------- Total distributions to Class B shareholders............. -- (72,370) ----------- ----------- Class C distributions In excess of net investment income........................ (3,703) -- ----------- ----------- Total distributions to Class C shareholders............. (3,703) -- ----------- ----------- Fund share transactions (Note 5) Class A................................................... (231,044) (329,623) Class B................................................... 597,206 (459,143) Class C................................................... 416,039 -- ----------- ----------- Net increase (decrease) resulting from Fund share transactions........................................... 782,201 (788,766) ----------- ----------- TOTAL INCREASE (DECREASE) IN NET ASSETS..................... 4,973,373 (755,932) NET ASSETS Beginning of period....................................... 19,760,168 20,516,100 ----------- ----------- END OF PERIOD............................................. $24,733,541 $19,760,168 =========== =========== ACCUMULATED NET INVESTMENT INCOME........................... $ -- $ 1,382 =========== ===========
(See Notes to Financial Statements) 111 FINANCIAL HIGHLIGHTS
FOR THE PERIOD OCTOBER 23, 1993 CLASS A (COMMENCEMENT) FOR THE YEAR ENDED DECEMBER 31, TO DECEMBER 31, --------------------------------- ---------------- 1996 1995 1994 1993 SELECTED PER SHARE DATA ------- ------- ------- ---------------- Net asset value, beginning of period........................ $ 8.58 $ 8.61 $ 11.55 $ 10.00 ------- ------- ------- -------- Income (loss) from investment operations Net investment income (loss)(a)........................... .03 .14 .05 (.01) Net realized and unrealized gain (loss) on investment transactions............................................ 1.74 (.01) (2.91) 1.57 ------- ------- ------- -------- Total from investment operations........................ 1.77 .13 (2.86) 1.56 ------- ------- ------- -------- Less distributions From net investment income................................ .03 .14 .05 -- In excess of net investment income........................ .02 -- .03 -- In excess of net realized gain............................ -- .02 -- -- From capital paid-in...................................... -- -- -- .01 ------- ------- ------- -------- Total distributions..................................... .05 .16 .08 .01 ------- ------- ------- -------- Net asset value, end of period.............................. $ 10.30 $ 8.58 $ 8.61 $ 11.55 ======= ======= ======= ======== Total return(%)............................................. 20.50(c) 1.59(c) (24.88)(c) 15.65(b) RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands).................... $15,290 $12,855 $13,180 $ 8,371 Ratio of expenses to average net assets With expense reimbursement(%)............................. 2.20 2.20 2.20 1.98(d) Without expense reimbursement(%).......................... 2.48 2.73 2.76 2.45(d) Ratio of net investment income (loss) to average net assets(%)(a).............................................. .32 1.61 .55 (.91)(d) Portfolio turnover rate(%).................................. 22 25 4 -- Average commission rate(e).................................. $ .0050 N/A N/A N/A
FOR THE PERIOD OCTOBER 23, 1993 CLASS B (COMMENCEMENT) FOR THE YEAR ENDED DECEMBER 31, TO DECEMBER 31, --------------------------------- ---------------- 1996 1995 1994 1993 SELECTED PER SHARE DATA ------- ------- ------- ---------------- Net asset value, beginning of period........................ $ 8.58 $ 8.61 $ 11.55 $ 10.00 ------- ------- ------- -------- Income (loss) from investment operations Net investment income (loss)(a)........................... (.04) .08 (.02) (.02) Net realized and unrealized gain (loss) on investment transactions............................................ 1.74 (.02) (2.92) 1.57 ------- ------- ------- -------- Total from investment operations........................ 1.70 .06 (2.94) 1.55 ------- ------- ------- -------- Less distributions From net investment income................................ -- .08 -- -- In excess of net realized gain............................ -- .01 -- -- ------- ------- ------- -------- Total distributions..................................... -- .09 -- -- ------- ------- ------- -------- Net asset value, end of period.............................. $ 10.28 $ 8.58 $ 8.61 $ 11.55 ======= ======= ======= ======== Total return(%)............................................. 19.67(c) .83(c) (25.45)(c) 15.50(b) RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands).................... $ 8,995 $ 6,905 $ 7,336 $ 3,565 Ratio of expenses to average net assets With expense reimbursement(%)............................. 2.95 2.95 2.95 2.74(d) Without expense reimbursement(%).......................... 3.23 3.48 3.51 3.20(d) Ratio of net investment income (loss) to average net assets(%)(a).............................................. (.43) .86 (.20) (1.66)(d) Portfolio turnover rate(%).................................. 22 25 4 -- Average commission rate(e).................................. $ .0050 N/A N/A N/A
(See Notes to Financial Statements) 112 FINANCIAL HIGHLIGHTS (CONTINUED)
FOR THE PERIOD APRIL 30, 1996 CLASS C (COMMENCEMENT) TO DECEMBER 31, ---------------- 1996 SELECTED PER SHARE DATA ---------------- Net asset value, beginning of period........................ $ 9.44 ------ Income from investment operation Net investment loss(a).................................... -- Net realized and unrealized gain on investment transactions............................................ .89 ------ Total from investment operations........................ .89 ------ Less distributions In excess of net investment income........................ .09 ------ Total distributions..................................... .09 ------ Net asset value, end of period.............................. $10.24 ====== Total return(%)............................................. 9.39(b) RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands).................... $ 449 Ratio of expenses to average net assets With expense reimbursement(%)............................. 2.71(d) Without expense reimbursement(%).......................... 2.99(d) Ratio of net investment loss to average net assets(%)(a).... (.19)(d) Portfolio turnover rate(%).................................. 22 Average commission rate(e).................................. $.0050 (a) Net investment income (loss) is net of expenses reimbursed by manager. (b) Total return represents aggregate total return and does not reflect a sales charge. (c) Total return does not reflect a sales charge. (d) Annualized. (e) For fiscal years beginning on or after September 1, 1995, a fund is required to disclose its average commission rate per share for security trades on which commissions are charged. This amount may vary from period to period and fund to fund depending on the mix of trades executed in various markets where trading practices and commission rate structures may differ.
(See Notes to Financial Statements) 113 NOTES TO FINANCIAL STATEMENTS Ivy China Region Fund (the Fund), is a diversified series of shares of Ivy Fund. The shares of beneficial interest are assigned no par value and an unlimited number of shares of Class A, Class B and Class C are authorized. Ivy Fund was organized as a Massachusetts business trust under a Declaration of Trust dated December 21, 1983 and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. The policies are in conformity with generally accepted accounting principles. Preparation of the financial statements includes the use of management estimates. Actual results could differ from those estimates. SECURITY VALUATION -- Securities for which market quotations are readily available are valued at market. Short-term obligations and commercial paper are valued at amortized cost, which approximates market. Debt securities (other than short-term obligations and commercial paper) are valued on the basis of valuations furnished by a pricing service authorized by the Board of Trustees (the Board), which determines valuations based upon market transactions for normal, institutional-size trading units of such securities. For valuation purposes, quotations of foreign securities in foreign currencies are translated into U.S. dollar equivalents using the foreign exchange quotation in effect. All other securities are valued at their fair value as determined in good faith by the Valuation Committee of the Board; as of December 31, 1996, there were no such securities. SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Security transactions are accounted for on the trade date. Dividend income is recorded on the ex-dividend date, and interest income is accrued on a daily basis. Realized gains and losses from security transactions are calculated on an identified cost basis. FEDERAL INCOME TAXES -- The Fund intends to qualify for tax treatment applicable to regulated investment companies under the Internal Revenue Code, as amended, and distribute all of its taxable income to its shareholders. Therefore, no provision has been recorded for Federal income or excise taxes. The Fund earned foreign source dividends of $594,890. These dividends were subject to withholding tax in the amount of $10,099. The Fund intends to elect to pass through to its shareholders their proportionate share of such taxes. Shareholders may apply their proportionate share of such foreign taxes paid as either a tax credit or itemized deduction. The Fund has a net tax-basis capital loss carryforward of approximately $1,500,000 as of December 31, 1996, which may be applied against any realized net taxable capital gain of each succeeding fiscal year until fully utilized or until the expiration date, whichever occurs first. The carryover expires $264,000 in 2002, $203,000 in 2003 and $1,033,000 in 2004. DISTRIBUTIONS TO SHAREHOLDERS -- Distributions from net investment income and net realized capital gains, if any, are declared in December. An additional distribution may be declared if necessary to avoid the payment of a four percent Federal excise tax. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency transactions from foreign investment activity are translated into U.S. dollars on the following basis: (i) market value of securities, and dividends and interest receivable are translated at the closing daily rate of exchange; and, (ii) purchases and sales of investment securities are translated at the rate at which related foreign contracts are obtained or at the exchange rate prevailing on the date of the transaction. The Fund does not isolate that portion of net gain or loss on investments which is due to changes in foreign exchange rates from that which is due to changes in market prices of securities held. Such fluctuations are included with net realized and unrealized gain or loss on investments. Exchange gains or losses from currency translation of other assets and liabilities, if significant, are reported as a separate component of Net realized and unrealized gain (loss) on investment transactions. Section 988 of the Internal Revenue Code provides that gains and losses on certain transactions attributable to fluctuations in foreign currency exchange rates must be treated as ordinary income or loss. Accordingly, distributions for financial statement purposes may differ from the characterization of such distributions determined on a Federal income tax basis. RECLASSIFICATIONS -- The timing and characterization of certain income and net capital gain distributions are determined annually in accordance with Federal tax regulations which may differ from generally accepted accounting principles. These differences primarily relate to investments in foreign denominated securities, passive foreign investment companies, and certain securities sold at a loss. As a result, Net investment income (loss) and Net realized gain (loss) on investments and foreign currency transactions for a reporting period may differ significantly in amount and character from distributions during such period. Accordingly, the Fund may make reclassifications among certain of its capital accounts without impacting the net asset value of the Fund. 114 NOTES TO FINANCIAL STATEMENTS (CONTINUED) 2. RELATED PARTIES Ivy Management, Inc. (IMI) is the Manager and Investment Adviser of the Fund. For its services, IMI receives a fee monthly at the annual rate of 1.00% of the Fund's average net assets. Currently, IMI voluntarily limits the Fund's total operating expenses (excluding taxes, 12b-1 fees, brokerage commissions, interest, litigation and indemnification expenses, and other extraordinary expenses) to an annual rate of 1.95% of its average net assets. The voluntary expense limitation may be terminated or revised at any time. Mackenzie Investment Management Inc. (MIMI), of which IMI is a wholly owned subsidiary, provides certain administrative, accounting and pricing services for the Fund. For those services, the Fund pays MIMI fees plus certain out-of-pocket expenses. Such fees are reflected as Administrative services fee and Fund accounting in the Statement of Operations. Ivy Mackenzie Distributors, Inc. (IMDI), a wholly owned subsidiary of MIMI, is the underwriter and distributor of the Fund's shares, and as such, purchases shares from the Fund at net asset value to settle orders from investment dealers. For the year ended December 31, 1996, the net amount of underwriting discount retained by IMDI was $11,936. Under Service and Distribution Plans, the Fund reimburses IMDI for service fee payments made to brokers at an annual rate not to exceed .25% of its average net asset value. Class B and Class C shares are also subject to an ongoing distribution fee at an annual rate of .75% of the average net asset value attributable to Class B and Class C shares. IMDI may use such distribution fee for purposes of advertising and marketing shares of the Fund. Such fees of $37,038, $84,812 and $781 for Class A, Class B and Class C, respectively, are reflected as 12b-1 service and distribution fees in the Statement of Operations. Ivy Mackenzie Services Corp. (IMSC), a wholly owned subsidiary of MIMI, is the transfer and shareholder servicing agent for the Fund. For those services, the Fund pays IMSC a monthly fee plus certain out-of-pocket expenses. Such fees and expenses of $67,527, $37,886 and $163 for Class A, Class B and Class C, respectively, are reflected as Transfer agent in the Statement of Operations. 3. BOARD'S COMPENSATION Trustees who are not affiliated with IMI or MIMI receive compensation from the Fund, which is reflected as Trustees' fees in the Statement of Operations. 4. CONCENTRATION OF CREDIT RISK The Fund primarily invests in equity securities of companies in the China region. Therefore, the Fund is more susceptible to factors adversely affecting securities within the China region than is an equity fund that is not concentrated in such securities to the same extent. 5. FUND SHARE TRANSACTIONS Fund share transactions for Class A, Class B and Class C were as follows:
YEAR ENDED YEAR ENDED DECEMBER 31, 1996 DECEMBER 31, 1995 ------------------------- ------------------------- CLASS A SHARES AMOUNT SHARES AMOUNT - ------- ---------- ------------ ---------- ------------ Sold..................... 1,537,034 $ 14,512,385 1,416,644 $ 11,904,966 Issued on reinvestment of distributions........... 6,616 68,426 23,477 201,191 Repurchased.............. (1,556,713) (14,811,855) (1,473,931) (12,435,780) ---------- ------------ ---------- ------------ Net decrease............. (13,063) $ (231,044) (33,810) $ (329,623) ========== ============ ========== ============
YEAR ENDED YEAR ENDED DECEMBER 31, 1996 DECEMBER 31, 1995 ------------------------- ------------------------- CLASS B SHARES AMOUNT SHARES AMOUNT - ------- ---------- ------------ ---------- ------------ Sold..................... 998,886 $ 9,546,623 575,358 $ 5,085,871 Issued on reinvestment of distributions........... -- -- 7,766 66,561 Repurchased.............. (928,212) (8,949,417) (631,083) (5,611,575) ---------- ------------ ---------- ------------ Net increase (decrease).. 70,674 $ 597,206 (47,959) $ (459,143) ========== ============ ========== ============
FROM APRIL 30, 1996 (COMMENCEMENT) TO DECEMBER 31, 1996 ------------------------- CLASS C SHARES AMOUNT - ------- ---------- ------------ Sold..................... 50,214 $ 474,632 Issued on reinvestment of distributions........... 324 3,314 Repurchased.............. (6,665) (61,907) ---------- ------------ Net increase............. 43,873 $ 416,039 ========== ============
115 REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders and Board of Trustees of Ivy China Region Fund (the Fund) We have audited the accompanying statement of assets and liabilities of the Fund, including the schedule of portfolio investments, as of December 31, 1996, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 1996, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Fund as of December 31, 1996, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated, in conformity with generally accepted accounting principles. COOPERS & LYBRAND L.L.P. Fort Lauderdale, Florida February 14, 1997 02IVCRX123196 116 DECEMBER 31, 1996 IVY FUNDS IVY EMERGING GROWTH FUND ANNUAL REPORT This report and the financial statements contained herein are submitted for the general information of the shareholders. This report is not authorized for distribution to prospective investors unless preceded or accompanied by an effective prospectus. Ivy Management, Inc. Via Mizner Financial Plaza 700 South Federal Hwy. Boca Raton, FL 33432 1-800-456-5111 MARKET COMMENTARY: Although 1996 was once again a good year for domestic stocks, it was one in which investors favored large capitalization stocks rather than the smaller, high-growth companies Ivy Emerging Growth Fund focuses on. The Wall Street Journal recently reported, "Because IBM, Intel, Microsoft, Coke, GE, and Cisco have a massive stock market valuation of $640 billion combined, their performance overshadows that of the average stock. Birinyi Associates calculates that without its 50 largest stocks, the S&P 500 would have been up an ordinary 9.4%. . . Within this environment, the Ivy Emerging Growth Fund had a total return of 18.52%, on a net asset value basis, for the twelve months ended December 31, 1996. For the same period the Fund's two most relevant benchmarks, the Russell 2000 Index and NASDAQ Industrials returned 16.49% and 15.03% respectively; the S&P 500 returned 23.22%. (For the Fund'S total return with sales charge and performance commentary, please refer to the following page.) Our research indicates the division in performance between the large- and small-capitalization sectors has significantly reduced the premium being paid for superior earnings growth. As the pendulum swings back, we believe emerging growth stocks could go through a catch-up period, provided the broader market is able to retain its recent gains. An important factor that helped the Ivy Emerging Growth Fund's performance was the decision to increase the weighting in technology stocks during the second half of the year. At the beginning of 1996, it became apparent there was excess inventory for personal computers and semiconductors, and particularly memory circuits. This excess diminished earnings visibility and pressured valuations, even in sectors that were unaffected by the inventory cycle. However, by mid- to late-summer there was evidence of a gradual improvement, and many of our new additions benefited as the earnings outlook picked up. The health care sector proved to be a more difficult area. Following a strong year in 1995, most biotech stocks languished in 1996. However, we remain optimistic on this sector because of the large number of new compounds in late stage clinical trials. We have and continue to use a basket approach to mitigate company-specific risk. Medical device stocks and health care information stocks also faced tough sledding as a number fell short of investor expectations. The investment thesis of the Fund remains constant: we believe over the long term, companies that deliver superior earnings growth will provide above average investment returns. Hence, the portfolio is composed of companies our research indicates should have earnings growth of 25% or higher over the next several years. We believe the smaller companies will provide this kind of growth because it's easier to grow from a small base. For example, a new product that generates $10 million in sales will have a significant impact on a small company, but practically gets lost in the rounding with a Fortune 100 company. Another advantage of smaller companies is that they are often more flexible and quicker to respond to change. Our goal is to build a portfolio of opportunistic companies that are out in front of change, taking advantage of it rather than being victimized by it. We believe this approach, if properly executed, should reward investors who have a long-term perspective and can accept above-average volatility. IVY MANAGEMENT, INC. BOARD OF TRUSTEES LEGAL COUNSEL TRANSFER AGENT MANAGER John S. Anderegg, Jr. Dechert Price & Rhoads Ivy Mackenzie Ivy Management, Inc. Paul H. Broyhill Boston, MA Services Corp. Boca Raton, FL Keith J. Carlson P.O. Box 3022 Stanley Channick OFFICERS Boca Raton, FL 33431-0922 DISTRIBUTOR Frank W. DeFriece, Jr. Michael G. Landry, Chairman 1-800-777-6472 Ivy Mackenzie Roy J. Glauber Keith J. Carlson, President Distributors, Inc. Michael G. Landry James W. Broadfoot, Vice President AUDITORS Via Mizner Financial Plaza Joseph G. Rosenthal C. William Ferris, Coopers & Lybrand L.L.P. 700 South Federal Highway Richard Silverman Secretary/Treasurer Fort Lauderdale, FL Boca Raton, FL 33432 J. Brendan Swan CUSTODIAN Brown Brothers Harriman & Co. Boston, MA
[LOGO] IVY MACKENZIE 117 IVY EMERGING GROWTH FUND PERFORMANCE COMMENTARY Within an environment where the focus of investors was on larger capitalization stocks, the Ivy Emerging Growth Fund outperformed two relevant benchmarks -- the Russell 2000 and NASDAQ Industrials indices. For the twelve months ended December 31, 1996, the total return of the Fund was 18.52% as compared to 16.49% for the Russell 2000 and 15.03% for the NASDAQ Industrials. The Fund's outperformance of these indices can be attributed primarily to an increased allocation to the technology sector during the second half of 1996. PERFORMANCE COMPARISONS OF THE FUND SINCE INCEPTION (4/93) OF A $10,000 INVESTMENT (GRAPH) All charts and tables reflect past results and assume reinvestment of dividends and distributions from capital gains. Future results will, of course, be different. The investment return and principal value of the Ivy Emerging Growth Fund will fluctuate and at redemption may be worth more or less than the amount of the original investment. The S&P 500, NASDAQ and Russell 2000 indices are unmanaged indices of stocks which assume reinvestment of dividends and, unlike Fund returns, do not reflect any fees or expenses. It is not possible to invest in an index. Performance is calculated for Class A shares of the Fund unless otherwise noted. The performance of the Fund's Class B and Class C shares will vary relative to that of Class A shares based on differences in their respective sales loads and fees. ONE-, TWO-, THREE-YEAR AND SINCE INCEPTION CUMULATIVE PERFORMANCE CHART The chart above reflects performance at Net Asset Value.
- ------------------------------------------------------------------------------------ IVY EMERGING GROWTH FUND FOR PERIOD ENDING 12/31/96 Class A*-with sales charge Class B** & C*** Average Annual Total Return Average Annual Total Return -------------------------------------------------------------- w/Reimb. w/o Reimb. w/Reimb. w/o Reimb. -------------------------------------------------------------- w/ w/o w/ w/o CDSC CDSC CDSC CDSC --------------------------------------- B: B: B: B: 1 Yr. 11.71% 11.71% 12.65% 17.65% 12.65% 17.65% - ------------------------------------------------------------------------------------ B: B: B: B: 17.44% 18.10% 17.38% 18.04% C: C: C: C: Since Inception 26.69% 26.65% (5.48)% (4.48)% (5.48)% (4.48)% - ------------------------------------------------------------------------------------
*Class A performance figures include the maximum sales charge of 5.75%. **Class B performance figures are calculated with and without the applicable Contingent Deferred Sales Charge (CDSC) up to a maximum of 5%. ***Class C performance figures are calculated with and without the applicable Contingent Deferred Sales Charge (CDSC) up to a maximum of 1%. Total returns in some periods were higher due to reimbursement of the Fund's expenses. See Financial Highlights. - -------------------------------------------------------------------------------- 118 PORTFOLIO OF INVESTMENTS DECEMBER 31, 1996
COMMON STOCKS -- 95.5% SHARES VALUE - ------------------------------------------------------ BIOTECHNOLOGY -- 6.8% Alkermes, Inc.*............. 20,800 $ 483,600 Autoimmune Inc.*............ 18,300 281,363 Biochem Pharma, Inc.*....... 17,100 859,275 Centocor, Inc.*............. 8,000 286,000 Connective Therapeutics, Inc.*..................... 12,000 99,000 Depotech Corp.*............. 7,000 114,625 Ergo Science Corporation*... 24,000 315,000 Geltex Pharmaceuticals, Inc.*..................... 25,300 613,525 Gliatech, Inc.*............. 22,200 172,050 Liposome Company Inc.*...... 94,200 1,801,575 NeoRx Corporation*.......... 38,300 157,987 NeoRx Corporation Units*.... 23,000 14,375 Neurex Corporation*......... 37,000 629,000 Neurocrine Biosciences, Inc.*..................... 13,500 135,000 Vertex Pharmaceuticals Inc.*..................... 6,700 269,675 ViroPharma Inc.*............ 26,500 231,875 ----------- 6,463,925 ----------- BUSINESS & FINANCIAL SERVICES -- 16.3% American Residential Services, Inc.*........... 1,300 35,262 Applied Graphics Technologies, Inc.*....... 35,000 1,019,375 BISYS Group, Inc.*.......... 14,188 525,843 CCC Information Services Group..................... 7,700 123,200 CFI Proservices Inc.*....... 21,800 310,650 Capital One Financial Corporation............... 10,500 378,000 Capmac Holdings*............ 8,900 294,812 Children's Comprehensive Services, Inc.*........... 46,600 611,625 Cohr, Inc.*................. 21,300 575,100 Copart, Inc.*............... 15,600 204,750 Corrections Corp. of America*.................. 31,400 961,625 Cotelligent Group, Inc.*.... 27,000 651,375 Credit Acceptance Corp.*.... 10,800 253,800 Daisytek International Corporation*.............. 17,700 725,700 Desktop Data, Inc.*......... 23,200 446,600 Employee Solutions, Inc.*... 20,000 410,000 Fair Issac and Company Inc....................... 13,600 532,100 Federal Agricultural Mortgage Corp. -- Class C*........................ 14,350 441,262 Gartner Group, Inc. -- Class A*........................ 14,000 545,125 Green Tree Financial Corp... 11,200 432,600 Intelligroup, Inc.*......... 9,100 100,100 Investment Technology Group, Inc.*..................... 28,000 539,000 Lightbridge, Inc.*.......... 42,300 362,194 Litchfield Financial Corp... 46,727 689,223 Meta Group, Inc.*........... 6,600 178,200 Metris Companies Inc.*...... 3,300 79,200 Oxford Resources Corp. -- Class A*......... 7,200 222,300 PMT Services, Inc.*......... 20,000 350,000 Profit Recovery Group International, Inc. (The)*.................... 47,300 756,800 Quickresponse Services Inc.*..................... 20,500 584,250 Rental Service Corp.*....... 10,400 286,000 Sykes Enterprises, Inc.*(a).................. 16,500 618,750 United Waste Systems Inc.*..................... 20,800 715,000 Whittman-Hart, Inc.*........ 20,600 527,875 ----------- 15,487,696 ----------- COMPUTER SOFTWARE -- 14.7% Applix, Inc.*............... 13,500 295,312 Aspect Development, Inc.*... 11,600 316,100 Baan Company, NV(a)......... 11,500 399,625 CBT Group PLC ADR*.......... 10,700 580,475 Carnegie Group, Inc.*....... 74,200 519,400 Checkfee Corporation*....... 29,100 498,338 Citrix Systems, Inc.*....... 8,800 343,750 Dendrite International, Inc.*..................... 31,400 259,050 Indus Group, Inc.*.......... 19,600 504,700 Informix Corp.*............. 4,500 91,688 Interlink Computer Sciences, Inc.*..................... 82,000 1,373,500 JDA Software Group, Inc.*... 11,900 339,150 Legato Systems, Inc.*....... 11,000 358,875 McAfee Associates, Inc.*.... 11,625 511,500 MySoftware Company*......... 24,900 105,825 Optika Imaging Systems, Inc.*..................... 106,700 535,167 Peoplesoft, Inc.*........... 11,000 527,313 Planning Sciences International PLC*........ 31,700 $ 380,400 Project Software & Development, Inc.*........ 10,250 434,344 Rational Software Corporation*.............. 6,900 272,981 Red Brick Systems, Inc.*.... 17,000 391,000 Remedy Corporation*......... 4,200 225,750 Renaissance Solutions, Inc.*..................... 10,200 456,450 SPSS, Inc.*................. 10,800 301,050 SQA, Inc.*.................. 5,300 176,225 Saville Systems Ireland ADR*...................... 9,800 398,125 Security Dynamics Technologies, Inc.*....... 9,400 296,100 Segue Software*............. 10,100 184,325 Select Software Tools ADR*...................... 25,000 456,250 Systemsoft Corporation*..... 37,800 562,275 Veritas Software Corp.*..... 20,100 999,975 Versant Object Technology Corp.*.................... 26,800 499,150 Viasoft, Inc.*.............. 6,800 321,300 White Pine Software, Inc.*..................... 16,000 116,000 ----------- 14,031,468 ----------- CONSUMER PRODUCTS & SERVICES -- 5.8% CHS Electronics, Inc.*...... 41,200 705,550 Central European Media Enterprises Ltd.*(a)...... 14,700 466,725 Comcast UK Cable Partners Ltd.*..................... 29,000 395,125 Cuc International, Inc.*.... 33,648 799,140 Extended Stay America, Inc.*..................... 26,400 531,300 International Speedway Corp. -- Class A*.................. 34,000 697,000 Metro Networks, Inc.*....... 18,200 459,550 Northland Cranberries, Inc. -- Class A........... 12,600 289,800 Premier Parks, Inc.*........ 14,000 449,750 Sylvan Learning Systems, Inc.*..................... 19,050 542,925 TRM Copy Centers Corp.*..... 22,400 218,400 ----------- 5,555,265 ----------- HEALTHCARE -- 18.3% Access Health, Inc.*........ 14,300 639,925 Advanced Health Corporation*.............. 23,400 292,500 Aksys, Ltd.*................ 12,500 107,813 American Medical Response*................. 14,300 464,750 American Medserve Corp.*.... 7,900 122,450 Biofield Corporation........ 13,200 202,950 Biopsys Medical, Inc.*...... 13,000 282,750 Cambridge Heart, Inc.*...... 15,300 172,125 Cardiovascular Dynamics..... 23,500 305,500 Compdent Corporation*....... 16,400 578,100 Cytec Corporation*.......... 11,200 302,400 Digene Corporation*......... 23,400 245,700 EP Medsystems Inc.*......... 40,500 187,312 Endosonics Corporation*..... 10,900 166,225 Endovascular Technologies, Inc.*..................... 16,800 163,800 Express Scripts, Inc. -- Class A*.......... 10,800 387,450 FemRx, Inc.*................ 18,200 81,900 First Commonwealth*......... 26,400 521,400 Health Management Associates, Inc.*......... 24,000 540,000 Health Systems Design Corp.*.................... 17,600 156,200 Heartstream, Inc.*.......... 14,400 180,000 HemaSure, Inc.*............. 27,200 170,000 Home Health Corporation of America*.................. 19,300 211,094 Horizon Mental Health Management, Inc.*......... 27,300 757,575 IDX Systems Corporation*.... 10,500 300,563 Intelligent Medical Imaging, Inc.*..................... 19,700 123,125 Medpartners/Mullikin, Inc.*..................... 9,700 203,700 MedQuist, Inc.*............. 4,600 113,850 Molecular Devices Corporation*.............. 47,400 737,663 NCS Healthcare Inc. -- Class A*........................ 8,600 250,475 Norland Medical Systems, Inc.*..................... 18,900 127,575 Omnicare, Inc............... 6,400 205,600 Orthodontic Centers of America, Inc.*............ 66,000 1,056,000 OrthoLogic Corp.*........... 18,000 101,250 PhyCor, Inc.*............... 10,250 290,844 Physician Support Systems, Inc.*..................... 47,300 910,525 Physicians Resource Group, Inc.*..................... 17,000 301,750 Renal Treatment Centers Inc.*..................... 34,800 887,400 Serologicals Corporation*... 24,400 863,150 Spine-Tech, Inc.*........... 13,300 332,500 Sunquest Information Systems, Inc.*............ 17,300 246,525
(See Notes to Financial Statements) 119 PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 1996
COMMON STOCKS SHARES VALUE - ------------------------------------------------------ Total Renal Care Holdings, Inc.*..................... 20,600 $ 746,750 United Dental Care, Inc.*... 11,500 349,312 Uromed Corporation*......... 54,000 526,500 Vencor, Inc.*............... 8,400 265,650 VidaMed, Inc.*.............. 52,600 677,225 Vivus, Inc.*................ 16,000 580,000 ----------- 17,437,851 ----------- MISCELLANEOUS TECHNOLOGY -- 3.9% Conductus, Inc.*............ 22,900 148,850 Gemstar International Group Ltd.*..................... 43,300 757,750 IKOS Systems, Inc.*......... 31,200 624,000 Periphonics Corp.*.......... 21,000 614,250 RadiSys Corporation*........ 13,500 658,125 Synopsys, Inc.*............. 16,000 740,000 Trident International, Inc.*..................... 10,800 175,500 Truevision, Inc.*........... 9,600 25,200 ----------- 3,743,675 ----------- NETWORK & TELECOMMUNICATION EQUIPMENT -- 8.2% 3Com Corporation*........... 10,000 733,750 ACT Networks, Inc.*......... 11,800 430,700 Aware, Inc.*................ 39,200 396,900 Cabletron Systems Inc.*..... 9,200 305,900 Cascade Communications Corp.*.................... 5,400 297,675 Cisco Systems, Inc.*........ 10,100 642,613 DSP Communications, Inc.*... 22,200 430,125 Digital Microwave Corporation*.............. 7,600 211,850 Harmonic Lightwaves, Inc.*..................... 24,100 370,538 P-COM, Inc.................. 16,100 476,962 Pairgain Technologies, Inc.*..................... 16,600 505,263 Premisys Communications, Inc.*..................... 13,000 438,750 Proxim, Inc.*............... 36,200 832,600 QUALCOMM, Inc.*............. 11,100 442,612 Sawtek Inc.*................ 14,900 590,413 VideoServer, Inc.*.......... 10,300 437,750 Xylan Corporation*.......... 9,600 271,200 ----------- 7,815,601 ----------- PHARMACEUTICALS -- 3.8% Anesta Corp................. 31,100 598,675 Calypte Biomedical Corp.*... 26,800 221,100 Cephalon, Inc.*............. 10,000 205,000 Cima Labs Inc.*............. 18,000 110,250 Dura Pharmaceuticals, Inc.*..................... 9,900 472,725 Ethical Holdings Ltd -- ADR*(a)............ 18,500 107,531 Genzyme Corporation*........ 7,400 160,950 NABI, Inc.*................. 26,630 233,012 Penederm Inc.*.............. 28,800 356,400 Sepracor, Inc.*............. 27,200 452,200 Sonus Pharmaceuticals, Inc.*..................... 24,500 728,875 ----------- 3,646,718 ----------- RESTAURANTS -- 1.0% Boston Chicken, Inc.*....... 9,100 326,462 Planet Hollywood International, Inc.*...... 31,800 628,050 ----------- 954,512 ----------- RETAIL -- 5.6% Barnes & Noble, Inc.*....... 9,500 256,500 CompUSA, Inc.*.............. 26,000 536,250 Corporate Express, Inc.*.... 26,860 790,691 Gadzooks, Inc.*............. 17,000 310,250 Hot Topic, Inc.*............ 15,400 304,150 Just for Feet, Inc.*........ 15,700 412,125 K & G Men's Center, Inc.*... 13,900 361,400 Party City Corp.*........... 16,800 285,600 Petco Animanl Supplies, Inc.*..................... 20,700 429,525 PetsMart Inc.*.............. 19,700 430,938 Sports Authority, Inc.*..... 12,600 274,050 West Marine Inc.*........... 11,800 333,350 Whole Foods Market, Inc.*... 12,600 283,500 Wild Oats Markets Inc.*..... 14,600 270,100 ----------- 5,278,429 ----------- SEMICONDUCTORS & EQUIPMENT -- 6.4% ASM Lithography Holding NV*(a).................... 8,000 $ 398,500 Altera Corporation*......... 7,500 545,156 ANADIGICS, Inc.*............ 7,700 302,225 Analog Devices*............. 22,200 752,025 Atmel Corporation*.......... 5,200 172,250 Benchmarq Microelectronics, Inc.*..................... 26,500 566,437 Elantec Semiconductor, Inc.*..................... 11,500 50,492 Etec Systems, Inc.*......... 8,700 332,775 GaSonics International Corporation*.............. 9,600 98,400 Integrated Process Equipment Corp.*.................... 10,000 180,000 Lattice Semiconductor Corporation*.............. 14,000 644,000 Maxim Integrated Products, Inc.*..................... 13,600 588,200 Pri Automation, Inc.*....... 4,800 218,400 S3 Incorporated*............ 29,400 477,750 Trident Microsystems, Inc.*..................... 23,000 388,125 Ultratech Stepper, Inc.*.... 14,300 339,625 ----------- 6,054,360 ----------- TELECOMMUNICATION SERVICES -- 3.3% Aerial Communications, Inc.*..................... 32,000 260,000 Arch Communications Group, Inc.*..................... 33,800 316,875 Cellularvision USA, Inc.*... 20,900 146,300 Faxsav Incorporated*........ 26,000 143,000 Omnipoint Corporation*...... 16,700 321,475 Paging Network, Inc.*....... 42,900 654,225 Transaction Network Services, Inc.*........... 27,000 310,500 Western Wireless Corp.*..... 40,200 557,775 WinStar Communications, Inc.*..................... 22,500 472,500 ----------- 3,182,650 ----------- TRANSPORTATION -- 1.4% Genesee & Wyoming Inc. -- Class A*.......... 18,900 656,775 Railtex Inc.*............... 19,800 499,950 Wisconsin Central Transportation Corp.*..... 5,400 213,975 ----------- 1,370,700 ----------- TOTAL COMMON STOCKS (COST -- $76,951,291)..... 91,022,850 ----------- CONVERTIBLE BONDS -- 1.0% PRINCIPAL - ---------------------------- ---------- Boston Chicken Inc., 0.00%, 06/01/15.................. $1,300,000 414,375 RAC Financial 144A, 7.25%, 08/15/03.................. 384,000 505,440 ----------- TOTAL CONVERTIBLE BONDS (COST -- $793,483)........ 919,815 ----------- TOTAL INVESTMENTS -- 96.5% (COST --$77,744,774)(B)... 91,942,665 OTHER ASSETS, LESS LIABILITIES -- 3.5%....... 3,339,790 ----------- NET ASSETS -- 100%.......... $95,282,455 ===========
ADR -- American Depository Receipt NV -- Non-voting * Non-income producing security. (a) Foreign security. (b) Cost is approximately the same for Federal income tax purposes. OTHER INFORMATION: At December 31, 1996, net unrealized appreciation based on cost for financial statement and Federal income tax purposes is as follows: Gross unrealized appreciation....... $20,458,092 Gross unrealized depreciation....... (6,260,201) ----------- Net unrealized appreciation..... $14,197,891 ===========
Purchases and sales of securities other than short-term obligations aggregated $89,665,015 and $48,155,112, respectively, for the period ended December 31, 1996. (See Notes to Financial Statements) 120 STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 1996 ASSETS Investments, at value (identified cost -- $77,744,774)...... $91,942,665 Cash........................................................ 3,626,918 Receivables Fund shares sold.......................................... 265,067 Dividends and interest.................................... 10,589 Other assets................................................ 27,271 ----------- Total assets.............................................. 95,872,510 ----------- LIABILITIES Payables Distributions to shareholders............................. 10,675 Investments purchased..................................... 406,439 Fund shares repurchased................................... 11,288 Management fee............................................ 66,977 12b-1 service and distribution fees....................... 45,645 Other payables to related parties......................... 38,300 Accrued expenses............................................ 10,731 ----------- Total liabilities......................................... 590,055 ----------- NET ASSETS.................................................. $95,282,455 =========== CLASS A Net asset value and redemption price per share ($55,943,565/2,108,267 shares outstanding)................ $ 26.54 =========== Maximum offering price per share ($26.54 X 100/94.25)*...... $ 28.16 =========== CLASS B Net asset value and offering price per share ($35,321,104/1,341,255 shares outstanding)**.............. $ 26.33 =========== CLASS C Net asset value and offering price per share ($4,017,786/152,842 shares outstanding)**................. $ 26.29 =========== NET ASSETS CONSIST OF: Capital paid-in............................................. $81,084,564 Net unrealized appreciation on investments.................. 14,197,891 ----------- NET ASSETS.................................................. $95,282,455 ===========
*On sales of more than $50,000 the offering price is reduced. **Redemption price per share is equal to the net asset value per share less any applicable contingent deferred sales charge. (See Notes to Financial Statements) 121 STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996 INVESTMENT INCOME Dividends................................................. $ 17,415 Interest.................................................. 326,958 ----------- 344,373 ----------- EXPENSES Management fee............................................ $657,579 Transfer agent............................................ 206,456 Administrative services fee............................... 77,362 Custodian fees............................................ 18,263 Blue Sky fees............................................. 34,322 Auditing and accounting fees.............................. 15,404 Shareholder reports....................................... 7,514 Fund accounting........................................... 89,558 Trustees' fees............................................ 4,572 12b-1 service and distribution fees....................... 381,001 Legal..................................................... 22,558 Other..................................................... 34,401 ----------- Total expenses.......................................... 1,548,990 ----------- NET INVESTMENT LOSS......................................... (1,204,617) ----------- Net realized and unrealized gain on investment transactions Net realized gain on Investments............................................. 6,351,407 Options................................................. 632,731 Net unrealized appreciation during the period on investments............................................. 3,324,364 ----------- Net gain on investments..................................... 10,308,502 ----------- INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $ 9,103,885 ===========
(See Notes to Financial Statements) 122 STATEMENT OF CHANGES IN NET ASSETS FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995 ----------- ----------- INCREASE IN NET ASSETS Operations Net investment loss....................................... $(1,204,617) $ (591,193) Net realized gain on investments and options.............. 6,984,138 4,445,572 Net unrealized appreciation during the period on investments............................................. 3,324,364 8,767,787 ----------- ----------- Net increase resulting from operations................ 9,103,885 12,622,166 ----------- ----------- Total distributions from net realized gain Class A................................................. (4,081,929) (2,804,408) Class B................................................. (2,600,466) (1,010,602) Class C................................................. (300,431) -- ----------- ----------- Total distributions paid to shareholders.............. (6,982,826) (3,815,010) ----------- ----------- Fund share transactions (Note 4) Class A................................................. 13,997,698 11,258,356 Class B................................................. 21,421,702 6,867,492 Class C................................................. 4,300,951 -- ----------- ----------- Net increase resulting from Fund share transactions... 39,720,351 18,125,848 ----------- ----------- TOTAL INCREASE IN NET ASSETS................................ 41,841,410 26,933,004 NET ASSETS Beginning of period....................................... 53,441,045 26,508,041 ----------- ----------- END OF PERIOD............................................. $95,282,455 $53,441,045 =========== ===========
(See Notes to Financial Statements) 123 FINANCIAL HIGHLIGHTS
FOR THE PERIOD FOR THE MARCH 3, 1993 CLASS A YEAR ENDED (COMMENCEMENT) TO DECEMBER 31, DECEMBER 31, ------------------------------------- ----------------- 1996 1995 1994 1993 SELECTED PER SHARE DATA ------- ------- ------- ----------------- Net asset value, beginning of period........................ $ 24.12 $ 18.38 $ 17.93 $ 10.00 ------- ------- ------- -------- Income from investment operations Net investment loss....................................... (.35) (.24) (.24)(a) (.07)(a) Net realized and unrealized gain on investment transactions............................................ 4.84 7.90 .82 8.29 ------- ------- ------- -------- Total from investment operations........................ 4.49 7.66 .58 8.22 ------- ------- ------- -------- Less distributions From net realized gain.................................... 2.07 1.92 -- .29 From capital paid-in...................................... -- -- .13 -- ------- ------- ------- -------- Total distributions..................................... 2.07 1.92 .13 .29 ------- ------- ------- -------- Net asset value, end of period.............................. $ 26.54 $ 24.12 $ 18.38 $ 17.93 ======= ======= ======= ======== Total return(%)............................................. 18.52(b) 42.07(b) 3.29(b) 45.33(c) RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands).................... $55,944 $39,456 $21,493 $14,212 Ratio of expenses to average net assets With expense reimbursement(%)............................. -- -- 2.20 1.93(d) Without expense reimbursement(%).......................... 1.76 1.95 2.22 2.33(d) Ratio of net investment loss to average net assets(%)....... (1.31) (1.39) (1.72)(a) (1.30)(a)(d) Portfolio turnover rate(%).................................. 68 86 67 41(d) Average commission rate(f).................................. $ .0601 N/A N/A N/A
FOR THE PERIOD FOR THE OCTOBER 23, 1993 CLASS B YEAR ENDED (COMMENCEMENT) TO DECEMBER 31, DECEMBER 31, ------------------------------------- ----------------- 1996 1995 1994 1993 SELECTED PER SHARE DATA ------- ------- ------- ----------------- Net asset value, beginning of period........................ $ 24.12 $ 18.38 $ 17.93 $ 18.21 ------- ------- ------- -------- Income (loss) from investment operations Net investment loss....................................... (.40) (.35) (.29)(a) (.04)(a) Net realized and unrealized gain on investment transactions............................................ 4.68 7.85 .74 .03 ------- ------- ------- -------- Total from investment operations........................ 4.28 7.50 .45 (.01) ------- ------- ------- -------- Less distributions From net realized gain.................................... 2.07 1.76 -- .27 ------- ------- ------- -------- Total distributions..................................... 2.07 1.76 -- .27 ------- ------- ------- -------- Net asset value, end of period.............................. $ 26.33 $ 24.12 $ 18.38 $ 17.93 ======= ======= ======= ======== Total return(%)............................................. 17.65(b) 41.03(b) 2.51(b) (.05)(e) RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands).................... $35,321 $13,985 $ 5,015 $ 1,216 Ratio of expenses to average net assets With expense reimbursement(%)............................. -- -- 2.95 2.68(d) Without expense reimbursement(%).......................... 2.52 2.70 2.97 3.08(d) Ratio of net investment loss to average net assets(%)....... (2.07) (2.14) (2.47)(a) (2.05)(a)(d) Portfolio turnover rate(%).................................. 68 86 67 41(d) Average commission rate(f).................................. $ .0601 N/A N/A N/A
(See Notes to Financial Statements) 124 FINANCIAL HIGHLIGHTS (CONTINUED)
FOR THE PERIOD APRIL 30, 1996 CLASS C (COMMENCEMENT) TO DECEMBER 31, ----------------- 1996 SELECTED PER SHARE DATA ----------------- Net asset value, beginning of period........................ $ 29.69 -------- Loss from investment operations Net investment loss....................................... (.14) Net realized and unrealized loss on investment transactions............................................ (1.19) -------- Total from investment operations........................ (1.33) -------- Less distributions From net realized gain.................................... 2.07 -------- Total distributions..................................... 2.07 -------- Net asset value, end of period.............................. $ 26.29 ======== Total return(%)............................................. (4.48)(e) RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands).................... $ 4,018 Ratio of expenses to average net assets without expense reimbursement(%).......................................... 2.52(d) Ratio of net investment loss to average net assets(%)....... (2.07)(d) Portfolio turnover rate(%).................................. 68 Average commission rate(f).................................. $ .0601
(a) Net investment loss is net of expenses reimbursed by manager. (b) Total return does not reflect a sales charge. (c) Total return represents aggregate total return since April 30, 1993 (when the Fund became available for sale to the public) and does not reflect a sales charge. (d) Annualized. (e) Total return represents aggregate total return and does not reflect a sales charge. (f) For fiscal years beginning on or after September 1, 1995, a fund is required to disclose its average commission rate per share for security trades on which commissions are charged. This amount may vary from period to period and fund to fund depending on the mix of trades executed in various markets where trading practices and commission rate structures may differ. (See Notes to Financial Statements) 125 NOTES TO FINANCIAL STATEMENTS Ivy Emerging Growth Fund (the Fund), is a diversified series of shares of Ivy Fund. The shares of beneficial interest are assigned no par value and an unlimited number of shares of Class A, Class B and Class C are authorized. Ivy Fund was organized as a Massachusetts business trust under a Declaration of Trust dated December 21, 1983 and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. The policies are in conformity with generally accepted accounting principles. Preparation of the financial statements includes the use of management estimates. Actual results could differ from those estimates. SECURITY VALUATION -- Securities for which market quotations are readily available are valued at market. Short-term obligations and commercial paper are valued at amortized cost, which approximates market. Debt securities (other than short-term obligations and commercial paper) are valued on the basis of valuations furnished by a pricing service authorized by the Board of Trustees (the Board), which determines valuations based upon market transactions for normal, institutional-size trading units of such securities. For valuation purposes, quotations of foreign securities in foreign currencies are translated into U.S. dollar equivalents using the foreign exchange quotation in effect. All other securities are valued at their fair value as determined in good faith by the Valuation Committee of the Board; as of December 31, 1996, there were no such securities. SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Security transactions are accounted for on the trade date. Dividend income is recorded on the ex-dividend date, and interest income is accrued on a daily basis. Realized gains and losses from security transactions are calculated on an identified cost basis. OPTIONS -- The Fund may write (sell) put options on securities and stock indicies, and may write (sell) covered call options on securities held in its portfolio. When the Fund writes a call, it gives the purchaser of the call option the right to buy the underlying security at the price specified in the option (the "exercise price") at any time during the option period, generally ranging up to nine months. If the option expires unexercised, the Fund will realize income, in the form of a capital gain, to the extent of the amount received for the option (the "premium"). If the option is exercised, a decision over which the Fund has no control, the Fund must sell the underlying security to the option holder. For options on indices, cash settlement by the Fund will be required if the option is exercised. By writing a call option, the Fund forgoes, in exchange for the premium less the commission ("net premium"), the opportunity to profit during the option period from an increase in the market value of the underlying security or currency above the exercise price. The liability representing the Fund's obligation under an exchange traded written call option is valued at the last sale price or, in the absence of a sale, the last offering price. In addition, the Fund may purchase, put options on securities and stock indices. Exchange traded purchased options are valued at the last sale price or, in the absence of a sale, the last bid price. FEDERAL INCOME TAXES -- The Fund intends to qualify for tax treatment applicable to regulated investment companies under the Internal Revenue Code, as amended, and distribute all of its taxable income to its shareholders. Therefore, no provision has been recorded for Federal income or excise taxes. Pursuant to Section 852 of the Internal Revenue Code, the Fund designates $6,982,826 as capital gain dividends for its taxable year ended December 31, 1996. DISTRIBUTIONS TO SHAREHOLDERS -- Distributions from net investment income and net realized capital gains, if any, are declared in December. An additional distribution may be declared if necessary to avoid the payment of a four percent Federal excise tax. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency transactions from foreign investment activity are translated into U.S. dollars on the following basis: (i) market value of securities, and dividends and interest receivable are translated at the closing daily rate of exchange; and, (ii) purchases and sales of investment securities are translated at the rate at which related foreign contracts are obtained or at the exchange rate prevailing on the date of the transaction. The Fund does not isolate that portion of net gain or loss on investments which is due to changes in foreign exchange rates from that which is due to changes in market prices of securities held. Such fluctuations are included with net realized and unrealized gain or loss on investments. Exchange gains or losses from currency translation of other assets and liabilities, if significant, are reported as a separate component of Net realized and unrealized gain (loss) on investment transactions. Section 988 of the Internal Revenue Code provides that gains and losses on certain transactions attributable to fluctuations in foreign currency exchange rates must be treated as ordinary income or loss. Accordingly, distributions for financial statement purposes may differ from the characterization of such distributions determined on a Federal income tax basis. 126 NOTES TO FINANCIAL STATEMENTS (CONTINUED) RECLASSIFICATIONS -- The timing and characterization of certain income and net capital gain distributions are determined annually in accordance with Federal tax regulations which may differ from generally accepted accounting principles. These differences primarily relate to certain securities sold at a loss. As a result, Net investment income (loss) and Net realized gain (loss) on investments and foreign currency transactions for a reporting period may differ significantly in amount and character from distributions during such period. Accordingly, the Fund may make reclassifications among certain of its capital accounts without impacting the net asset value of the Fund. 2. RELATED PARTIES Ivy Management, Inc. (IMI) is the Manager and Investment Adviser of the Fund. For its services, IMI receives a fee monthly at the annual rate of .85% of the Fund's average net assets. Currently, IMI voluntarily limits the Fund's total operating expenses (excluding taxes, 12b-1 fees, brokerage commissions, interest, litigation and indemnification expenses, and other extraordinary expenses) to an annual rate of 1.95% of its average net assets. The voluntary expense limitation may be terminated or revised at any time. Mackenzie Investment Management Inc. (MIMI), of which IMI is a wholly owned subsidiary, provides certain administrative, accounting and pricing services for the Fund. For those services, the Fund pays MIMI fees plus certain out-of-pocket expenses. Such fees are reflected as Administrative services fee and Fund accounting in the Statement of Operations. Ivy Mackenzie Distributors, Inc. (IMDI), a wholly owned subsidiary of MIMI, is the underwriter and distributor of the Fund's shares, and as such, purchases shares from the Fund at net asset value to settle orders from investment dealers. For the year ended December 31, 1996, the net amount of underwriting discount retained by IMDI was $69,834. Under Service and Distribution Plans, the Fund reimburses IMDI for service fee payments made to brokers at an annual rate not to exceed .25% of its average net asset value. Class B and Class C shares are also subject to an ongoing distribution fee at an annual rate of .75% of the average net asset value attributable to Class B and Class C shares. IMDI may use such distribution fee for purposes of advertising and marketing shares of the Fund. Such fees of $130,888, $240,031 and $10,082 for Class A, Class B and Class C, respectively, are reflected as 12b-1 service and distribution fees in the Statement of Operations. Ivy Mackenzie Services Corp. (IMSC), a wholly owned subsidiary of MIMI, is the transfer and shareholder servicing agent for the Fund. For those services, the Fund pays IMSC a monthly fee plus certain out-of-pocket expenses. Such fees and expenses of $137,457, $66,252 and $2,747 for Class A, Class B and Class C, respectively, are reflected as Transfer agent in the Statement of Operations. 3. BOARD'S COMPENSATION Trustees who are not affiliated with IMI or MIMI receive compensation from the Fund, which is reflected as Trustees' fees in the Statement of Operations. 4. FUND SHARE TRANSACTIONS Fund share transactions for Class A, Class B and Class C were as follows:
YEAR ENDED YEAR ENDED DECEMBER 31, 1996 DECEMBER 31, 1995 ------------------------- ------------------------ CLASS A SHARES AMOUNT SHARES AMOUNT - ------- ---------- ------------ --------- ------------ Sold...................... 1,862,227 $ 52,011,901 1,087,467 $ 25,161,914 Issued on reinvestment of distributions............ 143,930 3,817,355 110,103 2,622,547 Repurchased............... (1,533,721) (41,831,558) (730,995) (16,526,105) ---------- ------------ --------- ------------ Net increase.............. 472,436 $ 13,997,698 466,575 $ 11,258,356 ========== ============ ========= ============
YEAR ENDED YEAR ENDED DECEMBER 31, 1996 DECEMBER 31, 1995 ------------------------- ------------------------ CLASS B SHARES AMOUNT SHARES AMOUNT - ------- ---------- ------------ --------- ------------ Sold...................... 1,132,341 $ 31,331,078 566,894 $ 12,816,329 Issued on reinvestment of distributions............ 87,254 2,290,484 37,942 903,781 Repurchased............... (458,058) (12,199,860) (297,917) (6,852,618) ---------- ------------ --------- ------------ Net increase.............. 761,537 $ 21,421,702 306,919 $ 6,867,492 ========== ============ ========= ============
FROM APRIL 30, 1996 (COMMENCEMENT) TO DECEMBER 31, 1996 ------------------------- CLASS C SHARES AMOUNT - ------- ---------- ------------ Sold...................... 156,680 $ 4,416,153 Issued on reinvestment of distributions............ 6,883 180,948 Repurchased............... (10,721) (296,150) ---------- ------------ Net increase.............. 152,842 $ 4,300,951 ========== ============
127 REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders and Board of Trustees of Ivy Emerging Growth Fund (the Fund) We have audited the accompanying statement of assets and liabilities of the Fund, including the schedule of portfolio investments, as of December 31, 1996, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 1996, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Fund as of December 31, 1996, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated, in conformity with generally accepted accounting principles. COOPERS & LYBRAND L.L.P. Fort Lauderdale, Florida February 14, 1997 02IVEGX123196 128 DECEMBER 31, 1996 IVY FUNDS IVY INTERNATIONAL FUND ANNUAL REPORT This report and the financial statements contained herein are submitted for the general information of the shareholders. This report is not authorized for distribution to prospective investors unless preceded or accompanied by an effective prospectus. Ivy Management, Inc. Via Mizner Financial Plaza 700 South Federal Hwy. Boca Raton, FL 33432 1-800-456-5111 MARKET COMMENTARY: For the twelve months ended December 31, 1996 the total return of the Ivy International Fund was 19.72% on a net asset value basis. For the same period the Morgan Stanley Capital International Europe, Australasia and Far East (MSCI EAFE) Index was up 6.05%. (For the Fund's total return with sales charge, and market commentary, please refer to the following page) The Ivy International Fund continues to focus on the mature European economies (56% of the portfolio) where many markets achieved record levels in 1996. These included the United Kingdom and France which account for 14% and 10% of the portfolio respectively. We believe the stage is set for corporate profit growth to pick up in Europe. In Sweden, which represents 9% of the Fund, earnings growth is expected to be strong. The latter part of 1996 was also dominated by a strong US dollar. The strength of the dollar meant good performance for exporters, such as Michelin, Canon and BAT (British American Tobacco), whose earnings streams have a dollar component. Fiscal discipline dominated the discussions for European countries trying to meet the Maastricht requirements for membership into the European Monetary Union. This resulted in lower interest rates and inflation, and lower government deficits pervading Europe. Unemployment remained high, however. The Fund manager believes France may have the greatest leverage to lower interest rates. In the Far East, the Ivy International Fund was buoyed by the strong performance of the Hong Kong market. Hong Kong, which represents 4% of the Fund, was bolstered by a strong US stock market, low US interest rates and improving corporate earnings. Additionally, investors' perception of the risk of investing in Hong Kong, as the date nears for relinquishment of British sovereignty of Hong Kong to the Chinese, became more positive. The Fund holds only a 7% allocation in Japan, where the focus is on companies with a strong exporting base. The Fund manager remains positive on the outlook for LUKoil, the Russian oil company. He believes LUKoil still represents good value as analysts are pointing out the per barrel price of oil through a share of LUKoil is about $0.90 as compared to $6 or $7 per barrel for Exxon. The Fund maintains a 5% allocation in Latin America (2% in Argentina and 3% in Brazil). In Argentina, economic recovery is being led by export growth and investment rather than consumer spending. We believe this will lead to a healthier, more sustainable recovery. Brazil remains one of the most attractive Latin markets in terms of earnings growth and valuations. In 1997, the US market came out of the starting blocks in strong fashion and yet we don't believe the upward momentum will be sustainable throughout the year. We are not looking for a major correction, although valuations appear to be extended and corporate profit growth could slow. While there are no guarantees, at the same time, we believe the stage is set in Europe and elsewhere around the world to provide investors with the opportunity for greater returns. IVY MANAGEMENT, INC. BOARD OF TRUSTEES LEGAL COUNSEL TRANSFER AGENT MANAGER John S. Anderegg, Jr. Dechert Price & Rhoads Ivy Mackenzie Ivy Management, Inc. Paul H. Broyhill Boston, MA Services Corp. Boca Raton, FL Keith J. Carlson P.O. Box 3022 Stanley Channick OFFICERS Boca Raton, FL 33431-0922 DISTRIBUTOR Frank W. DeFriece, Jr. Michael G. Landry, Chairman 1-800-777-6472 Ivy Mackenzie Roy J. Glauber Keith J. Carlson, President Distributors, Inc. Michael G. Landry James W. Broadfoot, Vice President AUDITORS Via Mizner Financial Plaza Joseph G. Rosenthal C. William Ferris, Coopers & Lybrand L.L.P. 700 South Federal Highway Richard Silverman Secretary/Treasurer Fort Lauderdale, FL Boca Raton, FL 33432 J. Brendan Swan CUSTODIAN Brown Brothers Harriman & Co. Boston, MA
[LOGO] IVY MACKENZIE 129 IVY INTERNATIONAL FUND PERFORMANCE COMMENTARY The Ivy International Fund was up 19.72% for the twelve months ended December 31, 1996 as compared to 6.05% for the MSCI EAFE Index. The Fund's outperformance is primarily attributable to its higher concentration in European economies and Hong Kong, and its underweighting in Japan as compared to EAFE. In addition to country selection, company selection was another factor contributing to the Fund's outperformance in 1996. PERFORMANCE COMPARISONS OF THE FUND SINCE INCEPTION (4/86) OF A $10,000 INVESTMENT CHART All charts and tables reflect past results and assume reinvestment of dividends and distributions from capital gains. Future results will, of course, be different. The investment return and principal value of the Ivy International Fund will fluctuate and at redemption may be worth more or less than the amount of the original investment. The Morgan Stanley Capital International Europe, Australasia, Far East (EAFE) index is an unmanaged index of stocks which assumes reinvestment of dividends and, unlike Fund returns, does not reflect any fees or expenses. It is not possible to invest in an index. The Lipper Average International Index represents the performance of the average international fund as measured by Lipper Analytical Services, Inc. Performance is calculated for Class A shares of the Fund unless otherwise noted. The performance of the Fund's Class B, Class C and Class I shares will vary relative to that of Class A shares based on differences in their respective sales loads and fees. ONE-, THREE-, FIVE- AND TEN-YEAR CUMULATIVE PERFORMANCE CHART The chart above reflects performance without the maximum sales charge of 5.75%. - --------------------------------------------------------------------------------------------- IVY INTERNATIONAL FUND FOR PERIOD ENDING 12/31/96 Class A*-with sales charge Class B** & C*** Class I Average Annual Total Return Average Annual Total Return ----------------------------------------------------------------------- w/ w/o w/ w/o w/ w/o Reimb. Reimb. Reimb. Reimb. Reimb. Reimb. ----------------------------------------------------------------------- w/ CDSC w/o w/ CDSC w/o CDSC CDSC ------------------------------- B: B: B: B: 1 Yr. 12.84% 12.84% 13.76% 18.76% 13.76% 18.76% 20.06% 20.06% - --------------------------------------------------------------------------------------------- 5 Yr. 14.42% 14.40% -- -- -- -- -- -- - --------------------------------------------------------------------------------------------- 10 Yr. 14.77% 14.76% -- -- -- -- -- -- - --------------------------------------------------------------------------------------------- B: B: B: B: 12.09% 12.82% 12.09% 12.82% C: C: C: C: Since Inception 14.90% 14.89% 10.45% 11.45% 10.45% 11.45% 13.34% 13.34% - ---------------------------------------------------------------------------------------------
*Class A performance figures include the maximum sales charge of 5.75%. **Class B performance figures are calculated with and without the applicable Contingent Deferred Sales Charge (CDSC) up to a maximum of 5%. ***Class C performance figures are calculated with and without the applicable Contingent Deferred Sales Charge (CDSC) up to a maximum of 1%. Total returns in some periods were higher due to reimbursement of the Fund's expenses. See Financial Highlights. - -------------------------------------------------------------------------------- 130 PORTFOLIO OF INVESTMENTS DECEMBER 31, 1996
EQUITY SECURITIES -- 90.1% SHARES VALUE - ------------------------------------------------------------------- AFRICA -- 3.9% - -------------------------------------- SOUTH AFRICA -- 3.9% Anglo American Corporation of South Africa Ltd................. 26,900 $ 1,480,867 Anglo American Corporation of South Africa Ltd. ADR............ 275,000 14,987,500 Gencor Limited........................ 476,400 1,731,439 Gencor Limited ADR.................... 5,000,000 17,500,000 Malbak GDS -- NPV (Reg S) ADR......... 486,240 1,947,391 Malbak Limited ORD ADR 144A........... 526,760 2,308,789 Pepkor Limited ADR 144A REGD.......... 320,251 1,964,964 South African Breweries Limited....... 261,554 6,626,227 South African Breweries Limited ADR... 228,378 5,709,450 -------------- 54,256,627 -------------- ASIA -- 23.6% - -------------------------------------- HONG KONG -- 3.6% China Light & Power................... 3,250,000 14,453,789 Hong Kong Telecommunications Ltd...... 8,167,301 13,145,824 Swire Pacific -- Class A.............. 2,100,000 20,022,635 Television Broadcasting Ltd........... 321,000 1,282,341 Tsingtao Brewery Company Ltd., Series H................................... 3,850,000 1,468,327 -------------- 50,372,916 -------------- JAPAN -- 7.4% Bridgestone Corp...................... 950,000 18,006,375 Canon Inc............................. 900,000 19,850,090 Fuji Photo Film -- ORD................ 550,000 18,101,145 Matsushita Electric Industrial Co..... 800,000 13,026,621 Nintendo Corp Ltd..................... 20,000 1,428,448 Sega Enterprises...................... 18,000 604,807 Sharp Corp............................ 1,000,000 14,215,559 Sony Corp............................. 275,000 17,982,682 -------------- 103,215,727 -------------- MALAYSIA -- 4.3% Malayan Banking Berhad................ 2,000,000 22,173,774 Sime Darby Berhad..................... 5,000,000 19,699,023 Telekom Malaysia Berhad............... 2,000,000 17,818,211 -------------- 59,691,008 -------------- RUSSIA -- 4.1% LUKoil Oil Co. ADR 144A............... 819,644 37,720,017 Mosenergo ADR 144A.................... 655,000 19,240,625 -------------- 56,960,642 -------------- SINGAPORE -- 4.2% Hong Kong Land Holdings Ltd........... 7,400,000 20,572,000 Jardine Matheson Holdings Ltd......... 1,291,600 8,524,560 Keppel Corporation Ltd................ 2,000,000 15,584,575 United Overseas Bank Foreign Registered.......................... 1,307,920 14,586,270 -------------- 59,267,405 -------------- AUSTRALIA -- 1.3% - -------------------------------------- AUSTRALIA -- 1.3% CRA Limited........................... 322,500 5,058,902 News Corp. Ltd. ADR................... 425,000 8,871,875 Western Mining Corporation Holdings... 405,843 2,556,175 Western Mining Holdings ADR........... 82,812 2,080,652 -------------- 18,567,604 -------------- EUROPE -- 56.2% - -------------------------------------- DENMARK -- 2.6% ISS International Service Systems B... 600,000 15,765,633 Novo Nordisk AS -- Class B............ 110,000 20,698,750 -------------- 36,464,383 -------------- FRANCE -- 10.4% AXA S.A............................... 300,000 $ 19,043,087 BIC................................... 70,000 10,475,621 Banque Nationale de Paris............. 402,521 15,547,279 Compagnie Financiere de Paribas....... 267,257 18,039,089 Elf Aquitaine S.A..................... 200,000 18,169,798 Eurotunnel S.A.*...................... 5,000,000 6,588,139 Lyonnaise des Eaux-Dumez.............. 122,611 11,389,084 Michelin Class B REGD................. 250,000 13,469,618 Rhone Poulenc S.A..................... 457,968 15,583,504 Total S.A............................. 207,995 16,883,695 -------------- 146,188,914 -------------- NETHERLANDS -- 4.1% ABN Amro Holding NV................... 250,000 16,245,244 Hunter Douglas NV..................... 72,402 4,876,367 ING Groep NV.......................... 486,135 17,481,037 Royal Dutch Petroleum ADR............. 115,000 19,636,250 -------------- 58,238,898 -------------- NORWAY -- 4.6% Bergesen.............................. 650,000 15,880,028 Kvaerner Industrier Series A.......... 500,000 24,313,357 Norsk Hydro Sponsored ADR............. 350,000 18,768,750 Saga Petroleum Series A Free.......... 300,000 5,003,618 -------------- 63,965,753 -------------- SPAIN -- 2.5% Banco Bilboa Vizcaya REGD............. 100,000 5,389,197 Banco Intercontinental................ 130,000 20,118,389 Repsol S.A............................ 249,200 9,540,770 -------------- 35,048,356 -------------- SWEDEN -- 9.2% AGA AB Series B Free.................. 800,000 11,950,747 Ericsson L.M. Telephone Series B Free................................ 600,000 18,541,233 Kinnevik AB Series B Free............. 230,870 6,356,678 Nobel Biocare AB...................... 816,346 14,346,977 Pharmacia & Upjohn SDS................ 500,000 20,467,119 Skandia Forsakrings AB................ 500,000 14,132,930 Swedish Match AB Fuerer*.............. 5,000,000 17,574,628 Trelleborg AB Series B Free........... 300,000 3,976,260 Volvo AB Series B Free................ 1,000,000 22,041,513 -------------- 129,388,085 -------------- SWITZERLAND -- 8.8% CS Holding Bearer..................... 127,035 13,008,892 Clariant AG REGD...................... 40,000 17,069,816 Electowatt AG Bearer.................. 35,000 13,893,430 Nestle AG REGD........................ 15,000 16,053,223 Novartis AG REGD...................... 13,796 15,751,360 SCHW Ruckversicher REGD............... 11,655 12,403,913 SGS Holdings Bearer................... 6,000 14,701,490 Sulzer AG REGD........................ 10,775 6,203,132 Swiss Bank Corporation REGD........... 72,121 13,669,850 Swiss Bank Corporation Warrants 06/30/00*........................... 5,605 15,445 Von Roll AG REGD*..................... 11,200 191,015 -------------- 122,961,566 -------------- UNITED KINGDOM -- 14.0% B.A.T. Industries plc................. 2,500,000 20,728,121 Barclay's Bank ORD.................... 422,628 7,236,049 Barclay's Bank 144A REGD.............. 48,237 825,893 British Gas plc....................... 5,000,000 19,209,343 British Petroleum ORD................. 1,260,683 15,112,635 British Petroleum 144A REGD........... 28,655 343,506 Cadbury Schweppes plc ADR............. 445,414 15,199,753 Guinness plc.......................... 2,500,000 19,572,994 Imperial Tobacco Group plc............ 1,750,000 11,290,302
(See Notes to Financial Statements) 131 PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31, 1996
EQUITY SECURITIES SHARES VALUE - ------------------------------------------------------------------- RTZ Corporation REGD.................. 1,006,425 $ 16,129,294 Rolls-Royce........................... 4,281,133 18,865,230 Royal Bank Scotland Group ORD......... 762,276 7,350,761 Smithkline Beecham plc ADR............ 200,000 13,600,000 Waste Management International plc ADR................................. 1,300,000 10,237,500 Whitbread PLC......................... 1,500,000 20,176,227 -------------- 195,877,608 -------------- SOUTH AMERICA -- 5.1% - -------------------------------------- ARGENTINA -- 2.0% Telecom de Argentina S.A. Class B..... 1,125,000 4,635,816 Telefonica de Argentina S.A. Class B................................... 2,250,000 5,896,038 YPF ADR Class D....................... 700,000 17,675,000 -------------- 28,206,854 -------------- BRAZIL -- 3.1% Centrais Electricas Brasileiras S.A.(Electrobras)................... 27,000,000 10,029,834 Petrobras REGD NV..................... 115,000,000 18,316,331 Telebras REGD NV...................... 200,000,000 15,397,941 -------------- 43,744,106 -------------- TOTAL EQUITY SECURITIES (Cost -- $1,027,692,261)............ 1,261,416,452 -------------- CONVERTIBLE BONDS -- 0.2% PRINCIPAL - -------------------------------------- ----------- Liberty Life International 144A Registered, 6.50%, 09/30/04 (Cost -- $2,476,805)................ $ 2,500,000 2,856,250 -------------- COMMERCIAL PAPER -- 9.4% - -------------------------------------- American Express, 5.35%, 01/02/97..... 10,000,000 10,000,000 American Express, 5.35%, 01/03/97..... 11,489,000 11,489,000 American Express, 6.30%, 01/03/97..... 13,000,000 13,000,000 American Express, 5.40%, 01/10/97..... 8,682,000 8,682,000 Exxon Credit Corp., 7.00%, 01/02/97... 12,351,000 12,351,000 General Electric Capital, 5.58%, 01/08/97............................ $13,222,000 $ 13,222,000 General Electric Capital, 5.50%, 01/13/97............................ 9,000,000 9,000,000 General Electric Capital, 5.50%, 01/14/97............................ 7,220,000 7,220,000 Prudential Funding, 6.00%, 01/02/97... 11,722,000 11,722,000 Prudential Funding, 5.56%, 01/06/97... 10,000,000 10,000,000 Prudential Funding, 5.56%, 01/07/97... 11,543,000 11,543,000 Prudential Funding, 5.62%, 01/09/97... 12,721,000 12,721,000 -------------- TOTAL COMMERCIAL PAPER (Cost -- $130,950,000).............. 130,950,000 -------------- TOTAL INVESTMENTS -- 99.7% (Cost -- $1,161,119,066)(a)......... 1,395,222,702 OTHER ASSETS, LESS LIABILITIES -- 0.3%................. 3,987,247 -------------- NET ASSETS -- 100%.................... $1,399,209,949 ============== ADR -- American Depository Receipt GDR -- Global Depository Receipt NV -- Non-voting ORD -- Ordinary REGD -- Registered * Non-income producing security. (a) Cost is approximately the same for Federal income tax purposes. OTHER INFORMATION: At December 31, 1996, net unrealized appreciation based on cost for financial statement and Federal income tax purposes is as follows: Gross unrealized appreciation.................... $260,427,166 Gross unrealized depreciation.................... (26,323,530) ------------ Net unrealized appreciation.................. $234,103,636 ============ Purchases and sales of securities other than short-term obligations aggregated $707,091,132 and $127,110,348, respectively, for the period ended December 31, 1996.
(See Notes to Financial Statements) 132 STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 1996 ASSETS Investments, at value (identified cost -- $1,161,119,066)... $1,395,222,702 Cash........................................................ 12,364,487 Receivables Fund shares sold.......................................... 6,162,755 Dividends and interest.................................... 2,631,427 Other assets................................................ 110,374 -------------- Total assets............................................ 1,416,491,745 -------------- LIABILITIES Payables Distributions to shareholders............................. 84,559 Investments purchased..................................... 14,902,885 Fund shares repurchased................................... 112,640 Management fee............................................ 1,120,740 12b-1 service and distribution fees....................... 513,129 Other payables to related parties......................... 263,035 Accrued expenses............................................ 284,808 -------------- Total liabilities....................................... 17,281,796 -------------- NET ASSETS.................................................. $1,399,209,949 ============== CLASS A Net asset value and redemption price per share ($989,254,133 / 27,563,350 shares outstanding)............ $ 35.89 ============== Maximum offering price per share ($35.89 x 100 / 94.25)*.... $ 38.08 ============== CLASS B Net asset value and offering price per share ($312,161,127 / 8,736,831 shares outstanding)**........... $ 35.73 ============== CLASS C Net asset value and offering price per share ($44,450,301 / 1,249,468 shares outstanding)**............ $ 35.58 ============== CLASS I Net asset value, offering price, and redemption price per share ($53,344,388 / 1,486,226 shares outstanding)........ $ 35.89 ============== NET ASSETS CONSIST OF Capital paid-in........................................... $1,165,072,805 Net unrealized appreciation on investments and foreign currency transactions................................... 234,137,144 -------------- NET ASSETS.................................................. $1,399,209,949 ==============
* On sales of more than $50,000 the offering price is reduced. ** Redemption price per share is equal to the net asset value per share less any applicable contingent deferred sales charge. (See Notes to Financial Statements) 133 STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996 INVESTMENT INCOME Dividends, net of $2,852,046 foreign taxes withheld....... $ 16,485,734 Interest.................................................. 5,582,845 ------------ 22,068,579 ------------ EXPENSES Management fee............................................ $9,157,858 Transfer agent............................................ 1,264,586 Administrative services fee............................... 885,033 Custodian fees............................................ 979,211 Blue Sky fees............................................. 66,730 Auditing and accounting fees.............................. 60,997 Shareholder reports....................................... 42,380 Fund accounting........................................... 173,986 Trustees' fees............................................ 3,970 12b-1 service and distribution fees....................... 3,496,847 Legal..................................................... 35,258 Other..................................................... 243,332 ------------ Total expenses.......................................... 16,410,188 ------------ NET INVESTMENT INCOME....................................... 5,658,391 ------------ NET REALIZED AND UNREALIZED GAIN ON INVESTMENT TRANSACTIONS Net realized gain on investments and foreign currency transactions............................................ 25,065,630 Net unrealized appreciation during the period on investments and foreign currency transactions........... 140,672,710 ------------ Net gain on investment transactions..................... 165,738,340 ------------ INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $171,396,731 ============
(See Notes to Financial Statements) 134 STATEMENT OF CHANGES IN NET ASSETS FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995 -------------- ------------ INCREASE IN NET ASSETS Operations Net investment income..................................... $ 5,658,391 $ 3,429,650 Net realized gain on investments and foreign currency transactions............................................ 25,065,630 1,769,828 Net unrealized appreciation during the period on investments and foreign currency transactions........... 140,672,710 44,011,142 -------------- ------------ Net increase resulting from operations.................. 171,396,731 49,210,620 -------------- ------------ CLASS A DISTRIBUTIONS From net investment income................................ (4,882,162) (3,301,120) From net realized gain.................................... (17,087,565) (1,495,008) In excess of net realized gain............................ -- (423,723) -------------- ------------ Total distributions to Class A shareholders............. (21,969,727) (5,219,851) -------------- ------------ CLASS B DISTRIBUTIONS From net investment income................................ -- (26,475) In excess of net investment income........................ (430,044) -- From net realized gain.................................... (5,538,963) (233,428) In excess of net realized gain............................ -- (69,587) -------------- ------------ Total distributions to Class B shareholders............. (5,969,007) (329,490) -------------- ------------ CLASS C DISTRIBUTIONS In excess of net investment income........................ (243,273) -- From net realized gain.................................... (791,253) -- -------------- ------------ Total distributions to Class C shareholders............. (1,034,526) -- -------------- ------------ CLASS I DISTRIBUTIONS From net investment income................................ (395,163) (102,055) In excess of net investment income........................ (23,513) -- From net realized gain.................................... (932,968) (41,392) In excess of net realized gain............................ -- (12,102) -------------- ------------ Total distributions to Class I shareholders............. (1,351,644) (155,549) -------------- ------------ Fund share transactions (Note 4) Class A................................................... 404,645,714 208,491,878 Class B................................................... 211,044,612 39,727,936 Class C................................................... 42,991,790 -- Class I................................................... 35,796,386 7,284,014 -------------- ------------ Net increase resulting from Fund share transactions..... 694,478,502 255,503,828 -------------- ------------ TOTAL INCREASE IN NET ASSETS................................ 835,550,329 299,009,558 NET ASSETS Beginning of period....................................... 563,659,620 264,650,062 -------------- ------------ END OF PERIOD............................................. $1,399,209,949 $563,659,620 ============== ============ ACCUMULATED NET INVESTMENT INCOME........................... $ -- $ 5,823 ============== ============
(See Notes to Financial Statements) 135 FINANCIAL HIGHLIGHTS(A)
CLASS A FOR THE YEAR ENDED DECEMBER 31, -------------------------------------------------------- 1996 1995 1994 1993 1992 SELECTED PER SHARE DATA -------- -------- -------- -------- -------- Net asset value, beginning of period........................ $ 30.67 $ 27.60 $ 27.71 $ 18.88 $ 19.37 -------- -------- -------- -------- -------- Income from investment operations Net investment income..................................... .20 .25 .07 .12 .27(b) Net realized and unrealized gain (loss) on investment transactions............................................ 5.85 3.22 1.01 9.01 (.26) -------- -------- -------- -------- -------- Total from investment operations........................ 6.05 3.47 1.08 9.13 .01 -------- -------- -------- -------- -------- Less distributions From net investment income................................ .19 .25 .07 .08 .27 From net realized gain.................................... .64 .12 1.11 .22 .23 In excess of net realized gain............................ -- .03 -- -- -- From capital paid-in...................................... -- -- .01 -- -- -------- -------- -------- -------- -------- Total distributions..................................... .83 .40 1.19 .30 .50 -------- -------- -------- -------- -------- Net asset value, end of period.............................. $ 35.89 $ 30.67 $ 27.60 $ 27.71 $ 18.88 ======== ======== ======== ======== ======== Total return(%)(c).......................................... 19.72 12.65 3.92 48.37 .07 RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands).................... $989,254 $475,989 $229,586 $172,539 $109,637 Ratio of expenses to average net assets(%).................. 1.65 1.52 1.58 1.61 1.71(e) Ratio of net investment income to average net assets(%)..... .76 .97 .30 .56 1.36(b) Portfolio turnover rate(%).................................. 14 6 7 19 20 Average commission rate(g).................................. $ .0092 N/A N/A N/A N/A
FOR THE PERIOD OCTOBER 23, 1993 CLASS B (COMMENCEMENT) TO FOR THE YEAR ENDED DECEMBER 31, DECEMBER 31, ------------------------------------ ----------------- 1996 1995 1994 1993 SELECTED PER SHARE DATA -------- -------- -------- ----------------- Net asset value, beginning of period........................ $ 30.67 $ 27.60 $ 27.71 $25.86 -------- -------- -------- ------ Income from investment operations Net investment income (loss).............................. (.01) .01 (.10) (.01) Net realized and unrealized gain on investment transactions............................................ 5.76 3.20 .91 2.12 -------- -------- -------- ------ Total from investment operations........................ 5.75 3.21 .81 2.11 -------- -------- -------- ------ Less distributions From net investment income................................ -- .01 -- .04 In excess of net investment income........................ .05 -- -- -- From net realized gain.................................... .64 .10 .90 .22 In excess of net realized gain............................ -- .03 -- -- From capital paid-in...................................... -- -- .02 -- -------- -------- -------- ------ Total distributions..................................... .69 .14 .92 .26 -------- -------- -------- ------ Net asset value, end of period.............................. $ 35.73 $ 30.67 $ 27.60 $27.71 ======== ======== ======== ====== Total return(%)............................................. 18.76(c) 11.62(c) 2.96(c) 7.65(d) RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands).................... $312,161 $ 74,650 $ 30,143 $2,846 Ratio of expenses to average net assets(%).................. 2.45 2.44 2.50 2.59(f) Ratio of net investment income (loss) to average net assets(%)................................................. (.04) .05 (.62) (.42)(f) Portfolio turnover rate(%).................................. 14 6 7 19 Average commission rate(g).................................. $ .0092 N/A N/A N/A
(See Notes to Financial Statements) 136 FINANCIAL HIGHLIGHTS (CONTINUED)
FOR THE PERIOD APRIL 30, 1996 CLASS C (COMMENCEMENT) TO DECEMBER 31, ----------------- 1996 SELECTED PER SHARE DATA ----------------- Net asset value, beginning of period........................ $ 32.68 -------- Income from investment operations Net investment income..................................... -- Net realized and unrealized gain on investment transactions............................................ 3.74 -------- Total from investment operations........................ 3.74 -------- Less distributions In excess of net investment income........................ .20 From net realized gain.................................... .64 -------- Total distributions..................................... .84 -------- Net asset value, end of period.............................. $ 35.58 ======== Total return(%)............................................. 11.45(d) RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands).................... $44,450 Ratio of expenses to average net assets(%).................. 2.44(f) Ratio of net investment loss to average net assets(%)....... (.03)(f) Portfolio turnover rate(%).................................. 14 Average commission rate(g).................................. $ .0092
FOR THE PERIOD OCTOBER 6, 1994 CLASS I FOR THE YEAR ENDED (COMMENCEMENT) TO DECEMBER 31, DECEMBER 31, -------------------- ----------------- 1996 1995 1994 SELECTED PER SHARE DATA ------- ------- ----------------- Net asset value, beginning of period........................ $ 30.67 $ 27.60 $29.06 ------- ------- ------ Income (loss) from investment operations Net investment income..................................... .27 .30 .03 Net realized and unrealized gain (loss) on investment transactions............................................ 5.88 3.22 (.49) ------- ------- ------ Total from investment operations........................ 6.15 3.52 (.46) ------- ------- ------ Less distributions From net investment income................................ .27 .30 .03 In excess of net investment income........................ .02 -- -- From net realized gain.................................... .64 .12 .92 In excess of net realized gain............................ -- .03 -- From capital paid-in...................................... -- -- .05 ------- ------- ------ Total distributions..................................... .93 .45 1.00 ------- ------- ------ Net asset value, end of period.............................. $ 35.89 $ 30.67 $27.60 ======= ======= ====== Total return(%)............................................. 20.06(c) 12.85(c) (1.64)(d) RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands).................... $53,344 $13,020 $4,921 Ratio of expenses to average net assets(%).................. 1.25 1.35 1.41(f) Ratio of net investment income to average net assets(%)..... 1.16 1.14 .47(f) Portfolio turnover rate(%).................................. 14 6 7 Average commission rate(g).................................. $ .0092 N/A N/A (a) Effective April 1, 1993, the subadviser is Northern Cross Investments Limited. Boston Overseas Investors Inc. was the subadviser from July 1, 1990 through March 31, 1993. (b) Net investment income is net of expenses reimbursed by manager. (c) Total return does not reflect a sales charge. (d) Total return represents aggregate total return and does not reflect a sales charge. (e) The ratio of expenses to average net assets is net of expenses reimbursed by manager. Without the expense reimbursement the ratio of expenses to average net assets would have been 1.80%. (f) Annualized. (g) For fiscal years beginning on or after September 1, 1995, a fund is required to disclose its average commission rate per share for security trades on which commissions are charged. This amount may vary from period to period and fund to fund depending on the mix of trades executed in various markets where trading practices and commission rate structures may differ.
(See Notes to Financial Statements) 137 NOTES TO FINANCIAL STATEMENTS Ivy International Fund (the Fund), is a diversified series of shares of Ivy Fund. The shares of beneficial interest are assigned no par value and an unlimited number of shares of Class A, Class B, Class C and Class I are authorized. Ivy Fund was organized as a Massachusetts business trust under a Declaration of Trust dated December 21, 1983 and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. The policies are in conformity with generally accepted accounting principles. Preparation of the financial statements includes the use of management estimates. Actual results could differ from those estimates. SECURITY VALUATION -- Securities for which market quotations are readily available are valued at market. Short-term obligations and commercial paper are valued at amortized cost, which approximates market. Debt securities (other than short-term obligations and commercial paper) are valued on the basis of valuations furnished by a pricing service authorized by the Board of Trustees (the Board), which determines valuations based upon market transactions for normal, institutional-size trading units of such securities. For valuation purposes, quotations of foreign securities in foreign currencies are translated into U.S. dollar equivalents using the foreign exchange quotation in effect. All other securities are valued at their fair value as determined in good faith by the Valuation Committee of the Board; as of December 31, 1996, there were no such securities. SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Security transactions are accounted for on the trade date. Dividend income is recorded on the ex-dividend date, and interest income is accrued on a daily basis. Realized gains and losses from security transactions are calculated on an identified cost basis. FEDERAL INCOME TAXES -- The Fund intends to qualify for tax treatment applicable to regulated investment companies under the Internal Revenue Code, as amended, and distribute all of its taxable income to its shareholders. Therefore, no provision has been recorded for Federal income or excise taxes. The Fund earned foreign source dividends of $18,933,984. These dividends were subject to withholding tax in the amount of $2,852,046. The Fund intends to elect to pass through to its shareholders their proportionate share of such taxes. Shareholders may apply their proportionate share of such foreign taxes paid as either a tax credit or itemized deduction. Pursuant to Section 852 of the Internal Revenue Code, the fund designates $13,569,925 as capital gain dividends for its taxable year ended December 31, 1996. DISTRIBUTIONS TO SHAREHOLDERS -- Distributions from net investment income and net realized capital gains, if any, are declared in December. An additional distribution may be declared if necessary to avoid the payment of a four percent Federal excise tax. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency transactions from foreign investment activity are translated into U.S. dollars on the following basis: (i) market value of securities, and dividends and interest receivable are translated at the closing daily rate of exchange; and, (ii) purchases and sales of investment securities are translated at the rate at which related foreign contracts are obtained or at the exchange rate prevailing on the date of the transaction. The Fund does not isolate that portion of net gain or loss on investments which is due to changes in foreign exchange rates from that which is due to changes in market prices of securities held. Such fluctuations are included with net realized and unrealized gain or loss on investments. Exchange gains or losses from currency translation of other assets and liabilities, if significant, are reported as a separate component of Net realized and unrealized gain (loss) on investment transactions. Section 988 of the Internal Revenue Code provides that gains and losses on certain transactions attributable to fluctuations in foreign currency exchange rates must be treated as ordinary income or loss. Accordingly, distributions for financial statement purposes may differ from the characterization of such distributions determined on a Federal income tax basis. RECLASSIFICATIONS -- The timing and characterization of certain income and net capital gain distributions are determined annually in accordance with Federal tax regulations which may differ from generally accepted accounting principles. These differences primarily relate to investments in foreign denominated securities, passive foreign investment companies, and certain securities sold at a loss. As a result, Net investment income (loss) and Net realized gain (loss) on investments and foreign currency transactions for a reporting period may differ significantly in amount and character from distributions during such period. Accordingly, the Fund may make reclassifications among certain of its capital accounts without impacting the net asset value of the Fund. 2. RELATED PARTIES Ivy Management, Inc. (IMI) is the Manager and Investment Adviser of the Fund. For its services, IMI receives a fee monthly at the annual rate of 1.00% of the 138 NOTES TO FINANCIAL STATEMENTS (CONTINUED) Fund's average net assets. Northern Cross Investments Limited is the subadviser of the Fund. IMI, not the Fund, is obligated to compensate the subadviser. Mackenzie Investment Management Inc. (MIMI), of which IMI is a wholly owned subsidiary, provides certain administrative, accounting and pricing services for the Fund. For those services, the Fund pays MIMI fees plus certain out-of-pocket expenses. Such fees are reflected as Administrative services fee and Fund accounting in the Statement of Operations. Ivy Mackenzie Distributors, Inc. (IMDI), a wholly owned subsidiary of MIMI, is the underwriter and distributor of the Fund's shares, and as such, purchases shares from the Fund at net asset value to settle orders from investment dealers. For the year ended December 31, 1996, the net amount of underwriting discount retained by IMDI was $394,656. Under Service and Distribution Plans, the Fund reimburses IMDI for service fee payments made to brokers at an annual rate not to exceed .25% of its average net asset value of Class A, Class B and Class C shares issued after December 31, 1991. Class B and Class C shares are also subject to an ongoing distribution fee at an annual rate of .75% of the average net asset value attributable to Class B and Class C shares. IMDI may use such distribution fee for purposes of advertising and marketing shares of the Fund. Such fees of $1,671,153, $1,724,796, $100,898 and $0 for Class A, Class B, Class C and Class I, respectively, are reflected as 12b-1 service and distribution fees in the Statement of Operations. Ivy Mackenzie Services Corp. (IMSC), a wholly owned subsidiary of MIMI, is the transfer and shareholder servicing agent for the Fund. For those services, the Fund pays a monthly fee plus certain out-of-pocket expenses. Such fees and expenses of $918,907, $305,940, $17,102 and $22,637 for Class A, Class B, Class C and Class I, respectively, are reflected as Transfer agent in the Statement of Operations. 3. BOARD'S COMPENSATION Trustees who are not affiliated with IMI or MIMI receive compensation from the Fund, which is reflected as Trustees' fees in the Statement of Operations. 4. FUND SHARE TRANSACTIONS Fund share transactions for Class A, Class B, Class C and Class I were as follows:
YEAR ENDED YEAR ENDED DECEMBER 31, 1996 DECEMBER 31, 1995 -------------------------- ------------------------- CLASS A SHARES AMOUNT SHARES AMOUNT - ------- ---------- ------------- ---------- ------------ Sold.................... 16,070,230 $ 537,452,973 9,867,336 $284,977,224 Issued on reinvestment of distributions....... 534,854 19,195,195 158,854 4,677,883 Repurchased............. (4,561,167) (152,002,454) (2,826,332) (81,163,229) ---------- ------------- ---------- ------------ Net increase............ 12,043,917 $ 404,645,714 7,199,858 $208,491,878 ========== ============= ========== ============
YEAR ENDED YEAR ENDED DECEMBER 31, 1996 DECEMBER 31, 1995 -------------------------- ------------------------- CLASS B SHARES AMOUNT SHARES AMOUNT - ------- ---------- ------------- ---------- ------------ Sold.................... 6,659,639 $ 222,635,747 1,620,201 $ 47,706,315 Issued on reinvestment of distributions....... 91,688 3,275,938 9,355 286,570 Repurchased............. (448,268) (14,867,073) (288,093) (8,264,949) ---------- ------------- ---------- ------------ Net increase............ 6,303,059 $ 211,044,612 1,341,463 $ 39,727,936 ========== ============= ========== ============
FROM APRIL 30, 1996 (COMMENCEMENT) TO DECEMBER 31, 1996 -------------------------- CLASS C SHARES AMOUNT - ------- ---------- ------------- Sold.................... 1,260,097 $ 43,344,404 Issued on reinvestment of distributions....... 9,696 344,991 Repurchased............. (20,325) (697,605) ---------- ------------- Net increase............ 1,249,468 $ 42,991,790 ========== =============
YEAR ENDED YEAR ENDED DECEMBER 31, 1996 DECEMBER 31, 1995 -------------------------- ------------------------- CLASS I SHARES AMOUNT SHARES AMOUNT - ------- ---------- ------------- ---------- ------------ Sold.................... 1,105,814 $ 37,145,203 254,153 $ 7,521,113 Issued on reinvestment of distributions....... 35,847 1,286,548 3,993 119,081 Repurchased............. (79,940) (2,635,365) (11,973) (356,180) ---------- ------------- ---------- ------------ Net increase............ 1,061,721 $ 35,796,386 246,173 $ 7,284,014 ========== ============= ========== ============
139 REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders and Board of Trustees of Ivy International Fund (the Fund) We have audited the accompanying statement of assets and liabilities of the Fund, including the schedule of portfolio investments, as of December 31, 1996, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 1996, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Fund as of December 31, 1996, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated, in conformity with generally accepted accounting principles. COOPERS & LYBRAND L.L.P. Fort Lauderdale, Florida February 14, 1997 02IVINX123196 -----END PRIVACY-ENHANCED MESSAGE-----