-----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, N0hPkLmtwDo1k/D+tQ6clwO4/TyoI7+7qd6qHFK1XPdrEBUboCNDy0IHXErHs7+g 9EdIVW711AaUiMp44H3H4g== 0000950144-97-009634.txt : 19970912 0000950144-97-009634.hdr.sgml : 19970911 ACCESSION NUMBER: 0000950144-97-009634 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970828 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: SEC FILE NUMBER: 811-01028 FILM NUMBER: 97671949 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 DATED 06/30/97 1 June 30, 1997 IVY FUNDS(R) Ivy Asia Pacific Fund - ------------ Semi-Annual Report - ------------- This report and the financial statements contained herein are submitted for the general information of the share-holders. 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 THROUGHOUT THE CENTURIES, THE CASTLE KEEP HAS BEEN A SOURCE OF LONG-RANGE VISION AND STRATEGIC ADVANTAGE. Market Commentary: We would like to take this opportunity to welcome you as a shareholder of the Ivy Asia Pacific Fund. The primary focus of the Ivy Asia Pacific Fund is to provide investors with access to the regions of Northeast and Southeast Asia. Accordingly, as of June 30, 1997, the largest country weightings in the Fund were Hong Kong (32%), Malaysia (8%) and Singapore (8%). Performance among Asian markets has been split between the well-performing markets of Northeast Asia and the disappointing markets in the south. Our research confirms that Hong Kong, in the north, has benefited from strong liquidity conditions and positive investor sentiment. Despite the recent strong performance of Hong Kong's Hang Seng index--it is trading near its 20-year average price-to-earnings ratio--we believe Hong Kong is still one of the best-valued markets in the world. At the same time, Southeast Asian markets have suffered. The structure of Asian economies has often led to the creation of speculative bubbles and we believe Thailand is the latest victim. In the early 1990s, the Thai economy was awash with cash. With bank deposit rates at unattractive levels, property and stock markets were a natural choice. This led to massive overbuilding and speculation. According to our research, nonperforming loans are mounting, consumption has dropped off dramatically, and confidence in the financial system has fallen sharply. The Thai situation has been exacerbated by the region-wide export slowdown that began last year and has resulted in even greater tightening of liquidity. Early in July 1997, a de facto devaluation of the Thai baht took place, followed soon thereafter by other Southeast Asian currencies. This has left many investors to wonder which will be the next Asian market to fall. We believe it is a natural tendency for investors to try to draw similarities between a current financial crisis and a recent crisis. In this regard, Thailand is no exception. Much time has been spent in recent weeks comparing and contrasting the Thai crisis with the Mexican crisis of early 1995. Even more interesting is the extent to which investors have once again punished other regional markets. We believe they fear the Thai problem will develop into a Latin-style "tequila" crisis affecting the whole region. From a macroeconomic standpoint, other Southeast Asian nations have more flexibility than Thailand to deal with a potential crisis. Thailand's central bank has been constrained by the fixed exchange rate regime. This has severely limited the extent to which Thai monetary authorities could lower interest rates. Other Southeast Asian countries, which follow a more flexible exchange rate policy, have many more policy options available, including reducing interest rates. One factor that would boost liquidity across the region would be a pickup in the export sector. The entire Asian region has suffered as export growth dropped to zero last year after several years of mid-teens growth. With exports representing more than half the output of many Asian economies, these countries are highly geared toward a recovery. We have been using periods of market weakness to add to the Southeast Asian holdings in the Fund and would encourage long-term investors to stay the course. Ivy Management, Inc. BOARD OF TRUSTEES John S. Anderegg, Jr. Paul H. Broyhill Keith J. Carlson Stanley Channick Frank W. DeFriece, Jr. Roy J. Glauber Michael G. Landry Joseph G. Rosenthal Richard Silverman J. Brendan Swan OFFICERS Michael G. Landry, Chairman Keith J. Carlson, President James W. Broadfoot, Vice President C. William Ferris, Secretary/Treasurer LEGAL COUNSEL Dechert Price & Rhoads Boston, MA CUSTODIAN Brown Brothers Harriman & Co. Boston, MA TRANSFER AGENT Ivy Mackenzie Services Corp. P.O. Box 3022 Boca Raton, FL 33431-0922 1-800-777-6472 AUDITORS Coopers & Lybrand L.L.P. Fort Lauderdale, FL INVESTMENT MANAGER Ivy Management, Inc. 700 South Federal Highway Boca Raton, FL 33432 1-800-456-5111 DISTRIBUTOR Ivy Mackenzie Distributors, Inc. 700 South Federal Highway Boca Raton, FL 33432 1-800-456-5111 2 PORTFOLIO OF INVESTMENTS JUNE 30, 1997 (UNAUDITED)
EQUITY SECURITIES -- 77.6% SHARES VALUE - --------------------------------------------- AUSTRALIA -- 4.2% Australia & New Zealand Banking Group Ltd.... 1,900 $ 14,091 National Australia Bank Ltd.................. 800 11,369 Pacific Dunlop Limited....................... 3,000 8,810 Westpac Banking Corp. Ltd.................... 1,900 11,344 ---------- 45,614 ---------- CHINA -- 1.5% Zhenhai Refining and Chemical Company Limited.................................... 44,000 15,902 ---------- HONG KONG -- 31.5% CDL Hotels International Ltd................. 30,000 12,198 Chen Hsong Holdings*......................... 20,000 11,617 Cheung Kong Holdings Ltd..................... 2,000 19,749 Citic Pacific Ltd............................ 3,000 18,742 First Pacific Company Ltd.................... 10,000 12,779 Giordano Holdings Ltd........................ 24,000 16,419 Guangdong Investments........................ 10,000 15,037 Guangdong Investments Warrants*.............. 1,000 471 Guoco Group Ltd.............................. 3,000 15,799 HSBC Holdings................................ 800 24,060 Henderson Land Development Company Ltd....... 2,000 17,748 Li & Fung.................................... 24,000 26,951 National Mutual Asia Ltd..................... 14,000 15,541 New World Development Company Ltd............ 2,000 11,927 Peregrine Investment Holdings Limited........ 9,000 18,529 Sime Darby (Hong Kong)....................... 12,000 13,321 Sun Hung Kai Properties Ltd.................. 1,000 12,036 Swire Pacific Ltd Class A.................... 2,000 18,006 Union Bank of Hong Kong Ltd.................. 16,266 47,030 Wheelock & Company, Ltd...................... 6,000 14,754 ---------- 342,714 ---------- INDONESIA -- 6.6% PT Bank Dagang Nasional -- Foreign Registered................................. 15,500 10,996 PT Bank Dagang Nasional Warrants*............ 500 206 PT Darya Varia Laboratoria- Foreign Registered................................. 6,500 7,819 PT Matahari Putra Prima -- Foreign Registered................................. 10,000 20,152 PT Mulia Industrindo -- Foreign Registered... 20,000 10,487 PT Telekomunikasi Indonesia -- Foreign Registered................................. 10,000 16,348 Semen Gresik -- Foreign Registered........... 2,500 5,604 ---------- 71,612 ---------- MALAYSIA -- 8.3% AMMB Holdings Berhad......................... 2,400 14,929 Genting Berhad............................... 3,000 14,382 KFC Holdings (Malaysia) Berhad............... 4,700 17,690 Land & General Berhad........................ 11,000 12,639 Malayan Cement Berhad........................ 7,750 12,957 Sime UEP Properties Berhad................... 8,000 17,274 ---------- 89,871 ---------- NEW ZEALAND -- 6.2% Fisher & Paykel Industries Ltd............... 5,700 22,213 Fletcher Challenge Building.................. 4,400 13,210 Fletcher Challenge Energy.................... 4,000 12,064 Fletcher Challenge Forests................... 1,920 2,785 Tourism Holdings Limited..................... 12,000 16,997 ---------- 67,269 ---------- PHILIPPINES -- 5.7% Asian Terminals, Inc......................... 81,000 $ 14,741 Benpres Holdings Corporation Sponsored GDR*....................................... 900 6,140 Metro Pacific Corporation.................... 102,800 22,216 Philippine Long Distance Telephone Co........ 372 12,059 Universal Robina Corporation................. 19,500 7,097 ---------- 62,253 ---------- SINGAPORE -- 8.0% Clipsal Industries Limited................... 5,000 17,700 DBS Land Limited............................. 3,000 9,484 Elec & Eltek International Co. Ltd........... 2,500 14,000 Fraser & Neave Ltd. Ordinary................. 2,000 14,267 Jardine Matheson Holdings Ltd................ 2,400 17,040 Overseas Union Bank Ltd...................... 2,200 13,694 Overseas Union Bank Ltd. Rights*............. 440 612 ---------- 86,797 ---------- TAIWAN -- 1.8% Tingyi (Cayman Island) Holding Co.*.......... 80,000 19,930 ---------- THAILAND -- 3.8% Asia Credit Company PLC...................... 500 1,274 Bangkok Bank Public Company Ltd.............. 1,600 10,994 Dhana Siam Finance & Securities Public Company Ltd................................ 800 425 Robinson Department Store Public Company Limited -- Foreign Registered.............. 7,200 2,640 Thai Airways Int'l. Public Co., Ltd. -- Foreign Registered................. 12,200 14,600 Total Access Communication Public Company Ltd. -- Foreign Registered................. 2,000 10,963 ---------- 40,896 ---------- TOTAL EQUITY SECURITIES (Cost -- $831,265)......................... 842,858 ---------- CONVERTIBLE CORPORATE BONDS -- 0.6% PRINCIPAL - --------------------------------------------- -------- Benpres Holdings Corporation 144A, 4.20%, 11/26/49 (Cost -- $8,000)........................... $ 1,000 6,822 ---------- TOTAL INVESTMENTS -- 78.2% (Cost -- $839,265)(a)...................... 849,680 OTHER ASSETS, LESS LIABILITIES -- 21.8%...... 236,893 ---------- NET ASSETS -- 100%........................... $1,086,573 ========== GDR - Global Depository Receipt * Non-income producing security. (a) Cost is approximately the same for Federal income tax purposes. OTHER INFORMATION: At June 30, 1997, net unrealized appreciation based on cost for financial statement and Federal income tax purposes is as follows: Gross unrealized appreciation...................... $ 76,654 Gross unrealized depreciation...................... (66,239) ---------- Net unrealized appreciation.................... $ 10,415 ========== Purchases and sales of securities other than short-term obligations aggregated $839,265 and $0, respectively, for the period ended June 30, 1997.
(See Notes to Financial Statements) 3 STATEMENT OF ASSETS AND LIABILITIES JUNE 30, 1997 (UNAUDITED) ASSETS Investments, at value (identified cost -- $839,265)......... $ 849,680 Cash........................................................ 279,669 Receivables Fund shares sold.......................................... 11,305 Dividends and interest.................................... 3,257 Manager for expense reimbursement......................... 12,775 Deferred organization expenses.............................. 43,610 Other assets................................................ 2,174 ----------- Total assets.............................................. 1,202,470 ----------- LIABILITIES Payables Investments purchased..................................... 76,593 Management fee............................................ 726 12b-1 service and distribution fees....................... 561 Other payables to related parties......................... 1,862 Accrued expenses............................................ 36,155 ----------- Total liabilities......................................... 115,897 ----------- NET ASSETS.................................................. $ 1,086,573 =========== CLASS A Net asset value and redemption price per share ($303,162/29,523 shares outstanding)...................... $ 10.27 =========== Maximum offering price per share ($10.27 X 100/94.25)*...... $ 10.90 =========== CLASS B Net asset value, offering price and redemption price** per share ($473,474/46,199 shares outstanding)................ $ 10.25 =========== CLASS C Net asset value, offering price and redemption price*** per share ($309,937/30,238 shares outstanding)................ $ 10.25 =========== NET ASSETS CONSIST OF Capital paid-in........................................... $ 1,071,142 Undistributed net realized loss on investments and foreign currency transactions................................... (6) Undistributed net investment income....................... 5,035 Net unrealized appreciation on investments and foreign currency transactions................................... 10,402 ----------- NET ASSETS.................................................. $ 1,086,573 ===========
* On sales of more than $50,000 the offering price is reduced. ** Subject to a maximum contingent deferred sales charge of 5%. *** Subject to a maximum contingent deferred sales charge of 1%. (See Notes to Financial Statements) 4 STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED) Investment income Dividends, net of $647 foreign taxes withheld............. $ 8,572 ---------- Expenses Management fee............................................ $ 2,532 Transfer agent............................................ 507 Administrative services fee............................... 253 Custodian fees............................................ 13,482 Blue Sky fees............................................. 1,087 Auditing and accounting fees.............................. 1,553 Shareholder reports....................................... 15 Amortization of organization expenses..................... 2,719 Fund accounting........................................... 8,255 Trustees' fees............................................ 435 12b-1 service and distribution fees....................... 1,702 Legal..................................................... 8,158 Other..................................................... 1,082 ---------- 41,780 Expenses reimbursed by manager............................ (38,243) ---------- Net expenses............................................ 3,537 ---------- NET INVESTMENT INCOME....................................... 5,035 ---------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS Net realized loss on investments and foreign currency transactions............................................ (6) Net unrealized appreciation during the period on investments and foreign currency transactions........... 10,402 ---------- Net gain on investment transactions..................... 10,396 ---------- INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $ 15,431 ==========
(See Notes to Financial Statements) 5 STATEMENT OF CHANGES IN NET ASSETS FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED) INCREASE IN NET ASSETS Operations Net investment income..................................... $ 5,035 Net realized loss on investments and foreign currency transactions............................................ (6) Net unrealized appreciation during the period on investments and foreign currency transactions........... 10,402 ----------- Net increase resulting from operations.................. 15,431 ----------- Fund share transactions (Note 5) Class A................................................... 296,992 Class B................................................... 465,872 Class C................................................... 308,278 ----------- Net increase resulting from Fund share transactions..... 1,071,142 ----------- NET ASSETS AT END OF PERIOD................................. $ 1,086,573 =========== UNDISTRIBUTED NET INVESTMENT INCOME......................... $ 5,035 ===========
(See Notes to Financial Statements) 6 FINANCIAL HIGHLIGHTS
FOR THE SIX MONTHS ENDED JUNE 30, 1997* --------------------------- CLASS A CLASS B CLASS B SELECTED PER SHARE DATA** ------- ------- ------- Net asset value, beginning of period........................ $10.00 $10.00 $10.00 ------ ------ ------ Income from investment operations Net investment income(a).................................. .10 .07 .07 Net realized and unrealized gain on investment transactions............................................ .17 .18 .18 ------ ------ ------ Total from investment operations........................ .27 .25 .25 ------ ------ ------ Net asset value, end of period.............................. $10.27 $10.25 $10.25 ====== ====== ====== Total return(%)(b).......................................... 2.70 2.50 2.50 RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands).................... $ 303 $ 473 $ 310 Ratio of expenses to average net assets With expense reimbursement(%)(c).......................... 1.02 1.74 1.59 Without expense reimbursement(%)(c)....................... 15.95 16.67 16.52 Ratio of net investment income to average net assets(%)(a)(c)........................................... 2.32 1.60 1.75 Portfolio turnover rate(%).................................. 0 0 0 Average commission rate(d).................................. $.0084 $.0084 $.0084 (a) Net investment income is net of expenses reimbursed by manager. (b) Total return represents aggregate total return and does not reflect a sales charge. (c) Annualized. (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. * Unaudited. ** Based on average shares outstanding.
(See Notes to Financial Statements) 7 NOTES TO FINANCIAL STATEMENTS (UNAUDITED) Ivy Asia Pacific Fund (the Fund), is a diversified series of shares of Ivy Fund. The shares of beneficial interest are assigned no par value and an unlimited number of shares of Class A, Class B 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 traded on a U.S. or foreign stock exchange, or the National Association of Securities Dealers Automated Quotation ("NASDAQ") System, are valued at the last quoted sale price reported as of the close of regular trading on the exchange the security is traded most extensively. If there is no such sale, the security is valued at the calculated mean between the last bid and asked price on the exchange. Securities not traded on an exchange or NASDAQ, but traded in another over-the-counter market are valued at the average between the current bid and asked prices in such markets. Short-term obligations and commercial paper are valued at amortized cost, which approximates market. Debt securities (other than short-term obligations and commercial paper) are valued on the basis of valuations furnished by a pricing service authorized by the Board of Trustees (the Board), which determines valuations based upon market transactions for normal, institutional-size trading units of such securities. 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 June 30, 1997, 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. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency transactions from foreign investment activity are translated into U.S. dollars on the following basis: (i) market value of securities, and dividends and interest receivable are translated at the closing daily rate of exchange; and, (ii) purchases and sales of investment securities are translated at the rate at which related foreign contracts are obtained or at the exchange rate prevailing on the date of the transaction. Exchange gains or losses from currency translation of other assets and liabilities, if significant, are reported as a separate component of Net realized and unrealized gain (loss) on investment transactions. 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 differ significantly in amount and character from distributions during such period. Accordingly, the Fund may make reclassifications among certain of its capital accounts without impacting the net asset value of the Fund. 2. RELATED PARTIES Ivy Management, Inc. (IMI) is the Manager and Investment Adviser of the Fund. For its services, IMI receives a fee monthly at the annual rate of 1.00% of the Fund's average net assets. Currently, IMI voluntarily limits the Fund's total operating expenses (excluding taxes, 12b-1 fees, broker- 8 NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) age 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 and expenses are reflected as Administrative services fee and Fund accounting in the Statement of Operations. Ivy Mackenzie Distributors, Inc. (IMDI), a wholly owned subsidiary of MIMI, is the underwriter and distributor of the Fund's shares, and as such, purchases shares from the Fund at net asset value to settle orders from investment dealers. For the six months ended June 30, 1997, the net amount of underwriting discount retained by IMDI was $784. 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 $277, $585 and $840, 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 $302, $155 and $50, 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 Asia-Pacific region. Therefore, the Fund is more susceptible to factors adversely affecting securities within the Asia-Pacific region than is an equity fund that is not concentrated in such securities to the same extent. 5. FUND SHARE TRANSACTIONS Fund share transactions from January 1, 1997 (Commencement) to June 30, 1997, for Class A, Class B and Class C were as follows:
CLASS A SHARES AMOUNT ------- ------ -------- Sold...................................................... 30,504 $307,051 Repurchased............................................... (981) (10,059) ------ -------- Net increase.............................................. 29,523* $296,992 ====== ========
CLASS B SHARES AMOUNT ------- ------ -------- Sold...................................................... 51,958 $524,702 Repurchased............................................... (5,759) (58,830) ------ -------- Net increase.............................................. 46,199 $465,872 ====== ========
CLASS C SHARES AMOUNT ------- ------ -------- Sold...................................................... 30,239 $308,288 Repurchased............................................... (1) (10) ------ -------- Net increase.............................................. 30,238 $308,278 ====== ========
* At June 30, 1997, MIMI owned 10,001 Class A shares of the Fund. 9 June 30, 1997 IVY FUNDS(R) Ivy Bond Fund Semi-Annual Report This report and the financial statements contained herein are submitted for the general information of the share-holders. This report is not authorized for distrib-ution 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 THROUGHOUT THE CENTURIES, THE CASTLE KEEP HAS BEEN A SOURCE OF LONG-RANGE VISION AND STRATEGIC ADVANTAGE. Market Commentary: The strategy of the Ivy Bond Fund is to invest across the spectrum of fixed income securities -- when appropriate -- in which it may invest. Currently, about 68% of the Fund is invested in bonds rated BBB (investment grade) or higher by Standard & Poor's (or the equivalent rating by Moody's Investor Services) with the majority rated BBB. During the past three to four years, our research indicated that bonds rated higher than BBB offered little more than interest rate exposure as spreads between these bonds and comparable maturity US Treasury bonds were relatively narrow. We continue to believe this and because we don't attempt to "time" the bond market we have avoided investing in more highly rated bonds. We will, however, extend maturities in the Fund if the yield on the bellwether 30-year US Treasury bond moves above 7.25% as we believe this would appear to present good value from a longer-term perspective. About 30% of the Ivy Bond Fund is invested in bonds rated below investment grade. Of that 30%, about 15% of the Fund is invested in US dollar denominated emerging market corporate bonds, which are generally higher yielding and have shorter maturities than bonds issued by US companies. Typically, emerging market bonds are also rated below investment grade, generally because of the sovereign ceiling--if the rating agencies deem a country to be below investment grade, it is rare that any corporate bond would be rated above that level. By positioning the Fund in credit-sensitive bonds, we have participated in a broadly based tightening of corporate bond spreads over the past several years. Our research shows that corporate America is healthier than it has been in many years, and its health continues to improve. Interest costs as a percentage of cash flow have declined to levels not seen for almost 30 years. Corporate profitability has returned to levels last experienced in 1968. According to Moody's, the average credit rating for all outstanding US corporate bonds is single A, which is high quality. Companies are deleveraging their balance sheets and replacing high-cost debt with lower coupon debt. In many cases, they are issuing more equity. When the economy slows down, companies should be better able to service their fixed income obligations; defaults should not spike to high levels. Even if defaults were to rise somewhat, it is not likely to be at levels seen in the late 1980s. We continue to avoid most of the zero coupon telecom bonds and instead seek out high coupon bonds issued by fairly stable businesses. Emerging market bonds, most of which are domiciled in Latin America, continue to provide the Fund with portfolio diversification and a great source of high yield. Improvements in the economies of countries in this region, increased political reforms, and benefits from privatization are all helping to add credibility on a global basis to the corporate profiles of many corporate bond issuers. With expectations for moderate economic growth and relatively low and contained inflation in the foreseeable future, we believe that conditions may be more favorable now for bond fund investors than they have been for quite some time. The Ivy Bond Fund, which can take advantage of the fixed income universe, should continue to benefit from a healthy business environment. Ivy Management, Inc. BOARD OF TRUSTEES RTC John S. Anderegg, Jr. Paul H. Broyhill Keith J. Carlson Stanley Channick Frank W. DeFriece, Jr. Roy J. Glauber Michael G. Landry Joseph G. Rosenthal Richard Silverman J. Brendan Swan OFFICERS Michael G. Landry, Chairman Keith J. Carlson, President James W. Broadfoot, Vice President C. William Ferris, Secretary/Treasurer LEGAL COUNSEL Dechert Price & Rhoads Boston, MA CUSTODIAN Brown Brothers Harriman & Co. Boston, MA TRANSFER AGENT Ivy Mackenzie Services Corp. P.O. Box 3022 Boca Raton, FL 33431-0922 1-800-777-6472 AUDITORS Coopers & Lybrand L.L.P. Fort Lauderdale, FL INVESTMENT MANAGER Ivy Management, Inc. 700 South Federal Highway Boca Raton, FL 33432 1-800-456-5111 DISTRIBUTOR Ivy Mackenzie Distributors, Inc. 700 South Federal Highway Boca Raton, FL 33432 1-800-456-5111 [IVY MACKENZIE LOGO] 10 PORTFOLIO OF INVESTMENTS JUNE 30, 1997 (UNAUDITED)
CORPORATE BONDS -- 80.9% PRINCIPAL VALUE - ----------------------------------------- Affinity Group Inc., 11.50%, 10/15/03*... $1,000,000 $ 1,072,500 American President Co. Ltd., 8.00%, 01/15/24............................... 1,000,000 898,750 Bank United Corp., 8.875%, 05/01/07*..... 1,000,000 1,011,250 Cobb Theatres, 10.625%, 03/01/03*........ 1,000,000 1,096,250 Comcast Cablevision 144A, 8.375%, 05/01/07............................... 1,000,000 1,057,500 Conseco Inc., 10.50%, 12/15/04........... 1,500,000 1,751,250 Cyprus Amax Minerals, 8.375%, 02/01/23... 1,000,000 1,003,750 Delphi Financial Group Inc., 8.00%, 10/01/03............................... 2,500,000 2,518,750 Delta Air Lines, 9.30%, 01/02/11......... 1,000,000 1,116,250 Delta Air Lines, 9.59%, 01/12/17......... 1,500,000 1,745,625 Developers Diversified Realty Corp., 7.28%, 11/24/05........................ 1,000,000 981,250 Duty Free International Inc., 7.00%, 01/15/04............................... 2,000,000 1,902,500 Farmers Insurance Exchange, 8.625%, 05/01/24............................... 2,000,000 2,080,000 Fort Howard, 10.92%, 02/15/12*........... 1,453,060 1,547,509 Freeport-McMoRan Copper & Gold, 7.50%, 11/15/06............................... 2,000,000 1,990,000 Great Atlantic & Pacific Tea Inc., 7.70%, 01/15/04............................... 1,000,000 1,025,000 HMC Acquisition Properties Inc., 9.00%, 12/15/07*.............................. 1,000,000 1,022,900 Indianapolis Life Insurance Co., 8.66%, 04/01/11............................... 2,000,000 2,085,000 International Knife & Saw 144A, 11.375%, 11/15/06*.............................. 1,000,000 1,072,500 Jackson National Life Ins. Co. 144A, 8.15%, 03/15/27........................ 1,000,000 1,011,250 K-III Communication Corp., 8.50%, 02/01/06*.............................. 1,000,000 1,007,500 Kaiser Aluminum & Chemical, 12.75%, 02/01/03*.............................. 1,000,000 1,087,500 Leucadia National Corp., 7.75%, 08/15/13............................... 2,000,000 1,912,500 Long Island Lighting Co., 8.625%, 04/15/04............................... 2,000,000 2,077,500 Lumbermens Mutual Casualty 144A, 9.15%, 07/01/26............................... 2,000,000 2,190,000 MCII Buses Inc., 10.00%, 11/26/97........ 500,000 496,920 McCaw International Ltd., 13.00%, 04/15/07*................................ 2,000,000 1,000,000 McDermott Inc., 8.75%, 05/19/23*......... 1,500,000 1,436,250 Mitchell Energy & Development Corp., 6.75%, 02/15/04........................ 1,000,000 968,750 Motors and Gears Inc., 10.75%, 11/15/06*.............................. 1,000,000 1,033,750 News America Holdings, 7.75%, 01/20/24... 2,000,000 1,895,000 News America Holdings, 7.70%, 10/30/25... 1,000,000 943,750 Northrop Grumman Corp., 9.375%, 10/15/24............................... 2,000,000 2,200,000 Ocean Energy Inc. 144A, 8.875%, 07/15/07*.............................. 1,000,000 997,500 Ocwen Federal Bank, 12.00%, 06/15/05*.... 500,000 545,625 Overseas Shipholding Group, Inc., 8.75%, 12/01/13............................... 3,000,000 3,048,750 PDV America Inc., 7.875%, 08/01/03....... 3,000,000 3,041,250 Pegasus Media & Communications, 12.50%, 07/01/05*.............................. 1,000,000 1,100,000 Pioneer-Standard, 8.50%, 08/01/06........ 3,000,000 3,127,500 Praxair Inc., 8.70%, 07/15/22............ $2,500,000 $ 2,690,625 RHG Finance Corp., 8.875%, 10/01/05...... 2,000,000 2,180,000 RJR Nabisco Inc., 8.75%, 07/15/07........ 2,000,000 2,012,500 RSL Communications Ltd., 12.25%, 11/15/06*.............................. 1,000,000 1,057,500 Shop Vac Corp. 144A, 10.625%, 09/01/03*.. 1,000,000 1,062,500 Sithe/Independence Funding, 9.00%, 12/30/13............................... 2,000,000 2,177,500 Stuart Entertainment 144A, 12.50%, 11/15/04*.............................. 1,250,000 1,201,563 TCI Communications, Inc., 8.75%, 08/01/15............................... 1,000,000 1,045,000 TCI Communications, Inc., 9.25%, 01/15/23............................... 2,000,000 2,092,500 Terex Corp., 13.25%, 05/15/02*........... 1,000,000 1,120,000 Time Warner Inc., 9.125%, 01/15/13....... 1,500,000 1,646,250 Time Warner Inc., 9.15%, 02/01/23........ 2,000,000 2,197,500 Turner Broadcasting System, 8.40%, 02/01/24............................... 1,000,000 976,250 USX Marathon Group, 9.375%, 05/15/22..... 1,000,000 1,152,500 United Air Lines, 9.75%, 08/15/21........ 2,500,000 2,956,250 United Refining 144A, 10.75%, 06/15/07*.. 1,000,000 995,000 Willcox & Gibbs Inc., 12.25%, 12/15/03*.............................. 1,000,000 1,008,750 ------------ TOTAL CORPORATE BONDS (Cost -- $82,820,898).................. 85,672,017 ------------ U.S. GOVERNMENT OBLIGATIONS -- 2.9% - ----------------------------------------- U.S. Treasury Bond, 7.25%, 05/15/16...... 100,000 104,235 U.S. Treasury Note, 6.25%, 01/31/02...... 3,000,000 2,982,600 ------------ TOTAL U.S. GOVERNMENT OBLIGATIONS (Cost -- $3,085,850)................... 3,086,835 ------------ U.S. DOLLAR DENOMINATED FOREIGN BONDS -- 14.5% - ----------------------------------------- APP International Finance, 11.75%, 10/01/05*.............................. 500,000 548,750 Acindar Industries, 11.25%, 02/15/04..... 500,000 527,500 Banco Ganadero S.A., 9.75%, 08/26/99..... 1,000,000 1,050,000 Bombril S.A., 8.00%, 08/26/98*........... 500,000 498,520 Buenos Aires Embotelladora 144A, 8.50%, 12/29/00*.............................. 500,000 366,250 Cemex S.A. 144A, 12.75%, 07/15/06........ 500,000 578,125 Ceval Alimentos S.A. REGD, 11.00%, 12/30/04............................... 1,000,000 1,027,500 Companhia Suzano Papel 144A REGD, 10.25%, 10/06/01*.............................. 900,000 915,750 Comtel Brasiliera 144A, 10.75%, 09/26/04............................... 400,000 431,500 Greater Beijing 144A, 9.50%, 06/15/07*... 1,000,000 1,012,500 Grupo Industrial Durango, 12.00%, 07/15/01*.............................. 500,000 543,125 Grupo Televisa S.A. 144A, 13.25%, 05/15/08*.............................. 1,000,000 701,250 Inco Ltd., 9.60%, 06/15/22............... 1,000,000 1,106,250 Indah Kiat Finance 144A, 10.00%, 07/01/07*.............................. 500,000 498,125 Industrias Unidas, 8.50%, 01/27/99*...... 1,000,000 995,000 Iochpe-Maxion S.A. 144A, 12.375%, 11/08/02*.............................. 900,000 912,375 Mechala Group Jamaica, 12.75%, 12/30/99*.............................. 1,000,000 1,037,500
(See Notes to Financial Statements) 11 PORTFOLIO OF INVESTMENTS (CONTINUED) JUNE 30, 1997 (UNAUDITED)
CORPORATE BONDS PRINCIPAL VALUE - ----------------------------------------- Metalurgica Gerdau S.A., 10.25%, 11/23/01*.............................. $ 500,000 $ 513,125 Metalurgica Gerdau S.A., 11.125%, 05/24/04*.............................. 500,000 528,125 Ongko International Finance Co. 144A, 10.50%, 03/29/04*...................... 1,000,000 1,026,250 Polysindo International Finance, 11.375%, 06/15/06*.............................. 500,000 548,750 ------------ TOTAL U.S. DOLLAR DENOMINATED FOREIGN BONDS (Cost -- $14,642,832)............ 15,366,270 ------------ RIGHTS & WARRANTS -- 0.1% SHARES - ----------------------------------------- ---------- RSL Communications Ltd. Warrants(a)...... 1,000 30,000 Terex Corp. -- Appreciation Rights(a).... 4,000 48,000 ------------ TOTAL RIGHTS & WARRANTS (Cost -- $0)........................... 78,000 ------------ TOTAL INVESTMENTS -- 98.4% (Cost -- $100,549,580)(b).............. 104,203,122 OTHER ASSETS, LESS LIABILITIES -- 1.6%... 1,735,083 ------------ NET ASSETS -- 100%....................... $105,938,205 REGD- Registered * Below investment grade security. (a) Non-income producing security. (b) Cost is the same for Federal income tax purposes. OTHER INFORMATION: At June 30, 1997, net unrealized appreciation based on cost for Federal income tax purposes is as follows: Gross unrealized appreciation.................... $ 4,228,405 Gross unrealized depreciation.................... (574,863) ------------ Net unrealized appreciation.................. $ 3,653,542 ============
Purchases and sales of securities other than U.S. Government securities and short-term obligations aggregated $34,627,976 and $28,327,713, respectively, for the period ended June 30, 1997. Purchases and sales of U.S. Government and Government Agency obligations aggregated $6,973,294 and $9,924,814, respectively, for the period ended June 30, 1997. STATEMENT OF ASSETS AND LIABILITIES JUNE 30, 1997 (UNAUDITED) ASSETS Investments, at value (identified cost -- $100,549,580)..... $104,203,122 Cash........................................................ 163,773 Receivables Investments sold.......................................... 360,000 Fund shares sold.......................................... 319,202 Interest.................................................. 2,490,808 Other assets................................................ 50,270 ------------ Total assets............................................ 107,587,175 ------------ LIABILITIES Payables Distributions to shareholders............................. 1,631 Investments purchased..................................... 1,495,035 Fund shares repurchased................................... 18,095 Management fee............................................ 64,044 12b-1 service and distribution fees....................... 27,766 Other payables to related parties......................... 29,460 Accrued expenses............................................ 12,939 ------------ Total liabilities....................................... 1,648,970 ------------ NET ASSETS.................................................. $105,938,205 ============ CLASS A Net asset value and redemption price per share ($97,497,016/9,801,771 shares outstanding)................ $ 9.95 ============ Maximum offering price per share ($9.95 x 100/95.25)*....... $ 10.45 ============ CLASS B Net asset value, offering price and redemption price** per share ($7,177,472/721,912 shares outstanding)............. $ 9.94 ============ CLASS C Net asset value, offering price and redemption price*** per share ($1,263,717/126,849 shares outstanding)............. $ 9.96 ============ NET ASSETS CONSIST OF Capital paid-in........................................... $107,915,966 Undistributed net realized loss on investments............ (5,674,670) Undistributed net investment income....................... 43,367 Net unrealized appreciation on investments................ 3,653,542 ------------ NET ASSETS.................................................. $105,938,205 ============
* On sales of more than $100,000 the offering price is reduced. ** Subject to a maximum contingent deferred sales charge of 5%. *** Subject to a maximum contingent deferred sales charge of 1%. (See Notes to Financial Statements) 12 STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED) INVESTMENT INCOME Interest.................................................. $4,515,443 ---------- EXPENSES Management fee............................................ $380,943 Transfer agent fees....................................... 79,854 Administrative services fee............................... 51,395 Custodian fees............................................ 11,916 Blue Sky fees............................................. 10,609 Auditing and accounting fees.............................. 17,708 Shareholder reports....................................... 3,517 Fund accounting........................................... 50,968 Trustees' fees............................................ 2,977 12b-1 service and distribution fees....................... 154,917 Legal..................................................... 13,725 Other..................................................... 18,291 ---------- Total expenses............................................ 796,820 ---------- NET INVESTMENT INCOME....................................... 3,718,623 ---------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain (loss) on Investments............................................. (23,402) Options................................................. 16,281 Net unrealized appreciation during the period on Investments............................................. 1,426,058 Options................................................. 23,031 ---------- Net gain on investments................................. 1,441,968 ---------- INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $5,160,591 ==========
STATEMENT OF CHANGES IN NET ASSETS
FOR THE SIX FOR THE MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, ------------ ------------ 1997* 1996 ------------ ------------ INCREASE (DECREASE) IN NET ASSETS Operations Net investment income..................................... $ 3,718,623 $ 7,628,739 Net realized gain (loss) on Investments............................................. (23,402) 647,584 Options................................................. 16,281 (173,422) Net unrealized appreciation (depreciation) during the period on Investments............................................. 1,426,058 (339,684) Options................................................. 23,031 (23,031) ------------ ------------ Net increase resulting from operations................ 5,160,591 7,740,186 ------------ ------------ Class A distributions From net investment income................................ (3,448,115) (7,282,279) In excess of net investment income........................ -- (143,137) ------------ ------------ Total distributions to Class A shareholders............. (3,448,115) (7,425,416) ------------ ------------ Class B distributions From net investment income................................ (202,719) (332,726) In excess of net investment income........................ (2,921) (9,105) ------------ ------------ Total distributions to Class B shareholders............. (205,640) (341,831) ------------ ------------ Class C distributions From net investment income................................ (28,460) (13,734) In excess of net investment income........................ (3,986) (1,753) ------------ ------------ Total distributions to Class C shareholders............. (32,446) (15,487) ------------ ------------ Fund share transactions (Note 5) Class A................................................... (1,750,677) (10,914,806) Class B................................................... 1,782,602 126,355 Class C................................................... 632,599 606,878 ------------ ------------ Net increase (decrease) resulting from Fund share transactions........................................... 664,524 (10,181,573) ------------ ------------ TOTAL INCREASE (DECREASE) IN NET ASSETS................. 2,138,914 (10,224,121) NET ASSETS Beginning of period....................................... 103,799,291 114,023,412 ------------ ------------ END OF PERIOD............................................. $105,938,205 $103,799,291 ============ ============ UNDISTRIBUTED NET INVESTMENT INCOME......................... $ 43,367 $ 10,945 ============ ============
* Unaudited. (See Notes to Financial Statements) 13 FINANCIAL HIGHLIGHTS
FOR THE SIX FOR THE SIX CLASS A MONTHS ENDED FOR THE YEAR ENDED MONTHS ENDED JUNE 30, DECEMBER 31, DECEMBER 31, ------------ ----------------------- ------------ 1997* 1996 1995 1994 SELECTED PER SHARE DATA ------------ ------- -------- ------------ Net asset value, beginning of period........ $ 9.80 $ 9.78 $ 9.01 $ 9.38 ------- ------- -------- -------- Income from investment operations Net investment income...................... .35 .72 .67(a) .33(a) Net realized and unrealized gain (loss) on investments.............................. .15 .03 .84 (.29) ------- ------- -------- -------- Total from investment operations......... .50 .75 1.51 .04 ------- ------- -------- -------- Less distributions From net investment income................. .35 .72 .63 .32 In excess of net investment income......... -- .01 -- -- From net realized gain..................... -- -- -- -- In excess of net realized gain............. -- -- -- .09 From capital paid-in....................... -- -- .11 -- ------- ------- -------- -------- Total distributions...................... .35 .73 .74 .41 ------- ------- -------- -------- Net asset value, end of period.............. $ 9.95 $ 9.80 $ 9.78 $ 9.01 ======= ======= ======== ======== Total return(%)............................. 5.23(c) 8.06(b) 17.41(b) .43(c) RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands).... $97,497 $97,881 $108,840 $110,232 Ratio of expenses to average net assets With expense reimbursement(%).............. -- -- 1.54 1.50(d) Without expense reimbursement(%)........... 1.50(d) 1.56 1.54 1.52(d) Ratio of net investment income to average net assets(%).............................. 7.29(d) 7.36 7.09(a) 6.92(a)(d) Portfolio turnover rate(%).................. 37 90 93 22 CLASS A FOR THE YEAR ENDED JUNE 30, ---------------------------------- 1994 1993 1992 SELECTED PER SHARE DATA -------- -------- -------- Net asset value, beginning of period........ $ 10.34 $ 9.95 $ 9.61 -------- -------- -------- Income from investment operations Net investment income...................... .63 .55 .63(a) Net realized and unrealized gain (loss) on investments.............................. (.60) 1.00 .73 -------- -------- -------- Total from investment operations......... .03 1.55 1.36 -------- -------- -------- Less distributions From net investment income................. .61 .64 .63 In excess of net investment income......... -- -- -- From net realized gain..................... .38 .52 .25 In excess of net realized gain............. -- -- -- From capital paid-in....................... -- -- .14 -------- -------- -------- Total distributions...................... .99 1.16 1.02 -------- -------- -------- Net asset value, end of period.............. $ 9.38 $ 10.34 $ 9.95 ======== ======== ======== Total return(%)............................. 0.00(b) 16.29(b) 14.77(b) RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands).... $120,073 $132,721 $102,328 Ratio of expenses to average net assets With expense reimbursement(%).............. -- -- 1.50 Without expense reimbursement(%)........... 1.45 1.49 1.55 Ratio of net investment income to average net assets(%).............................. 6.19 6.42 6.92(a) Portfolio turnover rate(%).................. 78 134 129
FOR THE PERIOD FOR THE SIX FOR THE SIX OCTOBER 23, 1993 CLASS B MONTHS ENDED FOR THE YEAR ENDED MONTHS ENDED (COMMENCEMENT) JUNE 30, DECEMBER 31, DECEMBER 31, TO JUNE 30, ------------ -------------------- ------------ ---------------- 1997* 1996 1995 1994 1994 SELECTED PER SHARE DATA ------------ ------ ------ ------------ ---------------- Net asset value, beginning of period........... $ 9.80 $ 9.78 $ 9.01 $ 9.38 $ 9.82 ------ ------ ------ ------ ------ Income (loss) from investment operations Net investment income......................... .31 .64 .60(a) .30(a) .10 Net realized and unrealized gain on investments................................. .15 .04 .84 (.29) (.32) ------ ------ ------ ------ ------ Total from investment operations............ .46 .68 1.44 .01 (.22) ------ ------ ------ ------ ------ Less distributions From net investment income.................... .31 .64 .56 .29 .14 In excess of net investment income............ .01 .02 -- -- -- From net realized gain........................ -- -- -- -- .08 In excess of net realized gain................ -- -- -- .09 -- From capital paid-in.......................... -- -- .11 -- -- ------ ------ ------ ------ ------ Total distributions......................... .32 .66 .67 .38 .22 ------ ------ ------ ------ ------ Net asset value, end of period................. $ 9.94 $ 9.80 $ 9.78 $ 9.01 $ 9.38 ====== ====== ====== ====== ====== Total return(%)................................ 4.77(c) 7.25(b) 16.54(b) .06(c) (2.24)(c) RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands)....... $7,177 $5,300 $5,184 $2,420 $ 761 Ratio of expenses to average net assets With expense reimbursement(%)................. -- -- 2.29 2.25(d) -- Without expense reimbursement(%).............. 2.23(d) 2.29 2.29 2.27(d) 2.20(d) Ratio of net investment income to average net assets(%)..................................... 6.55(d) 6.62 6.34(a) 6.17(a)(d) 5.44(d) Portfolio turnover rate(%)..................... 37 90 93 22 78
(See Notes to Financial Statements) 14 FINANCIAL HIGHLIGHTS (CONTINUED)
FOR THE PERIOD FOR THE SIX APRIL 30, 1996 CLASS C MONTHS ENDED (COMMENCEMENT) JUNE 30, TO DECEMBER 31, ------------ --------------- 1997* 1996 SELECTED PER SHARE DATA ------------ --------------- Net asset value, beginning of period........................ $ 9.82 $9.44 ------ ----- Income from investment operations Net investment income..................................... .28 .39 Net realized and unrealized gain on investments........... .18 .43 ------ ----- Total from investment operations........................ .46 .82 ------ ----- Less distributions From net investment income................................ .28 .39 In excess of net investment income........................ .04 .05 ------ ----- Total distributions..................................... .32 .44 ------ ----- Net asset value, end of period.............................. $ 9.96 $9.82 ====== ===== Total return(%)(c).......................................... 4.76 8.81 RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands).................... $1,264 $ 618 Ratio of expenses to average net assets(%)(d)............... 2.26 2.35 Ratio of net investment income to average net assets(%)(d).............................................. 6.52 6.56 Portfolio turnover rate(%).................................. 37 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. * Unaudited. (See Notes to Financial Statements) 15 NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 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 -- 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. Short-term obligations and commercial paper are valued at amortized cost, which approximates market. 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 June 30, 1997, there were no such securities. 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 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. 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. 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 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 the 16 NOTES TO FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) first $100 million in average net assets, and .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 and expenses are reflected as Administrative services fee and Fund accounting in the Statement of Operations. Ivy Mackenzie Distributors, Inc. (IMDI), a wholly owned subsidiary of MIMI, is the underwriter and distributor of the Fund's shares, and as such, purchases shares from the Fund at net asset value to settle orders from investment dealers. For the six months ended June 30, 1997, the net amount of underwriting discount retained by IMDI was $13,583. 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 assets, excluding Class I. 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 $119,678, $30,891 and $4,348, 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 $74,893, $4,184 and $777, 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. SECURITIES IN DEFAULT The Fund has been served notice of an event of default regarding the non-payment of semi-annual interest on Buenos Aires Embotelladora S.A. ("BAESA"), which was due on June 30, 1997. Interest receivable due on this bond as of June 30, 1997 is $42,500. BAESA currently plans to restructure its debt and, at this time, does not anticipate filing for bankruptcy. 5. FUND SHARE TRANSACTIONS Fund share transactions for Class A, Class B, Class C and Class I* were as follows:
SIX MONTHS ENDED YEAR ENDED JUNE 30, 1997 DECEMBER 31, 1996 ------------------------- ------------------------- CLASS A SHARES AMOUNT SHARES AMOUNT ------- ---------- ------------ ---------- ------------ Sold..................... 1,304,903 $ 12,942,606 1,351,568 13,152,817 Issued on reinvestment of distributions........... 223,250 2,193,355 478,725 4,613,419 Repurchased.............. (1,714,889) (16,886,638) (2,965,988) (28,681,042) ---------- ------------ ---------- ------------ Net decrease............. (186,736) $ (1,750,677) (1,135,695) $(10,914,806) ========== ============ ========== ============
SIX MONTHS ENDED YEAR ENDED JUNE 30, 1997 DECEMBER 31, 1996 ------------------------- ------------------------ CLASS B SHARES AMOUNT SHARES AMOUNT ------- ---------- ------------ --------- ------------ Sold...................... 275,260 $ 2,708,434 224,963 $ 2,188,764 Issued on reinvestment of distributions............ 15,215 149,397 27,331 263,390 Repurchased............... (109,540) (1,075,229) (241,113) (2,325,799) ---------- ------------ --------- ------------ Net increase.............. 180,935 $ 1,782,602 11,181 $ 126,355 ========== ============ ========= ============
FROM APRIL 30, 1996 SIX MONTHS ENDED (COMMENCEMENT) JUNE 30, 1997 TO DECEMBER 31, 1996 ------------------------- ------------------------ CLASS C SHARES AMOUNT SHARES AMOUNT ------- ---------- ------------ --------- ------------ Sold...................... 171,518 $ 1,688,028 64,693 $ 624,316 Issued on reinvestment of distributions............ 1,480 14,572 1,029 9,839 Repurchased............... (109,110) (1,070,001) (2,761) (27,277) ---------- ------------ --------- ------------ Net increase.............. 63,888 $ 632,599 62,961 $ 606,878 ========== ============ ========= ============
* There were no Class I shares outstanding during the periods. 17 June 30, 1997 IVY FUNDS(TM) Ivy Canada Fund - ----------- Semi-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 believe the current economic environment should continue to support a rally in economically sensitive stocks as demand continues to strengthen, production remains restrained, system-wide inventories decline and price initiatives are implemented. We would specifically highlight the following trends, which demonstrate the progress and opportunity in Canada: government budget deficits are collapsing -- far outpacing improvement in any other country; inflation pressures are well contained and there remains sufficient "slack" in the economy to facilitate growth; international investors are recognizing the improvement and have driven interest rates well below rates in the US in all but the longest maturity bonds; recent elections support political continuity and have exposed a rapid decline in the popularity of separatists in Quebec; Canada is a major winner in world trade and we believe that by the turn of the century, half of Canada's production will be destined for world markets. For the past several years, the Ivy Canada Fund has been positioned as a country/sector fund, focusing on metals and mining, precious metals, energy and forest products. These sectors have underperformed the broader Canadian market, which has been lead by the financial sector. We believe the resource sector that is the most controversial, yet has perhaps the greatest opportunity, is precious metals. According to our research, the supply/demand fundamentals for precious metals are very positive. The one exception is central bank activities (as discussed below). Platinum and palladium advanced to multi-year highs and silver inventories are depleting rapidly. We continue to prefer silver to gold. European central banks, in pursuit of European Monetary Union compliance, have been selling gold reserves. Australia, for example, recently sold most of its reserves. The steady decline in gold prices resulting from central bank selling, as well as forward producer selling and outright speculative short selling, has led to a sale on gold shares. Until the downtrend is arrested, the negative sentiment could cause share prices to drift still lower. We believe, however, that we are in the later stages of the decline and reserves are at the low end of past ranges. We expect to see mergers and takeovers confirm these values. And while there are no guarantees, according to our research, within one to three years after multi-year lows, gold stocks should outperform significantly. The early stages of recovery usually favor the strongest, world-class companies with low-cost assets, good balance sheets and superior management. According to our research, commodity prices continue to lag world growth but strong demand and declining inventory levels suggest firming prices and better profitability over the next year, which would support a catch-up rally in resources. Ivy Management, Inc. BOARD OF TRUSTEES John S. Anderegg, Jr. Paul H. Broyhill Keith J. Carlson Stanley Channick Frank W. DeFriece, Jr. Roy J. Glauber Michael G. Landry Joseph G. Rosenthal Richard Silverman J. Brendan Swan OFFICERS Michael G. Landry, Chairman Keith J. Carlson, President James W. Broadfoot, Vice President C. William Ferris, Secretary/Treasurer LEGAL COUNSEL Dechert Price & Rhoads Boston, MA CUSTODIAN Brown Brothers Harriman & Co. Boston, MA TRANSFER AGENT Ivy Mackenzie Services Corp. P.O. Box 3022 Boca Raton, FL 33431-0922 1-800-777-6472 AUDITORS Coopers & Lybrand L.L.P. Fort Lauderdale, FL INVESTMENT MANAGER Ivy Management, Inc. 700 South Federal Highway Boca Raton, FL 33432 1-800-456-5111 DISTRIBUTOR Ivy Mackenzie Distributors, Inc. 700 South Federal Highway Boca Raton, FL 33432 1-800-456-5111 [IVY MACKENZIE LOGO] 18 PORTFOLIO OF INVESTMENTS JUNE 30, 1997 (UNAUDITED)
EQUITY SECURITIES -- 89.6% SHARES VALUE - ----------------------------------------------------------------- CONSUMER PRODUCTS -- 4.9% Oralife Group, Inc.*..................... 28,300 $ 18,873 Schneider Corporation Class A............ 8,500 77,017 Semi-Tech Corporation.................... 300,000 643,684 Sport Specific International, Inc.*...... 112,500 0 ----------- 739,574 ----------- DIAMONDS -- 7.9% Aber Resources, Ltd.*.................... 40,000 559,600 Rex Diamond Mining Corp.*................ 120,000 200,064 SouthernEra Resources Ltd.*.............. 75,000 424,049 ----------- 1,183,713 ----------- GOLD & PRECIOUS MINERALS -- 17.2% Barrick Gold Corporation................. 3,000 65,347 Battle Mountain Canada................... 125,000 715,809 Dakota Mining Corp.*..................... 130,000 127,215 Goldcorp Inc. Class A*................... 15,000 108,187 Golden Knight Resources, Inc.*........... 150,000 306,620 Meridian Gold, Inc....................... 75,000 203,870 Orvana Minerals Corporation*............. 150,000 625,200 REA Gold Corporation*.................... 119,000 68,145 William Resources, Inc.*................. 225,000 350,656 ----------- 2,571,049 ----------- INDUSTRIAL PRODUCTS -- 10.2% Offshore Systems International Ltd.*..... 308,824 257,436 Offshore Systems International Ltd. Warrants*.............................. 75,000 0(a) PC Docs Group International, Inc.*....... 30,000 191,366 Simmonds Capital Ltd.*................... 100,000 112,355 Slater Steel, Inc........................ 56,200 682,356 Speedy Muffler King, Inc.*............... 50,000 282,699 ----------- 1,526,212 ----------- METALS & MINERALS -- 14.8% Breakwater Resources, Ltd.*.............. 50,000 173,969 Cameco Corporation....................... 6,000 225,072 Inco Ltd................................. 12,500 373,761 International Uranium Corp............... 300,000 282,699 Noranda Inc.............................. 15,000 323,473 Redfern Resources Ltd.*.................. 75,500 76,619 Teck Corp. Class A....................... 12,500 244,643 Teck Corp. Class B....................... 7,700 156,003 Tenke Mining Corp.*...................... 50,000 154,035 Tenke Mining Corp. Warrants*............. 15,000 0(a) Western Garnet Company Ltd.*............. 70,000 211,843 ----------- 2,222,117 ----------- OIL & GAS -- 23.4% Barrington Petroleum Ltd.*............... 75,000 299,009 Beau Canada Exploration Ltd.............. 175,000 393,242 Canadian Conquest Exploration Co. Ltd.*.. 150,000 147,873 HCO Ltd. Energy*......................... 150,000 228,334 Hurricane Hydrocarbons Ltd. Series 1*.... 60,000 217,461(a) Hurricane Hydrocarbons Ltd. Series 2*.... 125,000 249,174(a) Olympia Energy, Inc. Class A*............ 725,000 289,041 NQL Drilling Tools, Inc. -- Class A*..... 76,200 386,646 Pacalta Resources Ltd.*.................. 21,000 254,973 Paragon Petroleum Corp.*................. 135,000 391,430 Penn West Petroleum Ltd.*................ 20,000 255,879 Vermilion Resources Ltd.*................ 80,000 391,430 ----------- 3,504,492 ----------- PAPER & FOREST PRODUCTS -- 11.2% Ainsworth Lumber Company*................ 100,000 $ 427,673 Alliance Forest Products, Inc.*.......... 15,000 366,422 Donohue, Inc............................. 15,000 326,191 Sino-Forest Corp. Class A................ 200,000 253,704 St. Laurent Paperboard Inc.*............. 20,000 311,694 ----------- 1,685,684 ----------- TOTAL EQUITY SECURITIES (Cost -- $16,234,405).................. 13,432,841 ----------- SHORT-TERM OBLIGATIONS -- 10.1% PRINCIPAL - ----------------------------------------- -------- U.S. Treasury Bill, 4.92%, 07/31/97...... $220,000 219,098 U.S. Treasury Bill, 4.98%, 07/31/97...... 400,000 398,340 U.S. Treasury Bill, 4.94%, 08/07/97...... 215,000 213,909 U.S. Treasury Bill, 5.005%, 08/07/97..... 10,000 9,949 U.S. Treasury Bill, 5.10%, 08/14/97...... 55,000 54,663 U.S. Treasury Bill, 4.73%, 08/28/97...... 30,000 29,771 U.S. Treasury Bill, 4.80%, 08/28/97...... 240,000 238,144 U.S. Treasury Bill, 4.91%, 09/04/97...... 50,000 49,557 U.S. Treasury Bill, 4.915%, 09/04/97..... 10,000 9,911 U.S. Treasury Bill, 4.77%, 09/11/97...... 30,000 29,714 U.S. Treasury Bill, 4.815%, 09/11/97..... 90,000 89,133 U.S. Treasury Bill, 4.92%, 09/18/97...... 40,000 39,568 U.S. Treasury Bill, 4.95%, 09/25/97...... 70,000 69,172 U.S. Treasury Bill, 4.96%, 09/25/97...... 65,000 64,230 ----------- TOTAL SHORT-TERM OBLIGATIONS (Cost -- $1,515,159)................... 1,515,159 ----------- TOTAL INVESTMENTS -- 99.7% (Cost -- $17,749,564)(b)............... 14,948,000 OTHER ASSETS, LESS LIABILITIES -- 0.3%... 45,378 ----------- NET ASSETS -- 100%....................... $14,993,378 =========== * 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 June 30, 1997 aggregated $114,053. (b) Cost is approximately the same for Federal income tax purposes. OTHER INFORMATION: At June 30, 1997, net unrealized depreciation based on cost for Federal income tax purposes is as follows: Gross unrealized appreciation.................. $ 1,727,185 Gross unrealized depreciation.................. (4,528,749) ----------- Net unrealized depreciation................ $(2,801,564) ============
Purchases and sales of investments (excluding short-term obligations) aggregated $6,955,442 and $9,109,121, respectively, for the period ended June 30, 1997. (See Notes to Financial Statements) 19 STATEMENT OF ASSETS AND LIABILITIES JUNE 30, 1997 (UNAUDITED) ASSETS Investments, at value (identified cost -- $17,749,564)...... $14,948,000 Receivables Investments sold.......................................... 217,037 Fund shares sold.......................................... 9,417 Dividends and interest.................................... 4,051 Other assets................................................ 30,220 ----------- Total assets.............................................. 15,208,725 ----------- LIABILITIES Payables Investments purchased..................................... 13,294 Fund shares repurchased................................... 4,326 Management and advisory fees.............................. 11,143 12b-1 service and distribution fees....................... 6,821 Other payables to related parties......................... 9,698 Due to custodian............................................ 161,128 Accrued expenses............................................ 8,937 ----------- Total liabilities......................................... 215,347 ----------- Net assets.................................................. $14,993,378 =========== CLASS A Net asset value and redemption price per share ($12,456,953/1,422,348 shares outstanding).............. $ 8.76 =========== Maximum offering price per share ($8.76 X 100/94.25)*..... $ 9.29 =========== CLASS B Net asset value, offering price and redemption price** per share ($2,051,641/235,873 shares outstanding)........... $ 8.70 =========== CLASS C Net asset value, offering price and redemption price*** per share ($484,784/55,514 shares outstanding).......... $ 8.73 =========== NET ASSETS CONSIST OF Capital paid-in........................................... $17,066,624 Undistributed net realized gain on investments and foreign currency transactions................................... 907,582 Undistributed net investment loss......................... (178,665) Net unrealized depreciation on investments and foreign currency transactions................................... (2,802,163) ----------- NET ASSETS.................................................. $14,993,378 ===========
* On sales of more than $50,000 the offering price is reduced. ** Subject to a maximum contingent deferred sales charge of 5%. *** Subject to a maximum contingent deferred sales charge of 1%. (See Notes to Financial Statements) 20 STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED) INVESTMENT INCOME Dividends, net of $4,693 foreign taxes withheld........... $ 26,592 Interest.................................................. 33,061 ----------- 59,653 ----------- EXPENSES Management fee............................................ $41,817 Advisory fee.............................................. 29,272 Transfer agent............................................ 41,664 Administrative services fee............................... 8,363 Custodian fees............................................ 8,919 Blue Sky fees............................................. 10,052 Auditing and accounting fees.............................. 14,640 Shareholder reports....................................... 3,069 Fund accounting........................................... 17,412 Trustees' fees............................................ 2,977 12b-1 service and distribution fees....................... 41,535 Legal..................................................... 12,646 Other..................................................... 5,952 ----------- Total expenses............................................ 238,318 ----------- NET INVESTMENT LOSS......................................... (178,665) ----------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS Net realized gain on investments and foreign currency transactions............................................ 864,544 Net unrealized depreciation during the period on investments and foreign currency transactions........... (2,314,048) ----------- Net loss on investment transactions..................... (1,449,504) ----------- DECREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $(1,628,169) ===========
STATEMENT OF CHANGES IN NET ASSETS
FOR THE SIX FOR THE MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, ------------ ------------ 1997* 1996 ------------ ------------ DECREASE IN NET ASSETS Operations Net investment loss....................................... $ (178,665) $ (340,228) Net realized gain on investments and foreign currency transactions............................................ 864,544 2,677,225 Net unrealized appreciation (depreciation) during the period on investments and foreign currency transactions............................................ (2,314,048) 1,776,983 ----------- ----------- Net increase (decrease) resulting from operations..... (1,628,169) 4,113,980 ----------- ----------- Distributions from net realized gain Class A................................................... -- (2,405,970) Class B................................................... -- (251,588) Class C................................................... -- (14,472) ----------- ----------- Total distributions to shareholders................... -- (2,672,030) ----------- ----------- Fund share transactions (Note 4) Class A................................................... (1,461,845) (5,559,037) Class B................................................... 238,405 906,002 Class C................................................... 383,106 178,392 ----------- ----------- Net decrease resulting from Fund share transactions... (840,334) (4,474,643) ----------- ----------- TOTAL DECREASE IN NET ASSETS................................ (2,468,503) (3,032,693) NET ASSETS Beginning of period....................................... 17,461,881 20,494,574 ----------- ----------- END OF PERIOD............................................. $14,993,378 $17,461,881 =========== =========== UNDISTRIBUTED NET INVESTMENT LOSS........................... $ (178,665) $ -- =========== ===========
* Unaudited. (See Notes to Financial Statements) 21 FINANCIAL HIGHLIGHTS
FOR THE SIX FOR THE SIX CLASS A MONTHS ENDED FOR THE YEAR ENDED MONTHS ENDED JUNE 30, DECEMBER 31, DECEMBER 31, FOR THE YEAR ENDED JUNE 30, ------------ -------------------- ------------ --------------------------------- 1997* 1996 1995 1994 1994 1993 1992 SELECTED PER SHARE DATA ------------ ------- ------- ------------ ------- ------- ------- Net asset value, beginning of period...................... $ 9.64 $ 9.21 $ 8.90 $ 9.85 $ 10.04 $ 7.43 $ 8.89 ------- ------- ------- ------- ------- ------- ------- Income (loss) from investment operations Net investment loss......... (.09)(g) (.21) (.19)(a) (.11) (.11) (.01) (.12) Net realized and unrealized gain (loss) on investment transactions.............. (.79)(g) 2.29 .75 (.81) .24 3.35 (1.34) ------- ------- ------- ------- ------- ------- ------- Total from investment operations............ (.88) 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...................... $ 8.76 $ 9.64 $ 9.21 $ 8.90 $ 9.85 $ 10.04 $ 7.43 ======= ======= ======= ======= ======= ======= ======= Total return(%)............... (9.13)(c) 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).................. $12,457 $15,249 $19,353 $23,296 $34,549 $30,971 $11,280 Ratio of expenses to average net assets(%)............... 2.80(d) 2.79 2.90(f) 2.44(d) 2.05 2.63 2.70 Ratio of net investment loss to average net assets(%).... (2.09)(d) (1.78) (2.13)(a) (1.85)(d) (1.09) (1.41) (1.39) Portfolio turnover rate(%).... 42 56 21 18 62 32 2 Average commission rate(e).... $ .0207 $ .0134 N/A N/A N/A N/A N/A
FOR THE PERIOD FOR THE SIX FOR THE SIX APRIL 1, 1994 CLASS B MONTHS ENDED FOR THE YEAR ENDED MONTHS ENDED (COMMENCEMENT) JUNE 30, DECEMBER 31, DECEMBER 31, TO JUNE 30, ------------ -------------------- ------------ -------------- 1997* 1996 1995 1994 1994 SELECTED PER SHARE DATA ------------ ------ ------ ------------ -------------- Net asset value, beginning of period............ $ 9.59 $ 9.21 $ 8.90 $ 9.85 $10.16 ------ ------ ------ ------ ------ Income (loss) from investment operations Net investment loss........................... (.11)(g) (.17) (.20)(a) (.09) (.02) Net realized and unrealized gain (loss) on investment transactions..................... (.78)(g) 2.19 .71 (.86) (.29) ------ ------ ------ ------ ------ Total from investment operations.......... (.89) 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.................. $ 8.70 $ 9.59 $ 9.21 $ 8.90 $ 9.85 ====== ====== ====== ====== ====== Total return(%)................................. (9.28)(c) 23.26(b) 5.74(b) (9.64)(c) (3.05)(c) RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands)........ $2,052 $2,040 $1,142 $ 741 $ 227 Ratio of expenses to average net assets(%)...... 3.12(d) 3.30 3.50(f) 3.03(d) 2.68(d) Ratio of net investment loss to average net assets(%)..................................... (2.40)(d) (2.30) (2.73)(a) (2.44)(d) (1.72)(d) Portfolio turnover rate(%)...................... 42 56 21 18 Average commission rate(e)...................... $.0207 $.0134 N/A N/A N/A
(See Notes to Financial Statements) 22 FINANCIAL HIGHLIGHTS (CONTINUED)
FOR THE PERIOD FOR THE SIX APRIL 30, 1996 CLASS C MONTHS ENDED (COMMENCEMENT) JUNE 30, TO DECEMBER 31, ------------ --------------- 1997* 1996 SELECTED PER SHARE DATA ------------ --------------- Net asset value, beginning of period........................ $ 9.62 $10.67 ------ ------ Income (loss) from investment operations Net investment loss....................................... (.10)(g) (.14) Net realized and unrealized gain (loss) on investment transactions............................................ (.79)(g) .72 ------ ------ Total from investment operations........................ (.89) .58 ------ ------ Less distributions From net realized gain.................................... -- 1.63 ------ ------ Total distributions..................................... -- 1.63 ------ ------ Net asset value, end of period.............................. $ 8.73 $ 9.62 ====== ====== Total return(%)(c).......................................... (9.25) 6.51 RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands).................... $ 485 $ 173 Ratio of expenses to average net assets(%)(d)............... 3.04 3.15 Ratio of net investment loss to average net assets(%)(d).... (2.32) (2.15) Portfolio turnover rate(%).................................. 42 56 Average commission rate(e).................................. $.0207 $.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. (g) Based on average shares outstanding. * Unaudited. (See Notes to Financial Statements) 23 NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 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 traded on a U.S. or foreign stock exchange, or the National Association of Securities Dealers Automated Quotation ("NASDAQ") System, are valued at the last quoted sale price reported as of the close of regular trading on the exchange the security is traded most extensively. If there is no such sale, the security is valued at the calculated mean between the last bid and asked price on the exchange. Securities not traded on an exchange or NASDAQ, but traded in another over-the-counter market are valued at the average between the current bid and asked prices in such markets. Short-term obligations and commercial paper are valued at amortized cost, which approximates market. Debt securities (other than short-term obligations and commercial paper) are valued on the basis of valuations furnished by a pricing service authorized by the Board of Trustees (the Board), which determines valuations based upon market transactions for normal, institutional-size trading units of such securities. 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 June 30, 1997, securities valued in good faith by the Valuation Committee of the Board amounted to $466,635 (3.11% 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. DISTRIBUTIONS TO SHAREHOLDERS -- Distributions from net investment income and net realized capital gains, if any, are declared in December. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency transactions from foreign investment activity are translated into U.S. dollars on the following basis: (i) market value of securities, and dividends and interest receivable are translated at the closing daily rate of exchange; and, (ii) purchases and sales of investment securities are translated at the rate at which related foreign contracts are obtained or at the exchange rate prevailing on the date of the transaction. 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), a wholly owned subsidiary of Mackenzie Investment Management, Inc. (MIMI), is the Manager of the Fund. For its services, IMI receives a fee monthly at the annual rate of .50% of the Fund's average net assets. Mackenzie Financial Corporation (MFC) in Toronto, Ontario, Canada is the Investment Adviser of the Fund. For its services, MFC receives a fee monthly at the annual rate of .35% of the Fund's average net assets. 24 NOTES TO FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) The fee is collected from the Fund and remitted to MFC by MIMI, a subsidiary of MFC. 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 and expenses are reflected as Administrative services fee and Fund accounting in the Statement of Operations. Ivy Mackenzie Distributors, Inc. (IMDI), a wholly owned subsidiary of MIMI, is the underwriter and distributor of the Fund's shares, and as such, purchases shares from the Fund at net asset value to settle orders from investment dealers. For the six months ended June 30, 1997, the net amount of underwriting discount retained by IMDI was $3,003. 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 $28,065, $11,026 and $2,444, 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 $38,613, $2,666 and $385, 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:
SIX MONTHS ENDED YEAR ENDED JUNE 30, 1997 DECEMBER 31, 1996 ---------------------- ------------------------- CLASS A SHARES AMOUNT SHARES AMOUNT ------- -------- ----------- ---------- ------------ Sold....................... 136,294 $ 1,301,199 1,404,805 $ 13,996,192 Issued on reinvestment of distributions............. -- -- 238,777 2,234,621 Repurchased................ (295,584) (2,763,044) (2,163,206) (21,789,850) -------- ----------- ---------- ------------ Net decrease............... (159,290) $(1,461,845) (519,624) $ (5,559,037) ======== =========== ========== ============
SIX MONTHS ENDED YEAR ENDED JUNE 30, 1997 DECEMBER 31, 1996 ---------------------- ------------------------- CLASS B SHARES AMOUNT SHARES AMOUNT ------- -------- ----------- ---------- ------------ Sold....................... 53,598 $ 514,416 180,509 $ 1,783,269 Issued on reinvestment of distributions............. -- -- 21,699 203,806 Repurchased................ (30,471) (276,011) (113,445) (1,081,073) -------- ----------- ---------- ------------ Net increase............... 23,127 $ 238,405 88,763 $ 906,002 ======== =========== ========== ============
FROM APRIL 30, 1996 SIX MONTHS ENDED (COMMENCEMENT) JUNE 30, 1997 TO DECEMBER 31, 1996 ---------------------- ------------------------- CLASS C SHARES AMOUNT SHARES AMOUNT ------- -------- ----------- ---------- ------------ Sold....................... 44,076 $ 439,946 49,422 $ 495,277 Issued on reinvestment of distributions............. -- -- 795 7,533 Repurchased................ (6,531) (56,840) (32,248) (324,418) -------- ----------- ---------- ------------ Net increase............... 37,545 $ 383,106 17,969 $ 178,392 ======== =========== ========== ============
03MCCNX063097 25 June 30, 1997 IVY FUNDS(R) Ivy China Region Fund - ------------- Semi-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 THROUGHOUT THE CENTURIES, THE CASTLE KEEP HAS BEEN A SOURCE OF LONG-RANGE VISION AND STRATEGIC ADVANTAGE. Market Commentary: Two major stories emanated from China during the first six months of 1997. The first was the passing of Deng Xiaoping and the second was the July 1, 1997 handover of Hong Kong back to Chinese sovereignty. Each of these events was long-anticipated and had little impact on the Chinese and Hong Kong stock markets. Since the beginning of 1997, Hong Kong's Hang Seng index has substantially outperformed other markets in the China region. During this time, approximately 63% of the Ivy China Region Fund was invested in Hong Kong. Given the strong performance of the Hong Kong market, this weighting proved beneficial to the Fund. Our investment strategy for Hong Kong has not changed. We continue to invest in a group of well-managed companies that are benefiting directly from growth in mainland China. The largest holding in the Fund, HSBC Holdings (5% of assets), has by far been the best performing stock in Hong Kong. Its share price has increased more than 40% since January. Despite Hong Kong's recent performance -- it is trading near its 20-year average price-to-earnings ratio -- we believe it is still one of the best-valued markets in the world. During periods of strong enthusiasm about China, investors have been willing to pay much higher prices for Hong Kong stocks. We would not be surprised if this were to happen to the Hong Kong market in the post-handover era. In recent months, China's B-shares have moved higher on the back of very enthusiastic local buying. These moves have not been supported by fundamentals and as a result price-to-earnings ratios have expanded to very high levels. The situation in China today is reminiscent of the "housewife rally" that took place in Taiwan in the late 1980s. During that time, local Taiwanese investors aggressively bought shares and bid up prices to as high as 80 to 90 times earnings. It all came to an end when the government intervened in the early 1990s. The government in China has made some halfhearted attempts to put a lid on stock speculation; however, so far none of these measures have worked. It is difficult to predict how high B-shares will go. In January, about 8% of the Ivy China Region Fund was invested in a group of Taiwan stocks, primarily in the technology sector. Although these stocks, many of which are of world-class companies, have performed well, we believe that favorable liquidity conditions in Taiwan could drive the market higher. In addition, according to our research technology stocks in Taiwan are still at relatively attractive levels. Going forward, we believe the Ivy China Region Fund is well positioned to benefit from growth in the China region and encourage investors with a longer-term time horizon, and who recognize the benefits of international diversification, to stay the course. Ivy Management, Inc. BOARD OF TRUSTEES John S. Anderegg, Jr. Paul H. Broyhill Keith J. Carlson Stanley Channick Frank W. DeFriece, Jr. Roy J. Glauber Michael G. Landry Joseph G. Rosenthal Richard N. Silverman J. Brendan Swan OFFICERS Michael G. Landry, Chairman Keith J. Carlson, President James W. Broadfoot, Vice President C. William Ferris, Secretary/Treasurer LEGAL COUNSEL Dechert Price & Rhoads Boston, MA CUSTODIAN Brown Brothers Harriman & Co. Boston, MA TRANSFER AGENT Ivy Mackenzie Services Corp. P.O. Box 3022 Boca Raton, FL 33431-0922 1-800-777-6472 AUDITORS Coopers & Lybrand L.L.P. Fort Lauderdale, FL INVESTMENT MANAGER Ivy Management, Inc. 700 South Federal Highway Boca Raton, FL 33432 1-800-456-5111 DISTRIBUTOR Ivy Mackenzie Distributors, Inc. 700 South Federal Highway Boca Raton, FL 33432 1-800-456-5111 [IVY MACKENZIE LOGO] 26 PORTFOLIO OF INVESTMENTS JUNE 30, 1997 (UNAUDITED)
EQUITY SECURITIES -- 91.7% SHARES VALUE - ------------------------------------------ AMERICAS -- 0.4% - ------------------------------------------ UNITED STATES -- 0.4% Amway Asia Pacific Ltd.................... 2,500 $ 109,063 ----------- ASIA/PACIFIC -- 91.3% - ------------------------------------------ CHINA -- 13.5% China Southern Glass Co. -- Class B....... 305,890 159,908 Huaneng Power International, Inc. ADR*.... 15,000 382,500 Inner Mongolia Erdos Cashmere Products Co. -- Class B.......................... 276,000 231,840 Qinling Motors Company Ltd................ 1,100,000 567,941 Shanghai China International Travel Service Co., Ltd. -- Class B............ 215,000 107,070 Shanghai Dazhong Taxi Company -- Class B....................................... 780,000 692,640 Shanghai Diesel Engine Co. Ltd. -- Class B*...................................... 648,000 220,320 Shanghai Erfangji Company Limited -- Class B*...................................... 998,250 129,773 Shanghai Industrial Sewing Machine Co. Ltd. -- Class B......................... 780,000 95,160 Shanghai Narcissus Electric Appliances Industrial Company Ltd. -- Class B*..... 467,500 66,385 Shanghai Post & Telecom Eq. -- Class B.... 393,000 205,932 Shanghai Shangling Electric Appliances Co. Ltd. -- Class B*........................ 312,000 64,272 Shanghai Yaohua Pilkington Glass Class B*...................................... 200,000 72,400 Shenzhen China Bicycles -- Class B........ 865,800 340,854 Shenzhen Konka Electronics Group Limited -- Class B...................... 260,000 385,606 Zhenhai Refining and Chemical Company Limited................................. 900,000 325,275 ----------- 4,047,876 ----------- HONG KONG -- 63.4% Asia Satellite Telecom ADR*............... 4,000 120,500 C.P. Pokphand............................. 1,242,000 384,754 Chen Hsong Holdings*...................... 450,000 261,382 Cheung Kong Holdings Ltd.................. 123,000 1,214,555 Cheung Kong Infrastructure Holdings*...... 36,000 104,320 China Travel International Investment Hong Kong Ltd................................ 864,400 502,086 Citic Pacific Ltd......................... 161,000 1,005,824 Esprit Asia Holdings Ltd.................. 696,000 494,109 Founder Hong Kong Ltd.*................... 348,000 235,825 Giordano Holdings Ltd..................... 476,000 325,637 Gold Peak Industries...................... 923,000 595,693 Guangdong Investments..................... 799,000 1,201,499 Guangdong Investments Warrants*........... 79,900 37,644 Guangdong Tannery Ltd.*................... 39,950 15,470 HSBC Holdings............................. 46,867 1,409,528 Hang Seng Bank............................ 27,900 397,940 Henderson Land Development Company Ltd.... 52,000 461,452 Hong Kong & China Gas Company Ltd......... 223,200 446,557 Hong Kong Land Holdings Ltd............... 152,000 404,320 Hong Kong Telecommunications Limited...... 299,600 715,425 Jardine International Motor Holdings Co... 136,000 172,034 Jardine Strategic Holdings Ltd............ 100,250 378,945 Jardine Strategic Holdings Warrants*...... 13,250 5,234 Johnson Electric Holdings Ltd............. 237,000 706,661 Kumagai Gumi (Hong Kong) Ltd.............. 360,000 374,067 Lamex Holdings............................ 300,000 $ 81,319 Li & Fung................................. 615,800 691,528 Manhattan Card Company Ltd. .............. 868,000 394,939 Melco International Development Ltd.*..... 15,900 5,182 National Mutual Asia Ltd.................. 440,000 488,429 New World Development Company Ltd. ....... 80,535 480,261 New World Infrastructure Ltd.*............ 133 376 Peregrine Investment Holdings Limited..... 262,000 539,402 Peregrine Investment Holdings Limited Warrants*............................... 26,200 11,498 Realty Development 'A'.................... 30,000 124,689 Semi-Tech (Global)........................ 78,000 127,361 Shangri-La Asia Ltd....................... 230,000 276,097 Sime Darby (Hong Kong).................... 92,000 102,126 (with 444,130 rights)................... 1,110,327 81,691 Sun Hung Kai Properties Ltd............... 42,800 515,161 Swire Pacific Ltd Class A................. 59,500 535,688 Techtronic Industries Co. ................ 1,888,000 336,304 Tsingtao Brewery Co. Ltd Series H......... 600,000 232,340 Union Bank of Hong Kong Ltd. ............. 366,833 1,060,638 Wharf Holdings Ltd. ...................... 80,000 346,960 Wo Kee Hong Holdings Ltd. ................ 674,400 47,877 Wo Kee Hong Holdings Ltd. Warrants*....... 112,400 900 Yue Yuen Industrial Holdings.............. 229,200 474,832 ----------- 18,927,059 ----------- MALAYSIA -- 0.4% Leader Universal Holdings -- Class A...... 61,666 110,920 ----------- SINGAPORE -- 1.8% Clipsal Industries Limited................ 100,000 354,000 Elec & Eltek International Co. Ltd........ 35,000 196,000 ----------- 550,000 ----------- SOUTH KOREA -- 3.5% Daewoo Corporation........................ 400 3,252 Hyundai Motor Co, Ltd..................... 2,500 82,376 Keum Kang Development Ind. Company*....... 8,800 123,874 Korea Electric Power Corporation.......... 6,300 188,007 L.G. Electronics (with 422 rights)........ 8,000 148,649 Pohang Iron & Steel Co. Ltd............... 2,000 203,405 Samsung Electronics Co. GDR............... 640 17,600 Samsung Electronics Co. GDR Rights........ 10 314 Samsung Electronics Co. GDR 144A Registered*............................. 300 17,775 Samsung Electronics Co. New Common........ 1,423 158,164 Samsung Electronics Co. New Common Rights.................................. 23 870 Samsung Heavy Industries.................. 509 5,365 Shinhan Bank.............................. 8,000 116,937 ----------- 1,066,588 ----------- TAIWAN -- 8.0% Acer Incorporation*....................... 91,000 327,338 Compeq Manufacturing Co. ................. 56,000 398,848 Far Eastern Department Stores Ltd. ....... 248,000 394,302 President Enterprises*.................... 204,000 403,597 Systex Corporation*....................... 115,187 254,820 Systex Corporation Rights*................ 26,287 25,058 Tingyi (Cayman Island) Holding Co.*....... 810,000 201,787 Yung Shin Pharmaceuticals Industries Co... 124,000 350,143 ----------- 2,355,893 -----------
(See Notes to Financial Statements) 27 PORTFOLIO OF INVESTMENTS (CONTINUED) JUNE 30, 1997 (UNAUDITED)
EQUITY SECURITIES SHARES VALUE - -------------------------------------------------------------------- THAILAND -- 0.5% Bank of Ayudhya -- Foreign Registered..... 68,750 $ 107,484 Krung Thai Bank Public Company Limited.... 50,000 52,113 ----------- 159,597 ----------- VIETNAM -- 0.2% The Vietnam Fund Limited*................. 7,800..... 63,375 ----------- TOTAL EQUITY SECURITIES (Cost -- $22,505,903)................... 27,390,371 ----------- CONVERTIBLE CORPORATE BONDS -- 0.8% PRINCIPAL - ------------------------------------------ ---------- Piltel International Holding Corp., 1.75%, 07/17/06 (Cost -- $240,000)............. $240,000... 234,600 ----------- TOTAL INVESTMENTS -- 92.5% (Cost -- $22,745,903)(a)................ 27,624,971 OTHER ASSETS, LESS LIABILITIES -- 7.5%.... 2,226,579 ----------- NET ASSETS -- 100%........................ $29,851,550 ===========
ADR - American Depository Receipt GDR - Global Depository Receipt * Non-income producing security. (a) Cost for Federal income tax purposes is $22,918,417. OTHER INFORMATION: At June 30, 1997, net unrealized appreciation based on cost for and Federal income tax purposes is as follows: Gross unrealized appreciation..................... $ 7,907,451 Gross unrealized depreciation..................... (3,200,897) ----------- Net unrealized appreciation................... $ 4,706,554 =========== Purchases and sales of securities other than short-term obligations aggregated $1,959,496 and $2,777,937, respectively, for the period ended June 30, 1997. STATEMENT OF ASSETS AND LIABILITIES JUNE 30, 1997 (UNAUDITED) ASSETS Investments, at value (identified cost -- $22,745,903)...... $27,624,971 Cash........................................................ 1,888,358 Cash denominated in foreign currencies (cost -- $140,457)... 139,260 Receivables Fund shares sold.......................................... 200,217 Dividends and interest.................................... 141,511 Other assets................................................ 23,368 ----------- Total assets.............................................. 30,017,685 ----------- LIABILITIES Payables Fund shares repurchased................................... 101,083 Management fee............................................ 23,501 12b-1 service and distribution fees....................... 13,320 Other payables to related parties......................... 12,960 Accrued expenses............................................ 15,271 ----------- Total liabilities......................................... 166,135 ----------- NET ASSETS.................................................. $29,851,550 =========== CLASS A: Net asset value and redemption price per share ($17,481,686/1,497,788 shares outstanding)................ $ 11.67 =========== Maximum offering price per share ($11.67 x 100/94.25)*...... $ 12.38 =========== CLASS B: Net asset value, offering price and redemption price** per share ($11,265,225/970,714 shares outstanding)............ $ 11.61 =========== CLASS C: Net asset value, offering price and redemption price*** per share ($1,104,639/95,460 shares outstanding).............. $ 11.57 =========== NET ASSETS CONSIST OF Capital paid-in........................................... $26,532,288 Undistributed net realized loss on investments and foreign currency transactions................................... (1,636,653) Undistributed net investment income....................... 78,009 Net unrealized appreciation on investments and foreign currency transactions................................... 4,877,906 ----------- NET ASSETS.................................................. $29,851,550 ===========
* On sales of more than $50,000 the offering price is reduced. ** Subject to a maximum contingent deferred sales charge of 5%. *** Subject to a maximum contingent deferred sales charge of 1%. (See Notes to Financial Statements) 28 STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED) INVESTMENT INCOME Dividends, net of $7,734 foreign taxes withheld........... $ 399,252 Interest.................................................. 2,212 ---------- 401,464 ---------- EXPENSES Management fee............................................ $129,636 Transfer agent............................................ 48,247 Administrative services fee............................... 12,964 Custodian fees............................................ 27,929 Blue Sky fees............................................. 10,848 Auditing and accounting fees.............................. 8,029 Shareholder reports....................................... 3,579 Fund accounting........................................... 18,228 Trustees' fees............................................ 2,977 12b-1 service and distribution fees....................... 70,658 Legal..................................................... 15,171 Other..................................................... 9,462 ---------- 357,728 Expenses reimbursed by manager............................ (13,980) Fees paid indirectly...................................... (20,293) ---------- Net expenses............................................ 323,455 ---------- NET INVESTMENT INCOME....................................... 78,009 ---------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS Net realized loss on investments and foreign currency transactions............................................ (38,132) Net unrealized appreciation during the period on investments and foreign currency transactions........... 3,371,987 ---------- Net gain on investment transactions..................... 3,333,855 ---------- INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $3,411,864 ==========
STATEMENT OF CHANGES IN NET ASSETS
FOR THE SIX FOR THE MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, ------------ ------------ 1997* 1996 ------------ ------------ INCREASE IN NET ASSETS Operations Net investment income..................................... $ 78,009 $ 10,485 Net realized loss on investments and foreign currency transactions............................................ (38,132) (1,001,126) Net unrealized appreciation during the period on investments and foreign currency transactions........... 3,371,987 5,263,221 ----------- ----------- Net increase resulting from operations.................. 3,411,864 4,272,580 ----------- ----------- Class A distributions From net investment income................................ -- (46,722) In excess of net investment income........................ -- (30,983) ----------- ----------- Total distributions to Class A shareholders............. -- (77,705) ----------- ----------- Class C distributions From net investment income................................ -- (3,703) ----------- ----------- Total distributions to Class C shareholders............. -- (3,703) ----------- ----------- Fund share transactions (Note 5) Class A................................................... 126,698 (231,044) Class B................................................... 1,048,506 597,206 Class C................................................... 530,941 416,039 ----------- ----------- Net increase resulting from Fund share transactions..... 1,706,145 782,201 ----------- ----------- TOTAL INCREASE IN NET ASSETS................................ 5,118,009 4,973,373 NET ASSETS Beginning of period....................................... 24,733,541 19,760,168 ----------- ----------- END OF PERIOD............................................. $29,851,550 $24,733,541 =========== =========== UNDISTRIBUTED NET INVESTMENT INCOME......................... $ 78,009 $ -- =========== ===========
* Unaudited. (See Notes to Financial Statements) 29 FINANCIAL HIGHLIGHTS
FOR THE PERIOD FOR THE SIX OCTOBER 23, 1993 CLASS A MONTHS ENDED FOR THE YEAR ENDED (COMMENCEMENT) JUNE 30, DECEMBER 31, TO DECEMBER 31, ------------ ------------------------------------- ---------------- 1997* 1996 1995 1994 1993 SELECTED PER SHARE DATA ------------ ------- ------- ------- ---------------- Net asset value, beginning of period................ $ 10.30 $ 8.58 $ 8.61 $ 11.55 $ 10.00 ------- ------- ------- ------- -------- Income (loss) from investment operations Net investment income (loss)(a)................... .05(g) .03 .14 .05 (.01) Net realized and unrealized gain (loss) on investment transactions......................... 1.32(g) 1.74 (.01) (2.91) 1.57 ------- ------- ------- ------- -------- Total from investment operations................ 1.37 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...................... $ 11.67 $ 10.30 $ 8.58 $ 8.61 $ 11.55 ======= ======= ======= ======= ======== Total return(%)..................................... 13.30(b) 20.50(c) 1.59(c) (24.88)(c) 15.65(b) RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands)............ $17,482 $15,290 $12,855 $13,180 $ 8,371 Ratio of expenses to average net assets(d) With expense reimbursement(%)..................... 2.37(e) 2.20 2.20 2.20 1.98(e) Without expense reimbursement(%).................. 2.48(e) 2.48 2.73 2.76 2.45(e) Ratio of net investment income (loss) to average net assets(%)(a)...................................... .88(e) .32 1.61 .55 (.91)(e) Portfolio turnover rate(%).......................... 8 22 25 4 -- Average commission rate(f).......................... $ .0069 $ .0050 N/A N/A N/A
FOR THE PERIOD FOR THE SIX OCTOBER 23, 1993 CLASS B MONTHS ENDED FOR THE YEAR ENDED (COMMENCEMENT) JUNE 30, DECEMBER 31, TO DECEMBER 31, ------------ ------------------------------------ ---------------- 1997* 1996 1995 1994 1993 SELECTED PER SHARE DATA ------------ ------ ------- ------- ---------------- Net asset value, beginning of period............... $ 10.28 $ 8.58 $ 8.61 $ 11.55 $10.00 ------- ------ ------- ------- ------ Income (loss) from investment operations Net investment income (loss)(a).................. .01(g) (.04) .08 (.02) (.02) Net realized and unrealized gain (loss) on investment transactions........................ 1.32(g) 1.74 (.02) (2.92) 1.57 ------- ------ ------- ------- ------ Total from investment operations............... 1.33 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..................... $ 11.61 $10.28 $ 8.58 $ 8.61 $11.55 ======= ====== ======= ======= ====== Total return(%).................................... 12.94(b) 19.67(c) .83(c) (25.45)(c) 15.50(b) RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands)........... $11,265 $8,995 $ 6,905 $ 7,336 $3,565 Ratio of expenses to average net assets(d) With expense reimbursement(%).................... 3.08(e) 2.95 2.95 2.95 2.74(e) Without expense reimbursement(%)................. 3.19(e) 3.23 3.48 3.51 3.20(e) Ratio of net investment income (loss) to average net assets(%)(a)................................. .17(e) (.43) .86 (.20) (1.66)(e) Portfolio turnover rate(%)......................... 8 22 25 4 -- Average commission rate(f)......................... $ .0069 $.0050 N/A N/A N/A
(See Notes to Financial Statements) 30 FINANCIAL HIGHLIGHTS (CONTINUED)
FOR THE PERIOD FOR THE SIX APRIL 30, 1996 CLASS C MONTHS ENDED (COMMENCEMENT) JUNE 30, TO DECEMBER 31, ------------ --------------- 1997* 1996 SELECTED PER SHARE DATA ------------ --------------- Net asset value, beginning of period........................ $ 10.24 $ 9.44 ------- ------- Income from investment operations Net investment income (loss)(a)........................... .02(g) -- Net realized and unrealized gain on investment transactions............................................ 1.31(g) .89 ------- ------- Total from investment operations........................ 1.33 .89 ------- ------- Less distributions In excess of net investment income........................ -- .09 ------- ------- Total distributions..................................... -- .09 ------- ------- Net asset value, end of period.............................. $ 11.57 $ 10.24 ======= ======= Total return(%)(b).......................................... 12.99 9.39 RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands).................... $ 1,105 $ 449 Ratio of expenses to average net assets(d) With expense reimbursement(%)(e).......................... 2.93 2.71 Without expense reimbursement(%)(e)....................... 3.04 2.99 Ratio of net investment income (loss) to average net assets(%)(a)(e)........................................... .32 (.19) Portfolio turnover rate(%).................................. 8 22 Average commission rate(f).................................. $ .0069 $ .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) Beginning in 1995, total expenses include fees paid indirectly through an expense offset arrangement, if any. (e) Annualized. (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. (g) Based on average shares outstanding. * Unaudited. (See Notes to Financial Statements) 31 NOTES TO FINANCIAL STATEMENTS (UNAUDITED) Ivy China Region Fund (the Fund), is a diversified series of shares of Ivy Fund. The shares of beneficial interest are assigned no par value and an unlimited number of shares of Class A, Class B 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 traded on a U.S. or foreign stock exchange, or the National Association of Securities Dealers Automated Quotation ("NASDAQ") System, are valued at the last quoted sale price reported as of the close of regular trading on the exchange the security is traded most extensively. If there is no such sale, the security is valued at the calculated mean between the last bid and asked price on the exchange. Securities not traded on an exchange or NASDAQ, but traded in another over-the-counter market are valued at the average between the current bid and asked prices in such markets. Short-term obligations and commercial paper are valued at amortized cost, which approximates market. Debt securities (other than short-term obligations and commercial paper) are valued on the basis of valuations furnished by a pricing service authorized by the Board of Trustees (the Board), which determines valuations based upon market transactions for normal, institutional-size trading units of such securities. 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 June 30, 1997, 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 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. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency transactions from foreign investment activity are translated into U.S. dollars on the following basis: (i) market value of securities, and dividends and interest receivable are translated at the closing daily rate of exchange; and, (ii) purchases and sales of investment securities are translated at the rate at which related foreign contracts are obtained or at the exchange rate prevailing on the date of the transaction. Exchange gains or losses from currency translation of other assets and liabilities, if significant, are reported as a separate component of Net realized and unrealized gain (loss) on investment transactions. 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. 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 32 NOTES TO FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) expenses. For the period, custody fees were reduced by $20,293 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 and expenses are reflected as Administrative services fee and Fund accounting in the Statement of Operations. Ivy Mackenzie Distributors, Inc. (IMDI), a wholly owned subsidiary of MIMI, is the underwriter and distributor of the Fund's shares, and as such, purchases shares from the Fund at net asset value to settle orders from investment dealers. For the six months ended June 30, 1997, the net amount of underwriting discount retained by IMDI was $9,564. 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 $19,659, $47,154 and $3,845, 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 $31,118, $16,423 and $706, 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:
SIX MONTHS ENDED YEAR ENDED JUNE 30, 1997 DECEMBER 31, 1996 ------------------------- ------------------------- CLASS A SHARES AMOUNT SHARES AMOUNT ------- ---------- ------------ ---------- ------------ Sold..................... 1,104,969 $ 11,567,490 1,537,034 $ 14,512,385 Issued on reinvestment of distributions........... -- -- 6,616 68,426 Repurchased.............. (1,091,777) (11,440,792) (1,556,713) (14,811,855) ---------- ------------ ---------- ------------ Net increase (decrease).. 13,192 $ 126,698 (13,063) $ (231,044) ========== ============ ========== ============
SIX MONTHS ENDED YEAR ENDED JUNE 30, 1997 DECEMBER 31, 1996 ------------------------- ------------------------- CLASS B SHARES AMOUNT SHARES AMOUNT ------- ---------- ------------ ---------- ------------ Sold..................... 629,930 $ 6,569,237 998,886 $ 9,546,623 Repurchased.............. (534,344) (5,520,731) (928,212) (8,949,417) ---------- ------------ ---------- ------------ Net increase............. 95,586 $ 1,048,506 70,674 $ 597,206 ========== ============ ========== ============
FROM APRIL 30, 1996 SIX MONTHS ENDED (COMMENCEMENT) JUNE 30, 1997 TO DECEMBER 31, 1996 ------------------------- ------------------------- CLASS C SHARES AMOUNT SHARES AMOUNT ------- ---------- ------------ ---------- ------------ Sold..................... 98,138 $ 1,041,952 50,214 $ 474,632 Issued on reinvestment of distributions........... -- -- 324 3,314 Repurchased.............. (46,551) (511,011) (6,665) (61,907) ---------- ------------ ---------- ------------ Net increase............. 51,587 $ 530,941 43,873 $ 416,039 ========== ============ ========== ============
33 IVY FUNDS(R) June 30, 1997 Ivy Emerging Growth Fund - ------------- Semi-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 THROUGHOUT THE CENTURIES, THE CASTLE KEEP HAS BEEN A SOURCE OF LONG-RANGE VISION AND STRATEGIC ADVANTAGE. Market Commentary: The spring of 1997 brought with it a dramatic recovery in the emerging growth sector of the equity market. After bottoming out in late April, small-company stocks staged a powerful rally that continued through the first half of the year. If nothing else, this comeback has demonstrated that the volatility of this sector really does work both ways. Pundits pointed to a number of factors to explain why these stocks lagged the broader market earlier in the year. At the top of most lists was the popularity of indexing, a phenomenon with the characteristics of a self-fulfilling prophecy that has provided abundant buying power for the largest-capitalization stocks and created valuations that seem high by the standards of recent years. We believe another factor was the upward trend in interest rates, which finally peaked in April. According to our research, product transition issues, particularly in the networking stocks, also had a negative effect on investor psychology. These fundamental issues were exacerbated by press reports of "hot money" exiting momentum funds. For all these reasons, by late April negative investor sentiment pervaded the small-company market as relative valuations sank to the low end of their historical range. This set the stage for the ensuing rally, which was triggered by evidence suggesting that in spite of very strong economic growth, there was little threat of inflation, and the Federal Reserve Board might not have to raise interest rates again after all. We believe another positive influence on the sector was the balanced budget agreement, which would almost certainly include a capital gains reduction. Such a change would be positive for all stocks, but particularly non-dividend-paying growth stocks. In terms of fundamentals, most of the stocks that comprise the Ivy Emerging Growth Fund have continued to make excellent progress. As always, there have been a few stumbles, but the vast majority of the Fund's holdings have either met or exceeded earnings expectations, with the median comfortably in excess of 30%. However, larger-capitalization stocks, for the most part, also turned in good earnings reports. This may have been another factor that impeded performance in the emerging growth sector, as investors asked themselves, "If large-capitalization stocks can offer good earnings growth plus liquidity, why look further?" We believe investors are continuing to pay a big premium for the liquidity of larger-company stocks and in spite of the recent rally in the emerging growth sector, a very modest premium for the high-growth potential of smaller-company stocks. While there are no guarantees, this valuation disparity, combined with the strong fundamental outlook for the portfolio companies of the Ivy Emerging Growth Fund, encourages us to believe the catch-up phase has a lot further to go. Ivy Management, Inc. BOARD OF TRUSTEES John S. Anderegg, Jr. Paul H. Broyhill Keith J. Carlson Stanley Channick Frank W. DeFriece, Jr. Roy J. Glauber Michael G. Landry Joseph G. Rosenthal Richard N. Silverman J. Brendan Swan OFFICERS Michael G. Landry, Chairman Keith J. Carlson, President James W. Broadfoot, Vice President C. William Ferris, Secretary/Treasurer LEGAL COUNSEL Dechert Price & Rhoads Boston, MA CUSTODIAN Brown Brothers Harriman & Co. Boston, MA TRANSFER AGENT Ivy Mackenzie Services Corp. P.O. Box 3022 Boca Raton, FL 33431-0922 1-800-777-6472 AUDITORS Coopers & Lybrand L.L.P. Fort Lauderdale, FL INVESTMENT MANAGER Ivy Management, Inc. 700 South Federal Highway Boca Raton, FL 33432 1-800-456-5111 DISTRIBUTOR Ivy Mackenzie Distributors, Inc. 700 South Federal Highway Boca Raton, FL 33432 1-800-456-5111 [IVY MACKENZIE LOGO] 34 PORTFOLIO OF INVESTMENTS JUNE 30, 1997 (UNAUDITED)
COMMON STOCKS -- 96.0% SHARES VALUE - ------------------------------------------- BIOTECHNOLOGY -- 5.3% Aastrom Biosciences, Inc.*................. 50,600 $ 360,525 Agouron Pharmaceuticals, Inc.*............. 5,000 404,375 Alkermes, Inc.*............................ 20,800 301,600 Biochem Pharma, Inc.*...................... 31,200 694,200 Connetics Corporation*..................... 12,000 84,000 Depotech Corp.*............................ 7,000 95,375 Ergo Science Corporation*.................. 24,000 264,000 Geltex Pharmaceuticals, Inc.*.............. 21,600 434,700 Gliatech, Inc.*............................ 22,200 183,150 Liposome Company Inc.*..................... 79,200 707,850 Myriad Genetics, Inc.*..................... 8,000 216,000 NeoRx Corporation*......................... 38,300 169,956 NeoRx Corporation Units*................... 23,000 17,250 Neurex Corporation*........................ 37,000 522,625 PathoGenesis Corp.*........................ 16,100 468,912 Pharmacyclics, Inc.*....................... 26,600 412,300 US Bioscience, Inc.*....................... 14,000 134,750 Vertex Pharmaceuticals Inc.*............... 6,700 256,275 ViroPharma Inc.*........................... 20,500 366,437 ------------ 6,094,280 ------------ BUSINESS & FINANCIAL SERVICES -- 19.3% Applied Graphics Technologies, Inc.*....... 27,300 1,085,175 Ballantyne of Omaha, Inc.*................. 33,000 594,000 BISYS Group, Inc.*......................... 17,688 738,474 Children's Comprehensive Services, Inc.*... 63,600 898,350 Cohr, Inc.*................................ 21,300 399,375 Copart, Inc.*.............................. 15,600 257,400 Cornell Corrections, Inc.*................. 40,800 673,200 Corrections Corp. of America*.............. 22,900 910,275 Cotelligent Group, Inc.*................... 25,000 343,750 Credit Acceptance Corp.*................... 21,300 274,237 Daisytek International Corporation*........ 21,700 859,863 FactSet Research Systems Inc.*............. 40,200 984,900 Fair Issac and Company Inc. ............... 13,600 606,050 Federal Agricultural Mortgage Corp. Class C*....................................... 14,350 520,187 Gartner Group, Inc. -- Class A*............ 35,700 1,282,969 Green Tree Financial Corp.................. 15,000 534,375 Ingram Micro, Inc.*........................ 29,500 711,687 Intelligroup, Inc.*........................ 9,100 87,588 Investment Technology Group, Inc.*......... 28,000 752,500 Lason Holdings, Inc.*...................... 28,800 810,000 Lightbridge, Inc.*......................... 42,300 322,538 Litchfield Financial Corp.................. 46,727 765,155 MSC Industrial Direct Co, Inc.*............ 12,000 481,500 Maximus, Inc.*............................. 13,200 235,950 Meta Group, Inc.*.......................... 25,700 558,975 Metris Companies Inc.*..................... 3,300 108,281 PMT Services, Inc.*........................ 63,700 971,425 Profit Recovery Group International, Inc. (The)*................................... 61,800 857,475 QuickResponse Services Inc.*............... 28,500 1,033,125 Sykes Enterprises, Inc.*(a)................ 43,500 1,131,000 United Waste Systems Inc.*................. 20,800 852,800 West TeleServices Corp.*................... 33,000 486,750 Whittman-Hart, Inc.*....................... 31,200 877,500 ------------ 22,006,829 ------------ COMPUTER SOFTWARE -- 16.9% Aspect Development, Inc.*.................. 23,500 612,469 Baan Company NV*(a)........................ 10,000 688,750 CBT Group PLC ADR*......................... 25,900 1,634,937 Carnegie Group, Inc.*...................... 49,200 369,000 Checkfee Corporation*...................... 40,600 715,575 Citrix Systems, Inc.*...................... 8,800 386,100 Computer Learning Centers Inc.*............ 13,300 558,600 Dendrite International, Inc.*.............. 31,400 518,100 H.T.E., Inc.*.............................. 59,500 639,625 HNC Software Inc........................... 12,700 $ 484,188 Infinity Financial Technology, Inc.*....... 32,500 530,156 Interlink Computer Sciences, Inc.*......... 82,000 625,250 IONA Technologies PLC -- ADR............... 28,100 554,975 JDA Software Group, Inc.*.................. 17,000 580,125 McAfee Associates, Inc.*................... 10,025 632,827 Optika Imaging Systems, Inc.*.............. 117,800 589,000 Oracle Corporation*........................ 4,600 231,725 Pegasystems Inc. .......................... 18,400 577,300 Peoplesoft, Inc.*.......................... 11,300 596,075 Planning Sciences International PLC*....... 36,600 210,450 Rational Software Corporation*............. 18,358 308,644 Remedy Corporation*........................ 16,200 648,000 Renaissance Solutions, Inc.*............... 13,700 506,900 Rogue Wave Software*....................... 35,000 437,500 SPSS, Inc.*................................ 10,800 313,200 Saville Systems Ireland ADR*............... 9,800 509,600 Security Dynamics Technologies, Inc.*...... 14,900 549,437 Select Software Tools ADR*................. 25,000 331,250 Siebel Systems, Inc.*...................... 21,000 677,250 Systemsoft Corporation*.................... 37,800 406,350 Tecnomatix Technologies Ltd. .............. 3,500 113,750 Template Software, Inc.*................... 44,000 638,000 Transactions Systems Architects, Inc.*..... 14,500 500,250 Veritas Software Corp.*.................... 17,600 884,400 Viasoft, Inc.*............................. 6,800 345,100 Visio Corporation*......................... 6,000 423,000 ------------ 19,327,858 ------------ CONSUMER PRODUCTS & SERVICES -- 7.3% Apollo Group, Inc.*........................ 14,600 514,650 Blyth Industries, Inc.*.................... 27,900 941,625 CHS Electronics, Inc.*..................... 50,200 1,330,300 Central European Media Enterprises Ltd.*(a)................................. 12,200 317,200 CUC International, Inc.*................... 31,648 816,914 Cutter & Buck, Inc.*....................... 20,000 325,000 Dave & Buster's, Inc.*..................... 16,500 441,375 Extended Stay America, Inc.*............... 43,500 649,803 International Speedway Corp. -- Class A*... 39,000 765,375 Metro Networks, Inc.*...................... 31,700 768,725 Premier Parks, Inc.*....................... 23,000 848,125 Sitel Corporation*......................... 27,000 556,875 ------------ 8,275,967 ------------ HEALTHCARE -- 18.2% Advanced Health Corporation*............... 24,400 448,350 American Medserve Corp.*................... 34,500 448,500 Cambridge Heart, Inc.*..................... 15,300 109,013 Coast Dental Services, Inc.*............... 44,300 675,575 Compdent Corporation*...................... 19,400 408,612 Cytec Corporation*......................... 16,200 439,425 Digene Corporation*........................ 23,400 298,350 EP Medsystems Inc.*........................ 40,500 141,750 EPIX Medical, Inc.*........................ 52,000 416,000 Endovascular Technologies, Inc.*........... 29,800 275,650 FPA Medical Management, Inc.*.............. 32,100 760,369 First Commonwealth*........................ 26,400 488,400 Health Management Associates, Inc.*........ 24,500 698,250 Heartport, Inc.*........................... 15,000 264,375 HemaSure, Inc.*............................ 27,200 74,800 Horizon Mental Health Management, Inc.*.... 60,950 1,371,375 IDX Systems Corporation*................... 10,500 362,250 Intelligent Medical Imaging, Inc.*......... 19,700 130,513 MedQuist, Inc.*............................ 18,100 549,788 Molecular Devices Corporation*............. 47,400 829,500 NCS HealthCare, Inc. Class A*.............. 12,500 379,688 Norland Medical Systems, Inc.*............. 18,900 205,537 OccuSystems, Inc.*......................... 22,400 649,600 Omnicare, Inc. ............................ 15,100 473,763
(See Notes to Financial Statements) 35 PORTFOLIO OF INVESTMENTS (CONTINUED) JUNE 30, 1997 (UNAUDITED)
COMMON STOCKS SHARES VALUE - ------------------------------------------- Orthodontic Centers of America, Inc.*...... 89,500 $ 1,627,781 Pediatrix Medical Group Inc.*.............. 21,800 998,712 PhyCor, Inc.*.............................. 26,750 921,203 Renal Treatment Centers Inc.*.............. 45,100 1,212,063 Serologicals Corporation*.................. 36,600 841,800 Sunquest Information Systems, Inc.*........ 54,700 820,500 Total Renal Care Holdings, Inc.*........... 23,800 956,462 Ventana Medical Systems, Inc.*............. 39,900 493,763 VidaMed, Inc.*............................. 52,600 266,287 Vivus, Inc.*............................... 72,000 1,714,500 ------------ 20,752,504 ------------ MISCELLANEOUS TECHNOLOGY -- 3.8% Gemstar International Group Ltd.*.......... 58,300 1,071,263 IKOS Systems, Inc.*........................ 31,200 666,900 Periphonics Corp.*......................... 41,000 881,500 RadiSys Corporation*....................... 20,800 826,800 SeaChange International, Inc.*............. 5,000 141,250 Synopsys, Inc.*............................ 17,500 643,125 Technology Modeling Associates, Inc.*...... 10,000 136,250 ------------ 4,367,088 ------------ NETWORK & TELECOMMUNICATION EQUIPMENT -- 8.4% ACT Networks, Inc.*........................ 11,800 150,450 Advanced Fibre Communications*............. 18,500 1,116,938 American Power Conversion Corp.*........... 40,000 760,000 Aware, Inc.*............................... 39,200 578,200 CIENA Corporation*......................... 10,500 494,812 Cisco Systems, Inc.*....................... 6,600 443,025 DSP Communications, Inc.*.................. 22,200 244,200 Gilat Satellite Networks Ltd. ............. 14,000 465,500 Harmonic Lightwaves, Inc.*................. 30,600 524,025 International Network Services*............ 35,000 910,000 Network Appliance, Inc.*................... 17,900 680,200 NICE-Systems Ltd. -- Sponsored ADR......... 13,000 390,000 P-COM, Inc. ............................... 20,300 669,900 Pairgain Technologies, Inc.*............... 19,600 303,800 Premisys Communications, Inc.*............. 15,600 245,700 Proxim, Inc.*.............................. 36,200 877,850 Sawtek Inc.*............................... 12,900 435,375 Xylan Corporation*......................... 19,600 333,200 ------------ 9,623,175 ------------ PHARMACEUTICALS -- 4.7% Anesta Corp................................ 31,100 590,900 Calypte Biomedical Corp.*.................. 26,800 120,600 ChiRex Inc.*............................... 66,500 789,688 Cima Labs Inc.*............................ 18,000 74,250 Dura Pharmaceuticals, Inc.*................ 22,300 889,212 Kos Pharmaceuticals, Inc.*................. 18,500 513,375 NABI, Inc.*................................ 31,630 209,549 Nastech Pharmaceutical Co.*................ 26,000 273,000 Penederm Inc.*............................. 28,800 388,800 Sepracor, Inc.*............................ 32,900 849,231 Sonus Pharmaceuticals, Inc.*............... 24,500 689,063 ------------ 5,387,668 ------------ RETAIL -- 4.4% CompUSA, Inc.*............................. 23,000 494,500 Corporate Express, Inc.*................... 44,040 635,827 Cost Plus, Inc.*........................... 21,200 556,500 Dollar Tree Stores, Inc.*.................. 11,500 579,312 Gadzooks, Inc.*............................ 13,500 263,250 Guitar Center, Inc.*....................... 40,100 676,687 Just for Feet, Inc.*....................... 19,600 341,775 Party City Corp.*.......................... 24,800 415,400 Petco Animal Supplies, Inc.*............... 17,200 516,000 West Marine Inc.*.......................... 18,700 481,525 ------------ 4,960,776 ------------ SEMICONDUCTORS & EQUIPMENT -- 5.7% ASM Lithography Holding NV*(a)............. 16,000 $ 936,000 Altera Corporation*........................ 10,700 540,350 ANADIGICS, Inc.*........................... 11,550 358,050 Analog Devices*............................ 28,300 751,719 Benchmarq Microelectronics, Inc.*.......... 26,500 457,125 Cymer, Inc.*............................... 13,500 658,125 Etec Systems, Inc.*........................ 8,700 373,013 GaSonics International Corporation*........ 9,600 130,800 Integrated Process Equipment Corp.*........ 10,000 253,125 Lattice Semiconductor Corporation*......... 8,000 452,000 Maxim Integrated Products, Inc.*........... 15,600 887,250 NeoMagic Corp.*............................ 8,000 179,000 Pri Automation, Inc.*...................... 5,600 212,450 Ultratech Stepper, Inc.*................... 14,300 327,113 ------------ 6,516,120 ------------ TELECOMMUNICATION SERVICES -- 2.0% Aerial Communications, Inc.*............... 32,000 272,000 Faxsav Incorporated*....................... 25,700 48,188 International Telecommunication Data Systems, Inc.*........................... 26,500 649,250 Transaction Network Services, Inc.*........ 27,000 381,375 Western Wireless Corp.*.................... 40,200 638,175 WinStar Communications, Inc.*.............. 22,500 300,938 ------------ 2,289,926 ------------ TOTAL COMMON STOCKS (Cost -- $92,835,873)(b)................. 109,602,191 OTHER ASSETS, LESS LIABILITIES -- 4.0%..... 4,533,783 ------------ NET ASSETS -- 100%......................... $114,135,974 ============ ADR - American Depository Receipt NV - Non-voting * Non-income producing security. (a) Foreign security. (b) Cost is the same for Federal income tax purposes. OTHER INFORMATION: At June 30, 1997, net unrealized appreciation based on cost for financial statement and Federal income tax purposes is as follows: Gross unrealized appreciation.................... $ 24,249,923 Gross unrealized depreciation.................... (7,483,605) ------------ Net unrealized appreciation.................. $ 16,766,318 ============ Purchases and sales of securities other than short-term obligations aggregated $46,715,205 and $28,169,483, respectively, for the period ended June 30, 1997.
(See Notes to Financial Statements) 36 STATEMENT OF ASSETS AND LIABILITIES JUNE 30, 1997 (UNAUDITED) ASSETS Investments, at value (identified cost -- $92,835,873)...... $109,602,191 Cash........................................................ 5,216,691 Receivables -- Fund shares sold............................. 209,975 Other assets................................................ 34,329 ------------ Total assets............................................ 115,063,186 ------------ LIABILITIES Payables Investments purchased..................................... 671,262 Fund shares repurchased................................... 73,373 Management fee............................................ 78,375 12b-1 service and distribution fees....................... 53,522 Other payables to related parties......................... 39,942 Accrued expenses............................................ 10,738 ------------ Total liabilities....................................... 927,212 ------------ NET ASSETS.................................................. $114,135,974 ============ CLASS A Net asset value and redemption price per share ($63,260,565/2,440,468 shares outstanding)................ $ 25.92 ============ Maximum offering price per share ($25.92 x 100/94.25)*...... $ 27.50 ============ CLASS B Net asset value, offering price and redemption price** per share ($42,904,500/1,673,529 shares outstanding).......... $ 25.64 ============ CLASS C Net asset value, offering price and redemption price*** per share ($7,970,909/311,380 shares outstanding)............. $ 25.60 ============ NET ASSETS CONSIST OF Capital paid-in........................................... $101,679,731 Undistributed net realized loss on investments............ (3,452,949) Undistributed net investment loss......................... (857,126) Net unrealized appreciation on Investments................ 16,766,318 ------------ NET ASSETS.................................................. $114,135,974 ============
* On sales of more than $50,000 the offering price is reduced. ** Subject to a maximum contingent deferred sales charge of 5%. *** Subject to a maximum contingent deferred sales charge of 1%. (See Notes to Financial Statements) 37 STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED) INVESTMENT INCOME Dividends................................................. $ 7,334 Interest.................................................. 166,426 ----------- 173,760 ----------- EXPENSES Management fee............................................ $426,479 Transfer agent............................................ 134,505 Administrative services fee............................... 50,174 Custodian fees............................................ 7,984 Blue Sky fees............................................. 19,637 Auditing and accounting fees.............................. 8,890 Shareholder reports....................................... 5,831 Fund accounting........................................... 47,711 Trustees' fees............................................ 2,977 12b-1 service and distribution fees....................... 288,189 Legal..................................................... 12,410 Other..................................................... 26,099 ----------- Total expenses.......................................... 1,030,886 ----------- NET INVESTMENT LOSS......................................... (857,126) ----------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS Net realized loss on investments.......................... (3,452,949) Net unrealized appreciation during the period on investments............................................. 2,568,427 ----------- Net loss on investment transactions..................... (884,522) ----------- DECREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $(1,741,648) ===========
STATEMENT OF CHANGES IN NET ASSETS
FOR THE SIX FOR THE MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, ------------ ------------ 1997* 1996 ------------ ------------ INCREASE IN NET ASSETS Operations Net investment loss....................................... $ (857,126) $(1,204,617) Net realized gain (loss) on investments and put options... (3,452,949) 6,984,138 Net unrealized appreciation during the period on investments............................................. 2,568,427 3,324,364 ------------ ----------- Net increase (decrease) resulting from operations....... (1,741,648) 9,103,885 ------------ ----------- Total distributions from net realized gain Class A................................................... -- (4,081,929) Class B................................................... -- (2,600,466) Class C................................................... -- (300,431) ------------ ----------- Total distributions to shareholders..................... -- (6,982,826) ------------ ----------- Fund share transactions (Note 4) Class A................................................... 8,273,265 13,997,698 Class B................................................... 8,336,862 21,421,702 Class C................................................... 3,985,040 4,300,951 ------------ ----------- Net increase resulting from Fund share transactions..... 20,595,167 39,720,351 ------------ ----------- TOTAL INCREASE IN NET ASSETS................................ 18,853,519 41,841,410 NET ASSETS Beginning of period....................................... 95,282,455 53,441,045 ------------ ----------- END OF PERIOD............................................. $114,135,974 $95,282,455 ============ =========== UNDISTRIBUTED NET INVESTMENT LOSS........................... $ (857,126) $ -- ============ ===========
* Unaudited. (See Notes to Financial Statements) 38 FINANCIAL HIGHLIGHTS
FOR THE PERIOD FOR THE SIX MARCH 3, 1993 CLASS A MONTHS ENDED (COMMENCEMENT) JUNE 30, FOR THE YEAR ENDED DECEMBER 31, TO DECEMBER 31, ------------ ------------------------------------- --------------- 1997* 1996 1995 1994 1993 SELECTED PER SHARE DATA ------------ ------- ------- ------- --------------- Net asset value, beginning of period................. $ 26.54 $ 24.12 $ 18.38 $ 17.93 $ 10.00 ------- ------- ------- ------- ------- Income from investment operations Net investment loss................................. (.27)(g) (.35) (.24) (.24)(a) (.07)(a) Net realized and unrealized gain (loss) on investment transactions........................... (.35)(g) 4.84 7.90 .82 8.29 ------- ------- ------- ------- ------- Total from investment operations.................. (.62) 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....................... $ 25.92 $ 26.54 $ 24.12 $ 18.38 $ 17.93 ======= ======= ======= ======= ======= Total return(%)...................................... (2.34)(e) 18.52(b) 42.07(b) 3.29(b) 45.33(c) RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands)............. $63,261 $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(%).................... 1.73(d) 1.76 1.95 2.22 2.33(d) Ratio of net investment loss to average net assets(%)........................................... (1.38)(d) (1.31) (1.39) (1.72)(a) (1.30)(a)(d) Portfolio turnover rate(%)........................... 30 68 86 67 34 Average commission rate(f)........................... $ .0642 $ .0601 N/A N/A N/A
FOR THE PERIOD FOR THE SIX OCTOBER 23, 1993 CLASS B MONTHS ENDED FOR THE YEAR ENDED (COMMENCEMENT) JUNE 30, DECEMBER 31, TO DECEMBER 31, ------------ ---------------------------------- ---------------- 1997* 1996 1995 1994 1993 SELECTED PER SHARE DATA ------------ ------- ------- ------ ---------------- Net asset value, beginning of period................. $ 26.33 $ 24.12 $ 18.38 $17.93 $18.21 ------- ------- ------- ------ ----- Income (loss) from investment operations Net investment loss................................. (.38)(g) (.40) (.35) (.29)(a) (.04)(a) Net realized and unrealized gain (loss) on investment transactions........................ (.31)(g) 4.68 7.85 .74 .03 ------- ------- ------- ------ ----- Total from investment operations.................. (.69) 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....................... $ 25.64 $ 26.33 $ 24.12 $18.38 $17.93 ======= ======= ======= ====== ===== Total return(%)...................................... (2.62)(e) 17.65(b) 41.03(b) 2.51(b) (.05)(e) RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands)............. $42,905 $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(%).................... 2.48(d) 2.52 2.70 2.97 3.08(d) Ratio of net investment loss to average net assets(%)........................................... (2.13)(d) (2.07) (2.14) (2.47)(a) (2.05)(a)(d) Portfolio turnover rate(%)........................... 30 68 86 67 34 Average commission rate(f)........................... $ .0642 $ .0601 N/A N/A N/A
FOR THE PERIOD FOR THE SIX APRIL 30, 1996 CLASS C MONTHS ENDED (COMMENCEMENT) JUNE 30, TO DECEMBER 31, ------------ --------------- 1997* 1996 SELECTED PER SHARE DATA ------------ --------------- Net asset value, beginning of period........................ $26.29 $29.69 ------ ------ Loss from investment operations Net investment loss........................................ (.38)(g) (.14) Net realized and unrealized loss on investment transactions............................................. (.31)(g) (1.19) ------ ------ Total from investment operations......................... (.69) (1.33) ------ ------ Less distributions From net realized gain..................................... -- 2.07 ------ ------ Total distributions...................................... -- 2.07 ------ ------ Net asset value, end of period.............................. $25.60 $26.29 ====== ====== Total return(%)(e).......................................... (2.62) (4.48) RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands).................... $7,971 $4,018 Ratio of expenses to average net assets Without expense reimbursement(%)(d)........................ 2.45 2.52 Ratio of net investment loss to average net assets(%)(d)... (2.10) (2.07) Portfolio turnover rate(%).................................. 30 68 Average commission rate(f).................................. $.0642 $.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. (g) Based on average shares outstanding. * Unaudited.
(See Notes to Financial Statements) 39 NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 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 traded on a U.S. or foreign stock exchange, or the National Association of Securities Dealers Automated Quotation ("NASDAQ") System, are valued at the last quoted sale price reported as of the close of regular trading on the exchange the security is traded most extensively. If there is no such sale, the security is valued at the calculated mean between the last bid and asked price on the exchange. Securities not traded on an exchange or NASDAQ, but traded in another over-the-counter market are valued at the average between the current bid and asked prices in such markets. Short-term obligations and commercial paper are valued at amortized cost, which approximates market. Debt securities (other than short-term obligations and commercial paper) are valued on the basis of valuations furnished by a pricing service authorized by the Board of Trustees (the Board), which determines valuations based upon market transactions for normal, institutional-size trading units of such securities. 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 June 30, 1997, 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. DISTRIBUTIONS TO SHAREHOLDERS -- Distributions from net investment income and net realized capital gains, if any, are declared in December. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency transactions from foreign investment activity are translated into U.S. dollars on the following basis: (i) market value of securities, and dividends and interest receivable are translated at the closing daily rate of exchange; and, (ii) purchases and sales of investment securities are translated at the rate at which related foreign contracts are obtained or at the exchange rate prevailing on the date of the transaction. 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 40 NOTES TO FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 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 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 and expenses are reflected as Administrative services fee and Fund accounting in the Statement of Operations. Ivy Mackenzie Distributors, Inc. (IMDI), a wholly owned subsidiary of MIMI, is the underwriter and distributor of the Fund's shares, and as such, purchases shares from the Fund at net asset value to settle orders from investment dealers. For the six months ended June 30, 1997, the net amount of underwriting discount retained by IMDI was $31,582. 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 $71,184, $186,993 and $30,012, 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 $75,813, $51,500 and $7,192, 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:
SIX MONTHS ENDED YEAR ENDED JUNE 30, 1997 DECEMBER 31, 1996 ------------------------- ------------------------- CLASS A SHARES AMOUNT SHARES AMOUNT ------- ---------- ------------ ---------- ------------ Sold..................... 1,581,165 $ 39,646,736 1,862,227 $ 52,011,901 Issued on reinvestment of distributions........... -- -- 143,930 3,817,355 Repurchased.............. (1,248,964) (31,373,471) (1,533,721) (41,831,558) ---------- ------------ ---------- ------------ Net increase............. 332,201 $ 8,273,265 472,436 $ 13,997,698 ========== ============ ========== ============
SIX MONTHS ENDED YEAR ENDED JUNE 30, 1997 DECEMBER 31, 1996 ------------------------- ------------------------- CLASS B SHARES AMOUNT SHARES AMOUNT ------- ---------- ------------ ---------- ------------ Sold..................... 584,409 $ 14,482,317 1,132,341 $ 31,331,078 Issued on reinvestment of distributions........... -- -- 87,254 2,290,484 Repurchased.............. (252,135) (6,145,455) (458,058) (12,199,860) ---------- ------------ ---------- ------------ Net increase............. 332,274 $ 8,336,862 761,537 $ 21,421,702 ========== ============ ========== ============
FROM APRIL 30, 1996 SIX MONTHS ENDED (COMMENCEMENT) JUNE 30, 1997 TO DECEMBER 31, 1996 ------------------------- ------------------------- CLASS C SHARES AMOUNT SHARES AMOUNT ------- ---------- ------------ ---------- ------------ Sold..................... 183,070 $ 4,572,670 156,680 $ 4,416,153 Issued on reinvestment of distributions........... -- -- 6,883 180,948 Repurchased.............. (24,532) (587,630) (10,721) (296,150) ---------- ------------ ---------- ------------ Net increase............. 158,538 $ 3,985,040 152,842 $ 4,300,951 ========== ============ ========== ============
41 June 30, 1997 IVY FUNDS(R) Ivy Global Fund - ----------- Semi-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 THROUGHOUT THE CENTURIES, THE CASTLE KEEP HAS BEEN A SOURCE OF LONG-RANGE VISION AND STRATEGIC ADVANTAGE. Market Commentary: The long-term strategy of the Ivy Global Fund is to provide shareholders with an all-inclusive worldwide investment portfolio that includes exposure to the high-growth areas of the world. While there are no guarantees, we believe that in the long run, this approach should prove to yield higher returns without substantially increasing overall portfolio risk. It is important to recognize that our approach is substantially different from many global funds, which tend to have very large US positions and little exposure to emerging markets. For example, the average global fund has less than 10% of its assets invested in non-Japan Asia; the Ivy Global Fund has approximately 37% of its holdings in non-Japan Asia. On a relative basis, as non-Japan Asia goes, so goes the Ivy Global Fund. The Fund's 10% allocation to Latin America also contrasts with the average global fund, which holds only 5% of its portfolio in this region. Many Asian markets, well below their highs of three years ago, have significantly underperformed other areas of the world, including the United States. Investor sentiment now is as poor as it was positive at the height of the last bubble in 1994 making it fashionable to proclaim that the Asian miracle is over. Our research indicates otherwise. Certainly there are problems. Slower growth in many of the region's export markets has been a burden. Our research concludes that this part of the world should continue to grow at double the rate of the more mature economies. We believe this should eventually translate into higher levels of profits and stronger relative performance for the region. The Ivy Global Fund's 10% exposure to Latin America has partially offset the poor performance of the Asian markets. Latin American markets are up more than 40% on average, year-to-date. The Fund has fully participated in what has mostly been a rally of large-capitalization stocks in the region. We still believe reforms in Brazil and Argentina should provide many years of positive stock market performance and that the more mature Chilean market should continue to benefit from pragmatic policies, favorable commodity markets and a lower interest rate environment. Looking ahead, we believe the US market will likely go sideways for an extended period of time as corporate earnings growth slows. This should result from the stronger US dollar and the inability of many companies to continue to increase earnings through aggressive cost-cutting programs. We expect economic growth to pick up as the benefits of weaker currencies and very favorable interest rates kick in. And just as restructuring has been an important theme in America over the last decade, market forces are causing a similar process in Europe. Competitive currencies are one of the key determinants of a more competitive Europe. Anticipating that the US dollar would strengthen relative to the core European currencies, we made investments in US dollars to offset any potential loss in the value of our European stocks. This strategy proved to be successful as the US dollar rallied against most major European currencies. We would encourage investors who recognize the importance of investing globally to look beyond any short-term distractions and focus on what we believe to be the positive long-term prospects for world markets. Ivy Management, Inc. BOARD OF TRUSTEES John S. Anderegg, Jr. Paul H. Broyhill Keith J. Carlson Stanley Channick Frank W. DeFriece, Jr. Roy J. Glauber Michael G. Landry Joseph G. Rosenthal Richard N. Silverman J. Brendan Swan OFFICERS Michael G. Landry, Chairman Keith J. Carlson, President James W. Broadfoot, Vice President C. William Ferris, Secretary/Treasurer LEGAL COUNSEL Dechert Price & Rhoads Boston, MA CUSTODIAN Brown Brothers Harriman & Co. Boston, MA TRANSFER AGENT Ivy Mackenzie Services Corp. P.O. Box 3022 Boca Raton, FL 33431-0922 1-800-777-6472 AUDITORS Coopers & Lybrand L.L.P. Fort Lauderdale, FL INVESTMENT MANAGER Ivy Management, Inc. 700 South Federal Highway Boca Raton, FL 33432 1-800-456-5111 DISTRIBUTOR Ivy Mackenzie Distributors, Inc. 700 South Federal Highway Boca Raton, FL 33432 1-800-456-5111 [IVY MACKENZIE LOGO] 42 PORTFOLIO OF INVESTMENTS JUNE 30, 1997 (UNAUDITED)
EQUITY SECURITIES -- 99.0% SHARES VALUE - -------------------------------------------------------------------- AFRICA -- 4.1% - ------------------------------------------ SOUTH AFRICA -- 4.1% Anglo American Corporation of South Africa Ltd. ADR................................ 11,400 $ 686,809 Rembrandt Group Ltd. ..................... 65,300 696,835 South African Breweries Ltd. ............. 12,072 370,634 ----------- 1,754,278 ----------- ASIA/PACIFIC -- 36.5% - ------------------------------------------ AUSTRALIA -- 0.7% Pacific Dunlop Limited.................... 100,100 293,958 ----------- CHINA -- 1.0% Shanghai Diesel Class B*.................. 120,000 40,800 Shenzhen Konka Electronics Group Ltd. Class B................................. 260,000 385,606 ----------- 426,406 ----------- HONG KONG -- 12.6% Cheung Kong Holdings Ltd. ................ 99,000 977,569 Citic Pacific Ltd. ....................... 90,000 562,262 Esprit Asia Holdings Ltd. ................ 534,000 379,101 HSBC Holdings............................. 13,539 407,186 Hong Kong Telecommunications Ltd. -- Sponsored ADR........................... 11,400 266,475 Hopewell Holdings Ltd. ................... 156,833 99,194 Jardine Strategic Holdings Ltd............ 91,187 344,687 Jardine Strategic Holdings Ltd. Warrants*............................... 4,687 1,851 Li & Fung................................. 386,000 433,468 National Mutual Asia Ltd.................. 360,000 399,624 New World Development Company Ltd. ....... 60,401 360,194 Peregrine Investment Holdings Limited..... 140,000 288,230 Peregrine Investment Holdings Limited Warrants*............................... 14,000 6,144 Swire Pacific Ltd. ....................... 29,500 265,593 Union Bank of Hong Kong Ltd. ............. 165,333 478,034 Wharf Holdings Ltd. ...................... 16,000 69,392 ----------- 5,339,004 ----------- INDIA -- 0.9% The India Fund Incorporated*.............. 40,000 382,500 ----------- INDONESIA -- 1.3% PT Astra International -- Foreign Registered.............................. 77,500 320,327 PT Mulia Industrindo -- Foreign Registered.............................. 193,200 101,308 Semen Gresik -- Foreign Registered........ 66,000 147,933 ----------- 569,568 ----------- MALAYSIA -- 2.5% Arab Malaysian Corporation*............... 59,000 219,730 Land & General Berhad..................... 103,000 118,344 London & Pacific Insurance Company Berhad.................................. 75,600 389,381 RHB Capital Berhad........................ 60,000 190,174 Technology Resources Industries Berhad*... 83,000 142,718 ----------- 1,060,347 ----------- NEW ZEALAND -- 2.8% Brierley Investments Ltd.................. 241,800 235,980 Fletcher Challenge Building............... 21,500 64,550 Fletcher Challenge Forestry............... 10,320 14,968 Fletcher Challenge Paper.................. 43,000 104,038 Lion Nathan Ltd. ......................... 121,000 305,879 Telecom Corp. of New Zealand Ltd. ........ 42,000 213,485 Tourism Holdings Limited.................. 162,300 229,890 ----------- 1,168,790 ----------- PHILIPPINES -- 2.5% Asian Terminals, Inc. .................... 150,000 $ 27,298 Bacnotan Cement Corporation*.............. 150,000 46,633 Belle Corporation*........................ 231,000 67,436 Benpres Holdings Corporation GDR*......... 24,100 164,410 C & P Homes, Inc. ........................ 159,000 59,679 La Tondena Distillers Inc. ............... 42,000 101,115 Metro Pacific Corporation................. 609,000 131,608 Mondragon International Philippines, Inc.*................................... 162,000 57,120 Philippine Long Distance Telephone Co. ... 2,600 84,281 Philippine National Bank*................. 15,750 106,887 SM Prime Holdings, Inc. .................. 251,000 74,227 Universal Robina Corporation.............. 360,000 131,028 ----------- 1,051,722 ----------- SINGAPORE -- 4.4% Clipsal Industries Ltd.................... 118,000 417,720 DBS Land Limited.......................... 71,000 224,443 Elec & Eltek International Co. Ltd. ...... 71,000 397,600 Fraser & Neave Ltd........................ 114,200 814,659 ----------- 1,854,422 ----------- SOUTH KOREA -- 3.1% Fidelity Advisor Korea Fund*.............. 58,000 507,500 Hyundai Motor Company Ltd. ............... 1,500 49,426 Hyundai Motor GDR......................... 5,000 50,000 Keum Kang Development Ind. Company*....... 11,600 163,288 Korea Electric Power Corporation. ........ 6,400 190,991 Korea Fund Inc. .......................... 16,000 236,000 Pohang Iron & Steel Company Ltd........... 500 50,851 Samsung Electronics Sponsored GDR*........ 241 14,279 Samsung Electronics Sponsored GDR NV...... 2,338 64,295 Samsung Electronics Sponsored GDR Rights*................................. 39 1,223 Samsung Heavy Industries.................. 337 3,552 ----------- 1,331,405 ----------- TAIWAN -- 2.6% Acer Incorporation*....................... 50,000 179,856 Compeq Manufacturing Co. ................. 29,400 209,395 Far Eastern Department Stores Ltd. ....... 117,000 186,021 President Enterprises*.................... 100,000 197,841 Systex Corporation*....................... 66,500 147,113 Systex Corporation Rights*................ 15,176 14,466 Yung Shin Pharmaceuticals Industries Co. .................................... 59,000 166,601 ----------- 1,101,293 ----------- THAILAND -- 2.1% Bank Of Ayudhya Public Company Limited.... 123,750 193,471 Krung Thai Bank Public Company Limited.... 90,000 93,804 Robinson Department Store Public Company Limited -- Foreign Registered........... 377,000 138,255 Siam Cement Public Co. Ltd. (The)......... 7,600 131,434 Siam Makro Public Company Limited -- Foreign Registered...................... 41,800 112,951 Thai Airways Int'l. Public Co., Ltd. -- Foreign Registered...................... 115,000 137,618 Thai Telephone & Communication Public Co. Ltd. -- Foreign Registered.............. 207,000 85,901 ----------- 893,434 ----------- EUROPE -- 37.3% - ------------------------------------------ AUSTRIA -- 1.5% Creditanstalt-Bankverein.................. 5,600 225,169 Julius Meinl International AG............. 5,000 154,963 OMV AG.................................... 2,000 256,243 ----------- 636,375 -----------
(See Notes to Financial Statements) 43 PORTFOLIO OF INVESTMENTS (CONTINUED) JUNE 30, 1997 (UNAUDITED)
EQUITY SECURITIES SHARES VALUE - -------------------------------------------------------------------- FINLAND -- 1.6% Enso OY -- R Shares....................... 30,000 $ 277,229 Rauma OY.................................. 290 6,644 Scandinavian Broadcast System S.A.*....... 7,000 155,750 UPM -- Kymmene Corp. ..................... 10,420 240,728 ----------- 680,351 ----------- FRANCE -- 9.1% Banque Nationale De Paris................. 13,775 568,275 Compagnie Financiere de Paribas........... 7,189 497,150 Elf Gabon................................. 650 154,337 Galeries Lafayette*....................... 720 298,746 Groupe Danone............................. 1,700 281,165 Pernod-Ricard............................. 4,000 206,441 Schneider S.A............................. 8,704 463,744 Scor...................................... 7,800 314,342 Societe Generale.......................... 6,519 728,413 Suez Lyonnaise des Eaux................... 3,554 358,370 ----------- 3,870,983 ----------- GERMANY -- 0.9% Volkswagen AG............................. 500 379,333 ----------- IRELAND -- 0.9% Bank of Ireland........................... 36,000 396,336 ----------- ITALY -- 2.8% Banca Commerciale Italiana................ 87,800 181,637 Banca Popolare di Brescia................. 73,250 370,232 Banca Popolare di Milano.................. 32,000 191,549 Fiat S.p.A.*.............................. 121,000 435,216 ----------- 1,178,634 ----------- NETHERLANDS -- 2.6% Akzo Nobel NV............................. 1,100 151,022 Akzo Nobel NV Sponsored ADR............... 900 62,213 Fortis Amev NV............................ 5,300 236,419 Hunter Douglas NV......................... 2,400 204,561 ING Groep NV.............................. 7,422 342,818 Nedlloyd Groep NV......................... 3,300 95,497 ----------- 1,092,530 ----------- NORWAY -- 0.9% Norsk Hydro Sponsored ADR................. 3,900 211,331 Storebrand ASA*........................... 31,700 189,227 ----------- 400,558 ----------- PORTUGAL -- 2.9% Colep -- Cia. Portuguesa de Embalagens*... 8,700 139,812 Lusomundo-SGPS S.A........................ 9,400 85,022 Lusomundo-SGPS S.A. Preferred Shares...... 13,000 108,709 Portugal Telecom S.A. ADR................. 12,877 516,690 Sonae Industria E Investimentos........... 9,100 380,948 ----------- 1,231,181 ----------- SPAIN -- 2.1% Telefonica de Espana S.A. ADR............. 10,300 888,375 ----------- SWEDEN -- 5.1% AssiDoman AB.............................. 6,600 187,782 Astra AB "B" Shares....................... 17,066 303,474 Electrolux AB............................. 5,600 404,119 Granges AB................................ 2,800 37,660 S.K.F. AB Series "B"...................... 12,400 320,729 Sandvik AB -- "B" Shares.................. 13,500 383,226 Stora Kopparbergs Bergslags Aktiebolag (STORA)................................. 11,600 187,523 Trelleborg AB "B" Free Shares............. 21,700 356,410 ----------- 2,180,923 ----------- SWITZERLAND -- 3.2% Georg Fischer AG Bearer................... 50 $ 69,623 Holderbank Financiere Glaris AG........... 290 274,315 Nestle AG Registered...................... 276 364,630 SMH AG.................................... 400 228,830 Swiss Bank Corportation Bearer............ 1,500 401,790 ----------- 1,339,188 ----------- UNITED KINGDOM -- 3.7% Bank of Scotland.......................... 40,000 255,636 Barclays PLC ADR.......................... 1,500 118,875 Cadbury Schweppes PLC ADR................. 25,000 222,808 Imperial Chemical Industries PLC -- Sponsored ADR........................... 25,000 347,631 National Westminster Bank PLC ADR......... 2,400 194,700 Rio Tinto plc Sponsored ADR............... 3,089 218,933 Safeway plc............................... 35,000 202,420 ----------- 1,561,003 ----------- NORTH AMERICA -- 11.0% - ------------------------------------------ CANADA -- 3.1% Alcan Aluminium Ltd. ..................... 4,472 155,123 Brascan, Ltd. ............................ 9,600 237,641 Dofasco Inc. ............................. 12,000 227,464 Inco Limited.............................. 5,350 160,834 Methanex Corporation...................... 25,000 231,958 Power Financial Corp. .................... 13,000 307,671 ----------- 1,320,691 ----------- UNITED STATES -- 7.9% Air Express International Corp. .......... 6,800 270,300 Aluminum Company of America............... 2,600 195,975 American Standard Companies, Inc.*........ 5,000 223,750 Ameron International Corp. ............... 4,200 237,825 Apria Healthcare Group, Inc.*............. 13,000 230,750 Carnival Corporation...................... 7,000 288,750 Developers Diversified Realty Corporation............................. 3,800 152,000 Ford Motor Company........................ 7,000 264,250 Homestead Village, Inc. .................. 678 12,035 Kimco Realty Corporation.................. 4,200 133,350 Phelps Dodge Corp. ....................... 2,700 230,006 Royal Caribbean Cruises Ltd............... 9,000 314,438 Security Capital Pacific Trust............ 5,400 123,525 Semi-Tech Corporation..................... 34,000 72,951 Storage USA, Inc. ........................ 3,700 141,525 Sunglass Hut International, Inc.*......... 32,000 202,000 United Dominion Realty Trust.............. 8,700 123,431 Weingarten Realty Investors............... 3,200 135,200 ----------- 3,352,061 ----------- LATIN AMERICA -- 10.1% - ------------------------------------------ ARGENTINA -- 1.9% CIADEA S.A.*.............................. 47,000 202,124 Perez Companc S.A.*....................... 27,881 223,912 Telefonica De Argentina S.A. ............. 3,100 107,338 YPF S.A. Sponsored ADR.................... 9,200 282,900 ----------- 816,274 ----------- BRAZIL -- 4.6% Brasmotor S.A. ........................... 240,000 53,504 Louis Dreyfus Citrus...................... 4,300 160,767 Petroleo Brasileiro S.A. (Petrobras)...... 1,700,000 472,157 Telecomunicacoes Brasileiras S.A. ADR (Telebras).............................. 8,300 1,259,525 ----------- 1,945,953 -----------
(See Notes to Financial Statements) 44 PORTFOLIO OF INVESTMENTS (CONTINUED) JUNE 30, 1997 (UNAUDITED)
EQUITY SECURITIES SHARES VALUE - -------------------------------------------------------------------- CHILE -- 3.6% Genesis Chile Fund....................... 22,028 $ 1,106,907 Santa Isabel S.A. ADR.................... 7,400 238,650 Vina Concha y Toro S.A. ADR.............. 6,000 185,625 ------------ 1,531,182 ------------ TOTAL EQUITY SECURITIES (Cost -- $33,768,256).................. 42,029,058 ------------ BONDS -- 0.8% PRINCIPAL - ----------------------------------------- ---------- International Knife & Saw 144A, 11.375%, 11/15/06(a) (Cost -- $300,000)......... $ 300,000 321,750 ------------ TOTAL INVESTMENTS -- 99.8% (Cost -- $34,068,256)(b)............... 42,350,808 OTHER ASSETS, LESS LIABILITIES -- 0.2%... 68,338 ------------ NET ASSETS -- 100%....................... $ 42,419,146 ============
ADR - American Depository Receipt GDR - Global Depository Receipt NV - Non-voting * Non-Income producing security. (a) Below investment grade. (b) Cost is approximately the same for Federal income tax purposes.
EQUITY SECURITIES SHARES VALUE - -------------------------------------------------------------------- OTHER INFORMATION: At June 30, 1997, net unrealized appreciation based on cost for financial statement and Federal income tax purposes is as follows: Gross unrealized appreciation.................... $ 11,245,307 Gross unrealized depreciation.................... (2,962,755) ------------ Net unrealized appreciation.................. $ 8,282,552 ============
Purchases and sales of securities other than short-term obligations aggregated $9,062,278 and $1,303,886, respectively, for the period ended June 30, 1997. Forward foreign currency exchange contracts at June 30, 1997 were:
FORWARD CONTRACTS PRINCIPAL VALUE OF UNREALIZED (CURRENCY/EXPIRATION/COMMITMENT) AMOUNT OBLIGATION APPRECIATION - ------------------------------------- ------------- ------------ ------------ Deutsch Marks/September 97/Call...... 200,911 US $ (199,481) $ 1,430 French Francs/September 97/Call...... 1,196,452 US (1,189,008) 7,444 French Francs/September 97/Call...... 2,623,799 US (2,562,518) 61,281 Netherland Guilders/September 97/Call............................. 250,232 US (248,331) 1,901 Swiss Francs/September 97/Call....... 332,820 US (328,252) 4,568 ------------ ------- Total forward foreign currency exchange contracts sold............. $ (4,527,590) $76,624 ============ =======
(See Notes to Financial Statements) 45 STATEMENT OF ASSETS AND LIABILITIES JUNE 30, 1997 (UNAUDITED) ASSETS Investments, at value (identified cost -- $34,068,256)...... $42,350,808 Cash denominated in foreign currencies (at cost -- $69,429).......................................... 68,799 Receivables Open forward foreign currency contracts................... 76,624 Fund shares sold.......................................... 67,592 Dividends and interest.................................... 168,573 Other assets................................................ 36,933 ----------- Total assets.............................................. 42,769,329 ----------- LIABILITIES Payables Fund shares repurchased................................... 10,713 Management fee............................................ 34,581 12b-1 service and distribution fees....................... 17,647 Other payables to related parties......................... 14,769 Due to custodian............................................ 255,814 Accrued expenses............................................ 16,659 ----------- Total liabilities......................................... 350,183 ----------- NET ASSETS.................................................. $42,419,146 =========== CLASS A Net asset value and redemption price per share ($28,312,616/1,909,953 shares outstanding)................ $ 14.82 =========== Maximum offering price per share ($14.82 X 100/94.25)*...... $ 15.72 =========== CLASS B Net asset value, offering price and redemption price** per share ($13,178,291/895,381 shares outstanding)............ $ 14.72 =========== CLASS C Net asset value, offering price and redemption price*** per share ($928,239/64,170 shares outstanding)................ $ 14.47 =========== NET ASSETS CONSIST OF Capital paid-in........................................... $33,056,810 Undistributed net realized gain on investments and foreign currency transactions................................... 694,020 Undistributed net investment income....................... 313,053 Net unrealized appreciation on Investments and foreign currency transactions........... 8,278,639 Forward foreign currency contracts...................... 76,624 ----------- NET ASSETS.................................................. $42,419,146 ===========
* On sales of more than $50,000 the offering price is reduced. ** Subject to a maximum contingent deferred sales charge of 5%. *** Subject to a maximum contingent deferred sales charge of 1%. (See Notes to Financial Statements) 46 STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED) INVESTMENT INCOME Dividends, net of $59,583 foreign taxes withheld.......... $ 642,616 Interest.................................................. 81,097 ---------- 723,713 ---------- EXPENSES Management fee............................................ $190,413 Transfer agent............................................ 37,065 Administrative services fee............................... 19,041 Custodian fees............................................ 25,610 Blue Sky fees............................................. 10,986 Auditing and accounting fees.............................. 9,629 Shareholder reports....................................... 2,705 Fund accounting........................................... 21,513 Trustees' fees............................................ 2,977 12b-1 service and distribution fees....................... 91,536 Legal..................................................... 12,837 Other..................................................... 10,033 ---------- Total expenses.......................................... 434,345 ---------- NET INVESTMENT INCOME....................................... 289,368 ---------- REALIZED AND UNREALIZED GAIN ON INVESTMENT TRANSACTIONS Net realized gain on Investments and foreign currency transactions........... 332,620 Forward foreign currency contracts...................... 346,938 Net unrealized appreciation during the period on Investments and foreign currency transactions........... 3,534,864 Forward foreign currency contracts...................... 100,891 ---------- Net gain on investment transactions..................... 4,315,313 ---------- INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $4,604,681 ==========
(See Notes to Financial Statements) 47 STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR FOR THE SIX MONTHS ENDED ENDED JUNE 30, DECEMBER 31, ------------------ ------------ 1997* 1996 ------------------ ------------ INCREASE IN NET ASSETS Operations Net investment income..................................... $ 289,368 $ 127,168 Net realized gain on investments and foreign currency transactions............................................ 679,558 1,561,256 Net unrealized appreciation during the period on Investments and foreign currency transactions........... 3,534,864 2,597,411 Forward foreign currency contracts...................... 100,891 34,667 ----------- ----------- Net increase resulting from operations................ 4,604,681 4,320,502 ----------- ----------- Class A distributions From net investment income................................ -- (138,320) In excess of net investment income........................ -- (317,957) From net realized gain.................................... -- (832,444) ----------- ----------- Total distributions to Class A shareholders........... -- (1,288,721) ----------- ----------- Class B distributions In excess of net investment income........................ -- (131,831) From net realized gain.................................... -- (310,417) ----------- ----------- Total distributions to Class B shareholders........... -- (442,248) ----------- ----------- 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................................................... 955,643 730,562 Class B................................................... 2,892,375 3,726,274 Class C................................................... 774,890 73,059 ----------- ----------- Net increase resulting from Fund share transactions... 4,622,908 4,529,895 ----------- ----------- TOTAL INCREASE IN NET ASSETS................................ 9,227,589 7,116,349 NET ASSETS Beginning of period....................................... 33,191,557 26,075,208 ----------- ----------- END OF PERIOD............................................. $42,419,146 $33,191,557 =========== =========== UNDISTRIBUTED NET INVESTMENT INCOME......................... $ 313,053 $ 23,685 =========== ===========
* Unaudited. (See Notes to Financial Statements) 48 FINANCIAL HIGHLIGHTS
FOR THE SIX FOR THE SIX CLASS A MONTHS ENDED FOR THE YEAR ENDED MONTHS ENDED JUNE 30, DECEMBER 31, DECEMBER 31, FOR THE YEAR ENDED JUNE 30, ------------ -------------------- ------------ -------------------------------- 1997* 1996 1995 1994 1994 1993 1992 SELECTED PER SHARE DATA ------------ ------- ------- ------------ ------- ------- ------ Net asset value, beginning of period............................. $ 13.17 $ 11.97 $ 11.23 $ 11.52 $ 10.62 $ 10.55 $ 9.40 ------- ------- ------- ------- ------- ------- ------ Income (loss) from investment operations Net investment income.............. .12(f) .08 .09(a) --(a) --(a) .03(a) .06(a) Net realized and unrealized gain (loss) on investment transactions..................... 1.53(f) 1.86 1.25 (.10) 1.79 .44 1.79 ------- ------- ------- ------- ------- ------- ------ Total from investment operations................... 1.65 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...... $ 14.82 $ 13.17 $ 11.97 $ 11.23 $ 11.52 $ 10.62 $10.55 ======= ======= ======= ======= ======= ======= ====== Total return(%)..................... 12.53(c) 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)......................... $28,313 $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(%)... 2.05(d) 2.18 2.46 2.34(d) 2.42 2.76 2.97 Ratio of net investment income (loss) to average net assets(%).... 1.75(d) .58 .71(a) (.06)(a)(d) .01(a) .38(a) .82(a) Portfolio turnover rate(%).......... 4 43 53 12 85 67 59 Average commission rate(e).......... $ .0107 $ .0181 N/A N/A N/A N/A N/A
(See Notes to Financial Statements) 49 FINANCIAL HIGHLIGHTS (CONTINUED)
FOR THE PERIOD FOR THE SIX FOR THE YEAR FOR THE SIX APRIL 1, 1994 CLASS B MONTHS ENDED ENDED MONTHS ENDED (COMMENCEMENT) JUNE 30, DECEMBER 31, DECEMBER 31, TO JUNE 30, ---------------- ------------------ ------------ -------------- 1997* 1996 1995 1994 1994 SELECTED PER SHARE DATA ---------------- ------ ------ ------------ -------------- Net asset value, beginning of period............ $ 13.12 $11.97 $11.23 $11.52 $12.12 ------- ------ ------ ------ ------ Income (loss) from investment operations Net investment income (loss)................... .07(f) (.02) --(a) (.03)(a) (.01)(a) Net realized and unrealized gain (loss) on investment transactions...................... 1.53(f) 1.85 1.25 (.12) (.04) ------- ------ ------ ------ ------ Total from investment operations........... 1.60 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.................. $ 14.72 $13.12 $11.97 $11.23 $11.52 ======= ====== ====== ====== ====== Total return(%)................................. 12.20(c) 15.30(b) 11.25(b) (1.37)(c) .38(c) RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands)........ $13,178 $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(%)............... 2.80(d) 2.94 3.21 3.09(d) 3.17(d) Ratio of net investment income (loss) to average net assets(%).................................. 1.00(d) (.17) (.04)(a) (.81)(a)(d) (.74)(a)(d) Portfolio turnover rate(%)...................... 4 43 53 12 85 Average commission rate(e)...................... $ .0107 $.0181 N/A N/A N/A
(See Notes to Financial Statements) 50 FINANCIAL HIGHLIGHTS (CONTINUED)
FOR THE PERIOD APRIL 30, 1996 CLASS C FOR THE SIX MONTHS (COMMENCEMENT) ENDED JUNE 30, TO DECEMBER 31, ------------------ --------------- 1997* 1996 SELECTED PER SHARE DATA ------------------ --------------- Net asset value, beginning of period........................ $12.94 $13.31 ------ ------ Income from investment operations Net investment income (loss).............................. .07(f) (.01) Net realized and unrealized gain on investment transactions............................................ 1.46(f) .42 ------ ------ Total from investment operations........................ 1.53 .41 ------ ------ Less distributions In excess of net investment income........................ -- .30 From net realized gain.................................... -- .48 ------ ------ Total distributions..................................... -- .78 ------ ------ Net asset value, end of period.............................. $14.47 $12.94 ====== ====== Total return(%)(c).......................................... 11.82 3.07 RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands).................... $ 928 $ 71 Ratio of expenses to average net assets Without expense reimbursement (%)(d)...................... 2.76 3.77 Ratio of net investment income (loss) to average net assets(%)(d).............................................. 1.03 (1.01) Portfolio turnover rate(%).................................. 4 43 Average commission rate(e).................................. $.0107 $.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. (f) Based on average shares outstanding. * Unaudited. (See Notes to Financial Statements) 51 NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 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 traded on a U.S. or foreign stock exchange, or the National Association of Securities Dealers Automated Quotation ("NASDAQ") System, are valued at the last quoted sale price reported as of the close of regular trading on the exchange the security is traded most extensively. If there is no such sale, the security is valued at the calculated mean between the last bid and asked price on the exchange. Securities not traded on an exchange or NASDAQ, but traded in another over-the-counter market are valued at the average between the current bid and asked prices in such markets. Short-term obligations and commercial paper are valued at amortized cost, which approximates market. Debt securities (other than short-term obligations and commercial paper) are valued on the basis of valuations furnished by a pricing service authorized by the Board of Trustees (the Board), which determines valuations based upon market transactions for normal, institutional-size trading units of such securities. 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 June 30, 1997, 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. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency transactions from foreign investment activity are translated into U.S. dollars on the following basis: (i) market value of securities, and dividends and interest receivable are translated at the closing daily rate of exchange; and, (ii) purchases and sales of investment securities are translated at the rate at which related foreign contracts are obtained or at the exchange rate prevailing on the date of the transaction. Exchange gains or losses from currency translation of other assets and liabilities, if significant, are reported as a separate component of Net realized and unrealized gain (loss) on investment transactions. 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 (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. 52 NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (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% on the Fund's first $500 million of average net assets, and .75% of the Fund's 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 and expenses are reflected as Administrative services fee and Fund accounting in the Statement of Operations. Ivy Mackenzie Distributors, Inc. (IMDI), a wholly owned subsidiary of MIMI, is the underwriter and distributor of the Fund's shares, and as such, purchases shares from the Fund at net asset value to settle orders from investment dealers. For the six months ended June 30, 1997, the net amount of underwriting discount retained by IMDI was $8,861. 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 $32,960, $55,104 and $3,472, 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 $25,756, $10,741 and $568, 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:
SIX MONTHS ENDED YEAR ENDED JUNE 30, 1997 DECEMBER 31, 1996 ---------------------- ---------------------- CLASS A SHARES AMOUNT SHARES AMOUNT ------- -------- ----------- -------- ----------- Sold.......................... 527,448 $ 7,291,555 486,908 $ 6,383,105 Issued on reinvestment of distributions................ -- -- 96,662 1,267,635 Repurchased................... (452,044) (6,335,912) (525,829) (6,920,178) -------- ----------- -------- ----------- Net increase.................. 75,404 $ 955,643 57,741 $ 730,562 ======== =========== ======== ===========
SIX MONTHS ENDED YEAR ENDED JUNE 30, 1997 DECEMBER 31, 1996 ---------------------- ---------------------- CLASS B SHARES AMOUNT SHARES AMOUNT ------- -------- ----------- -------- ----------- Sold.......................... 285,611 $ 3,910,709 350,672 $ 4,642,668 Issued on reinvestment of distributions................ -- -- 29,736 390,147 Repurchased................... (73,628) (1,018,334) (99,033) (1,306,541) -------- ----------- -------- ----------- Net increase.................. 211,983 $ 2,892,375 281,375 $ 3,726,274 ======== =========== ======== ===========
FROM APRIL 30, 1996 SIX MONTHS ENDED (COMMENCEMENT) JUNE 30, 1997 TO DECEMBER 31, 1996 ---------------------- ---------------------- CLASS C SHARES AMOUNT SHARES AMOUNT ------- -------- ----------- -------- ----------- Sold.......................... 67,579 $ 893,243 5,866 $ 78,416 Issued on reinvestment of distributions................ -- -- 219 2,832 Repurchased................... (8,894) (118,353) (600) (8,189) -------- ----------- -------- ----------- Net increase.................. 58,685 $ 774,890 5,485 $ 73,059 ======== =========== ======== ===========
53 June 30, 1997 IVY FUNDS(R) Ivy Global Natural Resources Fund - ----------- Semi-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 THROUGHOUT THE CENTURIES, THE CASTLE KEEP HAS BEEN A SOURCE OF LONG-RANGE VISION AND STRATEGIC ADVANTAGE. MARKET COMMENTARY: We would like to take this opportunity to welcome you as a shareholder of the Ivy Global Natural Resources Fund. There are many potential benefits to investing in natural resources including additional portfolio diversification and a possible hedge against inflation. The primary strategy of the Fund is to emphasize well-managed companies involved in the successful exploration and development of natural resources. This may mean taking advantage of changes in commodity prices and being prepared to be a contrarian by emphasizing sectors that have been out of favor but offer what we believe to be significant recovery potential over a one-to three-year period. The Fund provides four levels of diversification to help offset some of the volatility inherent in investing in natural resources. These are: diversification by commodity, country, capitalization (approximately 50% of the Ivy Global Natural Resources Fund is invested in world-class senior companies with the other 50% invested in small-to intermediate-sized companies that offer the potential for higher opportunities), and security. We believe the resource sector that is the most controversial, yet has perhaps the greatest opportunity, is precious metals. According to our research, the supply/demand fundamentals for precious metals are very positive. The one exception is central bank activities (as discussed below), Platinum and palladium advanced to multi-year highs and silver inventories are depleting rapidly. We continue to prefer silver to gold. European central banks, in pursuit of European Monetary Union compliance, have been selling gold reserves. Australia, for example, recently sold most of its reserves. The steady decline in gold prices resulting from central bank selling, as well as forward producer selling and outright speculative short selling, has led to a sale on gold shares. Until the downtrend is arrested, the negative sentiment could cause share prices to drift still lower. We believe, however, that we are in the later stages of the decline and reserves are at the low end of past ranges. We expect to see mergers and takeovers confirm these values. And while there are no guarantees, according to our research, within one to three years after multi-year lows, gold stocks should outperform significantly. The early stages of recovery usually favor the strongest, world-class companies with low-cost assets, good balance sheets and superior management. According to our research, commodity prices continue to lag world growth but strong demand and declining inventory levels suggest firming prices and better profitability over the next year, which would support a catch-up rally in resources. IVY MANAGEMENT, INC. BOARD OF TRUSTEES John S. Anderegg, Jr. Paul H. Broyhill Keith J. Carlson Stanley Channick Frank W. DeFriece, Jr. Roy J. Glauber Michael G. Landry Joseph G. Rosenthal Richard Silverman J. Brendan Swan OFFICERS Michael G. Landry, Chairman Keith J. Carlson, President James W. Broadfoot, Vice President C. William Ferris, Secretary/Treasurer LEGAL COUNSEL Dechert Price & Rhoads Boston, MA CUSTODIAN Brown Brothers Harriman & Co. Boston, MA TRANSFER AGENT Ivy Mackenzie Services Corp. P.O. Box 3022 Boca Raton, FL 33431-0922 1-800-777-6472 AUDITORS Coopers & Lybrand L.L.P. Fort Lauderdale, FL INVESTMENT MANAGER Ivy Management, Inc. 700 South Federal Highway Boca Raton, FL 33432 1-800-456-5111 DISTRIBUTOR Ivy Mackenzie Distributors, Inc. 700 South Federal Highway Boca Raton, FL 33432 1-800-456-5111 [IVY MACKENZIE LOGO] 54 PORTFOLIO OF INVESTMENTS JUNE 30, 1997 (UNAUDITED)
EQUITY SECURITIES -- 97.0% SHARES VALUE - ------------------------------------------ AGRICULTURE -- 1.4% Agrium, Inc............................... 5,000 $ 57,265 IBP, Inc.................................. 2,000 46,500 ---------- 103,765 ---------- DIAMONDS -- 6.4% Aber Resources, Ltd.*..................... 12,500 174,875 Rex Diamond Mining Co.*................... 50,000 83,360 SouthernEra Resources Ltd.*............... 40,000 226,159 ---------- 484,394 ---------- ENERGY SERVICES -- 13.1% ENSCO International Inc.*................. 1,000 52,750 Input/Output, Inc......................... 5,000 90,625 NQL Drilling Tools, Inc. -- Class A*...... 52,000 263,853 Noble Drilling Corporation*............... 15,000 338,438 Vaal Reefs Exploration & Mining Co. Ltd... 50,000 240,625 ---------- 986,291 ---------- GAS PRODUCERS -- 8.3% Barrington Petroleum Ltd.*................ 30,000 119,604 Blue Range Resource Corp.*................ 10,000 62,339 Canadian Conquest Exploration Co Ltd.*.... 75,000 73,937 Elk Point Resources, Inc.*................ 20,000 126,127 Paragon Petroleum Corp.*.................. 60,000 173,969 Penn West Petroleum Ltd.*................. 5,000 63,970 ---------- 619,946 ---------- INDUSTRIAL -- 6.1% Cameco Corporation........................ 5,000 187,560 International Uranium Corp................ 200,000 188,466 Romarco Minerals, Inc.*................... 30,000 82,635 ---------- 458,661 ---------- INTERMEDIATE MINERAL PRODUCERS/EXPLORERS -- 13.0% Geomaque Explorations Ltd.*............... 50,000 115,979 Meridian Gold Inc......................... 75,000 203,870 Metallica Resources, Inc.*................ 20,000 44,217 Orvana Minerals Corporation*.............. 75,000 312,600 Prime Resources Group, Inc................ 10,000 72,487 Vengold Inc.*............................. 100,000 137,725 William Resources, Inc.*.................. 60,000 93,508 ---------- 980,386 ---------- METALS & MINERALS -- 9.5% Alumax, Inc.*............................. 1,500 56,906 Aluminum Company of America............... 2,000 150,750 Breakwater Resources, Ltd.*............... 25,000 86,984 Freeport-McMoRan Copper & Gold, Inc....... 7,500 219,375 Inco Ltd.................................. 1,000 29,901 Teck Corp. Class A........................ 8,500 166,358 ---------- 710,274 ---------- OIL PRODUCERS -- 17.8% Beau Canada Exploration Ltd.*............. 75,000 168,532 Canadian Occidental Petroleum............. 5,000 112,355 Dorset Exploration Ltd.*.................. 15,000 76,111 Hurricane Hydrocarbons Ltd. Series 1*..... 60,000 217,461(a) Merchantile International Petroleum Inc.*................................... 100,000 110,000 Nuevo Energy Company*..................... 3,000 123,000 Pacalta Resources Ltd.*................... 20,000 242,831 TransGlobe Energy Corp.*.................. 55,000 92,813 Vermilion Resources Ltd.*................. 40,000 195,715 ---------- 1,338,818 ---------- PAPER & FOREST PRODUCTS -- 5.6% Alliance Forest Products, Inc.*........... 3,000 73,284 Aracruz Celulose S.A.- Sponsored ADR...... 7,500 152,813 Donohue, Inc. Class A..................... 3,000 65,238 Perkins Papers Ltd........................ 10,000 49,654 Re-Con Building Products Inc.*............ 2,000 2,841 Sino-Forest Corp. Class A................. 60,000 76,111 ---------- 419,941 ---------- SENIOR GOLD MINING -- 15.8% Ashanti Goldfields Company Ltd............ 20,000 233,750 Barrick Gold Corporation.................. 2,000 43,565 Battle Mountain Gold Company.............. 50,000 284,375 Newmont Mining Corp....................... 7,500 292,500 Normandy Mining Ltd....................... 300,000 334,867 ---------- 1,189,057 ---------- TOTAL EQUITY SECURITIES (Cost -- $7,248,001).................... 7,291,533 ---------- SHORT-TERM OBLIGATIONS -- 5.2% PRINCIPAL - ------------------------------------------ -------- U.S. Treasury Bill, 5.13%, 07/03/97....... $ 25,000 24,993 U.S. Treasury Bill, 5.135%, 07/03/97...... 30,000 29,991 U.S. Treasury Bill, 5.12%, 07/10/97....... 20,000 19,974 U.S. Treasury Bill, 5.145%, 07/10/97...... 20,000 19,974 U.S. Treasury Bill, 5.05%, 07/24/97....... 25,000 24,919 U.S. Treasury Bill, 5.08%, 07/24/97....... 55,000 54,822 U.S. Treasury Bill, 4.92%, 07/31/97....... 40,000 39,836 U.S. Treasury Bill, 4.95%, 08/21/97....... 15,000 14,895 U.S. Treasury Bill, 4.98%, 08/21/97....... 50,000 49,647 U.S. Treasury Bill, 4.80%, 08/28/97....... 25,000 24,807 U.S. Treasury Bill, 4.94%, 08/28/97....... 25,000 24,801 U.S. Treasury Bill, 4.915%, 09/04/97...... 30,000 29,734 U.S. Treasury Bill, 4.925%, 09/04/97...... 15,000 14,867 U.S. Treasury Bill, 4.90%, 09/11/97....... 15,000 14,853 U.S. Treasury Bill, 4.92%, 09/18/97....... 5,000 4,946 ---------- TOTAL SHORT-TERM OBLIGATIONS (Cost -- $393,059)...................... 393,059 ---------- TOTAL INVESTMENTS -- 102.2% (Cost -- $7,641,060)(b)................. 7,684,592 OTHER ASSETS, LESS LIABILITIES -- (2.2%)................... (166,959) ---------- NET ASSETS -- 100%........................ $7,517,633 ========== 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 June 30, 1997 aggregated $234,736. See Note 1 of the Notes to the Financial Statements. (b) Cost is the same for Federal income tax purposes. OTHER INFORMATION: At June 30, 1997, net unrealized appreciation based on cost for financial statement and Federal income tax purposes is as follows: Gross unrealized appreciation................... $ 526,025 Gross unrealized depreciation................... (482,493) ---------- Net unrealized appreciation................. $ 43,532 ========== Purchases and sales of investments (excluding short-term obligations) aggregated $9,868,754 and $2,842,484, respectively, for the period ended June 30, 1997.
(See Notes to Financial Statements) 55 STATEMENT OF ASSETS AND LIABILITIES JUNE 30, 1997 (UNAUDITED) ASSETS Investments, at value (identified cost -- $7,641,060)....... $7,684,592 Receivables Investments sold.......................................... 357,946 Fund shares sold.......................................... 8,000 Dividends and interest.................................... 959 Manager for expense reimbursement......................... 7,585 Deferred organization expenses.............................. 43,611 Other assets................................................ 2,041 ---------- Total assets.............................................. 8,104,734 ---------- LIABILITIES Payables Investments purchased..................................... 208,516 Management and advisory fees.............................. 6,273 12b-1 service and distribution fees....................... 3,291 Other payables to related parties......................... 3,045 Due to custodian............................................ 356,145 Accrued expenses............................................ 9,831 ---------- Total liabilities......................................... 587,101 ---------- Net assets.................................................. $7,517,633 ========== CLASS A Net asset value and redemption price per share ($4,930,634/423,184 shares outstanding)................... $ 11.65 ========== Maximum offering price per share ($11.65 X 100/94.25)*...... $ 12.36 ========== CLASS B Net asset value, offering price and redemption price** per share ($2,483,503/213,774 shares outstanding)............. $ 11.62 ========== CLASS C Net asset value, offering price and redemption price*** per share ($103,496/8,910 shares outstanding)................. $ 11.62 ========== NET ASSETS CONSIST OF Capital paid-in........................................... $7,273,794 Undistributed net realized gain on investments and foreign currency transactions................................... 229,619 Undistributed net investment loss......................... (27,195) Net unrealized appreciation on investments and foreign currency transactions................................... 41,415 ---------- NET ASSETS.................................................. $7,517,633 ==========
* On sales of more than $50,000 the offering price is reduced. ** Subject to a maximum contingent deferred sales charge of 5%. *** Subject to a maximum contingent deferred sales charge of 1%. (See Notes to Financial Statements) 56 STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED) INVESTMENT INCOME Dividends, net of $492 foreign taxes withheld............. $ 7,165 Interest.................................................. 13,414 -------- 20,579 -------- EXPENSES Management fee............................................ $10,964 Advisory fee.............................................. 10,964 Transfer agent............................................ 2,896 Administrative services fee............................... 2,193 Custodian fees............................................ 10,824 Blue Sky fees............................................. 1,021 Auditing and accounting fees.............................. 1,553 Shareholder reports....................................... 85 Amortization of organization expenses..................... 2,719 Fund accounting........................................... 8,313 Trustees' fees............................................ 435 12b-1 service and distribution fees....................... 10,536 Legal..................................................... 8,867 Other..................................................... 1,100 -------- 72,470 Expenses reimbursed by manager............................ (24,696) -------- Net expenses............................................ 47,774 -------- NET INVESTMENT LOSS......................................... (27,195) -------- REALIZED AND UNREALIZED GAIN ON INVESTMENT TRANSACTIONS Net realized gain on investments and foreign currency transactions............................................ 229,619 Net unrealized appreciation during the period on investments and foreign currency transactions........... 41,415 -------- Net gain on investment transactions..................... 271,034 -------- INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $243,839 ========
(See Notes to Financial Statements) 57 STATEMENT OF CHANGES IN NET ASSETS FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED) INCREASE IN NET ASSETS Operations Net investment loss....................................... $ (27,195) Net realized gain on investments and foreign currency transactions............................................ 229,619 Net unrealized appreciation during the period on investments and foreign currency transactions........... 41,415 ---------- Net increase resulting from operations................ 243,839 ---------- Fund share transactions (Note 4) Class A................................................. 4,692,675 Class B................................................. 2,475,270 Class C................................................. 105,849 ---------- Net increase resulting from Fund share transactions... 7,273,794 ---------- TOTAL INCREASE IN NET ASSETS................................ $7,517,633 ========== UNDISTRIBUTED NET INVESTMENT LOSS........................... $ (27,195) ==========
(See Notes to Financial Statements) 58 FINANCIAL HIGHLIGHTS
FOR THE SIX MONTHS ENDED JUNE 30, 1997* --------------------------- CLASS A CLASS B CLASS B SELECTED PER SHARE DATA** ------- ------- ------- Net asset value, beginning of period........................ $10.00 $10.00 $10.00 ------ ------ ------ Income from investment operations Net investment loss(a).................................... (.15) (.27) (.31) Net realized and unrealized gain on investment transactions............................................ 1.80 1.89 1.93 ------ ------ ------ Total from investment operations........................ 1.65 1.62 1.62 ------ ------ ------ Net asset value, end of period.............................. $11.65 $11.62 $11.62 ====== ====== ====== Total return(%)(b).......................................... 16.50 16.20 16.20 RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands).................... $4,931 $2,484 $ 103 Ratio of expenses to average net assets With expense reimbursement(%)(c).......................... 1.93 2.67 2.88 Without expense reimbursement(%)(c)....................... 3.04 3.78 3.99 Ratio of net investment loss to average net assets(%)(a)(c)........................................... (1.00) (1.74) (1.95) Portfolio turnover rate(%).................................. 66 66 66 Average commission rate(d).................................. $.0188 $.0188 $.0188 (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. * Unaudited. ** Based on average shares outstanding.
(See Notes to Financial Statements) 59 NOTES TO FINANCIAL STATEMENTS (UNAUDITED) Ivy Global Natural Resources 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 traded on a U.S. or foreign stock exchange, or the National Association of Securities Dealers Automated Quotation ("NASDAQ") System, are valued at the last quoted sale price reported as of the close of regular trading on the exchange the security is traded most extensively. If there is no such sale, the security is valued at the calculated mean between the last bid and asked price on the exchange. Securities not traded on an exchange or NASDAQ, but traded in another over-the-counter market are valued at the average between the current bid and asked prices in such markets. Short-term obligations and commercial paper are valued at amortized cost, which approximates market. Debt securities (other than short-term obligations and commercial paper) are valued on the basis of valuations furnished by a pricing service authorized by the Board of Trustees (the Board), which determines valuations based upon market transactions for normal, institutional-size trading units of such securities. 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 June 30, 1997, securities valued in good faith by the Valuation Committee of the Board amounted to $217,461 (2.89% 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. DISTRIBUTIONS TO SHAREHOLDERS -- Distributions from net investment income and net realized capital gains, if any, are declared in December. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency transactions from foreign investment activity are translated into U.S. dollars on the following basis: (i) market value of securities, and dividends and interest receivable are translated at the closing daily rate of exchange; and, (ii) purchases and sales of investment securities are translated at the rate at which related foreign contracts are obtained or at the exchange rate prevailing on the date of the transaction. 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 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), a wholly owned subsidiary of Mackenzie Investment Management Inc. (MIMI), is the Manager of the Fund. For its services, IMI receives a management fee monthly at the annual rate of .50% of the Fund's average net assets. 60 NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) Mackenzie Financial Corporation (MFC) in Toronto, Ontario, Canada is the Investment Adviser of the Fund. For its services, MFC receives a fee monthly at the annual rate of .50% of the Fund's average net assets. The fee is collected from the Fund and remitted to MFC by MIMI, a subsidiary of MFC. 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 the Fund's average net assets. The voluntary expense limitation may be terminated or revised at any time. 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 and expenses are reflected as Administrative services fee and Fund accounting in the Statement of Operations. Ivy Mackenzie Distributors, Inc. (IMDI), a wholly owned subsidiary of MIMI, is the underwriter and distributor of the Fund's shares, and as such, purchases shares from the Fund at net asset value to settle orders from investment dealers. For the six months ended June 30, 1997, the net amount of underwriting discount retained by IMDI was $4,007. 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 $3,797, $6,435 and $304, 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 $1,922, $849 and $125, 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 January 1, 1997 (Commencement) to June 30, 1997, for Class A, Class B and Class C were as follows:
CLASS A SHARES AMOUNT ------- ------- ---------- Sold................................................... 432,305 $4,800,095 Repurchased............................................ (9,121) (107,420) ------- ---------- Net increase........................................... 423,184 $4,692,675 ======= ==========
CLASS B SHARES AMOUNT ------- ------- ---------- Sold................................................... 222,558 $2,577,574 Repurchased............................................ (8,784) (102,304) ------- ---------- Net increase........................................... 213,774 $2,475,270 ======= ==========
CLASS C SHARES AMOUNT ------- ------- ---------- Sold................................................... 12,805 $ 148,611 Repurchased............................................ (3,895) (42,762) ------- ---------- Net increase........................................... 8,910 $ 105,849 ======= ==========
61 June 30, 1997 IVY FUNDS(R) Ivy Global Science & Technology Fund - ------------- Semi-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 THROUGHOUT THE CENTURIES, THE CASTLE KEEP HAS BEEN A SOURCE OF LONG-RANGE VISION AND STRATEGIC ADVANTAGE. Market Commentary: Technology stocks, much like the broader universe of equities, experienced a two-tier market during the first half of 1997. Most large-capitalization stocks did well throughout the period, while investors shunned the smaller, high-growth stocks through the first quarter and into late April. After finally bottoming out, however, these smaller stocks, which comprise a major portion of the Ivy Global Science & Technology Fund, staged a powerful rally that continued through the end of the first half of the year. Pundits pointed to a number of factors to explain why smaller growth stocks lagged the broader market early in the year. At the top of most lists was the popularity of indexing, a phenomenon with the characteristics of a self-fulfilling prophecy that has provided abundant buying power for the largest-capitalization stocks, and created valuations that seem high by the standards of recent years. We believe another factor was the upward trend of interest rates, which finally peaked in April. According to our research, technology stocks were also affected by product transition issues, particularly in the networking area. For several years, this industry, led by stalwarts Cisco and 3Com, had delivered very high growth, with earnings comfortably surpassing estimates quarter after quarter -- until this year. Estimate cuts in this sector had a negative effect on investor psychology that spread to other sectors of the technology market. For all these reasons, by late April negative investor sentiment pervaded the technology sector as relative valuations sank to the low end of their historical range. This set the stage for the ensuing rally, which was triggered by evidence suggesting that in spite of very strong economic growth, there was little threat of inflation, and the Federal Reserve might not have to raise interest rates after all. We believe another positive influence on the technology sector was the balanced budget agreement, which would almost certainly include a capital gains reduction. Such change would be positive for all stocks but particularly for non-dividend-paying growth stocks. In terms of fundamentals, most of the stocks that comprise the Ivy Global Science & Technology Fund have continued to make excellent progress. As always, there have been a few stumbles, but the vast majority of the Fund's holdings have either met or exceeded earnings expectations. We regard the slowdown in the networking sector as primarily a product transition issue. It is important to remember that technology represents a huge economic sector that comprises thousands of companies operating in many different market spaces. It is likely that some will always be experiencing product transitions, with their growth slowing or accelerating accordingly. In spite of these inevitable transitions, we expect technology to remain a major driver of global economic growth and a very fertile area for investment. Investors continue to pay a big premium for the liquidity of large-company stocks and a very modest premium for the high-growth potential of the technology sector. While there are no guarantees, this valuation disparity, combined with the strong fundamental outlook for portfolio companies of the Ivy Global Science & Technology Fund, encourages us to believe the catch-up phase has a lot further to go. Ivy Management, Inc. BOARD OF TRUSTEES John S. Anderegg, Jr. Paul H. Broyhill Keith J. Carlson Stanley Channick Frank W. DeFriece, Jr. Roy J. Glauber Michael G. Landry Joseph G. Rosenthal Richard N. Silverman J. Brendan Swan OFFICERS Michael G. Landry, Chairman Keith J. Carlson, President James W. Broadfoot, Vice President C. William Ferris, Secretary/Treasurer LEGAL COUNSEL Dechert Price & Rhoads Boston, MA CUSTODIAN Brown Brothers Harriman & Co. Boston, MA TRANSFER AGENT Ivy Mackenzie Services Corp. P.O. Box 3022 Boca Raton, FL 33431-0922 1-800-777-6472 AUDITORS Coopers & Lybrand L.L.P. Fort Lauderdale, FL INVESTMENT MANAGER Ivy Management, Inc. 700 South Federal Highway Boca Raton, FL 33432 1-800-456-5111 DISTRIBUTOR Ivy Mackenzie Distributors, Inc. 700 South Federal Highway Boca Raton, FL 33432 1-800-456-5111 [IVY MACKENZIE LOGO] 62 PORTFOLIO OF INVESTMENTS JUNE 30, 1997 (UNAUDITED)
COMMON STOCKS -- 96.8% SHARES VALUE - --------------------------------------------- BIOTECHNOLOGY -- 4.9% Aastrom Biosciences, Inc.*................... 11,300 $ 80,512 Agouron Pharmaceuticals, Inc.*............... 1,200 97,050 Alkermes, Inc.*.............................. 4,600 66,700 Biochem Pharma, Inc.*........................ 5,500 122,375 Ergo Science Corporation*.................... 9,700 106,700 Geltex Pharmaceuticals, Inc.*................ 4,400 88,550 Liposome Company Inc.*....................... 7,200 64,350 Myriad Genetics, Inc.*....................... 2,000 54,000 Neurex Corporation*.......................... 7,500 105,938 PathoGenesis Corp.*.......................... 3,800 110,675 Pharmacyclics, Inc.*......................... 5,400 83,700 US Bioscience, Inc.*......................... 3,500 33,687 Vertex Pharmaceuticals Inc.*................. 1,400 53,550 ViroPharma Inc.*............................. 4,500 80,438 ----------- 1,148,225 ----------- BUSINESS & FINANCIAL SERVICES -- 23.6% Applied Graphics Technologies, Inc.*......... 5,400 214,650 BISYS Group, Inc............................. 3,000 125,250 CBT Group PLC ADR*........................... 5,800 366,125 CHS Electronics, Inc.*....................... 6,900 182,850 Claremont Technology Group, Inc.*............ 5,300 125,875 CompUSA, Inc.*............................... 5,200 111,800 Cotelligent Group, Inc.*..................... 5,500 75,625 CUC International, Inc.*..................... 7,300 188,431 Daisytek International Corporation*.......... 5,900 233,788 FactSet Research Systems Inc.*............... 9,600 235,200 Fair Issac and Company Inc. ................. 3,400 151,513 First Data Corp.............................. 8,500 373,469 Forrester Research, Inc.*.................... 3,800 111,863 Gartner Group, Inc. -- Class A*.............. 7,600 273,125 Ingram Micro Inc. -- Class A*................ 12,100 291,913 Intelligroup, Inc.*.......................... 8,400 80,850 LHS Group, Inc.*............................. 6,000 262,875 Lason Holdings, Inc.*........................ 4,600 129,375 Meta Group, Inc.*............................ 5,300 115,275 New Era of Networks, Inc.*................... 15,400 254,100 PMT Services, Inc.*.......................... 12,500 190,625 Profit Recovery Group International, Inc. (The)*..................................... 10,200 141,525 QuickResponse Services Inc.*................. 6,800 246,500 RWD Technologies, Inc.*...................... 11,000 189,750 Renaissance Solutions, Inc.*................. 4,200 155,400 Superior Consultant Holdings Corporation*.... 4,100 151,187 Sykes Enterprises, Inc.*(a).................. 8,400 218,400 Whittman-Hart, Inc.*......................... 10,000 281,250 ----------- 5,478,589 ----------- COMPUTER SOFTWARE -- 22.8% Aspect Development, Inc.*.................... 5,300 138,131 Baan Company NV*(a).......................... 2,500 172,188 Carnegie Group, Inc.*........................ 2,300 17,250 Checkfee Corporation*........................ 7,600 133,950 Citrix Systems, Inc.*........................ 4,500 197,437 DataWorks Corporation*....................... 9,000 196,875 Deltek Systems, Inc.*........................ 22,500 382,500 Dendrite International, Inc.*................ 5,600 92,400 Forte Software, Inc.*........................ 4,100 55,094 Great Plains Software, Inc.*................. 900 24,300 H.T.E., Inc.*................................ 12,300 132,225 HNC Software Inc. ........................... 4,900 186,812 Infinity Financial Technology, Inc.*......... 7,900 128,869 Interlink Computer Sciences, Inc.*........... 11,800 89,975 IONA Technologies PLC -- ADR................. 7,900 156,025 JDA Software Group, Inc.*.................... 4,500 153,562 McAfee Associates, Inc.*..................... 2,300 145,188 Memco Software Ltd.*......................... 10,000 182,500 Microsoft Corporation*....................... 1,600 202,200 Optika Imaging Systems, Inc.*................ 20,800 104,000 Oracle Corporation*.......................... 4,800 $ 241,800 Pegasystems Inc. ............................ 5,800 181,975 Peoplesoft, Inc.*............................ 2,500 131,875 Planning Sciences International PLC*......... 7,800 44,850 Rational Software Corporation*............... 3,758 63,181 Remedy Corporation*.......................... 4,200 168,000 Rogue Wave Software*......................... 11,400 142,500 SPSS, Inc.*.................................. 3,300 95,700 Saville Systems Ireland ADR*................. 2,200 114,400 Security Dynamics Technologies, Inc.*........ 4,600 169,625 Select Software Tools ADR*................... 5,700 75,525 Siebel Systems, Inc.*........................ 5,300 170,925 Systemsoft Corporation*...................... 9,300 99,975 Tecnomatix Technologies Ltd. ................ 4,000 130,000 Template Software, Inc.*..................... 9,000 130,500 Transactions Systems Architects, Inc.*....... 2,800 96,600 Veritas Software Corp.*...................... 2,700 135,675 Viasoft, Inc.*............................... 2,000 101,500 Visio Corporation*........................... 1,800 126,900 ----------- 5,312,987 ----------- HEALTHCARE -- 7.0% Cambridge Heart Inc. ........................ 3,000 21,375 Cerus Corporation*........................... 2,300 21,275 Cytec Corporation*........................... 3,400 92,225 Endovascular Technologies, Inc.*............. 6,800 62,900 EPIX Medical, Inc.*.......................... 10,000 80,000 HBO & Company................................ 5,010 345,064 Heartport, Inc.*............................. 3,900 68,737 HemaSure, Inc.*.............................. 8,300 22,825 Intelligent Medical Imaging, Inc.*........... 9,000 59,625 MedQuist Inc.*............................... 2,800 85,050 Molecular Devices Corporation*............... 500 8,750 Serologicals Corporation*.................... 2,250 51,750 Sunquest Information Systems, Inc.*.......... 10,600 159,000 Ventana Medical Systems, Inc.*............... 8,000 99,000 VidaMed, Inc.*............................... 10,200 51,638 Vivus, Inc.*................................. 15,600 371,475 ----------- 1,600,689 ----------- MISCELLANEOUS TECHNOLOGY -- 10.8% Biacore International AB Sponsored ADR*(a)... 10,000 118,750 Discreet Logic, Inc.*........................ 15,500 255,750 Electronics for Imaging, Inc.*............... 4,300 203,175 Encad, Inc.*................................. 2,200 91,300 Gemstar International Group Ltd.*............ 11,300 207,637 IKOS Systems, Inc.*.......................... 5,700 121,838 ONTRACK Data International, Inc.*............ 11,300 259,900 Periphonics Corp.*........................... 7,600 163,400 QIAGEN NV.................................... 1,600 77,100 RadiSys Corporation*......................... 5,200 206,700 SBS Technologies, Inc.*...................... 4,500 104,062 SeaChange International, Inc.*............... 6,000 169,500 Stratasys, Inc.*............................. 4,500 72,563 Synopsys, Inc.*.............................. 4,199 154,313 Technology Modeling Associates, Inc.*........ 7,400 100,825 Viisage Technology, Inc.*.................... 11,600 201,550 ----------- 2,508,363 ----------- NETWORK & TELECOMMUNICATION EQUIPMENT -- 11.9% ACT Networks, Inc.*.......................... 6,300 80,325 Advanced Fibre Communications*............... 3,800 229,425 American Power Conversion Corp.*............. 10,200 193,800 Aware, Inc.*................................. 2,400 35,400 CIENA Corporation*........................... 3,300 155,512 Cisco Systems, Inc.*......................... 8,900 597,413 DSP Communications, Inc.*.................... 9,100 100,100 Gilat Satellite Networks Ltd. ............... 5,000 166,250 Harmonic Lightwaves, Inc.*................... 5,500 94,187 International Network Services*.............. 8,400 218,400
(See Notes to Financial Statements) 63 PORTFOLIO OF INVESTMENTS (CONTINUED) JUNE 30, 1997 (UNAUDITED)
COMMON STOCKS SHARES VALUE - ------------------------------------------------------------------- Network Appliance, Inc.*..................... 4,900 $ 186,200 NICE-Systems Ltd. -- Sponsored ADR........... 4,000 120,000 Orckit Communications Ltd.*.................. 6,700 97,150 P-COM, Inc................................... 3,600 118,800 Pairgain Technologies, Inc.*................. 4,700 72,850 Premisys Communications, Inc.*............... 7,000 110,250 Proxim, Inc.*................................ 4,000 97,000 Sawtek Inc.*................................. 700 23,625 Xylan Corporation*........................... 4,000 68,000 ----------- 2,764,687 ----------- PHARMACEUTICALS -- 4.6% Anesta Corp.*................................ 6,100 115,900 Calypte Biomedical Corporation*.............. 900 4,050 ChiRex Inc.*................................. 13,800 163,875 Dura Pharmaceuticals, Inc.*.................. 4,900 195,388 Kos Pharmaceuticals, Inc.*................... 3,400 94,350 Nastech Pharmaceutical Co.*.................. 5,500 57,750 Penederm Inc.*............................... 12,000 162,000 Sepracor, Inc.*.............................. 6,600 170,363 Sonus Pharmaceuticals, Inc.*................. 3,500 98,438 ----------- 1,062,114 ----------- SEMICONDUCTORS & EQUIPMENT -- 8.9% 3DFX Interactive, Inc.*...................... 13,500 180,562 ASM Lithography Holding NV*(a)............... 5,400 315,900 Altera Corporation*.......................... 1,400 70,700 Analog Devices*.............................. 4,766 126,597 Benchmarq Microelectronics, Inc.*............ 5,000 86,250 Cymer, Inc.*................................. 3,800 185,250 Etec Systems, Inc.*.......................... 3,900 167,213 Intel Corp. ................................. 3,300 467,981 Maxim Integrated Products, Inc.*............. 1,800 102,375 Micrel, Inc.*................................ 2,000 102,000 NeoMagic Corp.*.............................. 2,200 49,225 Pri Automation, Inc.*........................ 2,000 75,875 Sipex Corporation*........................... 4,200 152,250 ----------- 2,082,178 ----------- TELECOMMUNICATION SERVICES -- 2.3% FaxSav Incorporated*......................... 3,700 $ 6,938 International Telecommunication Data Systems, Inc.*...................................... 10,500 257,250 Lightbridge, Inc.*........................... 13,500 102,937 Transaction Network Services, Inc.*.......... 5,500 77,687 Western Wireless Corp.*...................... 1,900 30,162 WinStar Communications, Inc.*................ 5,300 70,887 ----------- 545,861 ----------- TOTAL COMMON STOCKS (Cost -- $19,659,949)(b)................... 22,503,693 OTHER ASSETS, LESS LIABILITIES -- 3.2%....... 742,773 ----------- NET ASSETS -- 100%........................... $23,246,466 =========== ADR - American Depository Receipt NV - Non-voting * Non-income producing security. (a) Foreign security. (b) Cost is the same for Federal income tax purposes. OTHER INFORMATION: At June 30, 1997, net unrealized appreciation based on cost for financial statement and Federal income tax purposes is as follows: Gross unrealized appreciation.................... $ 4,244,848 Gross unrealized depreciation.................... (1,401,104) ----------- Net unrealized appreciation.................. $ 2,843,744 ===========
Purchases and sales of securities other than short-term obligations aggregated $1,420,780 and $699,323, respectively, for the period ended June 30, 1997. (See Notes to Financial Statements) 64 STATEMENT OF ASSETS AND LIABILITIES JUNE 30, 1997 (UNAUDITED) ASSETS Investments, at value (identified cost -- $19,659,949)...... $22,503,693 Cash........................................................ 733,123 Receivables Fund shares sold.......................................... 46,788 Manager for expense reimbursement......................... 46 Deferred organization expenses.............................. 48,549 Other assets................................................ 11,241 ----------- Total assets.............................................. 23,343,440 ----------- LIABILITIES Payables Investments purchased..................................... 29,115 Fund shares repurchased................................... 21,557 Management fee............................................ 18,894 12b-1 service and distribution fees....................... 12,269 Other payables to related parties......................... 8,277 Accrued expenses............................................ 6,862 ----------- Total liabilities......................................... 96,974 ----------- NET ASSETS.................................................. $23,246,466 =========== CLASS A Net asset value and redemption price per share ($11,383,371/684,133 shares outstanding).................... $ 16.64 =========== Maximum offering price per share ($16.64 x 100/94.25)*...... $ 17.66 =========== CLASS B Net asset value, offering price and redemption price** per share ($6,108,005/367,778 shares outstanding)............. $ 16.61 =========== CLASS C Net asset value, offering price and redemption price*** per share ($5,755,090/346,001 shares outstanding)............. $ 16.63 =========== NET ASSETS CONSIST OF Capital paid-in........................................... $21,385,300 Undistributed net realized loss on investments............ (755,208) Undistributed net investment loss......................... (227,370) Net unrealized appreciation on investments................ 2,843,744 ----------- NET ASSETS.................................................. $23,246,466 ===========
* On sales of more than $50,000 the offering price is reduced. ** Subject to a maximum contingent deferred sales charge of 5%. *** Subject to a maximum contingent deferred sales charge of 1%. (See Notes to Financial Statements) 65 STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED) INVESTMENT INCOME Dividends................................................. $ 931 Interest.................................................. 9,427 ---------- 10,358 ---------- EXPENSES Management fee............................................ $92,633 Transfer agent............................................ 18,284 Administrative services fee............................... 9,263 Custodian fees............................................ 5,467 Blue Sky fees............................................. 6,450 Auditing and accounting fees.............................. 9,262 Shareholders reports...................................... 1,402 Amortization of organization expenses..................... 5,955 Fund accounting........................................... 17,741 Trustees' fees............................................ 2,977 12b-1 service and distribution fees....................... 57,089 Legal..................................................... 12,625 Other..................................................... 7,191 ---------- 246,339 Expenses reimbursed by manager............................ (8,611) ---------- Net expenses............................................ 237,728 ---------- NET INVESTMENT LOSS......................................... (227,370) ---------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS Net realized loss on investments.......................... (742,053) Net unrealized appreciation during the period on investments............................................. 1,835,637 ---------- Net gain on investment transactions..................... 1,093,584 ---------- INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $ 866,214 ==========
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD FOR THE SIX JULY 22, 1996 MONTHS ENDED (COMMENCEMENT) JUNE 30, TO DECEMBER 31, ------------ ---------------- 1997* 1996 ------------ ---------------- INCREASE IN NET ASSETS Operations Net investment loss....................................... $ (227,370) $ (50,867) Net realized gain (loss) on investments................... (742,053) 61,918 Net unrealized appreciation during the period on investments............................................. 1,835,637 1,008,107 ----------- ----------- Net increase resulting from operations.................. 866,214 1,019,158 ----------- ----------- Distributions from net realized gain Class A................................................... -- (17,214) Class B................................................... -- (3,926) Class C................................................... -- (3,066) ----------- ----------- Total distributions paid to shareholders................ -- (24,206) ----------- ----------- Fund share transactions (Note 4) Class A................................................... 2,658,984 7,567,192 Class B................................................... 2,474,575 3,263,292 Class C................................................... 3,391,605 2,029,658 Class I................................................... -- (6) ----------- ----------- Net increase resulting from Fund share transactions..... 8,525,164 12,860,136 ----------- ----------- TOTAL INCREASE IN NET ASSETS................................ 9,391,378 13,855,088 NET ASSETS Beginning of period....................................... 13,855,088 -- ----------- ----------- END OF PERIOD............................................. $23,246,466 $13,855,088 =========== =========== UNDISTRIBUTED NET INVESTMENT LOSS........................... $ (227,370) $ -- =========== ===========
* Unaudited. (See Notes to Financial Statements) 66 FINANCIAL HIGHLIGHTS
CLASS A CLASS B CLASS C ------------------------------ ------------------------------ ------------------------------ FROM FROM FROM FOR THE SIX JULY 22, 1996 FOR THE SIX JULY 22, 1996 FOR THE SIX JULY 22, 1996 MONTHS ENDED (COMMENCEMENT) MONTHS ENDED (COMMENCEMENT) MONTHS ENDED (COMMENCEMENT) JUNE 30, TO DECEMBER 31, JUNE 30, TO DECEMBER 31, JUNE 30, TO DECEMBER 31, ------------ --------------- ------------ --------------- ------------ --------------- 1997* 1996 1997* 1996 1997* 1996 SELECTED PER SHARE DATA ------------ --------------- ------------ --------------- ------------ --------------- Net asset value, beginning of period........................ $ 16.40 $ 10.00 $16.44 $10.00 $16.46 $10.00 ------- ------- ------ ------ ------ ------ Income from investment operations Net investment loss(a)........ (.05)(e) (.06) (.05)(e) (.06) (.05)(e) (.05) Net realized and unrealized gain on investment transactions................ .29(e) 6.49 .22(e) 6.52 .22(e) 6.53 ------- ------- ------ ------ ------ ------ Total from investment operations................ .24 6.43 .17 6.46 .17 6.48 ------- ------- ------ ------ ------ ------ Less distributions From net realized gain........ -- .03 -- .02 -- .02 ------- ------- ------ ------ ------ ------ Total distributions......... -- .03 -- .02 -- .02 ------- ------- ------ ------ ------ ------ Net asset value, end of period........................ $ 16.64 $ 16.40 $16.61 $16.44 $16.63 $16.46 ======= ======= ====== ====== ====== ====== Total return(%)(b)............. 1.46 64.34 1.03 64.59 1.03 64.84 RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands).................... $11,383 $ 8,324 $6,108 $3,425 $5,755 $2,106 Ratio of expenses to average net assets With expense reimbursement(%)(c)......... 2.21 2.19 2.90 2.99 2.95 2.95 Without expense reimbursement(%)(c)......... 2.30 2.90 2.99 3.70 3.04 3.66 Ratio of net investment loss to average net assets(%)(a)(c)... (2.10) (2.18) (2.79) (2.98) (2.84) (2.94) Portfolio turnover rate(%)..... 4 23 4 23 4 23 Average commission rate(d)..... $ .0595 $ .0600 $.0595 $.0600 $.0595 $.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. (e) Based on average shares outstanding. * Unaudited. (See Notes to Financial Statements) 67 NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 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 traded on a U.S. or foreign stock exchange, or the National Association of Securities Dealers Automated Quotation ("NASDAQ") System, are valued at the last quoted sale price reported as of the close of regular trading on the exchange the security is traded most extensively. If there is no such sale, the security is valued at the calculated mean between the last bid and asked price on the exchange. Securities not traded on an exchange or NASDAQ, but traded in another over-the-counter market are valued at the average between the current bid and asked prices in such markets. Short-term obligations and commercial paper are valued at amortized cost, which approximates market. Debt securities (other than short-term obligations and commercial paper) are valued on the basis of valuations furnished by a pricing service authorized by the Board of Trustees (the Board), which determines valuations based upon market transactions for normal, institutional-size trading units of such securities. 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 June 30, 1997, 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. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency transactions from foreign investment activity are translated into U.S. dollars on the following basis: (i) market value of securities, and dividends and interest receivable are translated at the closing daily rate of exchange; and, (ii) purchases and sales of investment securities are translated at the rate at which related foreign contracts are obtained or at the exchange rate prevailing on the date of the transaction. Exchange gains or losses from currency translation of other assets and liabilities, if significant, are reported as a separate component of Net realized and unrealized gain (loss) on investment transactions. 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 an- 68 NOTES TO FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) nual 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 and expenses are reflected as Administrative services fee and Fund accounting in the Statement of Operations. Ivy Mackenzie Distributors, Inc. (IMDI), a wholly owned subsidiary of MIMI, is the underwriter and distributor of the Fund's shares, and as such, purchases shares from the Fund at net asset value to settle orders from investment dealers. For the six months ended June 30, 1997, the net amount of underwriting discount retained by IMDI was $22,725. 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 assets, excluding Class I. 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 $11,848, $24,325 and $20,916, 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 $10,435, $3,274, $4,575 and $0, 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:
JULY 22, 1996 (COMMENCEMENT) SIX MONTHS ENDED TO DECEMBER 31, JUNE 30, 1997 1996 ---------------------- -------------------- CLASS A SHARES AMOUNT SHARES AMOUNT ------- -------- ----------- ------- ---------- Sold............................ 312,988 $ 4,719,654 513,259 $7,659,940 Issued on reinvestment of distributions.................. -- -- 995 16,325 Repurchased..................... (136,316) (2,060,670) (6,793) (109,073) -------- ----------- ------- ---------- Net increase.................... 176,672 $ 2,658,984 507,461 $7,567,192 ======== =========== ======= ==========
JULY 22, 1996 (COMMENCEMENT) SIX MONTHS ENDED TO DECEMBER 31, JUNE 30, 1997 1996 ---------------------- -------------------- CLASS B SHARES AMOUNT SHARES AMOUNT ------- -------- ----------- ------- ---------- Sold............................ 227,876 $ 3,518,945 228,288 $3,587,953 Issued on reinvestment of distributions.................. -- -- 228 3,741 Repurchased..................... (68,407) (1,044,370) (20,207) (328,402) -------- ----------- ------- ---------- Net increase.................... 159,469 $ 2,474,575 208,309 $3,263,292 ======== =========== ======= ==========
JULY 22, 1996 (COMMENCEMENT) SIX MONTHS ENDED TO DECEMBER 31, JUNE 30, 1997 1996 ---------------------- -------------------- CLASS C SHARES AMOUNT SHARES AMOUNT ------- -------- ----------- ------- ---------- Sold............................ 247,726 $ 3,831,621 128,623 $2,040,762 Issued on reinvestment of distributions.................. -- -- 178 2,937 Repurchased..................... (29,667) (440,016) (859) (14,041) -------- ----------- ------- ---------- Net increase.................... 218,059 $ 3,391,605 127,942 $2,029,658 ======== =========== ======= ==========
JULY 22, 1996 (COMMENCEMENT) SIX MONTHS ENDED TO DECEMBER 31, JUNE 30, 1997 1996 ---------------------- -------------------- CLASS I SHARES AMOUNT SHARES AMOUNT ------- -------- ----------- ------- ---------- Sold............................ -- $ -- 1 $ 10 Repurchased..................... -- -- (1) (16) -------- ----------- ------- ---------- Net decrease.................... -- $ -- -- $ (6) ======== =========== ======= ==========
03IVTAX063097 69 June 30, 1997 IVY FUNDS(R) Ivy Growth Fund - ----------- Semi-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 THROUGHOUT THE CENTURIES, THE CASTLE KEEP HAS BEEN A SOURCE OF LONG-RANGE VISION AND STRATEGIC ADVANTAGE. MARKET COMMENTARY: As it has for several quarters, the strength of the US economy and broader stock market -- as measured by the Standard & Poor's 500 and the Dow Jones Industrial Average -- continue to surprise most observers. With the market seemingly fully valued by most measures, investors are paying close attention to corporate earnings reports and tend to quickly sell stocks of companies that fail to meet expectations. This contributes to volatility in stock prices. The Ivy Growth Fund continues to employ a three-pronged approach, combining emerging growth and international stocks with a more representative "core" portfolio of mid- and large-capitalization US stocks. By employing this approach, the Fund gains access to a wider universe of value-priced investments and the added benefit of geographic diversification. We believe the valuations of emerging growth and international sectors, neither of which have kept pace with the large-capitalization US market, are particularly compelling now, and should offer attractive returns when the stocks of large blue-chip US companies decelerate over time. For the core portion of the Fund, we continue to search for opportunities using a criterion whereby long-term earnings growth for a company is projected to exceed the price-to-earnings ratio of the stock. With large-capitalization stocks at historically high valuations, most recent additions to the Ivy Growth Fund have come from the mid-capitalization universe. We do, however, continue to find value in some large-capitalization stocks in the financial services and healthcare sectors. Both are supported by demographic trends owing to the age of the US population and its reliance on services, and by consolidation trends within such industries. In the emerging growth portion of the Fund, our stock selection continues to emphasize dynamic companies that operate in fertile sectors of the economy that can support high rates of growth. In terms of fundamentals, most of the Fund's portfolio companies have either met or exceeded expectations. After bottoming out in late April, small-company stocks staged a powerful rally that lasted through the end of the first half of the year. Nevertheless, we believe investors are continuing to pay a big premium for the liquidity of the large-capitalization stocks and a very modest premium for the high-growth potential of smaller-company stocks. According to our research, emerging growth stocks are quite attractive at today's prices. The non-US stocks in the Fund continue to be selected using a long-term value approach. The largest weighting is in Europe, which has performed very well. The Fund's holdings in Latin America, which are concentrated in larger-capitalization stocks, were another bright spot. Asia, where investor sentiment is low, was the poorest performing of the international regions. This has led to some very attractive valuations. We continue to favor Hong Kong, but are finding bargains elsewhere in the region as well. Going forward, we believe the added diversification of the Ivy Growth Fund should help to minimize portfolio volatility while providing excellent long-term growth prospects. IVY MANAGEMENT, INC. BOARD OF TRUSTEES John S. Anderegg, Jr. Paul H. Broyhill Keith J. Carlson Stanley Channick Frank W. DeFriece, Jr. Roy J. Glauber Michael G. Landry Joseph G. Rosenthal Richard N. Silverman J. Brendan Swan OFFICERS Michael G. Landry, Chairman Keith J. Carlson, President James W. Broadfoot, Vice President C. William Ferris, Secretary/Treasurer LEGAL COUNSEL Dechert Price & Rhoads Boston, MA CUSTODIAN Brown Brothers Harriman & Co. Boston, MA TRANSFER AGENT Ivy Mackenzie Services Corp. P.O. Box 3022 Boca Raton, FL 33431-0922 1-800-777-6472 AUDITORS Coopers & Lybrand L.L.P. Fort Lauderdale, FL INVESTMENT MANAGER Ivy Management, Inc. 700 South Federal Highway Boca Raton, FL 33432 1-800-456-5111 DISTRIBUTOR Ivy Mackenzie Distributors, Inc. 700 South Federal Highway Boca Raton, FL 33432 1-800-456-5111 [IVY MACKENZIE LOGO] 70 PORTFOLIO OF INVESTMENTS JUNE 30, 1997 (UNAUDITED)
EQUITY SECURITIES -- 88.3% SHARES VALUE - ----------------------------------------- BASIC INDUSTRIES -- 6.5% AKZO Nobel NV(a)......................... 12,000 $ 1,647,509 Anglo-American Corporation of South Africa Limited (a)..................... 6,000 361,478 AssiDoman AB(a).......................... 24,200 688,533 Companhia Vale do Rio Doce -- Sponsored ADR.................................... 30,000 668,700 Crown Cork & Seal Company, Inc........... 46,000 2,458,125 Du Pont (E.I.) De Numours & Company...... 27,000 1,697,625 Enso OY -- R Shares(a)................... 72,000 665,350 Ferro Corporation........................ 38,000 1,408,375 Fletcher Challenge Building(a)........... 183,750 551,680 Fletcher Challenge Forests(a)............ 195,716 283,855 Fletcher Challenge Paper(a).............. 184,500 446,396 Granges AB............................... 6,250 84,062 Guangdong Tannery Ltd.(a)................ 80,000 30,979 Hanson PLC Sponsored ADR(a).............. 31,000 775,000 Harsco Corporation....................... 76,000 3,078,000 Holderbank Financiere Glaris AG(a)....... 1,520 1,437,789 Imperial Chemical Industries PLC -- Sponsored ADR (a)...................... 19,000 1,080,625 Nampak Limited(a)........................ 34,400 149,416 Semen Gresik(a).......................... 110,000 246,556 Stora Kopparbergs Bergslags Aktiebolag(a).......................... 46,200 746,859 Trelleborg AB B Free Shares(a)........... 106,300 1,745,918 Union Carbide Corporation Holding Company................................ 19,000 894,188 UPM-Kymmene OY(a)........................ 28,840 666,275 ------------ 21,813,293 ------------ BUSINESS SERVICES -- 3.8% Applied Graphics Technologies, Inc.*..... 32,000 1,272,000 Banta Corporation........................ 36,000 976,500 BISYS Group, Inc.*....................... 18,000 751,500 Children's Comprehensive Services, Inc.*. 40,000 565,000 Cohr, Inc.*.............................. 15,000 281,250 Copart, Inc.*............................ 25,000 412,500 Corrections Corporation of America*...... 36,300 1,442,925 Credit Acceptance Corp. *................ 12,200 157,075 Daisytek International Corporation*...... 25,600 1,014,400 Dendrite International, Inc.*............ 20,600 339,900 Electronic Data Systems Corp. ........... 66,000 2,706,000 Gartner Group, Inc.*..................... 38,400 1,380,000 Profit Recovery Group International, Inc.*.................................. 39,000 541,125 QuickResponse Services, Inc.*............ 24,000 870,000 ------------ 12,710,175 ------------ CAPITAL GOODS -- 4.0% AGCO Corporation......................... 77,000 2,767,187 American Standard Companies, Inc.*....... 29,800 1,333,550 Caterpillar, Inc......................... 6,000 644,250 Fluor Corporation........................ 15,000 827,812 Foster Wheeler Corporation............... 46,000 1,863,000 Johnson Controls, Inc.................... 32,000 1,314,000 Kaydon Corporation....................... 27,000 1,339,875 Rauma OY (a)............................. 803 18,397 S.K.F. AB Series "B" (a)................. 32,000 827,688 Schneider, S.A. (a)...................... 24,379 1,298,899 Tecumseh Products Company................ 19,000 1,137,625 ------------ 13,372,283 ------------ CONGLOMERATES -- 2.6% Benpres Holdings Corp. -- Sponsored GDR*(a)................................ 57,000 388,854 Cheung Kong(a)........................... 167,000 1,649,030 Guangdong Investments(a)................. 800,000 1,203,003 Guangdong Investments Warrants*(a)....... 160,000 75,381 Jardine Matheson Holdings Ltd.(a)........ 75,200 533,920 Jardine Strategic Holdings Ltd.(a)....... 171,562 648,504 Jardine Strategic Holdings Ltd. Warrants(a)............................ 19,062 $ 7,529 Metro Pacific Corporation(a)............. 1,552,600 335,525 New World Development Company Ltd.(a).... 248,654 1,482,819 Pacific Dunlop Ltd.(a)................... 215,000 631,379 Swire Pacific Ltd. Class (a)............. 184,000 1,656,581 ------------ 8,612,525 ------------ CONSUMER DURABLES -- 2.5% Brunswick Corp........................... 38,500 1,203,125 CIADEA S.A. ADR*(a)...................... 40,150 172,666 Electrolux AB (a)........................ 12,500 902,051 Fiat Sp A*(a)............................ 265,000 953,159 PT Astra International(a)................ 142,000 586,922 Perusahaan Otomobil Nasional Berhad(a)... 78,000 364,659 Peugeot Citroen(a)....................... 6,200 599,836 Volkswagen AG(a)......................... 3,600 2,731,195 Volvo AB B Shares(a)..................... 28,000 749,575 ------------ 8,263,188 ------------ CONSUMER NON-DURABLES -- 5.2% Allegiance Corporation*.................. 51,900 1,414,275 Cadbury Schweppes PLC(a)................. 27,000 240,633 First Commonwealth, Inc.*................ 18,000 333,000 Grand Metropolitan PLC Sponsored ADR(a).. 27,104 1,062,138 Group Danone(a).......................... 5,500 909,651 Mattel, Inc.............................. 70,000 2,371,250 Nestle AG Registered(a).................. 1,813 2,395,197 PepsiCo, Inc............................. 51,000 1,915,687 President Enterprises*(a)................ 123,000 243,345 Rembrandt Group Limited(a)............... 21,000 224,097 South African Breweries Ltd.(a).......... 5,287 162,321 South African Breweries Ltd. Sponsored ADR(a)................................. 5,200 159,575 Time Warner, Inc. Preferred.............. 23,000 980,375 Tsingtao Brewery Series H(a)............. 1,176,000 455,386 Tupperware Corporation................... 18,500 675,250 Unilever NV ADR(a)....................... 4,700 1,024,600 Vina Concha y Toro S.A.(a)............... 13,400 414,563 Warnaco Group, Inc. Class A.............. 69,400 2,212,125 ------------ 17,193,468 ------------ CONSUMER SERVICES -- 9.7% ADT Limited*............................. 48,700 1,607,100 Apollo Group, Inc. -- Class A*........... 15,500 546,375 Blyth Industries, Inc.*.................. 30,750 1,037,813 CHS Electronics, Inc.*................... 20,000 530,000 Carnival Corporation Class A............. 73,000 3,011,250 CompUSA, Inc.*........................... 27,200 584,800 Corporate Express, Inc.*................. 50,850 734,147 CUC International Inc. .................. 60,250 1,555,203 Dollar Tree Stores, Inc.*................ 10,000 503,750 Extended Stay America, Inc.*............. 54,000 806,652 Far Eastern Department Stores Ltd. ...... 150,000 238,489 Federated Department Stores, Inc.*....... 30,000 1,042,500 Galeries Lafayette *(a).................. 2,060 854,746 Genting Berhad(a)........................ 70,000 335,577 Guitar Center, Inc.*..................... 7,500 126,562 Harte-Hanks Communications............... 60,000 1,770,000 International Speedway Corp. -- Class A*..................................... 37,000 726,125 J.C. Penney Co., Inc. ................... 38,000 1,983,125 Julius Meinl International AG (a)........ 3,900 120,871 Just for Feet, Inc.*..................... 18,500 322,594 Lowe's Companies, Inc. .................. 40,000 1,485,000 Lusomundo-SGPS S.A. Preferred Shares(a).. 26,200 219,091 Metro Networks, Inc.*.................... 18,500 448,625 Petco Animal Supplies, Inc.*............. 25,000 750,000 Pier 1 Imports, Inc. .................... 44,000 1,166,000
(See Notes to Financial Statements) 71 PORTFOLIO OF INVESTMENTS (CONTINUED) JUNE 30, 1997 (UNAUDITED)
EQUITY SECURITIES SHARES VALUE - ----------------------------------------- Premier Parks, Inc.*..................... 22,000 $ 811,250 Robinson Department Store Public Company Limited(a)............................. 272,100 99,786 Royal Caribbean Cruises Ltd.............. 27,300 953,794 Safeway plc (a).......................... 139,000 803,899 Santa Isabel S.A. Sponsored ADR(a)....... 8,800 283,800 Scholastic Corporation*.................. 25,000 875,000 Sears, Roebuck & Co. .................... 36,000 1,935,000 Sitel Corporation*....................... 25,000 515,625 Sun International Hotels Ltd.*........... 30,000 1,108,125 Sunglass Hut International, Inc.*........ 98,500 621,781 TRM Copy Centers Corporation*............ 62,000 658,750 Tourism Holdings Limited(a).............. 421,000 596,327 Viking Office Products, Inc.*............ 10,000 190,000 West Marine Inc.*........................ 17,500 450,625 ------------ 32,410,157 ------------ ENERGY -- 4.9% Dresser Industries, Inc.................. 58,000 2,160,500 Elf Aquitaine S.A.(a).................... 10,000 1,079,896 Fletcher Challenge Energy(a)............. 263,750 795,442 Helmerich & Payne, Inc. ................. 30,000 1,728,750 Noble Drilling Corporation*.............. 57,000 1,286,063 Norsk Hydro A.S. Sponsored ADR(a)........ 27,800 1,506,413 Nuevo Energy Company*.................... 33,300 1,365,300 Offshore Logistics, Inc.*................ 24,146 455,756 Parker & Parsley Petroleum Company....... 25,000 884,375 Schlumberger, Ltd. ...................... 16,000 2,000,000 Shell Transport & Trading Co.(a)......... 195,000 1,328,985 Total S.A. ADR(a)........................ 20,155 1,020,347 YPF S.A. Sponsored ADR(a)................ 22,000 676,500 ------------ 16,288,327 ------------ FINANCIAL SERVICES -- 14.8% A.F.P. Provida S.A. Sponsored ADR(a)..... 10,300 225,312 ABN Amro Bank(a)......................... 34,800 650,062 AMBAC, Inc............................... 27,000 2,062,125 Aegon NV................................. 13,032 913,055 Arab Malaysian Corporation Berhad(a)..... 189,000 703,882 Asia Credit Company PLC(a)............... 17,000 43,312 Australia & New Zealand Banking Group Ltd.(a)................................ 78,000 578,489 Banco Popolare di Milano(a).............. 135,000 808,096 Bangkok Bank Public Company Limited(a)... 45,000 309,207 Bank of Ireland(a)....................... 89,175 981,760 Bank of Scotland(a)...................... 180,000 1,150,364 Bankers Trust New York Corp.*............ 10,000 870,000 Banque Nationale de Paris(a)............. 13,500 556,930 Barclays PLC(a).......................... 30,500 605,073 Compagnie Financiere de Paribas(a)....... 12,455 861,316 Credit Suisse Group...................... 6,500 835,991 Dhana Siam Finance & Securities Public Company Limited(a)....................... 55,000 29,193 Donaldson, Lufkin & Jenrette, Inc.*...... 8,000 478,000 Exel Limited............................. 51,000 2,690,250 Federal Agricultural Mortgage Corp. Class C*..................................... 15,000 543,750 Federal Home Loan Mortgage Corp.......... 84,000 2,887,500 Federal National Mortgage Association.... 53,000 2,312,125 First Chicago NBD Corporation............ 26,000 1,573,000 First Union Corporation.................. 18,000 1,665,000 Fortis Amev NV(a)........................ 24,500 1,092,878 Green Tree Financial Corp. .............. 17,000 605,625 HSBC Holdings plc(a)..................... 47,997 1,443,513 ING Groep NV(a).......................... 28,256 1,305,129 J.P. Morgan & Company Inc................ 12,000 1,252,500 Krung Thai Bank Public Company Limited(a)............................. 75,000 78,170 Krung Thai Thanakit PLC(a)............... 26,000 14,804 Litchfield Financial Corp................ 31,500 $ 515,813 MedQuist, Inc.*.......................... 9,500 288,562 National Australia Bank Ltd.(a).......... 42,000 596,873 National Westminster Bank PLC(a)......... 41,500 557,728 NationsBank Corporation.................. 28,600 1,844,700 Nava Finance and Securities Public Company Limited*(a).................... 40,000 15,441 Norwest Corporation...................... 20,800 1,170,000 PMT Services, Inc.*...................... 50,000 762,500 PennCorp Financial, Inc. ................ 39,000 1,501,500 Peregrine Investment Holdings(a)......... 828,000 1,704,675 Peregrine Investment Holdings Warrants*(a)........................... 82,800 36,338 Providian Corporation.................... 30,000 963,750 RHB Capital Berhad(a).................... 103,000 326,465 Salomon, Inc............................. 22,000 1,223,750 Signet Banking Corporation............... 44,000 1,584,000 Societe Generale......................... 4,700 525,163 Terra Nova (Bermuda) Holdings Ltd. ...... 70,000 1,470,000 Travelers, Inc........................... 32,750 2,065,297 United Waste Systems Inc.*............... 39,000 1,599,000 Westpac Banking Corp. Ltd.(a)............ 84,000 501,537 ------------ 49,379,503 ------------ HEALTHCARE -- 11.4% Advanced Health Corporation*............. 6,000 110,250 Agouron Pharmaceuticals, Inc.*........... 5,000 404,375 Alkermes, Inc.*.......................... 20,000 290,000 American Medserve Corp.*................. 25,000 325,000 Apria Healthcare Group, Inc.*............ 35,000 621,250 Astra AB -- B Free Shares(a)............. 88,000 1,564,848 Biochem Pharma, Inc.*.................... 51,000 1,134,750 Boston Scientific Corporation*........... 18,000 1,105,875 CIMA Labs, Inc.*......................... 21,600 89,100 Coast Dental Services, Inc.*............. 8,000 122,000 Columbia/HCA Healthcare Corp. ........... 61,500 2,417,719 Compdent Corporation*.................... 28,000 589,750 Cytec Corporation*....................... 5,000 135,625 Depotech Corporation*.................... 12,000 163,500 Dura Pharmaceuticals, Inc.*.............. 33,600 1,339,800 Elan Corp. PLC -- Sponsored ADR*(a)...... 95,000 4,298,750 FPA Medical Management, Inc.*............ 26,000 615,875 Geltex Pharmaceuticals, Inc.*............ 24,000 483,000 Health Management Associates, Inc.*...... 32,000 912,000 Heartport, Inc.*......................... 15,000 264,375 Horizon Mental Health Management, Inc.*.. 50,500 1,136,250 Integrated Living Communities, Inc.*..... 57,000 655,500 Liposome Company, Inc.*.................. 94,000 840,125 Medpartners, Inc.*....................... 76,000 1,643,500 Merck KGaA (a)........................... 24,000 1,046,751 NABI, Inc.*.............................. 50,000 331,250 NCS HealthCare, Inc. Class A*............ 7,400 224,775 Neurex Corporation*...................... 26,000 367,250 Norland Medical Systems, Inc.*........... 15,000 163,125 OccuSystems, Inc.*....................... 19,500 565,500 Omnicare, Inc. .......................... 39,200 1,229,900 Orthodontic Centers of America, Inc.*.... 110,500 2,009,719 PathoGenesis Corp.*...................... 16,000 466,000 Pediatrix Medical Group Inc. ............ 16,800 769,650 Penederm, Inc.*.......................... 5,500 74,250 Pharmacia & Upjohn, Inc. ................ 29,000 1,007,750 Pharmacyclics, Inc.*..................... 8,000 124,000 PhyCor, Inc.*............................ 34,987 1,204,865 Renal Treatment Centers Inc.*............ 44,000 1,182,500 Sepracor, Inc.*.......................... 30,000 774,375 Serologicals Corporation*................ 27,000 621,000 Sonus Pharmaceuticals, Inc.*............. 22,500 632,812 Total Renal Care Holdings, Inc.*......... 18,000 723,375 Trinity Biotech PLC ADR Warrants A*...... 60,000 45,000 Trinity Biotech PLC ADR Warrants B*...... 30,000 24,390
(See Notes to Financial Statements) 72 PORTFOLIO OF INVESTMENTS (CONTINUED) JUNE 30, 1997 (UNAUDITED)
EQUITY SECURITIES SHARES VALUE - ----------------------------------------- US Surgical Corp.*....................... 27,000 $ 1,005,750 Ventana Medical Systems, Inc.*........... 34,000 420,750 Vertex Pharmaceuticals, Inc.*............ 7,000 267,750 VidaMed, Inc.*........................... 30,000 151,875 Vivus, Inc.*............................. 48,000 1,143,000 Yung Shin Pharmaceuticals Industries Co.(a)................................. 75,000 211,780 ------------ 38,052,359 ------------ INDUSTRIAL -- 1.7% Clipsal Industries Ltd. (a).............. 252,000 892,080 General Electric Company................. 28,000 1,830,500 Hunter Douglas NV (a).................... 9,900 843,812 SMH AG Bearer (a)........................ 1,000 572,075 Suez Lyonnaise des Eaux (a).............. 9,399 947,755 Waste Management International plc*(a).................. 51,400 469,025 ------------ 5,555,247 ------------ MISCELLANEOUS -- 0.1% Fidelity Advisor Korea Fund*............. 40,000 350,000 ------------ PROPERTY DEVELOPERS & INVESTMENT -- 0.2% DBS Land Limited (a)..................... 157,000 496,304 Land & General Berhad (a)................ 150,000 172,345 ------------ 668,649 ------------ TECHNOLOGY -- 18.2% ASM Lithography Holding NV*(a)........... 16,000 936,000 Acer Incorporation*(a)................... 55,000 197,841 Advanced Fibre Communications*........... 17,400 1,050,525 Aerial Communications, Inc.*............. 40,000 340,000 Altera Corporation*...................... 24,800 1,252,400 American Power Conversion Corp.*......... 38,000 722,000 ANADIGICS, Inc.*......................... 15,000 465,000 Analog Devices, Inc.*.................... 31,333 832,283 Baan Company NV*(a)...................... 11,000 757,625 Bell & Howell Holdings Company*.......... 84,000 2,588,250 CBT Group PLC Sponsored ADR*............. 27,500 1,735,938 Cabletron Systems, Inc.*................. 31,000 877,688 Checkfree Corporation*................... 48,000 846,000 CIENA Corporation*....................... 9,000 424,125 Cisco Systems, Inc.*..................... 71,000 4,765,875 Citrix Systems, Inc.*.................... 8,600 377,325 Compeq Manufacturing Co.(a).............. 33,600 239,309 Cymer, Inc.*............................. 8,000 390,000 DSP Communications, Inc.*................ 26,000 286,000 Elec & Eltek International Co. Ltd.(a)... 145,000 812,000 FactSet Research Systems Inc.*........... 19,400 475,300 Forte Software, Inc.*.................... 16,000 215,000 Gemstar International Group Limited*..... 52,200 959,175 Gilat Satellite Networks Ltd. ........... 15,000 498,750 HNC Software Inc......................... 15,000 571,875 Harmonic Lightwaves, Inc.*............... 6,500 111,312 Hewlett-Packard Company.................. 38,000 2,128,000 IKOS Systems, Inc.*...................... 23,000 491,625 Infinity Financial Technology, Inc.*..... 22,500 367,031 Ingram Micro, Inc.*...................... 28,000 675,500 Integrated Process Equipment Corporation*........................... 10,000 253,125 Intel Corp. ............................. 26,000 3,687,125 Interlink Computer Sciences, Inc.*....... 69,500 529,938 International Business Machines Corp..... 25,000 2,254,687 International Network Services*.......... 20,000 520,000 International Telecommunication Data Systems, Inc.*......................... 26,500 649,250 IONA Technologies PLC -- ADR............. 29,000 572,750 KLA Instruments Corporation.............. 20,000 $ 975,000 Komag, Inc.*............................. 15,000 245,625 Lattice Semiconductor Corp.*............. 16,000 904,000 Linear Technology Corporation............ 8,000 414,000 Maxim Integrated Products, Inc.*......... 23,800 1,353,625 McAfee Associates, Inc.*................. 14,100 890,062 Microsoft Corporation*................... 12,300 1,554,413 NeoMagic Corp.*.......................... 8,000 179,000 Network Appliance, Inc.*................. 16,500 627,000 Optika Imaging Systems, Inc.*............ 113,800 569,000 Oracle Systems Corp.*.................... 33,400 1,682,525 P-COM, Inc. ............................. 24,000 792,000 Pairgain Technologies, Inc.*............. 44,400 688,200 Pegasystems Inc.......................... 20,000 627,500 Peoplesoft, Inc.*........................ 13,000 685,750 Periphonics Corporation*................. 30,000 645,000 Philips Electronics NV (a)............... 18,600 1,334,727 Planning Sciences Int'l. plc -- Sponsored ADR*................................... 30,000 172,500 Premisys Communications, Inc.*........... 16,000 252,000 Proxim, Inc.*............................ 38,000 921,500 RadiSys Corporation*..................... 16,900 671,775 Rational Software Corporation*........... 20,000 336,250 Remedy Corporation*...................... 16,500 660,000 Renaissance Solutions, Inc.*............. 20,000 740,000 Sawtek Inc.*............................. 11,300 381,375 SeaChange International, Inc.*........... 5,000 141,250 Security Dynamics Technologies, Inc.*.... 17,500 645,312 Siebel Systems, Inc.*.................... 17,000 548,250 Sykes Enterprises, Inc.*................. 36,300 943,800 Synopsys, Inc.*.......................... 18,000 661,500 Systemsoft Corporation*.................. 35,000 376,250 Systex Corporation*(a)................... 70,062 154,993 Systex Corporation Rights*(a)............ 15,989 15,241 Technology Modeling Associates, Inc.*.... 10,000 136,250 Tecnomatix Technologies Ltd. ............ 3,500 113,750 Transaction Network Services, Inc.*...... 63,750 900,469 Transactions Systems Architects, Inc.*... 14,500 500,250 Ultratech Stepper, Inc.*................. 10,000 228,750 Veritas Software Corporation*............ 22,000 1,105,500 Whittman-Hart, Inc.*..................... 25,000 703,125 Xylan Corporation*....................... 21,000 357,000 ------------ 60,691,144 ------------ TELEPHONE & ELECTRIC -- 2.7% Cia. de Telecomunicaciones de Chile S.A.(a)................................ 10,625 350,625 Empresa Nacional de Electricidad -- ADR(a)................................. 21,900 1,862,869 Empresa Nacional de Electridad S.A.(a)... 11,800 266,238 PT Telekomunikasi Indonesia -- Foreign Registered(a).......................... 280,000 457,742 Portugal Telecom S.A. -- ADR(a).......... 10,800 433,350 Telecomunicacoes Brasileiras S.A. ADR (Telebras)............................. 13,400 2,033,450 Telefonica de Argentina -- ADS(a)........ 9,100 315,088 Telefonica de Espana S.A. -- ADR(a)...... 29,200 2,518,500 Western Wireless Corp.*.................. 19,000 301,625 WinStar Communications, Inc.*............ 26,500 354,437 ------------ 8,893,924 ------------ TOTAL EQUITY SECURITIES (Cost -- $214,460,479)................. 294,254,242 ------------
(See Notes to Financial Statements) 73 PORTFOLIO OF INVESTMENTS (CONTINUED) JUNE 30, 1997 (UNAUDITED)
REAL ESTATE INVESTMENT TRUSTS (REITS) -- 1.7% SHARES VALUE - ----------------------------------------- Amli Residential Properties Trust........ 60,000 $ 1,410,000 Apartment Investment & Management Co..... 38,000 1,073,500 Beacon Properties Corporation............ 28,000 934,500 First Industrial Realty Trust, Inc....... 40,000 1,170,000 Walden Residential Properties, Inc....... 47,000 1,204,375 ------------ TOTAL REITS (Cost -- $5,405,347)................... 5,792,375 ------------ TOTAL INVESTMENTS -- 90% (Cost -- $219,865,826)................. 300,046,617 OTHER ASSETS, LESS LIABILITIES -- 10.0%................... 33,383,644 ------------ NET ASSETS -- 100%....................... $333,430,261 ============ 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 June 30, 1997, net unrealized appreciation based on cost for financial statement and Federal income tax purposes is as follows: Gross unrealized appreciation.................... $ 92,150,251 Gross unrealized depreciation.................... (11,969,460) ------------ Net unrealized appreciation.................. $ 80,180,791 ============ Purchases and sales of securities other than short-term obligations aggregated $46,273,785 and $84,592,511, respectively, for the period ended June 30, 1997. Forward foreign currency contracts at June 30, 1997 were:
FORWARD CONTRACTS PRINCIPAL VALUE OF UNREALIZED (CURRENCY/EXPIRATION/COMMITMENT) AMOUNT OBLIGATION APPRECIATION - ------------------------------------- ------------- ------------ ------------ Deutsch Marks/September 97/Sell...... 904,097 US $ (897,663) $ 6,434 French Francs/September 97/Sell...... 2,492,608 US (2,477,101) 15,507 French Francs/September 97/Sell...... 6,122,199 US (8,979,209) 142,990 Netherland Guilders/September 97/Sell............................. 1,901,764 US (1,887,314) 14,450 Swiss Francs/September 97/Sell....... 1,311,108 US (1,293,112) 17,996 ------------ -------- Total forward foreign currency exchange contracts sold............. $(15,534,399) $197,377 ============ ========
Transactions in written call options during the period ended June 30, 1997 were:
NUMBER OF PREMIUMS CONTRACTS RECEIVED/(PAID) --------- --------------- Outstanding at December 31, 1996.... 3,865 $ 918,726 Contracts written................. 265 68,849 Contracts sold.................... (1,865) (510,755) Contracts expired................. (1,298) (273,605) Contracts exercised............... (967) (203,215) ------- --------- Outstanding at June 30, 1997........ -- $ -- ======= =========
(See Notes to Financial Statements) 74 STATEMENT OF ASSETS AND LIABILITIES JUNE 30, 1997 (UNAUDITED) ASSETS Investments, at value (identified cost -- $219,865,826)..... $300,046,617 Cash........................................................ 33,546,637 Cash denominated in foreign currencies (cost -- $58,519).... 58,020 Receivables Open forward foreign currency contracts................... 197,377 Fund shares sold.......................................... 10,000 Dividends and interest.................................... 395,644 Other assets................................................ 52,050 ------------ Total assets.............................................. 334,306,345 ------------ LIABILITIES Payables Investments purchased..................................... 486,950 Management fee............................................ 231,784 12b-1 service and distribution fees....................... 18,609 Other payables to related parties......................... 98,348 Accrued expenses............................................ 40,393 ------------ Total liabilities......................................... 876,084 ------------ NET ASSETS.................................................. $333,430,261 ============ CLASS A Net asset value and redemption price per share ($328,756,707/16,929,031 shares outstanding).............. $ 19.42 ============ Maximum offering price per share ($19.42 X 100/94.25)*...... $ 20.60 ============ CLASS B Net asset value, offering price and redemption price per share ($4,383,080/227,641 shares outstanding)**........... $ 19.25 ============ CLASS C Net asset value, offering price and redemption price per share ($290,474/15,171 shares outstanding)***............. $ 19.15 ============ NET ASSETS CONSIST OF Capital paid-in........................................... $235,083,458 Undistributed net realized gain on investments and foreign currency transactions................................... 17,561,891 Undistributed net investment income....................... 413,455 Net unrealized appreciation on Investments and foreign currency transactions........... 80,174,080 Forward foreign currency contracts...................... 197,377 ------------ NET ASSETS.................................................. $333,430,261 ============
* On sales of more than $50,000 the offering price is reduced. ** Subject to a maximum contingent deferred sales charge of 5%. *** Subject to a maximum contingent deferred sales charge of 1%. (See Notes to Financial Statements) 75 STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED) INVESTMENT INCOME Dividends, net of $142,751 foreign taxes withheld......... $ 2,159,859 Interest.................................................. 426,603 ----------- 2,586,462 ----------- EXPENSES Management fee............................................ $1,337,256 Transfer agent fee........................................ 397,073 Administrative services fee............................... 157,324 Custodian fees............................................ 56,719 Blue Sky fees............................................. 12,586 Auditing and accounting fees.............................. 18,020 Shareholder reports....................................... 12,102 Fund accounting........................................... 51,991 Trustees' fees............................................ 2,977 12b-1 service and distribution fees....................... 102,008 Legal fees................................................ 13,303 Other..................................................... 62,362 ----------- Total expenses........................................ 2,223,721 ----------- NET INVESTMENT INCOME....................................... 362,741 ----------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS Net realized gain (loss) on Investments and foreign currency transactions........... 16,759,270 Options................................................. (1,152,465) Forward foreign currency contracts...................... 1,533,355 Net unrealized appreciation during the period on Investments and foreign currency transactions........... 10,175,450 Options................................................. 472,707 Forward foreign currency contracts...................... 267,533 ----------- Net gain on investment transactions................... 28,055,850 ----------- INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $28,418,591 ===========
(See Notes to Financial Statements) 76 STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR FOR THE SIX MONTHS ENDED ENDED JUNE 30, DECEMBER 31, ------------------ ------------ 1997* 1996 ------------------ ------------ INCREASE IN NET ASSETS Operations Net investment income..................................... $ 362,741 $ 362,902 Net realized gain (loss) on Investments and foreign currency transactions........... 18,292,625 31,145,326 Options................................................. (1,152,465) (480,845) Net unrealized appreciation (depreciation) during the period on Investments and foreign currency transactions........... 10,175,450 18,302,190 Options................................................. 472,707 (472,707) Forward foreign currency contracts...................... 267,533 167,966 ------------ ------------ Net increase resulting from operations................ 28,418,591 49,024,832 ------------ ------------ Class A distributions From net investment income................................ -- (389,158) In excess of net investment income........................ -- (1,722,867) From net realized gain.................................... -- (28,336,336) ------------ ------------ Total distributions to Class A shareholders........... -- (30,448,361) ------------ ------------ Class B distributions From net realized gain.................................... -- (346,890) ------------ ------------ Total distributions to Class B shareholders........... -- (346,890) ------------ ------------ 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 4) Class A................................................... (14,196,268) 6,870,702 Class B................................................... 183,198 1,041,023 Class C................................................... 177,309 91,198 ------------ ------------ Net increase (decrease) resulting from Fund share transactions......................................... (13,835,761) 8,002,923 ------------ ------------ TOTAL INCREASE IN NET ASSETS................................ 14,582,830 26,224,015 NET ASSETS Beginning of period....................................... 318,847,431 292,623,416 ------------ ------------ END OF PERIOD............................................. $333,430,261 $318,847,431 ============ ============ UNDISTRIBUTED NET INVESTMENT INCOME......................... $ 413,455 $ 50,714 ============ ============
* Unaudited. (See Notes to Financial Statements) 77 FINANCIAL HIGHLIGHTS
FOR THE SIX CLASS A MONTHS ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31, ------------ ------------------------------------------------------------------------ 1997* 1996 1995 1994 1993 1992 SELECTED PER SHARE DATA ------------ -------- -------- -------- -------- -------- Net asset value, beginning of period............................. $ 17.76 $ 16.75 $ 13.91 $ 15.14 $ 14.98 $ 16.91 -------- -------- -------- -------- -------- -------- Income (loss) from investment operations Net investment income.............. .02(g) .02(a) .05(a) .05(a) .10(a) .17(a) Net realized and unrealized gain (loss) on investment transactions..................... 1.64(g) 2.86 3.73 (.49) 1.74 .70 -------- -------- -------- -------- -------- -------- Total from investment operations..................... 1.66 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....... $ 19.42 $ 17.76 $ 16.75 $ 13.91 $ 15.14 $ 14.98 ======== ======== ======== ======== ======== ======== Total return(%)...................... 9.35(c) 17.22(b) 27.33(b) (2.97)(b) 12.29(b) 5.21(b) RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands)......................... $328,757 $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(%)... 1.40(d) 1.45 1.60 1.49 1.43 1.40 Ratio of net investment income to average net assets(%).............. .24(d) .13(a) .32(a) .32(a) .64(a) .98(a) Portfolio turnover rate(%)........... 16 72 41 39 77(e) 138 Average commission rate(f)........... $ .0451 $ .0439 N/A N/A N/A N/A
FOR THE PERIOD FOR THE SIX OCTOBER 23, 1993 CLASS B MONTHS ENDED FOR THE YEAR ENDED (COMMENCEMENT) JUNE 30, DECEMBER 31, TO DECEMBER 31, ------------ -------------------------------- ---------------- 1997* 1996 1995 1994 1993 SELECTED PER SHARE DATA ------------ ------ ------ ------ ---------------- Net asset value, beginning of period................... $17.69 $16.75 $13.91 $15.14 $16.42 ------ ------ ------ ------ ------ Income (loss) from investment operations Net investment loss.................................. (.06)(g) (.13)(a) (.08)(a) (.04)(a) -- Net realized and unrealized gain (loss) on investment transactions....................................... 1.62(g) 2.81 3.71 (.54) .37 ------ ------ ------ ------ ------ Total from investment operations................... 1.56 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......................... $19.25 $17.69 $16.75 $13.91 $15.14 ====== ====== ====== ====== ====== Total return(%)........................................ 8.82(c) 16.02(b) 26.13(b) (3.90)(b) 2.34(c) RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands)............... $4,383 $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(%)..................... 2.31(d) 2.37 2.56 2.45 2.44(d) Ratio of net investment loss to average net assets(%)............................................ (.66)(d) (.79)(a) (.64)(a) (.64)(a) (.33)(a)(d) Portfolio turnover rate(%)............................. 16 72 41 39 77(e) Average commission rate(f)............................. $.0451 $.0439 N/A N/A N/A
(See Notes to Financial Statements) 78 FINANCIAL HIGHLIGHTS (CONTINUED)
FOR THE PERIOD FOR THE SIX APRIL 30, 1996 CLASS C MONTHS ENDED (COMMENCEMENT) JUNE 30, TO DECEMBER 31, ------------ --------------- 1997* 1996 SELECTED PER SHARE DATA ------------ --------------- Net asset value, beginning of period........................ $17.59 $ 18.46 ------ ------- Loss from investment operations Net investment loss....................................... (.06)(g) (.06)(a) Net realized and unrealized gain on investment 1.62(g) transactions............................................ 1.02 ------ ------- Total from investment operations........................ 1.56 .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.............................. $19.15 $ 17.59 ====== ======= Total return(%)(c).......................................... 8.87 5.20 RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands).................... $ 290 $ 90 Ratio of expenses to average net assets With expense reimbursement(%)(d).......................... -- 2.44 Without expense reimbursement(%)(d)....................... 2.26 2.44 Ratio of net investment loss to average net assets(%)(d).... (.62) (.86)(a) Portfolio turnover rate(%).................................. 16 72 Average commission rate(f).................................. $.0451 $ .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. (g) Based on average shares outstanding. * Unaudited.
(See Notes to Financial Statements) 79 NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 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 traded on a U.S. or foreign stock exchange, or the National Association of Securities Dealers Automated Quotation ("NASDAQ") System, are valued at the last quoted sale price reported as of the close of regular trading on the exchange the security is traded most extensively. If there is no such sale, the security is valued at the calculated mean between the last bid and asked price on the exchange. Securities not traded on an exchange or NASDAQ, but traded in another over-the-counter market are valued at the average between the current bid and asked prices in such markets. Short-term obligations and commercial paper are valued at amortized cost, which approximates market. Debt securities (other than short-term obligations and commercial paper) are valued on the basis of valuations furnished by a pricing service authorized by the Board of Trustees (the Board), which determines valuations based upon market transactions for normal, institutional-size trading units of such securities. 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 June 30, 1997, 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 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. DISTRIBUTIONS TO SHAREHOLDERS -- Distributions from net investment income and net realized capital gains, if any, are declared in December. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency transactions from foreign investment activity are translated into U.S. dollars on the following basis: (i) market value of securities, and dividends and interest receivable are translated at the closing daily rate of exchange; and, (ii) purchases and sales of investment securities are translated at the rate at which related foreign contracts are obtained or at the exchange rate prevailing on the date of the transaction. 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 80 NOTES TO FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 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 and expenses are reflected as Administrative services fee and Fund accounting in the Statement of Operations. Ivy Mackenzie Distributors, Inc. (IMDI), a wholly owned subsidiary of MIMI, is the underwriter and distributor of the Fund's shares, and as such, purchases shares from the Fund at net asset value to settle orders from investment dealers. For the six months ended June 30, 1997, the net amount of underwriting discount retained by IMDI was $9,030. 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 $81,628, $19,577 and $803, 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 $392,952, $3,991 and $130, 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:
SIX MONTHS ENDED YEAR ENDED JUNE 30, 1997 DECEMBER 31, 1996 ------------------------- ------------------------- CLASS A SHARES AMOUNT SHARES AMOUNT ------- ---------- ------------ ---------- ------------ Sold..................... 1,629,527 $ 29,314,478 1,496,693 $ 27,187,211 Issued on reinvestment of distributions........... -- -- 1,580,308 28,065,960 Repurchased.............. (2,431,088) (43,510,746) (2,657,170) (48,382,469) ---------- ------------ ---------- ------------ Net increase (decrease).. (801,561) $(14,196,268) 419,831 $ 6,870,702 ========== ============ ========== ============
SIX MONTHS ENDED YEAR ENDED JUNE 30, 1997 DECEMBER 31, 1996 ------------------------- ------------------------- CLASS B SHARES AMOUNT SHARES AMOUNT ------- ---------- ------------ ---------- ------------ Sold..................... 34,596 $ 613,748 103,139 $ 1,850,267 Issued on reinvestment of distributions........... -- -- 18,721 331,192 Repurchased.............. (24,582) (430,550) (63,589) (1,140,436) ---------- ------------ ---------- ------------ Net increase............. 10,014 $ 183,198 58,271 $ 1,041,023 ========== ============ ========== ============
FROM APRIL 30, 1996 SIX MONTHS ENDED (COMMENCEMENT) JUNE 30, 1997 TO DECEMBER 31, 1996 ------------------------- ------------------------- CLASS C SHARES AMOUNT SHARES AMOUNT ------- ---------- ------------ ---------- ------------ Sold..................... 20,324 $ 351,521 5,921 $ 105,632 Issued on reinvestment of distributions........... -- -- 482 8,487 Repurchased.............. (10,277) (174,212) (1,279) (22,921) ---------- ------------ ---------- ------------ Net increase............. 10,047 $ 177,309 5,124 $ 91,198 ========== ============ ========== ============
03IVYFX063097 81 June 30, 1997 Ivy Growth with Income Fund - ------------- Semi-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 THROUGHOUT THE CENTURIES, THE CASTLE KEEP HAS BEEN A SOURCE OF LONG-RANGE VISION AND STRATEGIC ADVANTAGE. Market Commentary: As it has for several quarters, the strength of the US economy and broader stock market -- as measured by the Standard & Poor's 500 and the Dow Jones Industrial Average -- continue to surprise most observers. With the market seemingly fully valued by most measures, investors are paying close attention to corporate earnings reports and tend to quickly sell stocks of companies that fail to meet expectations. This contributes to volatility in stock prices We continue to search for investment opportunities using a criterion whereby projected long-term earnings growth for a company should exceed the price-to-earnings ratio of its stock. The universe of stocks considered for the Ivy Growth with Income Fund is domestic mid- and large-capitalization stocks. With large-capitalization stocks at historically high valuations, most recent additions to the Fund were found among the mid-range companies -- although we have found some attractively priced large-company stocks. We expect the earnings of many blue-chip companies to decelerate over time, although we can't predict when this will happen. When it does, large-company stocks may go sideways, at best, giving underlying fundamentals a chance to catch up with stock prices. Financial services and healthcare are two sectors where we continue to find value. Both are supported by demographic trends owing to an aging population in the United States and its reliance on services, and by consolidation trends within the industries. We have also had the opportunity to take advantage of stock price volatility. Companies with solid franchises that disappoint Wall Street by missing short-term earnings expectations can find their stocks knocked down without mercy -- and without regard to underlying value. The Ivy Growth with Income Fund continues to hold positions in real estate investment trusts (REITs). Because of the positive changes taking place in the real estate industry, we believe REITs remain an attractive investment. These companies own or finance the underlying properties of real-estate intensive operations, and their stocks provide a liquid way to invest in real estate. After overbuilding in the 1980s, new construction within the industry is now in greater balance with demand. As a result, pricing is at more of an equilibrium than in the past. We see attractive investments in the office, industrial, apartment and self-storage sectors. REITs tend to pay attractive dividends, which contribute significantly to the total return of these stocks and may provide a cushion during weak markets. The primary strategy of the Ivy Growth with Income Fund is to provide long-term capital growth while controlling risk. We believe the more conservative nature of the Fund should not be overlooked by investors looking to participate in the equity market but who do not want the added volatility of a more aggressive fund. Ivy Management, Inc. BOARD OF TRUSTEES John S. Anderegg, Jr. Paul H. Broyhill Keith J. Carlson Stanley Channick Frank W. DeFriece, Jr. Roy J. Glauber Michael G. Landry Joseph G. Rosenthal Richard N. Silverman J. Brendan Swan OFFICERS Michael G. Landry, Chairman Keith J. Carlson, President James W. Broadfoot, Vice President C. William Ferris, Secretary/Treasurer LEGAL COUNSEL Dechert Price & Rhoads Boston, MA CUSTODIAN Brown Brothers Harriman & Co. Boston, MA TRANSFER AGENT Ivy Mackenzie Services Corp. P.O. Box 3022 Boca Raton, FL 33431-0922 1-800-777-6472 AUDITORS Coopers & Lybrand L.L.P. Fort Lauderdale, FL INVESTMENT MANAGER Ivy Management, Inc. 700 South Federal Highway Boca Raton, FL 33432 1-800-456-5111 DISTRIBUTOR Ivy Mackenzie Distributors, Inc. 700 South Federal Highway Boca Raton, FL 33432 1-800-456-5111 [IVY MACKENZIE LOGO] 82 PORTFOLIO OF INVESTMENTS JUNE 30, 1997 (UNAUDITED)
COMMON STOCKS -- 75.5% SHARES VALUE - --------------------------------------------- BASIC INDUSTRIES -- 5.8% Crown Cork & Seal Company, Inc. ............. 28,500 $ 1,522,969 Du Pont (E.I.) De Numours & Company.......... 15,700 987,138 Ferro Corporation............................ 14,000 518,875 Harsco Corporation........................... 38,000 1,539,000 Union Carbide Corporation Holding Company.... 6,000 282,375 ----------- 4,850,357 ----------- CAPITAL GOODS -- 8.4% AGCO Corporation............................. 35,000 1,257,812 American Standard Companies, Inc.*........... 13,200 590,700 Caterpillar, Inc. ........................... 3,500 375,813 Fluor Corporation............................ 6,500 358,719 Foster Wheeler Corporation................... 30,500 1,235,250 General Electric Company..................... 18,600 1,215,975 Johnson Controls, Inc. ...................... 20,000 821,250 Kaydon Corporation........................... 14,000 694,750 Tecumseh Products Company.................... 8,300 496,962 ----------- 7,047,231 ----------- COMMERCIAL SERVICES -- 2.9% Banta Corp................................... 28,000 759,500 Electronic Data Systems New.................. 40,500 1,660,500 ----------- 2,420,000 ----------- CONSUMER NON-DURABLES -- 4.9% Allegiance Corporation*...................... 26,100 711,225 Mattel, Inc. ................................ 41,000 1,388,875 PepsiCo, Inc................................. 28,000 1,051,750 Tupperware Corporation....................... 6,200 226,300 Warnaco Group, Inc. ......................... 24,600 784,125 ----------- 4,162,275 ----------- CONSUMER SERVICES -- 11.9% ADT Limited*................................. 24,300 801,900 Brunswick Corporation........................ 16,500 515,625 Carnival Corporation Class A................. 42,900 1,769,625 Federated Department Stores, Inc.*........... 13,000 451,750 Harte-Hanks Communications................... 30,000 885,000 J.C. Penney Co., Inc......................... 19,481 1,016,665 Lowe's Companies, Inc........................ 17,000 631,125 Pier 1 Imports, Inc.......................... 25,000 662,500 Royal Caribbean Cruises Ltd.................. 14,000 489,125 Scholastic Corporation*...................... 14,500 507,500 Sears, Roebuck & Co.......................... 22,000 1,182,500 Sun International Hotels Ltd................. 20,000 738,750 Sunglass Hut International, Inc.*............ 56,000 353,500 ----------- 10,005,565 ----------- ENERGY -- 5.4% Dresser Industries, Inc. .................... 17,000 633,250 Enron Corporation............................ 9,000 367,313 Helmerich & Payne, Inc. ..................... 12,000 691,500 Noble Drilling Corporation*.................. 37,000 834,812 Nuevo Energy Company*........................ 16,800 688,800 Parker & Parsley Petroleum Company........... 9,000 318,375 Schlumberger, Ltd. .......................... 8,000 1,000,000 ----------- 4,534,050 ----------- FINANCIAL SERVICES -- 18.6% Aegon NV(a).................................. 6,516 456,527 AMBAC, Inc................................... 11,600 885,950 Bankers Trust New York Corp.*................ 6,000 522,000 Donaldson, Lufkin & Jenrette, Inc............ 4,500 268,875 Exel Limited................................. 28,000 1,477,000 Federal Home Loan Mortgage Corp. ............ 45,000 1,546,875 Federal National Mortgage Association........ 33,000 1,439,625 First Chicago NBD Corporation................ 14,500 877,250 First Union Corporation...................... 11,000 1,017,500 J.P. Morgan & Company Inc. .................. 9,000 939,375 NationsBank Corporation...................... 17,400 1,122,300 Norwest Corporation.......................... 8,900 $ 500,625 Penncorp Financial Group, Inc. .............. 17,000 654,500 Providian Corporation........................ 15,000 481,875 Salomon, Inc. ............................... 13,000 723,125 Signet Banking Corporation................... 23,000 828,000 Terra Nova (Bermuda) Holdings Ltd. .......... 32,000 672,000 Travelers, Inc. ............................. 19,120 1,205,755 ----------- 15,619,157 ----------- HEALTHCARE -- 7.7% Apria Healthcare Group, Inc.*................ 17,500 310,625 Boston Scientific Corporation*............... 10,000 614,375 Columbia/HCA Healthcare Corp................. 39,000 1,533,188 Elan Corp. PLC -- Sponsored ADR*(a).......... 34,000 1,538,500 Integrated Living Communities, Inc.*......... 33,000 379,500 Medpartners, Inc.*........................... 41,000 886,625 Pharmacia & Upjohn, Inc. .................... 16,000 556,000 US Surgical Corp.*........................... 17,000 633,250 ----------- 6,452,063 ----------- TECHNOLOGY -- 9.9% Bell & Howell Company*....................... 40,000 1,232,500 Cabletron Systems, Inc.*..................... 20,000 566,250 Cisco Systems, Inc.*......................... 9,000 604,125 Hewlett-Packard Company...................... 16,500 924,000 Intel Corp. ................................. 10,000 1,418,125 International Business Machines Corporation................................ 14,600 1,316,737 KLA Instruments Corporation*................. 14,000 682,500 Microsoft Corporation*....................... 8,000 1,011,000 Oracle Corporation*.......................... 12,300 619,612 ----------- 8,374,849 ----------- TOTAL COMMON STOCKS (Cost -- $48,291,574)...................... 63,465,547 ----------- PREFERRED STOCK -- 0.4% - --------------------------------------------- Time Warner, Inc. (Cost -- $268,212)......... 7,000 298,375 ----------- REAL ESTATE INVESTMENT TRUSTS (REITS) -- 13.8% - --------------------------------------------- Amli Residential Properties Trust............ 27,000 634,500 Apartment Investment & Management Co. ....... 37,000 1,045,250 Arden Realty Group, Inc...................... 27,000 702,000 Beacon Properties Corporation................ 13,800 460,575 Boykin Lodging Company*...................... 40,000 957,500 Developers Diversified Realty Corporation.... 14,000 560,000 Duke Realty Investments, Inc. ............... 30,000 1,215,000 Equity Residential Properties Trust.......... 15,000 712,500 Essex Property Trust......................... 26,000 835,250 First Industrial Realty Trust, Inc. ......... 22,000 643,500 Spieker Properties, Inc. .................... 24,000 844,500 Storage Trust Realty......................... 36,000 954,000 Storage USA, Inc. ........................... 16,000 612,000 Sunstone Hotel Investors, Inc. .............. 61,000 884,500 Walden Residential Properties, Inc. ......... 21,000 538,125 ----------- TOTAL REITS (Cost -- $9,573,219)....................... 11,599,200 ----------- TOTAL INVESTMENTS -- 89.7% (Cost -- $58,133,005)(b)................... 75,363,122 OTHER ASSETS, LESS LIABILITIES -- 10.3%...... 8,643,191 ----------- NET ASSETS -- 100%........................... $84,006,313 ===========
ADR - American Depository Receipt NV - Non-voting * Non-income producing security. (a) Foreign security. (b) Cost is the same for Federal income tax purposes. (See Notes to Financial Statements) 83 PORTFOLIO OF INVESTMENTS (CONTINUED) JUNE 30, 1997 (UNAUDITED) OTHER INFORMATION: At June 30, 1997, net unrealized appreciation based on cost for financial statement and Federal income tax purposes is as follows: Gross unrealized appreciation.................... $18,050,563 Gross unrealized depreciation.................... (820,446) ----------- Net unrealized appreciation.................. $17,230,117 ===========
Purchases and sales of securities (other than short-term obligations) aggregated $10,732,047 and $19,070,445, respectively, for the period ended June 30, 1997. Transactions in written call options during the period ended June 30, 1997 were:
PREMIUMS NUMBER OF RECEIVED/ CONTRACTS (PAID) --------- ----------- Outstanding at December 31, 1996......... 1,490 $ 352,241 Contracts written...................... 135 36,790 Contracts sold......................... (652) (188,460) Contracts expired...................... (537) (109,857) Contracts exercised.................... (436) (90,714) ------ ----------- Outstanding at June 30, 1997............. -- $ -- ====== ===========
(See Notes to Financial Statements) 84 STATEMENT OF ASSETS AND LIABILITIES JUNE 30, 1997 (UNAUDITED) ASSETS Investments, at value (identified cost -- $58,133,005)...... $75,363,122 Cash........................................................ 8,778,295 Dividends and interest receivable........................... 124,927 Other assets................................................ 23,195 ----------- Total assets.............................................. 84,289,539 ----------- LIABILITIES Payables Dividends to shareholders................................. 4,434 Investments purchased..................................... 135,956 Fund shares repurchased................................... 25,018 Management fee............................................ 51,356 12b-1 service and distribution fees....................... 25,352 Other payables to related parties......................... 31,215 Accrued expenses............................................ 9,895 ----------- Total liabilities......................................... 283,226 ----------- NET ASSETS.................................................. $84,006,313 =========== CLASS A Net asset value and redemption price per share ($66,893,402/5,232,202 shares outstanding)................ $ 12.78 =========== Maximum offering price per share ($12.78 x 100/94.25)*...... $ 13.56 =========== CLASS B Net asset value, offering price and redemption price** per share ($16,176,197/1,272,294 shares outstanding).......... $ 12.71 =========== CLASS C Net asset value, offering price and redemption price*** per share ($203,064/15,951 shares outstanding)................ $ 12.73 =========== CLASS D Net asset value and redemption price per share ($733,650/57,515 shares outstanding)...................... $ 12.76 =========== NET ASSETS CONSIST OF Capital paid-in........................................... $70,002,929 Undistributed net realized loss on investments............ (3,158,413) Undistributed net investment loss......................... (68,320) Net unrealized appreciation on investments................ 17,230,117 ----------- NET ASSETS.................................................. $84,006,313 ===========
* On sales of more than $50,000 the offering price is reduced. ** Subject to a maximum contingent deferred sales charge of 5%. *** Subject to a maximum contingent deferred sales charge of 1%. (See Notes to Financial Statements) 85 STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED) INVESTMENT INCOME Dividends, net of $2,322 foreign taxes withheld........... $ 794,288 Interest.................................................. 72,329 ---------- 866,617 ---------- EXPENSES Management fee............................................ $293,729 Transfer agent............................................ 108,389 Administrative services fee............................... 39,164 Custodian fees............................................ 4,615 Blue Sky fees............................................. 12,637 Auditing and accounting fees.............................. 8,890 Shareholder reports....................................... 5,481 Fund accounting........................................... 44,834 Trustees' fees............................................ 2,977 12b-1 service and distribution fees....................... 139,996 Legal..................................................... 11,568 Other..................................................... 34,211 ---------- Total expenses.......................................... 706,491 ---------- NET INVESTMENT INCOME....................................... 160,126 ---------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS Net realized gain (loss) on Investments............................................. 4,652,866 Options................................................. (553,067) Net unrealized appreciation during the period on Investments............................................. 5,063,255 Options................................................. 223,772 ---------- Net gain on investment transactions..................... 9,386,826 ---------- INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $9,546,952 ==========
(See Notes to Financial Statements) 86 STATEMENT OF CHANGES IN NET ASSETS
FOR THE SIX FOR THE MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, ------------ ------------ 1997* 1996 ------------ ------------ INCREASE IN NET ASSETS Operations Net investment income..................................... $ 160,126 $ 409,831 Net realized gain (loss) on Investments............................................. 4,652,866 12,587,897 Options................................................. (553,067) (136,689) Net unrealized appreciation (depreciation) during the period on Investments............................................. 5,063,255 1,131,380 Options................................................. 223,772 (223,772) ----------- ----------- Net increase resulting from operations................ 9,546,952 13,768,647 ----------- ----------- Class A distributions From net investment income................................ (173,011) (409,831) In excess of net investment income........................ (47,059) (170,374) From net realized gain.................................... -- (8,490,622) ----------- ----------- Total distributions to Class A shareholders........... (220,070) (9,070,827) ----------- ----------- Class B distributions In excess of net investment income........................ (54,473) (84,427) From net realized gain.................................... -- (1,738,301) ----------- ----------- Total distributions to Class B shareholders........... (54,473) (1,822,728) ----------- ----------- Class C distributions In excess of net investment income........................ (434) (39) From net realized gain.................................... -- (3,730) ----------- ----------- Total distributions to Class C shareholders........... (434) (3,769) ----------- ----------- Class D distributions In excess of net investment income........................ (2,058) (7,039) From net realized gain.................................... -- (103,094) ----------- ----------- Total distributions to Class D shareholders........... (2,058) (110,133) ----------- ----------- Fund share transactions (Note 4) Class A................................................... (3,810,970) 1,711,001 Class B................................................... 1,024,368 4,351,868 Class C................................................... 153,993 29,562 Class D................................................... (172,369) (476,754) ----------- ----------- Net increase (decrease) resulting from Fund share transactions......................................... (2,804,978) 5,615,677 ----------- ----------- TOTAL INCREASE IN NET ASSETS................................ 6,464,939 8,376,867 NET ASSETS Beginning of period....................................... 77,541,374 69,164,507 ----------- ----------- END OF PERIOD............................................. $84,006,313 $77,541,374 =========== =========== UNDISTRIBUTED NET INVESTMENT INCOME (LOSS).................. $ (68,320) $ 48,589 =========== ===========
* Unaudited. (See Notes to Financial Statements) 87 FINANCIAL HIGHLIGHTS
FOR THE SIX CLASS A MONTHS ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31, ------------ ------------------------------------------------------------------- 1997* 1996 1995 1994 1993 1992 SELECTED PER SHARE DATA ------------ ------- ------- ------- ------- ------- Net asset value, beginning of period...... $ 11.38 $ 10.98 $ 9.08 $ 9.70 $ 9.21 $ 9.74 ------- ------- ------- ------- ------- ------- Income (loss) from investment operations Net investment income................... .03 .08 .11 .17 .08 .07 Net realized and unrealized gain (loss) on investment transactions............ 1.41 2.16 2.13 (.36) 1.30 .18 ------- ------- ------- ------- ------- ------- Total from investment operations...... 1.44 2.24 2.24 (.19) 1.38 .25 ------- ------- ------- ------- ------- ------- Less distributions From net investment income.............. .03 .08 .08 .17 .06 .07 In excess of net investment income...... .01 .03 -- .01 -- -- From net realized gain.................. -- 1.73 .26 .25 .83 .71 ------- ------- ------- ------- ------- ------- Total distributions................... .04 1.84 .34 .43 .89 .78 ------- ------- ------- ------- ------- ------- Net asset value, end of period............ $ 12.78 $ 11.38 $ 10.98 $ 9.08 $ 9.70 $ 9.21 ======= ======= ======= ======= ======= ======= Total return(%)........................... 12.71(b) 20.46(a) 24.93(a) (2.03)(a) 15.07(a) 2.61(a) RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands).............................. $66,893 $63,219 $59,054 $26,017 $22,669 $19,045 Ratio of expenses to average net assets(%)............................... 1.66(c) 1.81 1.96 1.84 2.14 1.94 Ratio of net investment income to average net assets(%)........................... .55(c) .68 1.06 1.83 .88 .73 Portfolio turnover rate(%)................ 15 138 81 36 85 163 Average commission rate(e)................ $ .0646 $ .0580 N/A N/A N/A N/A
FOR THE PERIOD FOR THE SIX OCTOBER 23, 1993 CLASS B MONTHS ENDED FOR THE YEAR ENDED (COMMENCEMENT) JUNE 30, DECEMBER 31, TO DECEMBER 31, ------------ ----------------------------------- ---------------- 1997* 1996 1995 1994 1993 SELECTED PER SHARE DATA ------------ ------- ------ ------ ---------------- Net asset value, beginning of period................ $ 11.36 $ 10.98 $ 9.08 $ 9.70 $10.43 ------- ------- ------ ------ ------ Income (loss) from investment operations Net investment income (loss)...................... (.01) (.01) .03 .09 -- Net realized and unrealized gain (loss) on investment transactions......................... 1.40 2.15 2.13 (.36) .05 ------- ------- ------ ------ ------ Total from investment operations................ 1.39 2.14 2.16 (.27) .05 ------- ------- ------ ------ ------ Less distributions From net investment income........................ -- -- .01 .09 .01 In excess of net investment income................ .04 .08 -- .01 -- From net realized gain............................ -- 1.68 .25 .25 .77 ------- ------- ------ ------ ------ Total distributions............................. .04 1.76 .26 .35 .78 ------- ------- ------ ------ ------ Net asset value, end of period...................... $ 12.71 $ 11.36 $10.98 $ 9.08 $ 9.70 ======= ======= ====== ====== ====== Total return(%)..................................... 12.29(b) 19.59(a) 23.94(a) (2.88)(a) .61(b) RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands)............ $16,176 $13,473 $8,868 $5,849 $ 888 Ratio of expenses to average net assets(%).......... 2.38(c) 2.55 2.75 2.70 3.09(c) Ratio of net investment income (loss) to average net assets(%)......................................... (.17)(c) (.06) .27 .97 (.07)(c) Portfolio turnover rate(%).......................... 15 138 81 36 85 Average commission rate(e).......................... $ .0646 $ .0580 N/A N/A N/A
(See Notes to Financial Statements) 88 FINANCIAL HIGHLIGHTS (CONTINUED)
FOR THE PERIOD FOR THE SIX APRIL 30, 1996 CLASS C MONTHS ENDED (COMMENCEMENT) JUNE 30, TO DECEMBER 31, ------------- --------------- 1997* 1996 SELECTED PER SHARE DATA ------------- --------------- Net asset value, beginning of period........................ $11.37 $ 11.73 ------ ------- Income from investment operations Net investment loss....................................... (.01) (.08) Net realized and unrealized gain on investment transactions............................................ 1.41 1.53 ------ ------- Total from investment operations........................ 1.40 1.45 ------ ------- Less distributions In excess of net investment income........................ .04 .08 From net realized gain.................................... -- 1.73 ------ ------- Total distributions..................................... .04 1.81 ------ ------- Net asset value, end of period.............................. $12.73 $ 11.37 ====== ======= Total return(%)(b).......................................... 12.37 12.37 RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands).................... $ 203 $ 28 Ratio of expenses to average net assets(%)(c)............... 2.39 3.02 Ratio of net investment loss to average net assets(%)(c).... (.18) (.53) Portfolio turnover rate(%).................................. 15 138 Average commission rate(e).................................. $.0646 $ .0580
(See Notes to Financial Statements) 89 FINANCIAL HIGHLIGHTS (CONTINUED)
FOR THE PERIOD FOR THE SIX AUGUST 16, 1993 CLASS D(D) MONTHS ENDED FOR THE YEAR ENDED (COMMENCEMENT) JUNE 30, DECEMBER 31, TO DECEMBER 31, ------------ ----------------------------------- ---------------- 1997* 1996 1995 1994 1993 SELECTED PER SHARE DATA ------------ ------- ------ ------ ---------------- Net asset value, beginning of period................ $ 11.39 $ 10.98 $ 9.08 $ 9.70 $ 9.83 ------- ------- ------ ------ ------ Income (loss) from investment operations Net investment income (loss)...................... (.02) (.02) .03 .09 -- Net realized and unrealized gain (loss) on investment transactions......................... 1.43 2.14 2.13 (.36) .73 ------- ------- ------ ------ ------ Total from investment operations................ 1.41 2.12 2.16 (.27) .73 ------- ------- ------ ------ ------ Less distributions From net investment income........................ -- -- .01 .09 .06 In excess of net investment income................ .04 .08 -- .01 -- From net realized gain............................ -- 1.63 .25 .25 .80 ------- ------- ------ ------ ------ Total distributions............................. .04 1.71 .26 .35 .86 ------- ------- ------ ------ ------ Net asset value, end of period...................... $ 12.76 $ 11.39 $10.98 $ 9.08 $ 9.70 ======= ======= ====== ====== ====== Total return(%)..................................... 12.43(b) 19.41(a) 23.94(a) (2.88)(a) 7.59(b) RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands)............ $ 734 $ 821 $1,242 $3,004 $5,185 Ratio of expenses to average net assets(%).......... 2.46(c) 2.63 2.75 2.70 3.09(c) Ratio of net investment income (loss) to average net assets(%)......................................... (.25)(c) (.14) .27 .97 (.07)(c) Portfolio turnover rate(%).......................... 15 138 81 36 85 Average commission rate(e).......................... $ .0646 $ .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. * Unaudited. (See Notes to Financial Statements) 90 NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 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 traded on a U.S. or foreign stock exchange, or the National Association of Securities Dealers Automated Quotation ("NASDAQ") System, are valued at the last quoted sale price reported as of the close of regular trading on the exchange the security is traded most extensively. If there is no such sale, the security is valued at the calculated mean between the last bid and asked price on the exchange. Securities not traded on an exchange or NASDAQ, but traded in another over-the-counter market are valued at the average between the current bid and asked prices in such markets. Short-term obligations and commercial paper are valued at amortized cost, which approximates market. Debt securities (other than short-term obligations and commercial paper) are valued on the basis of valuations furnished by a pricing service authorized by the Board of Trustees (the Board), which determines valuations based upon market transactions for normal, institutional-size trading units of such securities. 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 June 30, 1997, 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 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 $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. 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 invest- 91 NOTES TO FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) ment income and net capital gain realized during the year. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency transactions from foreign investment activity are translated into U.S. dollars on the following basis: (i) market value of securities, and dividends and interest receivable are translated at the closing daily rate of exchange; and, (ii) purchases and sales of investment securities are translated at the rate at which related foreign contracts are obtained or at the exchange rate prevailing on the date of the transaction. Exchange gains or losses from currency translation of other assets and liabilities, if significant, are reported as a separate component of Net realized and unrealized gain (loss) on investment transactions. 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 .75% of the Fund's average net assets. Mackenzie Investment Management Inc. (MIMI), of which IMI is a wholly owned subsidiary, provides certain administrative, accounting and pricing services for the Fund. For those services, the Fund pays MIMI fees plus certain out-of-pocket expenses. Such fees and expenses are reflected as Administrative services fee and Fund accounting in the Statement of Operations. Ivy Mackenzie Distributors, Inc. (IMDI), a wholly owned subsidiary of MIMI, is the underwriter and distributor of the Fund's shares, and as such, purchases shares from the Fund at net asset value to settle orders from investment dealers. For the six months ended June 30, 1997, the net amount of underwriting discount retained by IMDI was $5,074. 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 $64,256, $71,521, $535 and $3,684, 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 a monthly fee plus certain out-of-pocket expenses. Such fees and expenses of $93,012, $14,188, $119 and $1,070, 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. 92 NOTES TO FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 4. FUND SHARE TRANSACTIONS Fund share transactions for Class A, Class B, Class C and Class D were as follows:
SIX MONTHS ENDED YEAR ENDED JUNE 30, 1997 DECEMBER 31, 1996 ---------------------- ------------------------- CLASS A SHARES AMOUNT SHARES AMOUNT ------- -------- ----------- ---------- ------------ Sold....................... 257,610 $ 3,052,282 771,160 $ 8,920,002 Issued on reinvestment of distributions............. 16,057 191,968 673,234 7,657,806 Repurchased................ (597,291) (7,055,220) (1,266,282) (14,866,807) -------- ----------- ---------- ------------ Net increase (decrease).... (323,624) $(3,810,970) 178,112 $ 1,711,001 ======== =========== ========== ============
SIX MONTHS ENDED YEAR ENDED JUNE 30, 1997 DECEMBER 31, 1996 ---------------------- ------------------------- CLASS B SHARES AMOUNT SHARES AMOUNT ------- -------- ----------- ---------- ------------ Sold....................... 210,055 $ 2,467,420 554,493 $ 6,504,150 Issued on reinvestment of distributions............. 4,202 50,016 160,600 1,737,755 Repurchased................ (127,801) (1,493,068) (337,018) (3,890,037) -------- ----------- ---------- ------------ Net increase............... 86,456 $ 1,024,368 378,075 $ 4,351,868 ======== =========== ========== ============
FROM APRIL 30, 1996 SIX MONTHS ENDED (COMMENCEMENT) JUNE 30, 1997 TO DECEMBER 31, 1996 ---------------------- ------------------------- CLASS C SHARES AMOUNT SHARES AMOUNT ------- -------- ----------- ---------- ------------ Sold....................... 18,049 $ 211,496 3,952 $ 46,287 Issued on reinvestment of distributions............. 27 323 335 3,810 Repurchased................ (4,616) (57,826) (1,796) (20,535) -------- ----------- ---------- ------------ Net increase............... 13,460 $ 153,993 2,491 $ 29,562 ======== =========== ========== ============
SIX MONTHS ENDED YEAR ENDED JUNE 30, 1997 DECEMBER 31, 1996 ---------------------- ------------------------- CLASS D* SHARES AMOUNT SHARES AMOUNT -------- -------- ----------- ---------- ------------ Issued on reinvestment of distributions............. 175 $ 2,100 9,114 $ 103,727 Repurchased................ (14,707) (174,469) (50,213) (580,481) -------- ----------- ---------- ------------ Net decrease............... (14,532) $ (172,369) (41,099) $ (476,754) ======== =========== ========== ============
* Class D shares are not available for sale. 93 IVY FUNDS(R) June 30, 1997 Ivy International Fund - ------------ Semi-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 THROUGHOUT THE CENTURIES, THE CASTLE KEEP HAS BEEN A SOURCE OF LONG-RANGE VISION AND STRATEGIC ADVANTAGE. Market Commentary: On April 18, 1997, Ivy International Fund was closed to new investors. This measure was taken in an effort to provide shareholders with the level of performance they have experienced in the past. Current investors of the Fund, who recognize the importance of diversifying their portfolios internationally, can continue to add to their holdings without limitation. Recent elections in both the United Kingdom and France have signaled a drift to the left as voters dramatically stated an aversion to full-blown, right-wing conservatism. We believe today's left is very different from the left of yore as topics such as nationalization and confiscatory taxes are not on the agenda and we do not expect this shift to undermine the basic economic systems in place. We believe the vote in France is particularly interesting in that it may signal the beginning of the end for the European Monetary Union (EMU) and the single currency for Europe. The fiscal requirements to join the union are stringent and compel governments to sacrifice job creation for reduced government deficits. The West German leveraged buy out of East Germany in 1989 required high interest rates to attract the necessary capital to support the one-to-one West German to East German deutschemark swap and the ensuing bailout of East Germany. The result is the French have had to endure high unemployment. However, their current vote seems to say, "Enough!" According to our research, should the EMU fail, we would expect to see rate cuts and spending boosts by the French government to create an atmosphere for job stimulation. This should trigger a weakening of the French franc, which should stimulate exports. The United Kingdom has absorbed the Labour victory rather well, and there appears to be few changes expected in the running of the economy. In fact, the government's ceding of the power to set rates to the Bank of England appears to be a sensible step and bodes well for the future. Ivy International Fund has 58% of its assets invested in Europe, with 10% allocated to France and 13% to the UK. South America, led by Brazil, has been buoyant, as investors reentered those markets with gusto. Seven percent of the Fund has been allocated to South America (3% in Argentina and 4% in Brazil). In the Far East, moderating growth rates, concerns about bank lending to real estate and fear of a Thailand spillover have hurt the Malaysian and Singapore markets. (Malaysia and Singapore each represent approximately 3% of the portfolio.) Hong Kong, which represents 5% of the Ivy International Fund, kept its head up as the march to the July 1, 1997 turnover to China continued. We believe the handover was more of a media event than a cause for concern about the future economic well being of Hong Kong. Japan is beginning to deal with its extreme banking problem as banks now appear prepared to state losses and deal with their problem loans. Quick analysis implies that the system is technically bankrupt and unable to meet the Bank for International Settlement capital requirements. The Ivy International Fund has an 8% allocation to Japan. We remain optimistic about the longer-term prospects for international markets and encourage investors to stay the course. Ivy Management, Inc. BOARD OF TRUSTEES John S. Anderegg, Jr. Paul H. Broyhill Keith J. Carlson Stanley Channick Frank W. DeFriece, Jr. Roy J. Glauber Michael G. Landry Joseph G. Rosenthal Richard N. Silverman J. Brendan Swan OFFICERS Michael G. Landry, Chairman Keith J. Carlson, President James W. Broadfoot, Vice President C. William Ferris, Secretary/Treasurer LEGAL COUNSEL Dechert Price & Rhoads Boston, MA CUSTODIAN Brown Brothers Harriman & Co. Boston, MA TRANSFER AGENT Ivy Mackenzie Services Corp. P.O. Box 3022 Boca Raton, FL 33431-0922 1-800-777-6472 AUDITORS Coopers & Lybrand L.L.P. Fort Lauderdale, FL INVESTMENT MANAGER Ivy Management, Inc. 700 South Federal Highway Boca Raton, FL 33432 1-800-456-5111 DISTRIBUTOR Ivy Mackenzie Distributors, Inc. 700 South Federal Highway Boca Raton, FL 33432 1-800-456-5111 [IVY MACKENZIE LOGO] 94 PORTFOLIO OF INVESTMENTS JUNE 30, 1997 (UNAUDITED)
EQUITY SECURITIES -- 92.5% SHARES VALUE - -------------------------------------- AFRICA -- 3.6% - -------------------------------------- SOUTH AFRICA -- 3.6% Anglo American Corporation of South Africa Ltd. ........................ 26,900 $ 1,620,628 Anglo American Corporation of South Africa Ltd. ADR..................... 450,000 27,168,750 Gencor Limited........................ 476,400 2,195,276 Gencor Limited ADR.................... 6,000,000 27,750,000 Pepkor Limited ADR 144A REGD.......... 320,251 3,742,261 South African Breweries Limited....... 261,554 8,030,222 South African Breweries Limited ADR... 628,378 19,283,350 -------------- 89,790,487 -------------- ASIA -- 23.7% - -------------------------------------- HONG KONG -- 5.3% China Light & Power................... 5,750,000 32,582,399 Hong Kong Land Holdings Ltd. ......... 10,000,000 26,600,000 Hong Kong Telecommunications Ltd. .... 15,167,301 36,218,522 Swire Pacific Class A................. 2,600,000 23,408,213 Television Broadcasting Ltd. ......... 3,321,000 14,917,595 -------------- 133,726,729 -------------- JAPAN -- 8.3% Bridgestone Corp...................... 1,200,000 27,894,776 Canon Inc. ........................... 1,200,000 32,718,684 Fuji Photo Film ORD................... 850,000 34,243,633 Komatsu Ltd. ......................... 3,100,000 25,194,435 Matsushita Electric Industrial Co..... 1,700,000 34,317,915 Nintendo Corp Ltd. ................... 20,000 1,677,881 Sega Enterprises...................... 18,000 597,745 Sharp Corp. .......................... 2,000,000 27,615,129 Sony Corp. ........................... 275,000 24,008,121 -------------- 208,268,319 -------------- MALAYSIA -- 2.3% Malayan Banking Berhad................ 2,000,000 20,998,382 Sime Darby Berhad..................... 5,000,000 16,640,227 Telekom Malaysia Berhad............... 4,125,000 19,284,835 -------------- 56,923,444 -------------- RUSSIA -- 5.1% LUKoil Oil Co. Sponsored ADR 144A..... 819,644 63,965,018 Mosenergo Sponsored ADR 144A.......... 655,000 27,428,125 Unified Energy System................. 100,000,000 36,190,000 -------------- 127,583,143 -------------- SINGAPORE -- 2.7% Fraser & Neave Ltd. ORD............... 3,300,000 23,540,931 Jardine Matheson Holdings Ltd. ....... 2,000,000 14,200,000 Keppel Corporation Ltd. .............. 3,000,000 13,323,076 Keppel Corporation Ltd. -- A.......... 750,000 3,252,089 United Overseas Bank Foreign Registered.......................... 1,307,920 13,446,462 -------------- 67,762,558 -------------- AUSTRALIA -- 1.2% - -------------------------------------- AUSTRALIA -- 1.2% News Corp. Ltd. ADR................... 1,000,000 19,250,000 Rio Tinto Limited..................... 322,500 5,455,304 Western Mining Corporation Holdings... 409,124 2,559,215 Western Mining Corporation Holdings ADR................................. 82,812 2,122,058 -------------- 29,386,577 -------------- EUROPE -- 57.6% - -------------------------------------- DENMARK -- 1.9% ISS International Service Systems B... 700,000 25,125,496 Novo Nordisk AS -- Class B............ 220,000 24,021,542 -------------- 49,147,038 -------------- FRANCE -- 10.0% AXA-UAP............................... 300,000 $ 18,676,749 Banque Nationale de Paris............. 502,521 20,731,036 BIC................................... 70,000 11,458,139 Compagnie Financiere de Paribas....... 267,257 18,481,949 Elf Aquitaine S.A. ................... 250,000 26,997,399 Eurotunnel S.A.*...................... 10,000,000 10,986,323 Michelin Class B REGD................. 350,000 21,038,383 Rhone Poulenc S.A. ................... 557,968 22,809,365 Schneider S.A. ....................... 500,000 26,639,704 Suez Lyonnaise des Eaux............... 222,611 22,447,138 Thomson CSF........................... 750,000 19,341,039 Total S.A. ........................... 307,995 31,161,816 -------------- 250,769,040 -------------- NETHERLANDS -- 3.8% ABN Amro Holdings NV.................. 1,422,948 26,580,571 Hunter Douglas NV..................... 73,533 6,267,480 ING Groep NV.......................... 625,470 28,890,114 Royal Dutch Petroleum ADR............. 640,000 34,800,000 -------------- 96,538,165 -------------- NORWAY -- 4.2% Bergesen.............................. 1,150,000 27,254,554 Kvaerner Industrier Series A.......... 500,000 30,290,426 Norsk Hydro Sponsored ADR............. 500,000 27,093,750 Saga Petroleum Series A Free.......... 1,100,000 20,885,710 -------------- 105,524,440 -------------- PORTUGAL -- 1.1% Banco Commercial Portugues Preferred.. 400,000 27,400,000 -------------- SPAIN -- 1.9% Banco Bilboa Vizcaya REGD............. 100,000 8,138,978 Banco Intercontinental................ 130,000 22,982,244 Repsol S.A. .......................... 400,000 16,944,305 -------------- 48,065,527 -------------- SWEDEN -- 9.0% AGA AB Series B Free.................. 2,500,000 33,301,523 Autoliv, Inc. SDR*.................... 750,000 28,855,932 Ericsson L.M. Telephone Series B Free. 600,000 23,627,916 Kinnevik AB B Free.................... 230,870 6,419,376 Nobel Biocare AB...................... 916,346 12,917,333 Pharmacia & Upjohn SDS................ 700,000 23,627,916 Skandia Forsakrings AB................ 1,000,000 36,857,997 Swedish Match AB Fuerer............... 9,000,000 30,262,355 Trelleborg AB B Free.................. 300,000 4,927,332 Volvo AB B Free....................... 1,010,000 27,038,250 -------------- 227,835,930 -------------- SWITZERLAND -- 12.3% Ciba Specialty Chemicals AG........... 300,000 27,780,636 Clariant AG REGD...................... 40,000 25,928,593 Compagnie Financiere Michelin......... 45,000 23,644,408 Compagnie Financiere Richemont AG..... 20,500 29,670,405 Credit Suisse Group REGD.............. 177,035 22,769,189 Electrowatt AG Bearer................. 35,000 12,988,305 Nestle AG REGD........................ 20,000 26,422,471 Novartis AG REGD...................... 13,796 22,087,227 SCHW Ruckversicher REGD............... 20,655 29,257,177 SGS Holdings Bearer................... 9,000 19,261,241 Sulzer AG REGD........................ 10,775 9,238,776 Swiss Bank Corporation REGD*.......... 102,121 27,354,152 Swiss Bank Corporation Warrants*...... 5,605 54,595 Von Roll AG REGD*..................... 11,200 245,841 Zurich Versicherungsgesellschaft REGD. 80,000 31,882,567 -------------- 308,585,583 --------------
(See Notes to Financial Statements) 95 PORTFOLIO OF INVESTMENTS (CONTINUED) JUNE 30, 1997 (UNAUDITED)
EQUITY SECURITIES SHARES VALUE - -------------------------------------- UNITED KINGDOM -- 13.4% B.A.T. Industries plc................. 3,043,075 $ 27,222,170 Barclay's Bank ORD.................... 479,301 9,508,592 BG plc................................ 7,000,000 25,746,721 British Petroleum ORD................. 2,313,375 28,741,370 Cadbury Schweppes plc ADR............. 455,081 16,667,341 Guinness plc.......................... 2,500,000 24,465,210 Imperial Tobacco Group plc............ 4,500,000 28,946,338 National Westminster Bank............. 2,000,000 26,878,445 Reed International plc................ 2,600,000 25,184,188 Rio Tinto plc Sponsored ADR........... 1,670,228 29,090,193 Rolls-Royce........................... 4,300,228 16,425,015 Royal Bank Scotland Group ORD......... 781,369 7,275,919 Smithkline Beecham plc ADR............ 400,000 36,650,000 Waste Management International plc ADR................................. 1,809,000 16,507,125 Whitbread PLC......................... 1,500,000 18,935,573 -------------- 338,244,200 -------------- SOUTH AMERICA -- 6.4% - -------------------------------------- ARGENTINA -- 2.7% Telecom de Argentina S.A. Class B..... 3,300,000 17,228,085 Telefonica de Argentina S.A. Class B................................... 6,000,000 20,702,505 YPF ADR Class D....................... 1,000,000 30,750,000 -------------- 68,680,590 -------------- BRAZIL -- 3.7% Centrais Electricas Brasileiras S.A.(Electrobras)................... 50,000,000 29,724,638 Petrobras Registered NV............... 115,000,000 31,940,053 Telebras Registered NV................ 200,000,000 30,430,599 -------------- 92,095,290 -------------- TOTAL EQUITY SECURITIES (Cost -- $1,795,958,875)............ 2,326,327,060 -------------- CONVERTIBLE BONDS -- 0.8% PRINCIPAL - -------------------------------------- ----------- Liberty Life International 144A Registered, 6.50%, 09/30/04 (Cost -- $20,159,305)............... $16,500,000 20,521,875 -------------- American Express, 6.15%, 07/01/97..... $ 9,923,000 $ 9,923,000 American Express, 5.53%, 07/09/97..... 13,779,000 13,779,000 American Express, 5.54%, 07/14/97..... 12,297,000 12,297,000 American Express, 5.55%, 07/15/97..... 13,154,000 13,154,000 Exxon Credit Corp., 5.50%, 07/07/97... 11,000,000 11,000,000 General Electric Capital, 5.53%, 07/08/97............................ 11,466,000 11,466,000 General Electric Capital, 5.57%, 07/10/97............................ 19,095,000 19,095,000 Prudential Funding, 5.49%, 07/01/97... 14,178,000 14,178,000 Prudential Funding, 5.48%, 07/02/97... 17,188,000 17,188,000 Prudential Funding, 5.42%, 07/03/97... 12,600,000 12,600,000 Prudential Funding, 5.56%, 07/11/97... 15,300,000 15,300,000 -------------- TOTAL COMMERCIAL PAPER (Cost -- $149,980,000).............. 149,980,000 -------------- TOTAL INVESTMENTS -- 99.3% (Cost -- $1,966,098,180)(a)......... 2,496,828,935 OTHER ASSETS, LESS LIABILITIES-- 0.7%. 16,831,284 -------------- NET ASSETS -- 100%.................... $2,513,660,219 ============== ADR - American Depository Receipt NV - Non-voting ORD - Ordinary REGD - Registered SDR - Swedish Depository Receipt SDS - Swedish Depository Shares * Non-income producing security. (a) Cost is the same for Federal income tax purposes. OTHER INFORMATION: At June 30, 1997, net unrealized appreciation based on cost for financial statement and Federal income tax purposes is as follows: Gross unrealized appreciation.................. $ 576,234,842 Gross unrealized depreciation.................. (45,504,087) -------------- Net unrealized appreciation................ $ 530,730,755 ============== Purchases and sales of securities other than short-term obligations aggregated $830,356,278 and $41,581,593, respectively, for the period ended June 30, 1997.
(See Notes to Financial Statements) 96 STATEMENT OF ASSETS AND LIABILITIES JUNE 30, 1997 (UNAUDITED) ASSETS Investments, at value (identified cost -- $1,966,098,180)... $2,496,828,935 Cash........................................................ 12,059,326 Receivables Fund shares sold.......................................... 6,266,820 Dividends and interest.................................... 12,635,961 Other assets................................................ 89,183 -------------- Total assets.............................................. 2,527,880,225 -------------- LIABILITIES Payables Investments purchased..................................... 9,935,551 Fund shares repurchased................................... 448,810 Management fee............................................ 2,002,298 12b-1 service and distribution fees....................... 940,173 Other payables to related parties......................... 456,278 Accrued expenses............................................ 436,896 -------------- Total liabilities......................................... 14,220,006 -------------- NET ASSETS.................................................. $2,513,660,219 ============== CLASS A Net asset value and redemption price per share ($1,655,141,492/39,901,259 shares outstanding)............ $ 41.48 ============== Maximum offering price per share ($41.48 X 100/94.25)*...... $ 44.01 ============== CLASS B Net asset value, offering price and redemption price** per share ($589,816,419/14,340,709 shares outstanding)........ $ 41.13 ============== CLASS C Net asset value, offering price and redemption price*** per share ($176,294,839/4,304,128 shares outstanding)......... $ 40.96 ============== CLASS I Net asset value, offering price, and redemption price per share ($92,407,469/2,222,957 shares outstanding).......... $ 41.57 ============== NET ASSETS CONSIST OF Capital paid-in........................................... $1,970,711,276 Undistributed net realized loss on investments and foreign currency transactions................................... (2,435,994) Undistributed net investment income....................... 14,680,242 Net unrealized appreciation on investments and foreign currency transactions................................... 530,704,695 -------------- NET ASSETS.................................................. $2,513,660,219 ==============
* On sales of more than $50,000 the offering price is reduced. ** Subject to a maximum contingent deferred sales charge of 5%. *** Subject to a maximum contingent deferred sales charge of 1%. (See Notes to Financial Statements) 97 STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED) INVESTMENT INCOME Dividends, net of $2,684,331 foreign taxes withheld....... $ 27,294,035 Interest.................................................. 5,135,032 ------------ 32,429,067 ------------ EXPENSES Management fee............................................ $9,717,330 Transfer agent............................................ 1,378,936 Administrative services fee............................... 942,385 Custodian fees............................................ 886,084 Blue Sky fees............................................. 32,924 Auditing and accounting fees.............................. 20,741 Shareholder reports....................................... 13,561 Fund accounting........................................... 82,217 Trustees' fees............................................ 2,977 12b-1 service and distribution fees....................... 4,314,337 Legal..................................................... 37,653 Other..................................................... 319,680 ------------ Total expenses.......................................... 17,748,825 ------------ NET INVESTMENT INCOME....................................... 14,680,242 ------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS Net realized loss on investments and foreign currency transactions............................................ (2,435,994) Net unrealized appreciation during the period on investments and foreign currency transactions........... 296,567,551 ------------ Net gain on investment transactions..................... 294,131,557 ------------ INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $308,811,799 ============
(See Notes to Financial Statements) 98 STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR FOR THE SIX MONTHS ENDED ENDED JUNE 30, DECEMBER 31, ------------------ -------------- 1997* 1996 ------------------ -------------- INCREASE IN NET ASSETS Operations Net investment income..................................... $ 14,680,242 $ 5,658,391 Net realized gain (loss) on investments and foreign currency transactions................................... (2,435,994) 25,065,630 Net unrealized appreciation during the period on investments and foreign currency transactions........... 296,567,551 140,672,710 -------------- -------------- Net increase resulting from operations.................. 308,811,799 171,396,731 -------------- -------------- Class A distributions From net investment income................................ -- (4,882,162) From net realized gain.................................... -- (17,087,565) -------------- -------------- Total distributions to Class A shareholders............. -- (21,969,727) -------------- -------------- Class B distributions In excess of net investment income........................ -- (430,044) From net realized gain.................................... -- (5,538,963) -------------- -------------- Total distributions to Class B shareholders............. -- (5,969,007) -------------- -------------- Class C distributions In excess of net investment income........................ -- (243,273) In excess of net realized gain............................ -- (791,253) -------------- -------------- Total distributions to Class C shareholders............. -- (1,034,526) -------------- -------------- Class I distributions From net investment income................................ -- (395,163) In excess of net investment income........................ -- (23,513) From net realized gain.................................... -- (932,968) -------------- -------------- Total distributions to Class I shareholders............. -- (1,351,644) -------------- -------------- Fund share transactions (Note 4) Class A................................................... 458,726,178 404,645,714 Class B................................................... 205,997,305 211,044,612 Class C................................................... 111,985,877 42,991,790 Class I................................................... 28,929,111 35,796,386 -------------- -------------- Net increase resulting from Fund share transactions............................... 805,638,471 694,478,502 -------------- -------------- TOTAL INCREASE IN NET ASSETS................................ 1,114,450,270 835,550,329 NET ASSETS Beginning of period....................................... 1,399,209,949 563,659,620 -------------- -------------- END OF PERIOD............................................. $2,513,660,219 $1,399,209,949 ============== ============== UNDISTRIBUTED NET INVESTMENT INCOME......................... $ 14,680,242 $ -- ============== ==============
* Unaudited. (See Notes to Financial Statements) 99 FINANCIAL HIGHLIGHTS(A)
CLASS A FOR THE SIX MONTHS ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31, ------------------ -------------------------------------------------------- 1997* 1996 1995 1994 1993 1992 SELECTED PER SHARE DATA ------------------ -------- -------- -------- -------- -------- Net asset value, beginning of period............. $ 35.89 $ 30.67 $ 27.60 $ 27.71 $ 18.88 $ 19.37 ---------- -------- -------- -------- -------- -------- Income from investment operations Net investment income.......................... .30(h) .20 .25 .07 .12 .27(b) Net realized and unrealized gain (loss) on investment transactions...................... 5.29(h) 5.85 3.22 1.01 9.01 (.26) ---------- -------- -------- -------- -------- -------- Total from investment operations............. 5.59 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................... $ 41.48 $ 35.89 $ 30.67 $ 27.60 $ 27.71 $ 18.88 ========== ======== ======== ======== ======== ======== Total return(%).................................. 15.58(d) 19.72(c) 12.65(c) 3.92(c) 48.37(c) .07(c) RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands)......... $1,655,141 $989,254 $475,989 $229,586 $172,539 $109,637 Ratio of expenses to average net assets(%)....... 1.59(f) 1.65 1.52 1.58 1.61 1.71(e) Ratio of net investment income to average net assets(%)...................................... 1.74(f) .76 .97 .30 .56 1.36(b) Portfolio turnover rate(%)....................... 2 14 6 7 19 20 Average commission rate(g)....................... $ .0086 $ .0092 N/A N/A N/A N/A
(See Notes to Financial Statements) 100 FINANCIAL HIGHLIGHTS(A) (CONTINUED)
FOR THE PERIOD OCTOBER 23, 1993 CLASS B FOR THE SIX MONTHS FOR THE YEAR ENDED (COMMENCEMENT) ENDED JUNE 30, DECEMBER 31, TO DECEMBER 31, ------------------ ------------------------------ ---------------- 1997* 1996 1995 1994 1993 SELECTED PER SHARE DATA ------------------ -------- ------- ------- ---------------- Net asset value, beginning of period................... $ 35.73 $ 30.67 $ 27.60 $ 27.71 $25.86 -------- -------- ------- ------- ------ Income from investment operations Net investment income (loss)......................... .16(h) (.01) .01 (.10) (.01) Net realized and unrealized gain on investment transactions....................................... 5.24(h) 5.76 3.20 .91 2.12 -------- -------- ------- ------- ------ Total from investment operations................... 5.40 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......................... $ 41.13 $ 35.73 $ 30.67 $ 27.60 $27.71 ======== ======== ======= ======= ====== Total return(%)........................................ 15.11(d) 18.76(c) 11.62(c) 2.96(c) 7.65(d) RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands)............... $589,816 $312,161 $74,650 $30,143 $2,846 Ratio of expenses to average net assets(%)............. 2.43(f) 2.45 2.44 2.50 2.59(f) Ratio of net investment income (loss) to average net assets(%)............................................ .90(f) (.04) .05 (.62) (.42)(f) Portfolio turnover rate(%)............................. 2 14 6 7 19 Average commission rate(g)............................. $ .0086 $ .0092 N/A N/A N/A
(See Notes to Financial Statements) 101 FINANCIAL HIGHLIGHTS(A) (CONTINUED)
FOR THE PERIOD APRIL 30, 1996 CLASS C FOR THE SIX MONTHS (COMMENCEMENT) ENDED JUNE 30, TO DECEMBER 31, ------------------ --------------- 1997* 1996 SELECTED PER SHARE DATA ------------------ --------------- Net asset value, beginning of period........................ $ 35.58 $ 32.68 ---------- -------- Income from investment operations Net investment income..................................... .16(h) -- Net realized and unrealized gain on investment transactions............................................ 5.22(h) 3.74 ---------- -------- Total from investment operations........................ 5.38 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.............................. $ 40.96 $ 35.58 ========== ======== Total return(%)(d).......................................... 15.12 11.45 RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands).................... $ 176,295 $ 44,450 Ratio of expenses to average net assets(%)(f)............. 2.41 2.44 Ratio of net investment income (loss) to average net assets(%)(f)............................................ .91 (.03) Portfolio turnover rate(%).................................. 2 14 Average commission rate(g).................................. $ .0086 $ .0092
(See Notes to Financial Statements) 102 FINANCIAL HIGHLIGHTS(A) (CONTINUED)
FOR THE PERIOD FOR THE SIX OCTOBER 6, 1994 CLASS I MONTHS ENDED FOR THE YEAR ENDED (COMMENCEMENT) JUNE 30, DECEMBER 31, TO DECEMBER 31, ---------------- -------------------- --------------- 1997* 1996 1995 1994 SELECTED PER SHARE DATA ---------------- -------- -------- --------------- Net asset value, beginning of period........................ $ 35.89 $ 30.67 $ 27.60 $ 29.06 ---------- -------- -------- -------- Income (loss) from investment operations Net investment income..................................... .38(h) .27 .30 .03 Net realized and unrealized gain (loss) on investment transactions............................................ 5.30(h) 5.88 3.22 (.49) ---------- -------- -------- -------- Total from investment operations........................ 5.68 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.............................. $ 41.57 $ 35.89 $ 30.67 $ 27.60 ========== ======== ======== ======== Total return(%)............................................. 15.83(d) 20.06(c) 12.85(c) (1.64)(d) RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands).................... $ 92,407 $ 53,344 $ 13,020 $ 4,921 Ratio of expenses to average net assets(%).................. 1.19(f) 1.25 1.35 1.41(f) Ratio of net investment income to average net assets(%)..... 2.14(f) 1.16 1.14 .47(f) Portfolio turnover rate(%).................................. 2 14 6 7 Average commission rate(g).................................. $ .0086 $ .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. (h) Based on average shares outstanding. * Unaudited.
(See Notes to Financial Statements) 103 NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 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 traded on a U.S. or foreign stock exchange, or the National Association of Securities Dealers Automated Quotation ("NASDAQ") System, are valued at the last quoted sale price reported as of the close of regular trading on the exchange the security is traded most extensively. If there is no such sale, the security is valued at the calculated mean between the last bid and asked price on the exchange. Securities not traded on an exchange or NASDAQ, but traded in another over-the-counter market are valued at the average between the current bid and asked prices in such markets. Short-term obligations and commercial paper are valued at amortized cost, which approximates market. Debt securities (other than short-term obligations and commercial paper) are valued on the basis of valuations furnished by a pricing service authorized by the Board of Trustees (the Board), which determines valuations based upon market transactions for normal, institutional-size trading units of such securities. 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 June 30, 1997, 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. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency transactions from foreign investment activity are translated into U.S. dollars on the following basis: (i) market value of securities, and dividends and interest receivable are translated at the closing daily rate of exchange; and, (ii) purchases and sales of investment securities are translated at the rate at which related foreign contracts are obtained or at the exchange rate prevailing on the date of the transaction. Exchange gains or losses from currency translation of other assets and liabilities, if significant, are reported as a separate component of Net realized and unrealized gain (loss) on investment transactions. 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 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 and ex- 104 NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) penses are reflected as Administrative services fee and Fund accounting in the Statement of Operations. Ivy Mackenzie Distributors, Inc. (IMDI), a wholly owned subsidiary of MIMI, is the underwriter and distributor of the Fund's shares, and as such, purchases shares from the Fund at net asset value to settle orders from investment dealers. For the six months ended June 30, 1997, the net amount of underwriting discount retained by IMDI was $459,352. 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, excluding Class I. 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 $1,451,799, $2,281,203 and $581,335, 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 $794,145, $469,492, $112,606 and $2,693, 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:
SIX MONTHS ENDED YEAR ENDED JUNE 30, 1997 DECEMBER 31, 1996 ------------------------- ------------------------- CLASS A SHARES AMOUNT SHARES AMOUNT ------- ---------- ------------ ---------- ------------ Sold..................... 16,478,890 $615,801,735 16,070,230 $537,452,973 Issued on reinvestment of distributions........... -- -- 534,854 19,195,195 Repurchased.............. (4,140,981) (157,075,557) (4,561,167) (152,002,454) ---------- ------------ ---------- ------------ Net increase............. 12,337,909 $458,726,178 12,043,917 $404,645,714 ========== ============ ========== ============
SIX MONTHS ENDED YEAR ENDED JUNE 30, 1997 DECEMBER 31, 1996 ------------------------- ------------------------- CLASS B SHARES AMOUNT SHARES AMOUNT ------- ---------- ------------ ---------- ------------ Sold..................... 6,212,248 $229,009,596 6,659,639 $222,635,747 Issued on reinvestment of distributions........... -- -- 91,688 3,275,938 Repurchased.............. (608,370) (23,012,291) (448,268) (14,867,073) ---------- ------------ ---------- ------------ Net increase............. 5,603,878 $205,997,305 6,303,059 $211,044,612 ========== ============ ========== ============
FROM APRIL 30, 1996 SIX MONTHS ENDED (COMMENCEMENT) JUNE 30, 1997 TO DECEMBER 31, 1996 ------------------------- ------------------------- CLASS C SHARES AMOUNT SHARES AMOUNT ------- ---------- ------------ ---------- ------------ Sold..................... 3,169,639 $116,353,074 1,260,097 $ 43,344,404 Issued on reinvestment of distributions........... -- -- 9,696 344,991 Repurchased.............. (114,979) (4,367,197) (20,325) (697,605) ---------- ------------ ---------- ------------ Net increase............. 3,054,660 $111,985,877 1,249,468 $ 42,991,790 ========== ============ ========== ============
SIX MONTHS ENDED YEAR ENDED JUNE 30, 1997 DECEMBER 31, 1996 ------------------------- ------------------------- CLASS I SHARES AMOUNT SHARES AMOUNT ------- ---------- ------------ ---------- ------------ Sold..................... 781,127 $ 30,601,069 1,105,814 $ 37,145,203 Issued on reinvestment of distributions........... -- -- 35,847 1,286,548 Repurchased.............. (44,396) (1,671,958) (79,940) (2,635,365) ---------- ------------ ---------- ------------ Net increase............. 736,731 $ 28,929,111 1,061,721 $ 35,796,386 ========== ============ ========== ============
Effective April 18, 1997, Ivy International Fund suspended the offer of its shares to new investors. Shares of Ivy International Fund are available for purchase only by existing shareholders of Ivy International Fund. Once a shareholder's account is liquidated, the shareholder may not invest in Ivy International Fund at a later date. 105 June 30, 1997 IVY FUNDS(R) Ivy International Fund II - ------------ Semi-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 THROUGHOUT THE CENTURIES, THE CASTLE KEEP HAS BEEN A SOURCE OF LONG-RANGE VISION AND STRATEGIC ADVANTAGE. Market Commentary: We would like to take this opportunity to welcome you as a shareholder of the new Ivy International Fund II. There are many potential benefits to investing internationally including additional diversification, minimizing risk and maximizing returns. Since the inception of the Ivy International Fund II on May 13, 1997, European equity markets have performed well. We believe investors anticipated an economic recovery on the Continent and as a result, portfolio companies such as Volkswagen, Banque National de Paris and Trelleborg outperformed their respective home markets. Looking ahead, we believe European companies should benefit from improved economic activity, more competitive currencies, lower interest rates and ongoing corporate restructuring. The Fund's investments are heavily biased toward cyclical companies (Volvo, Galleries Lafayette and Holderbank), companies that should benefit from restructuring (Philips Electronics, Unilever and Schneider) and financial services (ING, Credit Suisse and Bank of Ireland) that should do well in a declining interest rate environment. Latin America has been another bright spot in the Ivy International Fund II. The strong equity performance in Latin America has been primarily in the larger-capitalization stocks and accordingly the Fund's concentrated holdings in companies like Telebras, Telefonica de Argentina and CTC have performed very well. Fundamentals in Latin America continue to improve and perceived risk is falling. We expect smaller-capitalization issues to participate in the rally in Latin American stocks in the months to come. Asia is clearly the dark cloud in an otherwise good environment for international equities. On the surface it would appear that the Hong Kong market has performed reasonably well. But if the performance of dominant HSBC Holdings is taken out of the index, it is apparent that most stocks comprising the Hang Seng index have actually declined since the beginning of 1997. The situation elsewhere in Asia is not much better. Investor sentiment is at an all time low which leads us to believe that there is tremendous upside potential for stock markets in the region. We continue to favor Hong Kong, but we are finding tremendous bargains in the rest of East Asia. While there are no guarantees, our research indicates this region could provide big surprises. On the currency front, according to our research, the deutschemark was approaching fair value in the 1.70 range. However, the surprise result of the French election caused us to rethink this view. With the socialist party far less committed to the European Monetary Union (EMU) than its predecessor, there could be far more pressure on the entire currency system. We believe that in an effort to save jobs (a key feature of the French socialist platform) the Maastricht rules could be relaxed. This would make it easier for "weaker" countries such as Italy, Spain and Portugal to join the EMU, thereby placing additional downward pressure on the core European currencies. We are optimistic about the longer-term prospects for international markets and would encourage investors who recognize the benefits of international diversification to look beyond any short-term distractions. Ivy Management, Inc. BOARD OF TRUSTEES John S. Anderegg, Jr. Paul H. Broyhill Keith J. Carlson Stanley Channick Frank W. DeFriece, Jr. Roy J. Glauber Michael G. Landry Joseph G. Rosenthal Richard N. Silverman J. Brendan Swan OFFICERS Michael G. Landry, Chairman Keith J. Carlson, President James W. Broadfoot, Vice President C. William Ferris, Secretary/Treasurer LEGAL COUNSEL Dechert Price & Rhoads Boston, MA CUSTODIAN Brown Brothers Harriman & Co. Boston, MA TRANSFER AGENT Ivy Mackenzie Services Corp. P.O. Box 3022 Boca Raton, FL 33431-0922 1-800-777-6472 AUDITORS Coopers & Lybrand L.L.P. Fort Lauderdale, FL INVESTMENT MANAGER Ivy Management, Inc. 700 South Federal Highway Boca Raton, FL 33432 1-800-456-5111 DISTRIBUTOR Ivy Mackenzie Distributors, Inc. 700 South Federal Highway Boca Raton, FL 33432 1-800-456-5111 [IVY MACKENZIE LOGO] 106 PORTFOLIO OF INVESTMENTS JUNE 30, 1997 (UNAUDITED)
EQUITY SECURITIES -- 93.7% SHARES VALUE - -------------------------------------------------------------------- AFRICA -- 2.1% - -------------------------------------------------------------------- SOUTH AFRICA -- 2.1% Anglo American Corporation of South Africa Ltd. ADR................................ 3,755 $ 226,225 Nampak Limited............................ 35,948 156,139 Rembrandt Group Ltd. ..................... 13,484 143,892 South African Breweries Ltd. ............. 4,841 148,628 ----------- 674,884 ----------- ASIA/PACIFIC -- 29.0% - ------------------------------------------ AUSTRALIA -- 4.0% Australia & New Zealand Banking Group Ltd. ................................... 34,902 258,852 National Australia Bank Ltd. ............. 12,674 180,113 Pacific Dunlop Limited.................... 195,120 572,998 Westpac Banking Corp. Ltd. ............... 43,239 258,166 ----------- 1,270,129 ----------- HONG KONG -- 9.0% Cheung Kong Holdings Ltd. ................ 50,000 493,722 Guangdong Investments..................... 138,000 207,518 Guangdong Investments Warrants*........... 13,800 6,501 HSBC Holdings............................. 15,800 475,186 Jardine Strategic Holdings Ltd. .......... 96,000 362,880 New World Development Company Ltd. ....... 52,000 310,096 Peregrine Investment Holdings Limited..... 179,000 368,525 Swire Pacific Ltd. ....................... 32,000 288,101 Tsingtao Brewery Co. Ltd. Series H........ 92,000 35,625 Wheelock & Company, Ltd. ................. 135,000 331,955 ----------- 2,880,109 ----------- INDONESIA -- 1.5% PT Astra International -- Foreign Registered.............................. 67,500 278,994 PT Telekomunikasi Indonesia -- Foreign Registered.............................. 50,000 81,740 Semen Gresik -- Foreign Registered........ 54,500 122,157 ----------- 482,891 ----------- MALAYSIA -- 3.5% Arab Malaysian Corporation*............... 59,000 219,730 Genting Berhad............................ 75,000 359,548 Land & General Berhad..................... 115,000 132,131 Perusahaan Otomobil Nasional Berhad....... 34,000 158,954 RHB Capital Berhad........................ 81,000 256,735 ----------- 1,127,098 ----------- NEW ZEALAND -- 4.4% Fletcher Challenge Building............... 97,123 291,596 Fletcher Challenge Energy................. 85,488 257,823 Fletcher Challenge Forests................ 55,007 79,779 Fletcher Challenge Paper.................. 60,540 146,476 Telecom Corp. of New Zealand Ltd. ........ 80,000 406,637 Tourism Holdings Limited.................. 171,089 242,340 ----------- 1,424,651 ----------- PHILIPPINES -- 1.6% Benpres Holdings Corporation GDR*......... 44,900 306,308 Metro Pacific Corporation................. 888,950 192,107 ----------- 498,415 ----------- SINGAPORE -- 4.2% Clipsal Industries Ltd. .................. 97,000 343,380 DBS Land Limited.......................... 72,000 227,604 Elec & Eltek International Co. Ltd. ...... 48,000 268,800 Jardine Matheson Holdings Ltd. ........... 69,600 494,160 ----------- 1,333,944 ----------- THAILAND -- 0.8% Asia Credit Company PLC................... 2,300 $ 5,860 Bankok Bank Public Company Limited........ 16,600 114,063 Dhana Siam Finance & Secs. Public Co. Ltd. ................................... 6,800 3,609 Krung Thai Bank Public Company Limited.... 8,300 8,651 Krung Thai Thanakit PLC................... 3,600 2,050 Nava Finance and Securities Public Company Limited*................................ 7,300 2,818 Robinson Department Store Public Company Limited -- Foreign Registered........... 330,800 121,312 ----------- 258,363 ----------- EUROPE -- 55.3% - ------------------------------------------ FINLAND -- 2.2% Enso OY -- R Shares....................... 18,474 170,718 Rauma OY.................................. 9,691 222,020 UPM -- Kymmene Corp....................... 14,179 327,570 ----------- 720,308 ----------- FRANCE -- 10.5% Banque Nationale de Paris................. 12,916 532,837 Compagnie Financiere de Paribas........... 2,880 199,164 Elf Aquitaine S.A......................... 1,852 199,997 Galeries Lafayette*....................... 527 218,665 Groupe Danone............................. 1,804 298,365 Pernod-Ricard............................. 10,000 516,102 Peugeot Citroen........................... 2,761 267,121 Schneider S.A............................. 6,427 342,427 Societe Generale.......................... 1,609 179,785 Suez Lyonnaise des Eaux................... 3,015 304,020 Total S.A. ADR............................ 5,800 293,625 ----------- 3,352,108 ----------- GERMANY -- 3.9% Merck KGaA................................ 12,729 555,171 Volkswagen AG............................. 903 685,075 ----------- 1,240,246 ----------- IRELAND -- 1.3% Bank of Ireland........................... 37,326 410,935 ----------- ITALY -- 3.1% Banco Popolare di Milano.................. 85,000 508,801 Fiat S.p.A.*.............................. 138,000 496,362 ----------- 1,005,163 ----------- NETHERLANDS -- 8.1% ABN Amro Bank............................. 13,685 255,635 Akzo Nobel NV............................. 2,601 357,098 Fortis Amev NV............................ 10,945 488,227 Hunter Douglas NV......................... 5,686 484,638 ING Groep NV.............................. 6,446 297,737 Philips Electronics NV.................... 4,308 309,140 Unilever NV ADR........................... 1,800 392,400 ----------- 2,584,875 ----------- NORWAY -- 2.0% Norsk Hydro Sponsored ADR................. 11,600 628,575 ----------- PORTUGAL -- 2.1% Lusomundo-SGPS S.A. Preferred Shares...... 30,021 251,043 Portugal Telecom S.A. ADR................. 10,900 437,362 ----------- 688,405 ----------- SPAIN -- 3.5% Empresa Nacional de Electricidad -- ADR... 5,000 425,312 Telefonica de Espana S.A. ADR............. 8,235 710,269 ----------- 1,135,581 -----------
(See Notes to Financial Statements) 107 PORTFOLIO OF INVESTMENTS (CONTINUED) JUNE 30, 1997 (UNAUDITED)
EQUITY SECURITIES SHARES VALUE - -------------------------------------------------------------------- SWEDEN -- 6.1% AssiDoman AB.............................. 5,749 $ 163,569 Astra AB "B" Shares....................... 10,669 189,720 Electrolux AB............................. 3,441 248,317 Granges AB................................ 149 2,004 S.K.F. AB Series "B"...................... 11,500 297,450 Stora Kopparbergs Bergslags Aktiebolag (STORA)................................. 12,673 206,508 Trelleborg AB "B" Free Shares............. 33,759 554,473 Volvo AB B Shares......................... 10,983 294,021 ----------- 1,956,062 ----------- SWITZERLAND -- 4.3% Credit Suisse Group....................... 2,266 291,439 Holderbank Financiere Glaris AG........... 374 353,772 Nestle AG Registered...................... 299 395,016 SMH AG Bearer............................. 569 325,511 ----------- 1,365,738 ----------- UNITED KINGDOM -- 8.2% Bank of Scotland.......................... 60,346 385,666 Barclays PLC ADR.......................... 12,506 248,100 Cadbury Schweppes PLC ADR................. 18,135 161,625 Grand Metropolitan PLC ADR................ 21,601 209,052 Hanson PLC ADR............................ 8,600 215,000 Imperial Chemical Industries PLC -- Sponsored ADR........................... 30,383 422,482 National Westminster Bank PLC ADR......... 12,662 170,167 Safeway plc............................... 51,000 294,956 Shell Transport & Trading Co. ............ 44,040 300,146 Waste Management International plc*....... 25,700 234,512 ----------- 2,641,706 ----------- LATIN AMERICA -- 7.3% - ------------------------------------------ ARGENTINA -- 1.5% CIADEA S.A.*.............................. 14,400 61,927 Telecom Argentina S.A. Sponsored ADR...... 2,000 105,000 Telefonica De Argentina S.A. ............. 3,700 128,113 YPF S.A. Sponsored ADR.................... 6,000 184,500 ----------- 479,540 ----------- BRAZIL -- 2.4% Companhia Vale do Rio Doce Preferred...... 15,000 334,402 Telecomunicacoes Brasileiras S.A. ADR (Telebras).............................. 2,800 424,900 ----------- 759,302 ----------- CHILE -- 2.9% A.F.P Provida S.A. Sponsored ADR.......... 12,000 $ 262,500 Cia de Telecomunicaciones de Chile S.A. Sponsored ADR*.......................... 6,200 204,600 Empresa Nacional de Electricidad S.A...... 5,900 133,119 Santa Isabel S.A. ADR..................... 5,300 170,925 Vina Concha y Toro S.A. ADR............... 5,400 167,062 ----------- 938,206 ----------- MEXICO -- 0.5% Sanluis Corporacion S.A. de C.V. ......... 12,130 89,513 Tubos de Acero de Mexico S.A. -- Sponsored ADR..................................... 3,300 60,844 ----------- 150,357 ----------- TOTAL EQUITY SECURITIES (Cost -- $29,608,253)(a)................ 30,007,591 OTHER ASSETS, LESS LIABILITIES -- 6.3%.... 2,031,938 ----------- NET ASSETS -- 100%........................ $32,039,529 =========== ADR - American Depository Receipt GDR - Global Depository Receipt NV - Non-voting * Non-Income producing security. (a) Cost is the same for Federal income tax purposes. OTHER INFORMATION: At June 30, 1997, net unrealized appreciation based on cost for financial statement and Federal income tax purposes is as follows: Gross unrealized appreciation..................... $ 961,878 Gross unrealized depreciation..................... (562,540) ----------- Net unrealized appreciation................... $ 399,338 =========== Purchases and sales of securities other than short-term obligations aggregated $29,608,253 and $0, respectively, for the period ended June 30, 1997. Forward foreign currency exchange contracts at June 30, 1997 were: FORWARD CONTRACTS PRINCIPAL VALUE OF UNREALIZED (CURRENCY/EXPIRATION/COMMITMENT) AMOUNT OBLIGATION APPRECIATION - -------------------------------------- ------------- ----------- ------------ Deutsch Marks/September 97/Sell....... 100,455 US $ (99,740) $ 715 French Francs/September 97/Sell....... 1,224,440 US (1,195,842) 28,598 French Francs/September 97/Sell....... 1,296,156 US (1,288,093) 8,063 Netherland Guilders/September 97/Sell.............................. 400,371 US (397,329) 3,042 Swiss Francs/September 97/Sell........ 252,136 US (248,675) 3,461 ----------- ------- Total forward foreign currency exchange contracts sold.............. $(3,229,679) $43,879 =========== =======
(See Notes to Financial Statements) 108 STATEMENT OF ASSETS AND LIABILITIES JUNE 30, 1997 (UNAUDITED) ASSETS Investments, at value (identified cost -- $29,608,253)...... $30,007,591 Cash........................................................ 4,949,130 Cash denominated in foreign currencies (cost -- $101)....... 102 Receivables Open forward foreign currency contracts................... 43,879 Fund shares sold.......................................... 1,719,435 Dividends and interest.................................... 47,062 Deferred organization expense............................... 61,106 ----------- Total assets............................................ 36,828,305 ----------- LIABILITIES Payables Investments purchased..................................... 4,731,154 Fund shares repurchased................................... 11,346 Management fee............................................ 17,743 12b-1 service and distribution fees....................... 15,004 Other payables to related parties......................... 7,113 Accrued expenses............................................ 6,416 ----------- Total liabilities....................................... 4,788,776 ----------- NET ASSETS.................................................. $32,039,529 =========== CLASS A Net asset value and redemption price per share ($6,508,007/634,226 shares outstanding)................... $ 10.26 =========== Maximum offering price per share ($10.26 X 100/94.25)*...... $ 10.89 =========== CLASS B Net asset value, offering price and redemption price** per share ($16,697,672/1,628,643 shares outstanding).......... $ 10.25 =========== CLASS C Net asset value, offering price and redemption price*** per share ($8,833,850/861,718 shares outstanding)............. $ 10.25 =========== NET ASSETS CONSIST OF Capital paid-in........................................... $31,551,918 Undistributed net realized loss on investments and foreign currency transactions................................... (395) Undistributed net investment income....................... 45,186 Net unrealized appreciation on Investments and foreign currency transactions........... 398,941 Forward foreign currency contracts...................... 43,879 ----------- NET ASSETS.................................................. $32,039,529 ===========
* On sales of more than $50,000 the offering price is reduced. ** Subject to a maximum contingent deferred sales charge of 5%. *** Subject to a maximum contingent deferred sales charge of 1%. (See Notes to Financial Statements) 109 STATEMENT OF OPERATIONS FOR THE PERIOD MAY 13, 1997 (COMMENCEMENT) TO JUNE 30, 1997 (UNAUDITED) INVESTMENT INCOME Dividends, net of $9,349 foreign taxes withheld........... $ 80,999 Interest.................................................. 16,795 ---------- 97,794 ---------- EXPENSES Management fee............................................ $ 20,952 Transfer agent............................................ 2,408 Administrative services fee............................... 2,095 Custodian fees............................................ 1,046 Auditing and accounting fees.............................. 1,500 Amortization of organization expenses..................... 243 Fund accounting........................................... 2,925 12b-1 service and distribution fees....................... 17,524 Legal..................................................... 3,000 Other..................................................... 915 ---------- Total expenses........................................ 52,608 ---------- NET INVESTMENT INCOME....................................... 45,186 ---------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS Net realized loss on investments and foreign currency transactions............................................ (395) Net unrealized appreciation during the period on Investments and foreign currency transactions........... 398,941 Forward foreign currency contracts...................... 43,879 ---------- Net gain on investment transactions................... 442,425 ---------- INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $ 487,611 ==========
STATEMENT OF CHANGES IN NET ASSETS FOR THE PERIOD MAY 13, 1997 (COMMENCEMENT) TO JUNE 30, 1997 (UNAUDITED) INCREASE IN NET ASSETS Operations Net investment income..................................... $ 45,186 Net realized loss on investments and foreign currency transactions............................................ (395) Net unrealized appreciation during the period on Investments and foreign currency transactions........... 398,941 Forward foreign currency contracts...................... 43,879 ----------- Net increase resulting from operations................ 487,611 ----------- Fund share transactions (Note 4) Class A................................................... 6,396,705 Class B................................................... 16,447,037 Class C................................................... 8,708,176 Class I................................................... -- ----------- Net increase resulting from Fund share transactions... 31,551,918 ----------- TOTAL INCREASE IN NET ASSETS................................ $32,039,529 =========== UNDISTRIBUTED NET INVESTMENT INCOME......................... $ 45,186 ===========
(See Notes to Financial Statements) 110 FINANCIAL HIGHLIGHTS
FOR THE PERIOD MAY 13, 1997 (COMMENCEMENT) TO JUNE 30, 1997* --------------------------------- CLASS A CLASS B CLASS C ------- ------- ------- SELECTED PER SHARE DATA** Net asset value, beginning of period........................ $10.01 $10.01 $10.01 ------ ------- ------ Income from investment operations Net investment income..................................... .03 .02 .02 Net realized and unrealized gain on investment transactions............................................ .22 .22 .22 ------ ------- ------ Total from investment operations........................ .25 .24 .24 ------ ------- ------ Net asset value, end of period.............................. $10.26 $10.25 $10.25 ====== ======= ====== Total return(%)(a).......................................... 2.50 2.40 2.40 RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands).................... $6,508 $16,698 $8,834 Ratio of expenses to average net assets(%)(b)............. 1.82 2.58 2.56 Ratio of net investment income to average net assets(%)(b)............................................ 2.66 1.90 1.92 Portfolio turnover rate(%).................................. 0 0 0 Average commission rate(c).................................. $.0228 $.0228 $.0228 (a) Total return represents aggregate total return and does not reflect a sales charge. (b) Annualized. (c) 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. * Unaudited. ** Based on average shares outstanding.
(See Notes to Financial Statements) 111 NOTES TO FINANCIAL STATEMENTS (UNAUDITED) Ivy International Fund II (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 traded on a U.S. or foreign stock exchange, or the National Association of Securities Dealers Automated Quotation ("NASDAQ") System, are valued at the last quoted sale price reported as of the close of regular trading on the exchange the security is traded most extensively. If there is no such sale, the security is valued at the calculated mean between the last bid and asked price on the exchange. Securities not traded on an exchange or NASDAQ, but traded in another over-the-counter market are valued at the average between the current bid and asked prices in such markets. Short-term obligations and commercial paper are valued at amortized cost, which approximates market. Debt securities (other than short-term obligations and commercial paper) are valued on the basis of valuations furnished by a pricing service authorized by the Board of Trustees (the Board), which determines valuations based upon market transactions for normal, institutional-size trading units of such securities. 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 June 30, 1997, 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. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency transactions from foreign investment activity are translated into U.S. dollars on the following basis: (i) market value of securities, and dividends and interest receivable are translated at the closing daily rate of exchange; and, (ii) purchases and sales of investment securities are translated at the rate at which related foreign contracts are obtained or at the exchange rate prevailing on the date of the transaction. Exchange gains or losses from currency translation of other assets and liabilities, if significant, are reported as a separate component of Net realized and unrealized gain (loss) on investment transactions. 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. 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 differ significantly in amount and character from distributions during such period. Accordingly, the Fund may 112 NOTES TO FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) make reclassifications among certain of its capital accounts without impacting the net asset value of the Fund. 2. RELATED PARTIES Ivy Management, Inc. (IMI) is the Manager and Investment Adviser of the Fund. For its services, IMI receives a fee monthly at the annual rate of 1.00% of the Fund's average net assets. Currently, IMI voluntarily limits the Fund's total operating expenses (excluding taxes, 12b-1 fees, brokerage commissions, interest, litigation and indemnification expenses, and other extraordinary expenses). 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 and expenses are reflected as Administrative services fee and Fund accounting in the Statement of Operations. Ivy Mackenzie Distributors, Inc. (IMDI), a wholly owned subsidiary of MIMI, is the underwriter and distributor of the Fund's shares, and as such, purchases shares from the Fund at net asset value to settle orders from investment dealers. From May 13, 1997 (Commencement) to June 30, 1997, the net amount of underwriting discount retained by IMDI was $22,796. 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 assets, excluding Class I. 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 $1,143, $10,678 and $5,703, 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 $372, $1,421, $615 and $0, 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 from May 13, 1997 (Commencement) to June 30, 1997, for Class A, Class B, Class C and Class I were as follows:
CLASS A SHARES AMOUNT ------- --------- ----------- Sold.............................................. 639,057 $ 6,445,931 Repurchased....................................... (4,831) (49,226) --------- ----------- Net increase...................................... 634,226 $ 6,396,705 ========= ===========
CLASS B SHARES AMOUNT ------- --------- ----------- Sold.............................................. 1,637,376 $16,535,345 Repurchased....................................... (8,733) (88,308) --------- ----------- Net increase...................................... 1,628,643 $16,447,037 ========= ===========
CLASS C SHARES AMOUNT ------- --------- ----------- Sold.............................................. 870,370 $ 8,796,077 Repurchased....................................... (8,652) (87,901) --------- ----------- Net increase...................................... 861,718 $ 8,708,176 ========= ===========
CLASS I SHARES AMOUNT ------- --------- ----------- Sold.............................................. 1 $ 10 Repurchased....................................... (1) (10) --------- ----------- Net increase...................................... -- $ -- ========= ===========
03IVIAX063097 113 June 30, 1997 IVY FUNDS(R) Ivy International Small Companies Fund - ----------- Semi-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 THROUGHOUT THE CENTURIES, THE CASTLE KEEP HAS BEEN A SOURCE OF LONG-RANGE VISION AND STRATEGIC ADVANTAGE. MARKET COMMENTARY: We would like to take this opportunity to welcome you as a shareholder of the new Ivy International Small Companies Fund. There are many potential benefits to investing internationally including additional diversification, minimizing risk and maximizing returns. The development of international small-capitalization stocks as an asset class is still in its early days. According to our research, however, Europe is on the right track. After several years of underperformance due to weak economies, we believe domestically focused small companies in Europe should begin to show signs of strength. In addition, the trend toward entrepreneurship, increased access to capital markets, and perhaps the most important -- attractive valuations -- should provide strong support for this asset class in the coming years. We believe 2the combination of strong profit growth as European economies pick up and the current low valuations in small-capitalization European stocks make this an attractive area for investment. Approximately 50% of the Ivy International Small Companies Fund is invested in Europe, 24% in Asia, 6% in Latin America and 2% in Canada. Many of the Fund's European stocks are invested in small-capitalization consumer cyclicals and industrial holdings, which we believe should benefit from the European recovery that our research indicates is underway. These holdings include Dyckerhoff, a German cement manufacturer, Edipresse, a Swiss publisher, and the German-based manufacturer of high-quality cameras, Leica Camera. These stocks have performed reasonably well in local currency terms, although not as well as their large-capitalization counterparts. Large-capitalization stocks in Europe, as in other markets, have outperformed smaller-company stocks significantly since the beginning of 1997. The Fund's Asian investments have suffered along with the region's general investment climate. However, we continue to believe there is tremendous value in many of these issues. The Fund is invested in niche manufacturers like Elec & Eltek and retailers such as Robinson Stores and Tourism Holdings, a tour operator in New Zealand. Our research confirms that these stocks are selling at very reasonable valuations and offer superior long-term growth. The Fund's Latin American investments have performed well on the back of strong overall markets in the region. Latin American markets are dominated by large utilities, banks and conglomerates, and the quality and number of smaller-capitalization companies are limited. However, the Fund is invested in some well-managed, small-capitalization stocks like the Brazilian airline TAM, and Bansud, one of the largest Argentine banks. For the most part, international small-capitalization stocks have been largely ignored by international investors and are not as widely covered by research analysts as are large-capitalization stocks. Neglected and under-researched stocks often present excellent values. Overall, we are optimistic about the longer-term prospects for international markets, and small-company stocks, in particular. We believe investors who recognize the importance of diversifying their investment portfolios overseas should benefit. IVY MANAGEMENT, INC. BOARD OF TRUSTEES John S. Anderegg, Jr. Paul H. Broyhill Keith J. Carlson Stanley Channick Frank W. DeFriece, Jr. Roy J. Glauber Michael G. Landry Joseph G. Rosenthal Richard N. Silverman J. Brendan Swan OFFICERS Michael G. Landry, Chairman Keith J. Carlson, President James W. Broadfoot, Vice President C. William Ferris, Secretary/Treasurer LEGAL COUNSEL Dechert Price & Rhoads Boston, MA CUSTODIAN Brown Brothers Harriman & Co. Boston, MA TRANSFER AGENT Ivy Mackenzie Services Corp. P.O. Box 3022 Boca Raton, FL 33431-0922 1-800-777-6472 AUDITORS Coopers & Lybrand L.L.P. Fort Lauderdale, FL INVESTMENT MANAGER Ivy Management, Inc. 700 South Federal Highway Boca Raton, FL 33432 1-800-456-5111 DISTRIBUTOR Ivy Mackenzie Distributors, Inc. 700 South Federal Highway Boca Raton, FL 33432 1-800-456-5111 [IVY MACKENZIE LOGO] 114 PORTFOLIO OF INVESTMENTS JUNE 30, 1997 (UNAUDITED)
EQUITY SECURITIES -- 81.2% SHARES VALUE - ------------------------------------------- ASIA/PACIFIC -- 23.9% - ------------------------------------------- AUSTRALIA -- 1.1% Pacific Dunlop Limited..................... 12,400 $ 36,414 ---------- HONG KONG -- 7.8% CDL Hotels International Ltd............... 44,000 17,890 Li & Fung.................................. 50,000 56,149 National Mutual Asia Ltd................... 44,000 48,843 Peregrine Investment Holdings Limited...... 26,000 53,529 Union Bank of Hong Kong Ltd................ 31,000 89,631 ---------- 266,042 ---------- MALAYSIA -- 3.7% KFC Holdings (Malaysia) Berhad............. 20,300 76,406 Malayan Cement Berhad...................... 28,750 48,068 ---------- 124,474 ---------- NEW ZEALAND -- 7.2% Fisher & Paykel Industries................. 20,800 81,056 Fletcher Challenge Building................ 23,000 69,054 Fletcher Challenge Forestry................ 5,200 7,542 Tourism Holdings Limited................... 61,200 86,687 ---------- 244,339 ---------- PHILIPPINES -- 1.0% Metro Pacific Corp......................... 162,700 35,160 ---------- SINGAPORE -- 1.7% Elec & Eltek International Co. Ltd......... 10,000 56,000 ---------- THAILAND -- 1.4% Asia Credit Company PLC.................... 4,500 11,465 Dhana Siam Finance & Securities Public Company Limited.......................... 48,400 25,690 Robinson Department Store Public Company Limited -- Foreign Registered............ 30,200 11,075 ---------- 48,230 ---------- EUROPE -- 50.0% - ------------------------------------------- AUSTRIA -- 4.2% BWT AG..................................... 560 86,779 Creditanstalt-Bankverein................... 1,390 55,890 ---------- 142,669 ---------- FINLAND -- 1.8% Metsa-Serla OY -- Class B.................. 7,300 59,448 ---------- FRANCE -- 5.1% Bongrain S.A............................... 175 68,528 Scor....................................... 1,810 72,944 Societe Generale........................... 300 33,521 ---------- 174,993 ---------- GERMANY -- 6.7% Dyckerhoff AG.............................. 115 41,709 Gerresheimer Glas AG....................... 3,800 63,787 Leica Camera AG............................ 2,420 59,718 Merck KGaA................................. 1,440 62,805 ---------- 228,019 ---------- HUNGARY -- 1.1% Danubius Hotel & Spa Rt.................... 500 14,787 Pick Szeged Rt............................. 300 23,083 ---------- 37,870 ---------- ITALY -- 7.7% Banca Popolare Di Milano................... 7,950 47,588 Fiat S.p.A.*............................... 15,950 57,369 Industrie Natuzzi Spa -- Sponsored ADR..... 2,400 61,500 Safilo S.p.A............................... 4,060 94,252 ---------- 260,709 ---------- NETHERLANDS -- 1.0% Fortis Amev NV............................. 700 31,225 ---------- NORWAY -- 1.7% Norske Skogindustrier ASA.................. 910 31,573 Nycomed ASA................................ 1,830 26,997 ---------- 58,570 ---------- PORTUGAL -- 4.5% Colep -- Cia. Portuguesa de Embalagens*.... 1,800 28,927 Companhia de Seguros Mundial Confianca S.A.*.................................... 4,850 71,457 Lusomundo-SGPS S.A......................... 5,610 50,742 ---------- 151,126 ---------- SPAIN -- 2.2% Grupo Anaya S.A............................ 3,900 76,372 ---------- SWEDEN -- 1.2% S.K.F. AB Series "B"....................... 1,510 39,057 ---------- SWITZERLAND -- 5.1% Edipresse S.A.............................. 315 74,545 Fotolabo S.A............................... 310 98,879 ---------- 173,424 ---------- UNITED KINGDOM -- 7.7% Care U.K. PLC.............................. 36,780 75,598 Corporate Services Group PLC............... 20,380 63,936 Jarvis Hotels PLC.......................... 26,770 62,598 Kiln Capital PLC........................... 34,650 59,686 ---------- 261,818 ---------- LATIN AMERICA -- 5.6% - ------------------------------------------- ARGENTINA -- 2.8% Bansud S.A.*............................... 3,340 51,776 Quilmes Industrial S.A.*................... 3,830 44,524 ---------- 96,300 ---------- BRAZIL -- 1.7% Elevadores Atlas S.A. 144A................. 1,600 20,844 OSA S.A. Preferred......................... 2,800,000 13,005 Tam Transport Aeros Preferred.............. 460,000 25,424 ---------- 59,273 ---------- CHILE -- 1.1% Genesis Chile Fund......................... 760 38,190 ---------- NORTH AMERICA -- 1.7% - ------------------------------------------- CANADA -- 1.7% Methanex Corporation....................... 5,870 54,464 Semi-Tech Corporation...................... 1,560 3,347 ---------- 57,811 ---------- TOTAL EQUITY SECURITIES (Cost -- $2,679,690)(a).................. 2,757,533 OTHER ASSETS, LESS LIABILITIES -- 18.8%.... 639,468 ---------- NET ASSETS -- 100%......................... $3,397,001 ========== ADR -- American Depository Receipt NV -- Non-voting * Non-Income producing security. (a) Cost is the same for Federal income tax purposes. OTHER INFORMATION: At June 30, 1997, net unrealized appreciation based on cost for financial statement and Federal income tax purposes is as follows: Gross unrealized appreciation...................... $ 239,238 Gross unrealized depreciation...................... (161,395) ---------- Net unrealized appreciation.................... $ 77,843 ========== Purchases and sales of securities other than short-term obligations aggregated $2,682,230 and $3,575, respectively, for the period ended June 30, 1997.
(See Notes to Financial Statements) 115 STATEMENT OF ASSETS AND LIABILITIES JUNE 30, 1997 (UNAUDITED) ASSETS Investments, at value (identified cost -- $2,679,690)....... $ 2,757,533 Cash........................................................ 813,837 Receivables Fund shares sold.......................................... 54,475 Dividends and interest.................................... 7,449 Manager for expense reimbursement......................... 17,958 Deferred organization expenses.............................. 44,183 Other assets................................................ 3,040 ----------- Total assets.............................................. 3,698,475 ----------- LIABILITIES Payables Investments purchased..................................... 279,562 Fund shares repurchased................................... 311 Management fee............................................ 2,698 12b-1 service and distribution fees....................... 2,088 Other payables to related parties......................... 2,803 Accrued expenses............................................ 14,012 ----------- Total liabilities......................................... 301,474 ----------- NET ASSETS.................................................. $ 3,397,001 =========== CLASS A Net asset value and redemption price per share ($1,117,011/107,585 shares outstanding)................... $ 10.38 =========== Maximum offering price per share ($10.38 X 100/94.25)*...... $ 11.01 =========== CLASS B Net asset value, offering price and redemption price** per share ($694,639/67,153 shares outstanding)................ $ 10.34 =========== CLASS C Net asset value, offering price and redemption price*** per share ($1,585,351/153,106 shares outstanding)............. $ 10.35 =========== NET ASSETS CONSIST OF Capital paid-in............................................. $ 3,307,922 Undistributed net realized gain on investments and foreign currency transactions..................................... 1,125 Undistributed net investment income......................... 10,151 Net unrealized appreciation on investments and foreign currency transactions..................................... 77,803 ----------- NET ASSETS.................................................. $ 3,397,001 ===========
* On sales of more than $50,000 the offering price is reduced. ** Subject to a maximum contingent deferred sales charge of 5%. *** Subject to a maximum contingent deferred sales charge of 1%. (See Notes to Financial Statements) 116 STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED) INVESTMENT INCOME Dividends, net of $3,347 foreign taxes withheld........... $ 35,469 -------- EXPENSES Management fee............................................ $ 9,644 Transfer agent............................................ 2,127 Administrative services fee............................... 964 Custodian fees............................................ 23,407 Blue Sky fees............................................. 1,520 Auditing and accounting fees.............................. 1,553 Shareholder reports....................................... 50 Amortization of organization expenses..................... 2,754 Fund accounting........................................... 8,275 Trustees' fees............................................ 435 12b-1 service and distribution fees....................... 7,219 Legal..................................................... 7,764 Other..................................................... 1,033 -------- 66,745 Expenses reimbursed by manager............................ (41,427) -------- Net expenses............................................ 25,318 -------- NET INVESTMENT INCOME....................................... 10,151 -------- REALIZED AND UNREALIZED GAIN ON INVESTMENT TRANSACTIONS Net realized gain on investments and foreign currency transactions............................................ 1,125 Net unrealized appreciation during the period on investments and foreign currency transactions........... 77,803 -------- Net gain on investment transactions..................... 78,928 -------- INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $ 89,079 ========
(See Notes to Financial Statements) 117 STATEMENT OF CHANGES IN NET ASSETS FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED) INCREASE IN NET ASSETS Operations Net investment income..................................... $ 10,151 Net realized gain on investments and foreign currency transactions............................................ 1,125 Net unrealized appreciation during the period on investments and foreign currency transactions........... 77,803 ----------- Net increase resulting from operations.................. 89,079 ----------- Fund share transactions (Note 4) Class A................................................. 1,081,212 Class B................................................. 679,618 Class C................................................. 1,547,092 Class I................................................. -- ----------- Net increase resulting from Fund share transactions..... 3,307,922 ----------- TOTAL INCREASE IN NET ASSETS................................ $ 3,397,001 =========== UNDISTRIBUTED NET INVESTMENT INCOME......................... $ 10,151 ===========
(See Notes to Financial Statements) 118 FINANCIAL HIGHLIGHTS
FOR THE SIX MONTHS ENDED JUNE 30, 1997* --------------------------------- CLASS A CLASS B CLASS C SELECTED PER SHARE DATA** ------- ------- ------- Net asset value, beginning of period........................ $10.00 $10.00 $10.00 ------ ------ ------ Income from investment operations Net investment income(a).................................. .06 .03 .03 Net realized and unrealized gain on investment transactions............................................ .32 .31 .32 ------ ------ ------ Total from investment operations........................ .38 .34 .35 ------ ------ ------ Net asset value, end of period.............................. $10.38 $10.34 $10.35 ====== ====== ====== Total return(%)(b).......................................... 3.80 3.40 3.50 RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands).................... $1,117 $ 695 $1,585 Ratio of expenses to average net assets With expense reimbursement(%)(c).......................... 2.11 2.91 2.82 Without expense reimbursement(%)(c)....................... 6.37 7.17 7.08 Ratio of net investment income to average net assets(%)(a)(c)........................................... 1.53 .73 .83 Portfolio turnover rate(%).................................. 0 0 0 Average commission rate(d).................................. $.0026 $.0026 $.0026
(a) Net investment income is net of expenses reimbursed by manager. (b) Total return represents aggregate total return and does not reflect a sales charge. (c) Annualized. (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. * Unaudited. ** Based on average shares outstanding. (See Notes to Financial Statements) 119 NOTES TO FINANCIAL STATEMENTS (UNAUDITED) Ivy International Small Companies 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 traded on a U.S. or foreign stock exchange, or the National Association of Securities Dealers Automated Quotation ("NASDAQ") System, are valued at the last quoted sale price reported as of the close of regular trading on the exchange the security is traded most extensively. If there is no such sale, the security is valued at the calculated mean between the last bid and asked price on the exchange. Securities not traded on an exchange or NASDAQ, but traded in another over-the-counter market are valued at the average between the current bid and asked prices in such markets. Short-term obligations and commercial paper are valued at amortized cost, which approximates market. Debt securities (other than short-term obligations and commercial paper) are valued on the basis of valuations furnished by a pricing service authorized by the Board of Trustees (the Board), which determines valuations based upon market transactions for normal, institutional-size trading units of such securities. 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 June 30, 1997, 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. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency transactions from foreign investment activity are translated into U.S. dollars on the following basis: (i) market value of securities, and dividends and interest receivable are translated at the closing daily rate of exchange; and, (ii) purchases and sales of investment securities are translated at the rate at which related foreign contracts are obtained or at the exchange rate prevailing on the date of the transaction. Exchange gains or losses from currency translation of other assets and liabilities, if significant, are reported as a separate component of Net realized and unrealized gain (loss) on investment transactions. 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 differ significantly in amount and character from distributions during such period. Accordingly, the Fund may make reclassifications among certain of its capital accounts without impacting the net asset value of the Fund. 2. RELATED PARTIES Ivy Management, Inc. (IMI) is the Manager and Investment Adviser of the Fund. For its services, IMI receives a fee monthly at the annual rate of 1.00% of the Fund's average net assets. 120 NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) 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 and expenses are reflected as Administrative services fee and Fund accounting in the Statement of Operations. Ivy Mackenzie Distributors, Inc. (IMDI), a wholly owned subsidiary of MIMI, is the underwriter and distributor of the Fund's shares, and as such, purchases shares from the Fund at net asset value to settle orders from investment dealers. For the six months ended June 30, 1997, the net amount of underwriting discount retained by IMDI was $4,070. 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 assets, excluding Class I. 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 $808, $1,958 and $4,453, 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 $742, $579, $806 and $0, 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 from January 1, 1997 (Commencement) to June 30, 1997, for Class A, Class B, Class C and Class I were as follows:
CLASS A SHARES AMOUNT ------- ------- ---------- Sold................................................... 112,024 1,126,132 Repurchased............................................ (4,439) (44,920) ------- ---------- Net increase........................................... 107,585 1,081,212 ======= ==========
CLASS B SHARES AMOUNT ------- ------- ---------- Sold................................................... 78,553 $ 794,248 Repurchased............................................ (11,400) (114,630) ------- ---------- Net increase........................................... 67,153 $ 679,618 ======= ==========
CLASS C SHARES AMOUNT ------- ------- ---------- Sold................................................... 176,674 $1,787,192 Repurchased............................................ (23,568) (240,100) ------- ---------- Net increase........................................... 153,106 $1,547,092 ======= ==========
CLASS I SHARES AMOUNT ------- ------- ---------- Sold................................................... 1 $ 10 Repurchased............................................ (1) (10) ------- ---------- Net increase........................................... -- $ -- ======= ==========
03IISCF063097 121 IVY FUNDS(R) June 30, 1997 Ivy Latin America Strategy Fund - ------------- Semi-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 THROUGHOUT THE CENTURIES, THE CASTLE KEEP HAS BEEN A SOURCE OF LONG-RANGE VISION AND STRATEGIC ADVANTAGE. Market Commentary: Since the beginning of 1997, strong capital flows into Latin America have helped fuel one of the best regional performances among stock markets around the world. However, investments in Latin America continue to be relatively concentrated in the stocks of larger-capitalization companies, particularly telecommunication stocks (and in some cases, electric utilities). These stocks dominate most of the local indices and serve as proxies for many of the markets in the region. This has been the case in both Argentina and Brazil, for example, where telecommunication stocks have gained more than twice the returns of the indices. Holdings in the Ivy Latin America Strategy Fund tend to be more diversified than the indices (as well as many funds in its peer group). As a result, the Fund is well positioned to take advantage of a broader-based rally that our research indicates should result as investors become more selective and start looking for values beyond large-capitalization stocks. Since the beginning of 1997, the Ivy Latin America Strategy Fund has been overweight in Brazil (45% of net assets), the best performing market in Latin America, and significantly underweight in Mexico (7% of net assets), which has underperformed other regional markets. We increased the Fund's exposure to Mexico, however, from approximately 4% of the Fund's assets to its current weighting. Although this does not reflect a dramatic shift in portfolio allocation and the Fund remains an outlier among its peers with respect to Mexico, it does mark the Fund's first new investment in the country in the last 12 months. While we continue to have concerns regarding Mexico's macroeconomic (and political) environment over the longer term, we feel that valuations for some companies now reflect these uncertainties better than they have over the last year. The companies we have added are either operationally or financially hedged to a decline in the peso, which we continue to believe is overvalued. The successful privatization of a strategic stake in the iron-ore exporter, Cia Vale do Rio Doce (CVRD) -- the largest sale of state assets in Latin America to date -- provides further evidence of Brazil's steady progress toward market reform. Economic releases coming out of Argentina indicate a strong recovery from the "tequila"-induced recession of 1995. According to our research, this should translate into further gains for the market. Investments in Argentina currently account for 15% of the Ivy Latin America Strategy Fund. In Chile (15% of the Fund), attractive valuations, interest rate cuts and increasing equity allocations from local pension funds have contributed to strong market performance. We feel the underlying story regarding Latin America is strengthening. Our research suggests that improving fundamentals are decreasing the risks of investing in the region and are translating into strong corporate profit growth for those companies positioned to benefit from structural changes. Going forward, we believe the Ivy Latin America Strategy Fund is well positioned to benefit from continued growth in the region. We would encourage investors who recognize the benefits of international diversification to look beyond any short-term distractions and focus on the long-term prospects for Latin America. Ivy Management, Inc. BOARD OF TRUSTEES John S. Anderegg, Jr. Paul H. Broyhill Keith J. Carlson Stanley Channick Frank W. DeFriece, Jr. Roy J. Glauber Michael G. Landry Joseph G. Rosenthal Richard N. Silverman J. Brendan Swan OFFICERS Michael G. Landry, Chairman Keith J. Carlson, President James W. Broadfoot, Vice President C. William Ferris, Secretary/Treasurer LEGAL COUNSEL Dechert Price & Rhoads Boston, MA CUSTODIAN Brown Brothers Harriman & Co. Boston, MA TRANSFER AGENT Ivy Mackenzie Services Corp. P.O. Box 3022 Boca Raton, FL 33431-0922 1-800-777-6472 AUDITORS Coopers & Lybrand L.L.P. Fort Lauderdale, FL INVESTMENT MANAGER Ivy Management, Inc. 700 South Federal Highway Boca Raton, FL 33432 1-800-456-5111 DISTRIBUTOR Ivy Mackenzie Distributors, Inc. 700 South Federal Highway Boca Raton, FL 33432 1-800-456-5111 [IVY MACKENZIE LOGO] 122 PORTFOLIO OF INVESTMENTS JUNE 30, 1997 (UNAUDITED)
EQUITY SECURITIES -- 90.0% SHARES VALUE - --------------------------------------- ARGENTINA -- 14.6% Acindar Industria Argentina S.A.*...... 54,000 $ 138,257 Astra Cia Argentina de Petro (C.A.P.S.A.)......................... 51,130 108,409 Banco de Galicia y Buenos Aries S.A. de C.V.................................. 14,600 97,102 Banco Frances del Rio de la Plata S.A.................................. 8,900 96,399 Bansud S.A.*........................... 7,200 111,614 Cia Naviera Perez Compancciones 'B'.... 13,055 104,844 CIADEA S.A.*........................... 17,113 73,596 Comercial del Plata S.A.*.............. 11,800 38,473 Disco S.A. ADR*........................ 2,000 79,250 Inversiones y Representaciones S.A. (IRSA)............................... 28,107 122,842 Quilmes Industrial S.A.*............... 13,850 161,006 Telecom Argentina...................... 1,500 78,750 Telefonica de Argentina S.A. ADR....... 3,000 103,875 Transportadora de Gas Sur.............. 49,400 119,562 YPF S.A. Sponsored ADR................. 3,900 119,925 ----------- 1,553,904 ----------- BRAZIL -- 44.6% Aracruz Celulose S.A. ADR.............. 5,850 119,194 Banco Bradesco S.A. Preferred.......... 14,936,032 150,533 Banco Nacional S.A..................... 1,600,000 --(a) Brasmotor S.A. Preferred............... 280,000 62,422 Casa Anglo Brasileiras S.A.*........... 650,000 30,793 Centrais Electricas Brasileiras S.A.(Electrobras).................... 160,000 89,471 Centrais Electricas Brasileiras S.A.(Electrobras) Preferred B........ 457,000 271,683 Centrais Electricas de Santa Catarina S.A. (CELESC)........................ 83,201 115,155 Companhia Brasileira de Distribuicao Grupo Pao de Acucar Preferred........ 8,000,000 182,063 Companhia Brasileira de Distribuicao Grupo Pao de Acucar Sponsored ADR.................................. 993 22,591 Companhia Cervejaria Brahma Preferred............................ 206,551 157,329 Companhia Cimento Portland Itau........ 320,000 109,984 Companhia Energetica de Minas Gerais (CEMIG).............................. 1,480,000 76,299 Companhia Paranaense de Energia -- Copel................................ 6,800,000 116,855 Companhia Paulista de Forca e Luz (CPFL)............................... 500,000 84,065 Companhia Paulista de Forca e Luz (CPFL) Preferred..................... 2,905 483 Companhia Saneamento Basico............ 300,030 91,412 Companhia Siderurgica de Tubarao....... 6,900,000 96,077 Companhia Vale do Rio Doce Preferred... 8,300 185,036 Electricidade de Sao Paulo S.A. (Eletropaulo)........................ 500,000 146,296 Electrolux do Brasil S.A............... 37,100,000 58,930 Elevadores Atlas S.A. 144A............. 12,400 161,544 Iochpe-Maxion S.A. Sponsored ADR....... 3,000 8,625 Iparanga Brasileira de Petroleo........ 4,700,000 76,445 Itaubanco.............................. 326,000 184,114 Light Servicos de Eletricidade S.A..... 170,000 84,600 Louis Dreyfus Citrus S.A............... 1,300 48,604 Marco Polo S.A......................... 610,000 109,075 OSA S.A................................ 17,400,000 80,814 Petroleo Brasileiro S.A. (Petrobras)... 1,184,000 328,844 Tam Transport Aereos Regionais S.A. Preferred............................ 2,450,000 135,410 Telecomunicacoes Brasileiras S.A. ADR (Telebras)........................... 2,900 440,075 Telecomunicacoes de Minas Gerais (Telemig)............................ 4,921 841 Telecomunicacoes de Minas Gerais (Telemig) Preferred B................ 870,666 154,068 Telecomunicacoes de Sao Paulo S.A. (Telesp)............................. 7,154 2,183 Telecomunicacoes de Sao Paulo S.A. (Telesp) Preferred................... 323,509 105,778 Telecomunicacoes do Parana (Telepar)... 216,690 161,026 Telecomunicacoes do Rio de Janeiro S.A. (Telerj)*............................ 1,116,013 172,085 Uniao de Bancos Brasileiros............ 4,959,694 181,932 Usinas Siderurgicas de Minas Gerais S.A. (USIMINAS)...................... 13,010 144,898 ----------- 4,747,632 ----------- CHILE -- 14.9% A.F.P. Provida S.A. ADR................ 4,100 89,688 Antofagasta Holdings PLC............... 9,900 75,545 Banco de Santiago...................... 1,700 43,350 Banco Santander Chile Sponsored ADR.... 4,200 61,950 Chilgener S.A. Sponsored ADR........... 1,300 36,400 Chilgener S.A. Sponsored ADR Rights*.............................. 429 1,014 Companhia de Telecomunicaciones de Chile S.A. ADR*...................... 2,975 98,175 Cristalerias de Chile Sponsored ADR.... 4,500 107,438 Empresa Nacional Electricidad S.A...... 6,500 146,656 Genesis Chile Fund..................... 5,582 280,495 Laboratorio Chile S.A. ADR............. 6,400 183,200 Madeco S.A. ADR........................ 1,700 41,650 Maderas y Sinteticos Sociedad Anonima S.A. Sponsored ADR................... 4,300 71,487 Quimica Minera Chile S.A. Sponsored ADR.................................. 2,200 145,475 Santa Isabel S.A. ADR.................. 2,700 87,075 Vina Concha y Toro S.A. ADR............ 3,600 111,375 ----------- 1,580,973 ----------- COLOMBIA -- 2.5% Banco Ganadero S.A. Sponsored ADR...... 2,400 86,400 Banco Industrial Colombiano ADR........ 6,900 124,200 Cememtos Diamante ADR 144A............. 4,100 54,837 ----------- 265,437 ----------- MEXICO -- 6.5% Banacci Series 'B'*.................... 4,000 10,459 Banacci Series 'L'*.................... 326 766 Cementos de Mexico S.A. 'B'............ 19,800 95,335 Corporacion GEO, S.A. 'B'*............. 22,912 130,769 Grupo Elektra, S.A. de C.V............. 1,000 10,874 Grupo Minsa S.A. de C.V................ 63,500 82,224 Grupo Posadas S.A. -- Series A*........ 193,500 116,764 Hylsamex ADR 144A...................... 1,000 31,125 Sanluis Corporacion S.A. de C.V........ 13,000 95,933 Tubos de Acero de Mexico -- Sponsored ADR.................................. 4,800 88,500 Vitro Sociedad Anonima ADR............. 2,400 27,000 ----------- 689,749 ----------- PANAMA -- 2.2% Banco Latinamericano de Exportaciones S.A. -- E*........................... 1,700 73,313 Panamerican Beverages Inc.............. 5,000 164,375 ----------- 237,688 -----------
(See Notes to Financial Statements) 123 PORTFOLIO OF INVESTMENTS (CONTINUED) JUNE 30, 1997 (UNAUDITED)
EQUITY SECURITIES SHARES VALUE - ----------------------------------------- PERU -- 4.7% Banco Wiese ADR.......................... 20,200 $ 131,300 CPT Telefonica del Peru S.A.- B*......... 42,500 111,677 Credicorp Limited........................ 6,194 136,268 Southern Peru Copper Corp................ 6,100 118,950 ----------- 498,195 ----------- TOTAL EQUITY SECURITIES (Cost -- $7,245,010)................... 9,573,578 ----------- BONDS -- 0.4% PRINCIPAL - ----------------------------------------- ----------- Inversiones y Representaciones S.A. "Parcks" 144A Floating Rate, 4.50%, 07/04/03. (Cost -- $40,000)............ $ 40,000 45,600 ----------- TOTAL INVESTMENTS -- 90.4% (Cost -- $7,285,010)(a)......................... 9,619,178 OTHER ASSETS, LESS LIABILITIES -- 9.6%... 1,026,135 ----------- NET ASSETS -- 100%....................... $10,645,313 =========== 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 June 30, 1997 aggregated $39,649. See Note 1 of the Notes to Financial Statements. (b) Cost is approximately the same for Federal income tax purposes. OTHER INFORMATION: At June 30, 1997, net unrealized appreciation based on cost for financial statement and Federal income tax purposes is as follows: Gross unrealized appreciation..................... $ 2,609,949 Gross unrealized depreciation..................... (275,781) ----------- Net unrealized appreciation................... $ 2,334,168 =========== Purchases and sales of securities other than short-term obligations aggregated $15,413,487 and $278,750, respectively, for the period ended June 30, 1997.
(See Notes to Financial Statements) 124 STATEMENT OF ASSETS AND LIABILITIES JUNE 30, 1997 (UNAUDITED) ASSETS Investments, at value (identified cost -- $7,285,010)....... $ 9,619,178 Cash........................................................ 947,988 Receivables Investments sold.......................................... 163,012 Fund shares sold.......................................... 11,398 Dividends and interest.................................... 44,489 Manager for expense reimbursement......................... 1,324 Deferred organization expenses.............................. 29,012 Other assets................................................ 13,491 ----------- Total assets.............................................. 10,829,892 ----------- LIABILITIES Payables Investments purchased..................................... 153,310 Management fee............................................ 8,532 12b-1 service and distribution fees....................... 4,965 Other payables to related parties......................... 4,369 Accrued expenses............................................ 13,403 ----------- Total liabilities......................................... 184,579 ----------- NET ASSETS.................................................. $10,645,313 =========== CLASS A Net asset value and redemption price per share ($6,162,863/568,724 shares outstanding)................... $ 10.84 =========== Maximum offering price per share ($10.84 X 100/94.25)*...... $ 11.50 =========== CLASS B Net asset value, offering price and redemption price** per share ($3,974,766/369,609 shares outstanding)............. $ 10.75 =========== CLASS C Net asset value, offering price and redemption price*** per share ($507,684/47,355 shares outstanding)................ $ 10.72 =========== NET ASSETS CONSIST OF Capital paid-in............................................. $ 8,161,579 Undistributed net realized gain on investments and foreign currency transactions................................... 91,978 Undistributed net investment income....................... 57,974 Net unrealized appreciation on investments and foreign currency transactions................................... 2,333,782 ----------- NET ASSETS.................................................. $10,645,313 ===========
* On sales of more than $50,000 the offering price is reduced. ** Subject to a maximum contingent deferred sales charge of 5%. *** Subject to a maximum contingent deferred sales charge of 1%. (See Notes to Financial Statements) 125 STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED) INVESTMENT INCOME Dividends, net of $11,150 foreign taxes withheld.......... $ 164,798 Interest.................................................. 1,036 ---------- 165,834 ---------- EXPENSES Management fee............................................ $43,316 Transfer agent............................................ 9,949 Administrative services fee............................... 4,332 Custodian fees............................................ 20,413 Blue Sky fee.............................................. 10,743 Auditing and accounting fees.............................. 8,029 Shareholder reports....................................... 1,208 Amortization of organization expenses..................... 6,176 Fund accounting........................................... 9,759 Trustees' fees............................................ 2,977 12b-1 service and distribution fees....................... 23,857 Legal..................................................... 13,570 Other..................................................... 2,836 ---------- 157,165 Expenses reimbursed by manager............................ (35,932) Fees paid indirectly...................................... (13,373) ---------- Net expenses............................................ 107,860 ---------- NET INVESTMENT INCOME....................................... 57,974 ---------- REALIZED AND UNREALIZED GAIN ON INVESTMENT TRANSACTIONS Net realized gain on investments and foreign currency transactions............................................ 92,556 Net unrealized appreciation during the period on investments and foreign currency transactions........... 1,844,235 ---------- Net gain on investment transactions..................... 1,936,791 ---------- INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $1,994,765 ==========
(See Notes to Financial Statements) 126 STATEMENT OF CHANGES IN NET ASSETS
FOR THE SIX FOR THE MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, ------------ ------------ 1997* 1996 ------------ ------------ INCREASE IN NET ASSETS Operations Net investment income (loss).............................. $ 57,974 $ (487) Net realized gain on investments and foreign currency transactions............................................ 92,556 58,873 Net unrealized appreciation during the period on investments and foreign currency transactions........... 1,844,235 660,305 ----------- ----------- Net increase resulting from operations.................. 1,994,765 718,691 ----------- ----------- Distributions from net realized gain Class A................................................... -- (17,179) Class C................................................... -- (370) ----------- ----------- Total distributions to shareholders..................... -- (17,549) ----------- ----------- Fund share transactions (Note 5) Class A................................................... 926,495 1,503,651 Class B................................................... 1,245,283 1,138,431 Class C................................................... 327,001 109,902 ----------- ----------- Net increase resulting from Fund share transactions..... 2,498,779 2,751,984 ----------- ----------- TOTAL INCREASE IN NET ASSETS................................ 4,493,544 3,453,126 NET ASSETS Beginning of period....................................... 6,151,769 2,698,643 ----------- ----------- END OF PERIOD............................................. $10,645,313 $ 6,151,769 =========== =========== UNDISTRIBUTED NET INVESTMENT INCOME......................... $ 57,974 $ -- =========== =========== * Unaudited.
(See Notes to Financial Statements) 127 FINANCIAL HIGHLIGHTS
FOR THE PERIOD NOVEMBER 1, 1994 CLASS A FOR THE SIX MONTHS FOR THE YEAR ENDED (COMMENCEMENT) ENDED JUNE 30, DECEMBER 31, TO DECEMBER 31, ------------------ ---------------------- ---------------- 1997* 1996 1995 1994 SELECTED PER SHARE DATA ------------------ -------- -------- ---------------- Net asset value, beginning of period....................... $ 8.51 $ 6.88 $ 8.37 $ 10.00 -------- -------- -------- -------- Income (loss) from investment operations Net investment income (loss)(a).......................... .08(g) .01 .01 -- Net realized and unrealized gain (loss) on investment transactions........................................... 2.25(g) 1.66 (1.45) (1.63) -------- -------- -------- -------- Total from investment operations....................... 2.33 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............................. $ 10.84 $ 8.51 $ 6.88 $ 8.37 ======== ======== ======== ======== Total return(%)............................................ 27.38(b) 24.22(c) (17.28)(c) (16.10)(b) RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands)................... $ 6,163 $ 4,016 $ 2,015 $ 571 Ratio of expenses to average net assets(e) With expense reimbursement(%)............................ 2.48(d) 2.55 2.61 2.20(d) Without expense reimbursement(%)......................... 3.31(d) 4.89 9.26 16.22(d) Ratio of net investment income (loss) to average net assets(%)(a)............................................. 1.65(d) .24 .22 .21(d) Portfolio turnover rate(%)................................. 4 20 45 14 Average commission rate(f)................................. $ .0002 $ .0002 N/A N/A
(See Notes to Financial Statements) 128 FINANCIAL HIGHLIGHTS (CONTINUED)
FOR THE PERIOD NOVEMBER 1, 1994 CLASS B FOR THE SIX MONTHS FOR THE YEAR ENDED (COMMENCEMENT) ENDED JUNE 30, DECEMBER 31, TO DECEMBER 31, ------------------ ---------------------- --------------- 1997* 1996 1995 1994 SELECTED PER SHARE DATA ------------------ -------- -------- --------------- Net asset value,beginning of period......................... $ 8.48 $ 6.88 $ 8.37 $ 10.00 -------- -------- -------- ------- Income (loss) from investment operations Net investment income (loss)(a)........................... .04(g) (.03)(a) (.02)(a) (.01)(a) Net realized and unrealized gain (loss) on investment transactions............................................ 2.23(g) 1.63 (1.47) (1.62) -------- -------- -------- ------- Total from investment operations............................ 2.27 1.60 (1.49) (1.63) -------- -------- -------- ------- Net asset value,end of period............................... $ 10.75 $ 8.48 $ 6.88 $ 8.37 ======== ======== ======== ======= Total return(%)............................................. 26.77(b) 23.26(c) (17.90)(c) (16.20)(b) RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands).................... $ 3,975 $ 2,025 $ 684 $ 122 Ratio of expenses to average net assets(e) With expense reimbursement(%)............................. 3.25(d) 3.33 3.36 2.95(d) Without expense reimbursement(%).......................... 4.08(d) 5.67 10.01 16.97(d) Ratio of net investment income (loss) to average net assets(%)(a).............................................. .88(d) (.54) (.53) (.54)(d) Portfolio turnover rate(%).................................. 4 20 45 14 Average commission rate(f).................................. $ .0002 $ .0002 N/A N/A
(See Notes to Financial Statements) 129 FINANCIAL HIGHLIGHTS (CONTINUED)
FOR THE PERIOD APRIL 30, 1996 CLASS C FOR THE SIX MONTHS (COMMENCEMENT) ENDED JUNE 30, TO DECEMBER 31, ------------------ --------------- 1997* 1996 SELECTED PER SHARE DATA ------------------ --------------- Net asset value, beginning of period........................ $ 8.46 $ 7.96 -------- -------- Income from investment operations Net investment income (loss)(a)........................... .04(g) (.02) Net realized and unrealized gain on investment transactions............................................ 2.22(g) .55 -------- -------- Total from investment operations........................ 2.26 .53 -------- -------- Less distributions From net realized gain.................................... -- .03 -------- -------- Total distributions..................................... -- .03 -------- -------- Net asset value, end of period.............................. $ 10.72 $ 8.46 ======== ======== Total return(%)(b).......................................... 26.71 6.66 RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands).................... $ 508 $ 111 Ratio of expenses to average net assets(e) With expense reimbursement(%)(d).......................... 3.32 3.46 Without expense reimbursement(%)(d)....................... 4.15 5.80 Ratio of net investment income (loss) to average net assets(%)(a)(d)........................................... .81 (.68) Portfolio turnover rate(%).................................. 4 20 Average commission rate(f).................................. $ .0002 $ .0002 (a) Net investment income is net of expenses reimbursed by manager. (b) Total return represents aggregate total return and does not reflect a sales charge. (c) Total return does not reflect a sales charge. (d) Annualized. (e) Beginning in 1995, total expenses include fees paid indirectly through an expense offset arrangement, if any. (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. (g) Based on average shares outstanding. * Unaudited.
(See Notes to Financial Statements) 130 NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 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 traded on a U.S. or foreign stock exchange, or the National Association of Securities Dealers Automated Quotation ("NASDAQ") System, are valued at the last quoted sale price reported as of the close of regular trading on the exchange the security is traded most extensively. If there is no such sale, the security is valued at the calculated mean between the last bid and asked price on the exchange. Securities not traded on an exchange or NASDAQ, but traded in another over-the-counter market are valued at the average between the current bid and asked prices in such markets. Short-term obligations and commercial paper are valued at amortized cost, which approximates market. Debt securities (other than short-term obligations and commercial paper) are valued on the basis of valuations furnished by a pricing service authorized by the Board of Trustees (the Board), which determines valuations based upon market transactions for normal, institutional-size trading units of such securities. 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 June 30, 1997, 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. DISTRIBUTIONS TO SHAREHOLDERS -- Distributions from net investment income and net realized capital gains, if any, are declared in December. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency transactions from foreign investment activity are translated into U.S. dollars on the following basis: (i) market value of securities, and dividends and interest receivable are translated at the closing daily rate of exchange; and, (ii) purchases and sales of investment securities are translated at the rate at which related foreign contracts are obtained or at the exchange rate prevailing on the date of the transaction. 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 cumulative credits resulting from cash balances on deposit with the custodian are used to offset custody fees, including transaction and out of pocket expenses. For the period, custody fees were reduced by $13,373 under this arrangement. 131 NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (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 and expenses are reflected as Administrative services fee and Fund accounting in the Statement of Operations. Ivy Mackenzie Distributors, Inc. (IMDI), a wholly owned subsidiary of MIMI, is the underwriter and distributor of the Fund's shares, and as such, purchases shares from the Fund at net asset value to settle orders from investment dealers. For the six months ended June 30, 1997, the net amount of underwriting discount retained by IMDI was $3,544. 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 $6,486, $15,726 and $1,645, 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 $5,587, $3,823 and $539, 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:
SIX MONTH ENDED YEAR ENDED JUNE 30, 1997 DECEMBER 31, 1996 -------------------- ---------------------- CLASS A SHARES AMOUNT SHARES AMOUNT ------- ------- ---------- -------- ----------- Sold............................ 144,134 $1,385,832 321,787 $ 2,648,064 Issued on reinvestment of distributions.................. -- -- 1,568 13,506 Repurchased..................... (47,201) (459,337) (144,190) (1,157,919) ------- ---------- -------- ----------- Net increase.................... 96,933 $ 926,495 179,165 $ 1,503,651 ======= ========== ======== ===========
SIX MONTH ENDED YEAR ENDED JUNE 30, 1997 DECEMBER 31, 1996 -------------------- ---------------------- CLASS B SHARES AMOUNT SHARES AMOUNT ------- ------- ---------- -------- ----------- Sold............................ 150,948 $1,446,182 164,935 $ 1,349,112 Repurchased..................... (20,120) (200,899) (25,510) (210,681) ------- ---------- -------- ----------- Net increase.................... 130,828 $1,245,283 139,425 $ 1,138,431 ======= ========== ======== ===========
FROM APRIL 30, 1996 SIX MONTH ENDED (COMMENCEMENT) JUNE 30, 1997 TO DECEMBER 31, 1996 -------------------- ---------------------- CLASS C SHARES AMOUNT SHARES AMOUNT ------- ------- ---------- -------- ----------- Sold............................ 34,753 $ 332,485 13,400 $ 111,758 Issued on reinvestment of distributions.................. -- -- 5 42 Repurchased..................... (567) (5,484) (236) (1,898) ------- ---------- -------- ----------- Net increase.................... 34,186 $ 327,001 13,169 $ 109,902 ======= ========== ======== ===========
132 June 30, 1997 IVY FUNDS(R) Ivy Money Market Fund - ------------- Semi-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 THROUGHOUT THE CENTURIES, THE CASTLE KEEP HAS BEEN A SOURCE OF LONG-RANGE VISION AND STRATEGIC ADVANTAGE. Market Commentary: After the Federal Reserve Board raised interest rates 0.25% in March, investors became wary of future rate hikes, as the Federal Reserve has historically continued to raise rates after an initial increase. Additionally, after the first quarter surge of the US dollar versus the Japanese yen, investors were concerned that a subsequent depreciation in the value of the dollar could put upward pressure on US interest rates. However, the second quarter of the year was reminiscent of the last half of 1996 -- economic expansion with few signs of inflation or wage pressures. Foreign purchases of US Treasury securities were at record levels, up 181% from 1996 levels, which pushed bond prices even higher. This was primarily due to higher yields in the US compared to yields in Europe, and in particular, Japan. The foreign purchases led to increased demand for US dollars, which pushed the dollar higher versus foreign currencies. For US consumers, a strong dollar spurred demand for cheaper foreign goods, which may be attributed to the fact that there has been little domestic price pressure. By the end of the second quarter, consumer spending had dramatically slowed - -- evidenced by a modest rise in retail sales of 0.3% in March, followed by a decline of 0.1% in May. In addition, the unemployment rate increased to 5% in June, up from 4.8%. As a result, anxiety over additional interest rate hikes abated and, as we expected, there have been no further rate hikes. With expectations for moderate economic growth, we continue to believe that inflation will be contained and that interest rates will remain relatively low. As always, we stand committed to providing the best yield opportunities for the Ivy Money Market Fund. Ivy Management, Inc. BOARD OF TRUSTEES John S. Anderegg, Jr. Paul H. Broyhill Keith J. Carlson Stanley Channick Frank W. DeFriece, Jr. Roy J. Glauber Michael G. Landry Joseph G. Rosenthal Richard N. Silverman J. Brendan Swan OFFICERS Michael G. Landry, Chairman Keith J. Carlson, President James W. Broadfoot, Vice President C. William Ferris, Secretary/Treasurer LEGAL COUNSEL Dechert Price & Rhoads Boston, MA CUSTODIAN Brown Brothers Harriman & Co. Boston, MA TRANSFER AGENT Ivy Mackenzie Services Corp. P.O. Box 3022 Boca Raton, FL 33431-0922 1-800-777-6472 AUDITORS Coopers & Lybrand L.L.P. Fort Lauderdale, FL INVESTMENT MANAGER Ivy Management, Inc. 700 South Federal Highway Boca Raton, FL 33432 1-800-456-5111 DISTRIBUTOR Ivy Mackenzie Distributors, Inc. 700 South Federal Highway Boca Raton, FL 33432 1-800-456-5111 [IVY MACKENZIE LOGO] 133 PORTFOLIO OF INVESTMENTS JUNE 30, 1997 (UNAUDITED)
COMMERCIAL PAPER -- 35.4% PRINCIPAL VALUE - ------------------------------------------ Associates Corp. of North America, 5.52%, 07/16/97................................ $ 900,000 $ 897,930 Cargill Inc., 5.47%, 08/25/97............. 1,000,000 991,643 Duke Power, 5.45%, 07/11/97............... 1,000,000 998,486 General Electric Capital Corp., 5.53%, 07/21/97................................ 950,000 947,081 Kellogg Co., 5.45%, 07/24/97.............. 900,000 896,866 National Rural Utilities, 5.50%, 09/05/97................................ 900,000 890,925 Paccar Financial Corp., 5.50%, 07/07/97... 900,000 899,175 Prudential Funding Corp., 5.52%, 07/18/97................................ 1,000,000 997,394 ----------- TOTAL COMMERCIAL PAPER (Cost -- $7,519,500).................... 7,519,500 ----------- U.S. GOVERNMENT AGENCY OBLIGATIONS -- 52.2% - ------------------------------------------ Federal Home Loan Bank, 5.49%, 07/02/97 3,500,000 3,499,466 Federal Home Loan Bank, 5.37%, 07/29/97 750,000 746,867 Federal Home Loan Bank, 5.40%, 08/04/97 1,640,000 1,631,636 Federal Home Loan Bank, 5.38%, 08/07/97 900,000 895,024 Federal Home Loan Mortgage Corp., 5.38%, 07/09/97................................ $1,900,000 $ 1,897,729 Federal Home Loan Mortgage Corp., 5.40%, 07/14/97................................ 600,000 598,830 Federal National Mortgage Association, 5.40%, 07/29/97......................... 790,000 786,682 Student Loan Marketing Association, 5.29%, 07/02/97(a)............................. 1,000,000 1,008,261 ----------- TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS (Cost -- $11,064,495)................... 11,064,495 ----------- TOTAL INVESTMENTS -- 87.6% (Cost -- $18,583,995)(b)................ 18,583,995 OTHER ASSETS, LESS LIABILITIES -- 12.4%... 2,621,962 ----------- NET ASSETS -- 100%........................ $21,205,957 ===========
(a) Floating rate note; reflects variable rate as of the latest reset date, June 25, 1997. (b) Cost is the same for Federal income tax purposes. STATEMENT OF ASSETS AND LIABILITIES JUNE 30, 1997 (UNAUDITED) ASSETS Investments, at value (identified cost -- $18,583,995)...... $18,583,995 Cash........................................................ 4,243,593 Receivable -- Manager for expense reimbursement............. 10,676 Other assets................................................ 28,367 ----------- Total assets.............................................. 22,866,631 ----------- LIABILITIES Payables Distributions to shareholders............................. 2,332 Investments purchased..................................... 1,631,390 Management fee............................................ 6,404 Other payables to related parties......................... 11,456 Accrued expenses............................................ 9,092 ----------- Total liabilities......................................... 1,660,674 ----------- NET ASSETS.................................................. $21,205,957 =========== CLASS A Net asset value, offering price and redemption price per share ($17,241,771/17,241,771 shares outstanding)......... $ 1.00 =========== CLASS B Net asset value, offering price and redemption price* per share ($3,589,407/3,589,407 shares outstanding)........... $ 1.00 =========== CLASS C Net asset value, offering price and redemption price* per share ($374,779/374,779 shares outstanding)............... $ 1.00 =========== NET ASSETS CONSIST OF Capital paid-in........................................... $21,205,957 ----------- NET ASSETS.................................................. $21,205,957 =========== * Subject to any applicable contingent deferred sales charge.
(See Notes to Financial Statements) 134 STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED) INVESTMENT INCOME Interest.................................................. $587,707 -------- EXPENSES Management fee............................................ $43,475 Transfer agent............................................ 43,342 Administrative services fee............................... 10,869 Custodian fees............................................ 7,573 Blue Sky fees............................................. 12,166 Auditing and accounting fees.............................. 5,917 Shareholder reports....................................... 4,517 Fund accounting........................................... 13,261 Trustees' fees............................................ 2,977 Legal..................................................... 10,834 Other..................................................... 10,703 -------- 165,634 Expenses reimbursed by manager............................ (72,393) -------- Net expenses............................................ 93,241 -------- NET INVESTMENT INCOME AND INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........................................... $494,466 ========
(See Notes to Financial Statements) 135 STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR FOR THE SIX MONTHS ENDED ENDED JUNE 30, DECEMBER 31, ------------------ ------------ 1997* 1996 ------------------ ------------ DECREASE IN NET ASSETS Operations Net investment income and increase resulting from operations................................................ $ 494,466 $ 894,987 ------------ ------------ Distributions to shareholders from net investment income Class A................................................... (414,366) (794,505) Class B................................................... (76,302) (95,901) Class C................................................... (3,798) (4,581) ------------ ------------ Total distributions to shareholders..................... (494,466) (894,987) ------------ ------------ Fund share transactions (Note 4) Class A................................................... (4,117,296) (3,249,695) Class B................................................... 115,034 3,474,373 Class C................................................... 301,168 73,611 ------------ ------------ Net increase (decrease) resulting from fund share transactions........................................... (3,701,094) 298,289 ------------ ------------ TOTAL INCREASE (DECREASE) IN NET ASSETS..................... (3,701,094) 298,289 NET ASSETS Beginning of period....................................... 24,907,051 24,608,762 ------------ ------------ End of period............................................. $ 21,205,957 $ 24,907,051 ============ ============
* Unaudited. (See Notes to Financial Statements) 136 FINANCIAL HIGHLIGHTS
CLASS A FOR THE SIX MONTHS ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31, ------------------ ----------------------------------------------------------- 1997* 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 $ 1.00 -------- ------- ------- ------- ------- ------- Income from investment operations Net investment income(a).................. .02 .04 .05 .04 .02 .03 Less distributions From net investment income................ (.02) (.04) (.05) (.04) (.02) (.03) -------- ------- ------- ------- ------- ------- Net asset value, end of period.............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ======== ======= ======= ======= ======= ======= Total return(%)............................. 2.22(b) 4.47 4.80 4.21 2.42 2.81 RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands).... $17,242 $21,359 $24,609 $26,827 $25,782 $18,839 Ratio of expenses to average net assets With expense reimbursement(%)............. .88(c) .86 .85 .85 .85 .85 Without expense reimbursement(%).......... 1.54(c) 1.86 1.39 1.24 1.56 1.45 Ratio of net investment income to average net assets(%)(a).......................... 4.48(c) 4.47 4.91 3.29 2.22 2.75
(See Notes to Financial Statements) 137 FINANCIAL HIGHLIGHTS (CONTINUED)
FOR THE YEAR CLASS B FOR THE SIX MONTHS ENDED ENDED JUNE 30, DECEMBER 31, ------------------ ------------ 1997* 1996 SELECTED PER SHARE DATA ------------------ ------------ Net asset value, beginning of period........................ $ 1.00 $ 1.00 -------- ------- Income from investment operations Net investment income(a).................................. .02 .05 Less distributions From net investment income................................ (.02) (.05) -------- ------- Net asset value, end of period.............................. $ 1.00 $ 1.00 ======== ======= Total return(%)............................................. 2.33(b) 4.57 RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands) Ratio of expenses to average net assets..................... $ 3,589 $ 3,474 With expense reimbursement(%)............................. .68(c) .77 Without expense reimbursement(%).......................... 1.34(c) 1.77 Ratio of net investment income to average net assets(%)(a).............................................. 4.68(c) 4.57
(See Notes to Financial Statements) 138 FINANCIAL HIGHLIGHTS (CONTINUED)
FROM APRIL 30, 1996 CLASS C FOR THE SIX MONTHS (COMMENCEMENT) ENDED JUNE 30, TO DECEMBER 31, ------------------- --------------- 1997* 1996 SELECTED PER SHARE DATA ------------------- --------------- Net asset value, beginning of period........................ $1.00 $1.00 ----- ----- Income from investment operations Net investment income(a).................................. .02 .03 Less distributions From net investment income................................ (.02) (.03) ----- ----- Net asset value, end of period.............................. $1.00 $1.00 ===== ===== Total return(%)(b).......................................... 2.35 4.78 RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands) Ratio of expenses to average net assets..................... $ 375 $ 74 With expense reimbursement(%)(c).......................... .73 .56 Without expense reimbursement(%)(c)....................... 1.39 1.56 Ratio of net investment income to average net assets(%)(a)(c)........................................... 4.63 4.78 (a) Net investment income is net of expenses reimbursed by manager. (b) Total return represents aggregate total return. (c) Annualized. * Unaudited.
Note: The seven day yield as of June 30, 1997 was 4.58%. The thirty day yield as of June 30, 1997 was 4.65%. (See Notes to Financial Statements) 139 NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 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 .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 and expenses 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 a monthly fee plus certain out-of-pocket expenses. Such fees and expenses of $40,060, $3,080 and $202, 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:
SIX MONTHS ENDED YEAR ENDED CLASS A JUNE 30, 1997 DECEMBER 31, 1996 ------- ---------------- -------------------- Sold........................... 66,962,595 67,870,418 Issued on reinvestment of distributions................. 339,842 682,663 Repurchased.................... (71,419,733) (71,802,776) ----------- ----------- Net decrease................... (4,117,296) (3,249,695) =========== ===========
FROM JANUARY 1, 1996 SIX MONTHS ENDED (COMMENCEMENT) TO CLASS B JUNE 30, 1997 DECEMBER 31, 1996 ------- ---------------- -------------------- Sold........................... 9,327,819 24,768,901 Issued on reinvestment of distributions................. 60,031 68,338 Repurchased.................... (9,272,816) (21,362,866) ----------- ----------- Net increase................... 115,034 3,474,373 =========== ===========
FROM APRIL 30, 1996 SIX MONTHS ENDED (COMMENCEMENT) TO CLASS C JUNE 30, 1997 DECEMBER 31, 1996 ------- ---------------- -------------------- Sold........................... 1,328,469 668,573 Issued on reinvestment of distributions................. 3,107 2,270 Repurchased.................... (1,030,408) (597,232) ----------- ----------- Net increase................... 301,168 73,611 =========== ===========
140 June 30, 1997 IVY FUNDS(R) Ivy New Century Fund - ------------ Semi-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 THROUGHOUT THE CENTURIES, THE CASTLE KEEP HAS BEEN A SOURCE OF LONG-RANGE VISION AND STRATEGIC ADVANTAGE. Market Commentary: A three-year bear market in high-growth economies seems to be coming to an end. Attracted by compelling valuations, above average economic growth and recovering earnings, investors seem to have once again rediscovered emerging markets, which have posted strong (but not extreme) earnings since the beginning of 1997. According to our research, this year's emerging-market rally has been largely concentrated in the larger-capitalization, more liquid "market proxies," which have attracted global flows as investors have started to redirect funds to the high-growth nations. Holdings in the Ivy New Century Fund are well diversified to provide broad exposure to the underlying economies. We believe valuations for the less liquid, smaller companies tend to reflect fundamental value better than the larger-company names. As a result, we have positioned the Fund to take advantage of a broader-based rally as increasingly selective investors start looking for second-tier names. Perhaps even more importantly, the added diversification of these companies may provide downside protection in the event of a sudden reversal in capital flows (such as the one started by the Mexico debacle in late 1994). In the Pacific Rim, a number of countries such as Thailand, the Philippines, Malaysia, and Singapore have performed poorly. We believe, however, that negative sentiment toward these markets has provided an excellent buying opportunity, as many markets' price-to-earnings to growth ratios in this part of the world are the most compelling they've been in years. Despite concerns that many economies in the region are facing structural challenges, our research suggests that non-Japan Asia should continue to grow at double the rate of the more mature economies. We believe investors can ill-afford to indefinitely ignore markets with such attractive valuations and above average growth rates. As the focus of investors returns to the Pacific Rim, we believe that these markets -- and the Ivy New Century Fund -- should perform well. The Fund continues to benefit from its exposure to Latin America (25% of holdings), which has turned in one of the best regional year-to-date performances. Almost 9% of the Fund's assets are allocated to Brazil, where preparations for a second wave of privatization continue to provide momentum in the public sector. Additionally, corporate restructuring should boost profitability for select private sector companies. In Argentina (6% of Fund assets), the market is beginning to see the benefits of economic reforms that should contribute to robust economic growth into the next century. The Chilean market remains attractive for a number of reasons -- from low historical valuations to a good hedge against concerns about US interest rates (which may spook the region's other markets). We remain positive but cautious on the long-term prospects for Central Europe (which represents almost 5% of Fund assets), as it is unclear which of the transition economies will move to the next level. According to our research, however, valuations seem to imply they all will. Overall, we would encourage investors who recognize the importance of investing internationally to look beyond any short-term distractions and focus on what we believe to be the positive long-term prospects for the world's high-growth economies. Ivy Management, Inc. BOARD OF TRUSTEES John S. Anderegg, Jr. Paul H. Broyhill Keith J. Carlson Stanley Channick Frank W. DeFriece, Jr. Roy J. Glauber Michael G. Landry Joseph G. Rosenthal Richard N. Silverman J. Brendan Swan OFFICERS Michael G. Landry, Chairman Keith J. Carlson, President James W. Broadfoot, Vice President C. William Ferris, Secretary/Treasurer LEGAL COUNSEL Dechert Price & Rhoads Boston, MA CUSTODIAN Brown Brothers Harriman & Co. Boston, MA TRANSFER AGENT Ivy Mackenzie Services Corp. P.O. Box 3022 Boca Raton, FL 33431-0922 1-800-777-6472 AUDITORS Coopers & Lybrand L.L.P. Fort Lauderdale, FL INVESTMENT MANAGER Ivy Management, Inc. 700 South Federal Highway Boca Raton, FL 33432 1-800-456-5111 DISTRIBUTOR Ivy Mackenzie Distributors, Inc. 700 South Federal Highway Boca Raton, FL 33432 1-800-456-5111 [IVY MACKENZIE LOGO] 141 PORTFOLIO OF INVESTMENTS JUNE 30, 1997 (UNAUDITED)
EQUITY SECURITIES -- 95.6% SHARES VALUE - --------------------------------------- AFRICA -- 6.1% - --------------------------------------- SOUTH AFRICA -- 6.1% Anglo American Corporation S.A......... 13,900 $ 837,425 Nampak Ltd............................. 28,700 124,658 Rembrandt Group Ltd.................... 65,000 693,633 South African Breweries Ltd............ 14,735 452,393 ----------- 2,108,109 ----------- ASIA/PACIFIC -- 55.0% - --------------------------------------- CHINA -- 1.2% Huaneng Power International, Inc. ADR*................................. 1,200 30,600 Inner Mongolia Erdos Cashmere Products Co. 'B'.............................. 64,000 53,760 Qingling Motors Company Ltd............ 67,000 34,593 Shanghai Dazhong Taxi Company 'B'...... 112,800 100,166 Shanghai Diesel Engine Co. Ltd. 'B'*... 81,200 27,608 Shanghai Post & Telecommunications Equipment 'B'........................ 43,000 22,532 Shanghai Shangling Electric Appliances Co. Ltd. 'B'......................... 101,600 20,930 Shenzen Konka Electronic Group Limited - 'B'................................ 42,900 63,625 Tingyi (Cayman Islands) Holding Co.*... 128,000 31,887 Zhenhai Refining and Chemical Co. Limited.............................. 100,000 36,142 ----------- 421,843 ----------- HONG KONG -- 22.9% C.P. Pokphand.......................... 400,000 123,914 Cheung Kong Holdings Ltd............... 47,000 464,098 Citic Pacific.......................... 89,000 556,014 Esprit Asia Holdings Ltd............... 700,000 496,949 Gold Peak Industries................... 456,000 294,297 Guangdong Investments.................. 302,000 454,134 Guangdong Investments Warrants......... 30,200 14,228 Guangdong Tannery Ltd.................. 9,600 3,717 HSBC Holdings.......................... 22,241 668,900 Hong Kong Telecommunications Ltd....... 11,700 273,488 Jardine Strategic...................... 109,062 412,254 Jardine Strategic Warrants*............ 562 222 Li & Fung.............................. 576,000 646,833 National Mutual Asia Ltd............... 428,000 475,109 New World Development Company Ltd...... 100,502 599,332 Peregrine Investment Holdings Ltd...... 246,000 506,462 Peregrine Investment Holdings Ltd. Warrants*............................ 14,900 6,539 Swire Pacific Ltd. Class A............. 74,000 666,234 Union Bank of Hong Kong Ltd............ 328,600 950,093 Wharf Holdings Ltd..................... 82,000 355,634 ----------- 7,968,451 ----------- INDIA -- 2.1% Tata Engineering and Locomotive Co. Ltd. - Sponsored GDR................. 1,500 23,025 Tata Engineering and Locomotive Co. Ltd. - Sponsored GDR Reg 'S'......... 46,000 706,100 ----------- 729,125 ----------- INDONESIA -- 2.9% Astra International -- Foreign Registered........................... 29,000 119,864 PT Bank Bali -- Foreign Registered..... 45,000 120,296 PT Bank Dagang Nasional -- Foreign Registered........................... 301,876 214,162 PT Bank Dagang Nasional Warrants....... 43,126 17,736 PT Citatah -- Foreign Registered*...... 65,000 60,816 PT Matahari Putra Prima -- Foreign Registered........................... 73,000 147,111 PT Mulia Industrindo -- Foreign Registered........................... 239,900 125,796 PT Telekomunikasi Indonesia -- Foreign Registered........................... 46,000 75,201 PT Tempo Scan Pacific -- Foreign Registered........................... 46,000 103,105 Semen Gresik -- Foreign Registered..... 12,000 26,897 ----------- 1,010,984 ----------- ISRAEL -- 1.0% Koor Industries Ltd. -- Sponsored ADR.. 20,200 356,025 ----------- MALAYSIA -- 6.8% Arab Malaysian Corporation Berhad*..... 30,000 111,727 Arab Malaysian Finance Foreign......... 58,000 122,940 Genting Berhad......................... 101,000 484,191 KFC Holdings (Malaysia) Berhad......... 67,000 252,179 Land & General Berhad.................. 72,000 82,726 Lion Land Berhad*...................... 200,000 185,420 London & Pacific Insurance Company Berhad............................... 7,200 37,084 Malayan Banking Berhad................. 16,000 167,987 Malaysia British Assurance Berhad...... 26,000 116,402 Perusahaan Otomobil Nasional Berhad.... 33,000 154,279 Public Bank Berhad..................... 116,000 165,451 RHB Capital Berhad..................... 52,400 166,085 Resorts World Berhad................... 51,000 153,566 Technology Resources Industries Berhad*.............................. 64,000 110,047 Tenaga Nasional Berhad................. 14,000 68,225 ----------- 2,378,309 ----------- PHILIPPINES -- 3.8% Asian Terminals, Inc................... 477,500 86,897 Bacnotan Cement Corporation*........... 180,000 55,960 Belle Corporation*..................... 307,000 89,623 Benpres Holdings Corp. GDR*............ 15,000 102,330 C & P Homes, Inc....................... 210,500 79,009 La Tondena Distillers Inc.............. 70,000 168,524 Metropolitan Bank & Trust Company...... 5,645 119,851 Mondragon International Philippines, Inc.*................................ 260,500 91,850 Philippine Long Distance Telephone Co................................... 4,200 136,146 Philippine National Bank............... 24,237 164,484 SM Prime Holdings, Inc................. 339,000 100,250 Southeast Asia Cement Holdings, Inc.*.. 992,000 48,141 Universal Robina Corporation........... 201,000 73,157 ----------- 1,316,222 ----------- SINGAPORE -- 3.3% Clipsal Industries Limited............. 56,000 198,240 DBS Land Limited....................... 26,000 82,190 Elec & Eltek International Co. Ltd..... 23,000 128,800 Fraser & Neave Ltd. ORD................ 90,000 642,025 Jardine Matheson Holdings Ltd.......... 13,500 95,850 ----------- 1,147,105 -----------
(See Notes to Financial Statements) 142 PORTFOLIO OF INVESTMENTS (CONTINUED) JUNE 30, 1997 (UNAUDITED)
EQUITY SECURITIES SHARES VALUE - --------------------------------------- SOUTH KOREA -- 4.1% Hana Bank.............................. 1,770 $ 21,926 Hyundai Motor Company Ltd. GDR......... 8,362 83,620 Hyundai Motor Company Ltd. GDR 144A.... 500 5,000 Keum Kang Development Ind. Company*.... 3,800 53,491 Korea Electric Power Corp. Sponsored ADR.................................. 12,400 231,725 Pohang Iron & Steel Ltd. ADR........... 11,800 377,600 Samsumg Electronics.................... 3,500 389,020 Samsumg Electronics Rights*............ 57 2,157 Samsung Electronics Co. GDR*........... 31 1,837 Samsung Electronics Co. GDR Rights*.... 10 313 Samsung Electronics Co. GDR 144A Registered........................... 662 18,205 Shinhan Bank........................... 11,270 164,735 Ssangyong Oil Refining Co. Ltd......... 3,600 72,973 ----------- 1,422,602 ----------- TAIWAN -- 3.3% Acer Incorporation*.................... 48,000 172,662 Compeq Manufacturing Co................ 29,400 209,395 Far Eastern Department Stores Ltd...... 131,000 208,280 President Enterprises*................. 108,000 213,669 Systex Corporation*.................... 60,562 133,977 Systex Corporation Rights*............. 13,821 13,175 Yung Shin Pharmaceuticals Industries Co................................... 65,000 183,543 ----------- 1,134,701 ----------- THAILAND -- 3.5% Asia Credit Company PLC................ 57,100 145,478 Bangkok Bank Public Company Ltd........ 16,000 109,940 Bank of Ayudhya Ltd.................... 93,450 146,100 Dhana Siam Finance & Securities Public Company Ltd.......................... 89,000 47,240 Krung Thai Bank Public Company Limited.............................. 54,300 56,595 Krung Thai Thanakit PLC................ 24,000 13,665 Nava Finance & Securities Public Company Limited...................... 45,000 17,371 Robinson Department Store Public Company Limited -- Foreign Registered........................... 437,200 160,332 Siam Cement Public Co. Ltd. (The)...... 9,300 160,834 Siam Makro Public Company Limited -- Foreign Registered........ 43,800 118,356 Thai Airways Int'l. Public Co., Ltd. -- Foreign Registered........... 121,300 145,157 Thai Telephone & Communication Public Co. Ltd. -- Foreign Registered....... 245,000 101,670 ----------- 1,222,738 ----------- VIETNAM -- 0.1% Beta Vietnam Fund*..................... 1,850 13,875 Beta Vietnam Fund Warrants*............ 370 832 The Vietnam Fund Limited*.............. 1,100 8,938 ----------- 23,645 ----------- EUROPE -- 9.0% - --------------------------------------- AUSTRIA -- 0.5% Julius Meinl International AG.......... 6,000 185,955 ----------- CZECH REPUBLIC -- 0.9% CKD Praha Holding a.s.*................ 4,600 125,214 Komercni Banka I.F.*................... 1,300 19,338 Restitucni Invest Fund*................ 1,200 29,072 SPT Telekom a.s........................ 200 20,986 Skoda Plzen a.s.*...................... 2,000 59,873 Zivnobanka -- Investicni Fond.......... 5,300 69,354 ----------- 323,837 ----------- FRANCE -- 0.5% Lyonnaise Des Eaux S.A................. 1,549 156,195 Schneider S.A.*........................ 609 32,447 ----------- 188,642 ----------- GERMANY -- 0.1% Volkswagen AG.......................... 40 30,347 ----------- HUNGARY -- 0.7% Pick Szeged Rt......................... 3,200 246,213 ----------- POLAND -- 0.1% Bank Rozwoju Eksportu S.A.............. 1,550 32,545 ----------- PORTUGAL -- 1.9% Colep -- Cia. Portuguesa de Embalagens*.......................... 9,500 152,668 Companhia de Seguros Mundial Confianca S.A.*................................ 8,000 117,868 Investec-Consultoria Internacional S.A.*................................ 2,100 71,664 Lusomundo SGPS S.A.*................... 5,800 52,460 Lusomundo SGPS S.A. Preferred Shares... 800 6,690 Portugal Telecom S.A. ADR.............. 4,200 168,525 Sonae Industria e Investimentos........ 2,400 100,470 ----------- 670,345 ----------- RUSSIA -- 2.1% LUKoil Holding Sponsored ADR........... 6,500 509,844 Mosenergo Sponsored ADR 144A........... 5,200 217,750 ----------- 727,594 ----------- SPAIN -- 0.6% Telefonica de Espana ADR............... 2,200 189,750 ----------- SWITZERLAND -- 1.2% Holderbank Financiere Glarus AG Bearer............................... 383 362,285 Nestle AG Registered................... 49 64,735 ----------- 427,020 ----------- TURKEY -- 0.4% Cimentas A.S........................... 224,690 29,892 Otokar Otobus Karoseri................. 1,137,500 39,078 Turkiye Garanti Bankasi A.S............ 2,041,675 77,016 ----------- 145,986 ----------- NORTH AMERICA -- 0.8% - --------------------------------------- MEXICO -- 0.4% Banacci Series 'B'*.................... 7,200 18,827 Banacci Series 'L'*.................... 587 1,380 Cementos de Mexico S.A. 'B'............ 3,600 17,334 Grupo Mexicano Series 'L' ADS*......... 1,400 2,363 Grupo Posadas S.A. -- 'A'*............. 83,785 50,558 Telefonos de Mexico S.A. ADR Class L... 1,000 47,750 ----------- 138,212 ----------- UNITED STATES -- 0.4% Amway Asia Pacific Ltd................. 1,700 24,700 Semi-Tech Corporation.................. 18,000 38,621 The Singer Company NV.................. 1,300 74,162 ----------- 137,483 -----------
(See Notes to Financial Statements) 143 PORTFOLIO OF INVESTMENTS (CONTINUED) JUNE 30, 1997 (UNAUDITED)
EQUITY SECURITIES SHARES VALUE - --------------------------------------- SOUTH AND CENTRAL AMERICA -- 24.7% - --------------------------------------- ARGENTINA -- 5.8% Acindar Industria Argentina S.A.*...... 60,000 $ 153,619 Bansud S.A.*........................... 29,200 452,655 Cia Naviera Perez Compancciones 'B'.... 32,252 259,015 CIADEA S.A.*........................... 57,960 249,258 Disco S.A. ADR*........................ 3,100 122,838 Inversiones y Representaciones S.A. (IRSA)............................... 52,000 227,268 Quilmes Industrial S.A................. 27,400 318,525 YPF S.A. Sponsored ADR................. 7,100 218,325 ----------- 2,001,503 ----------- BRAZIL -- 8.7% Aracruz Celulose S.A. ADR.............. 3,850 78,444 Banco Bradesco S.A. Preferred.......... 8,400,000 84,660 Banco Nacional S.A..................... 2,100,000 --(a) Brasmotor S.A. Preferred............... 360,000 80,257 Casa Anglo Brasileiras S.A.*........... 8,700,000 412,151 Centrais Electricas Brasileiras S.A. (Electrobras)........................ 500,000 279,598 Centrais Electricas Brasileiras S.A. (Electrobras) -- Preferred B......... 138,000 82,040 Centrais Electricas de Santa Catarina S.A. (CELESC)........................ 25,000 34,601 Companhia Cimento Portland Itau........ 380,000 130,606 Companhia Energetica de Minas Gerais (CEMIG).............................. 800,000 41,243 Companhia Energetica de Sao Paulo (CESP)............................... 900,000 60,192 Companhia Paranaense de Energia (Copel).............................. 2,200,000 37,806 Companhia Paulista de Forca e Luz (CPFL)............................... 270,000 45,395 Companhia Paulista de Forca e Luz (CPFL) Rights*....................... 1,568 261 Companhia Siderurgica de Tubarao....... 9,900,000 137,849 Companhia Vale do Rio Doce Preferred Shares............................... 7,000 156,054 Electricidade de Sao Paulo S.A. (Eletropaulo)........................ 250,000 73,148 Electrolux do Brasil S.A............... 24,000,000 38,122 Elevadores Atlas S.A. 144A............. 9,200 119,855 Itaubanco.............................. 266,000 150,228 Marcopolo S.A. -- B.................... 400,000 71,525 OSA S.A................................ 5,200,000 24,151 Petroleo Brasileiro S.A. (Petrobras)... 610,000 169,421 Tam Transport Aereos................... 3,500,000 193,442 Telecomunicacoes Brasileiras S.A. (Telebras) ADR....................... 2,900 440,075 Uniao de Bancos Brasileiros............ 2,100,000 77,032 ----------- 3,018,156 ----------- CHILE -- 7.0% A.F.P Provida S.A. ADR................. 2,000 43,750 Antofagasta Holdings PLC............... 20,700 157,958 Banco Santander Chile Sponsored ADR.... 6,000 88,500 Chilgener S.A. Sponsored ADR........... 2,700 75,600 Chilgener S.A. Sponsored ADR Rights*... 891 2,107 Embotelladora Andina S.A. Sponsored ADR (Class A)............................ 3,400 72,888 Embotelladora Andina S.A. Sponsored ADR (Class B)............................ 3,400 70,975 Empresa Nacional Electricidad S.A...... 4,900 110,556 Genesis Chile Fund..................... 22,182 1,114,645 Laboratorio Chile S.A. ADR............. 4,000 114,500 Quimica Minera Chile S.A. Sponsored ADR.................................. 2,400 158,700 Santa Isabel S.A. ADR.................. 8,000 258,000 Vina Concha y Toro S.A. ADR............ 5,500 170,156 ----------- 2,438,335 ----------- COLOMBIA -- 1.3% Banco Ganadero S.A. ADR................ 4,700 169,200 Banco Industrial Colombiano ADR........ 10,400 187,200 Cementos Diamante ADR 144A............. 8,200 109,675 ----------- 466,075 ----------- PANAMA -- 0.2% Panamerican Beverages, Inc -- A........ 2,400 78,900 ----------- PERU -- 1.7% Banco Wiese ADR........................ 24,800 161,200 CPT Telefonica del Peru S.A. -- 'B'*... 120,000 315,322 Credicorp Ltd.......................... 5,868 129,096 ----------- 605,618 ----------- TOTAL EQUITY SECURITIES (Cost -- $28,847,131)................ 33,292,375 ----------- CORPORATE BONDS -- 0.5% PRINCIPAL - --------------------------------------- ---------- Inversiones y Representaciones S.A. 'Parcks' 144A Floating Rate, 4.50%, 07/04/03............................. $ 60,000 68,400 Piltel International Holding Corp. (Convertible), 1.75%, 07/17/06....... 100,000 97,750 ----------- TOTAL CORPORATE BONDS (Cost -- $160,000)................... 166,150 ----------- TOTAL INVESTMENTS -- 96.1% (Cost -- $29,007,131)(b)............. 33,458,525 OTHER ASSETS, LESS LIABILITIES -- 3.9%.................. 1,358,066 ----------- NET ASSETS -- 100%..................... $34,816,591 =========== ADR - American Depository Receipt ADS - American Depository Share GDR - Global Depository Receipt NV - Non-voting ORD - Ordinary * 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 June 30, 1997 aggregated $42,742. See Note 1 of the Notes to Financial Statements. (b) Cost is approximately the same for Federal Income tax purposes. OTHER INFORMATION: At June 30, 1997, net unrealized appreciation based on cost for financial statement and Federal income tax purposes is as follows: Gross unrealized appreciation..................... $ 6,827,908 Gross unrealized depreciation..................... (2,376,514) ----------- Net unrealized appreciation................... $ 4,451,394 =========== Purchases and sales of securities other than short-term obligations aggregated $13,509,259 and $1,131,177, respectively, for the period ended June 30, 1997.
(See Notes to Financial Statements) 144 STATEMENT OF ASSETS AND LIABILITIES JUNE 30, 1997 (UNAUDITED) ASSETS Investments, at value (identified cost -- $29,007,131)...... $33,458,525 Cash........................................................ 1,224,612 Cash denominated in foreign currencies (cost -- $126,504)... 126,147 Receivables Fund shares sold.......................................... 89,997 Dividends and interest.................................... 127,453 Deferred organization expenses.............................. 23,033 Other assets................................................ 13,413 ----------- Total assets............................................ 35,063,180 ----------- LIABILITIES Payables Investments purchased..................................... 129,375 Fund shares repurchased................................... 49,554 Management fee............................................ 27,717 12b-1 service and distribution fees....................... 17,476 Other payables to related parties......................... 10,704 Accrued expenses............................................ 11,763 ----------- Total liabilities....................................... 246,589 ----------- NET ASSETS.................................................. $34,816,591 =========== CLASS A Net asset value and redemption price per share ($17,799,227/1,526,718 shares outstanding)................ $ 11.66 =========== Maximum offering price per share ($11.66 x 100/94.25)*...... $ 12.37 =========== CLASS B Net asset value, offering price and redemption price** per share ($13,069,755/1,133,664 shares outstanding).......... $ 11.53 =========== CLASS C Net asset value, offering price and redemption price*** per share ($3,947,609 / 341,581 shares outstanding)........... $ 11.56 =========== NET ASSETS CONSIST OF Capital paid-in........................................... $30,133,517 Undistributed net realized gain on investments and foreign currency transactions................................... 159,130 Undistributed net investment income....................... 73,516 Net unrealized appreciation on investments and foreign currency transactions................................... 4,450,428 ----------- NET ASSETS.................................................. $34,816,591 ===========
* On sales of more than $50,000 the offering price is reduced. ** Subject to a maximum contingent deferred sales charge of 5%. *** Subject to a maximum contingent deferred sales charge of 1%. (See Notes to Financial Statements) 145 STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED) INVESTMENT INCOME Dividends, net of $30,818 foreign taxes withheld.......... $ 401,621 Interest.................................................. 5,554 ---------- 407,175 ---------- EXPENSES Management fee............................................ $136,048 Transfer agent............................................ 28,368 Administrative services fee............................... 13,605 Custodian fees............................................ 40,682 Blue Sky fee.............................................. 10,638 Auditing and accounting fees.............................. 8,029 Shareholder reports....................................... 2,681 Amortization of organization expenses..................... 4,896 Fund accounting........................................... 18,204 Trustees' fees............................................ 2,977 12b-1 service and distribution fees....................... 82,000 Legal..................................................... 12,803 Other..................................................... 6,544 ---------- 367,475 Fees paid indirectly...................................... (33,816) ---------- Net expenses............................................ 333,659 ---------- NET INVESTMENT INCOME....................................... 73,516 ---------- REALIZED AND UNREALIZED GAIN ON INVESTMENT TRANSACTIONS Net realized gain on investments and foreign currency transactions............................................ 205,526 Net unrealized appreciation during the period on investments and foreign currency transactions........... 3,477,014 ---------- Net gain on investment transactions..................... 3,682,540 ---------- INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $3,756,056 ==========
(See Notes to Financial Statements) 146 STATEMENT OF CHANGES IN NET ASSETS
FOR THE SIX FOR THE MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, ------------ ------------ 1997* 1996 ------------ ------------ INCREASE IN NET ASSETS Operations Net investment income (loss).............................. $ 73,516 $ (54,000) Net realized gain (loss) on investments and foreign currency transactions................................... 205,526 (46,120) Net unrealized appreciation during the period on investments and foreign currency transactions........... 3,477,014 948,226 ----------- ----------- Net increase resulting from operations.................. 3,756,056 848,106 ----------- ----------- Distributions in excess of net investment income Class A................................................... -- (984) Class B................................................... -- (623) Class C................................................... -- (186) ----------- ----------- Total distributions to shareholders..................... -- (1,793) ----------- ----------- Fund share transactions (Note 4) Class A................................................... 5,855,024 5,914,397 Class B................................................... 5,467,358 5,096,850 Class C................................................... 1,691,011 1,808,893 ----------- ----------- Net increase resulting from Fund share transactions..... 13,013,393 12,820,140 ----------- ----------- TOTAL INCREASE IN NET ASSETS................................ 16,769,449 13,666,453 NET ASSETS Beginning of period....................................... 18,047,142 4,380,689 ----------- ----------- END OF PERIOD............................................. $34,816,591 $18,047,142 =========== =========== UNDISTRIBUTED NET INVESTMENT INCOME......................... $ 73,516 $ -- =========== ===========
* Unaudited. (See Notes to Financial Statements) 147 FINANCIAL HIGHLIGHTS
FOR THE PERIOD FOR THE SIX NOVEMBER 1, 1994 CLASS A MONTHS ENDED FOR THE YEAR ENDED (COMMENCEMENT) JUNE 30, DECEMBER 31, TO DECEMBER 31, ------------ --------------------- ---------------- 1997* 1996 1995 1994 SELECTED PER SHARE DATA ------------ ------- ------ ---------------- Net asset value, beginning of period........................ $ 10.12 $ 9.05 $ 8.64 $10.00 ------- ------- ------ ------ Income (loss) from investment operations Net investment income (loss).............................. .05(g) (.02)(a) .01(a) --(a) Net realized and unrealized gain (loss) on investment transactions............................................ 1.49(g) 1.09 .54 (1.36) ------- ------- ------ ------ Total from investment operations........................ 1.54 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.............................. $ 11.66 $ 10.12 $ 9.05 $ 8.64 ======= ======= ====== ====== Total return(%)............................................. 15.22(c) 11.83(b) 6.40(b) (13.50)(c) RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands).................... $17,799 $ 9,925 $3,435 $ 611 Ratio of expenses to average net assets(e) With expense reimbursement(%)............................. -- 2.45 2.55 2.20(d) Without expense reimbursement(%).......................... 2.33(d) 2.82 7.18 20.74(d) Ratio of net investment income (loss) to average net assets(%)................................................. 0.90(d) (.23)(a) .24(a) .52(a)(d) Portfolio turnover rate(%).................................. 4 27 14 -- Average commission rate(f).................................. $ .0023 $ .0018 N/A N/A
(See Notes to Financial Statements) 148 FINANCIAL HIGHLIGHTS (CONTINUED)
FOR THE PERIOD FOR THE SIX NOVEMBER 1, 1994 CLASS B MONTHS ENDED FOR THE YEAR ENDED (COMMENCEMENT) JUNE 30, DECEMBER 31, TO DECEMBER 31, ------------ -------------------- ---------------- 1997* 1996 1995 1994 SELECTED PER SHARE DATA ------------ ------ ------ ---------------- Net asset value, beginning of period........................ $ 10.04 $ 9.05 $ 8.64 $ 10.00 ------- ------ ------ -------- Income (loss) from investment operations Net investment income (loss).............................. .01(g) (.06)(a) (.02)(a) --(a) Net realized and unrealized gain (loss) on investment transactions............................................ 1.48(g) 1.05 .51 (1.36) ------- ------ ------ -------- Total from investment operations........................ 1.49 .99 .49 (1.36) ------- ------ ------ -------- Less distributions From net realized gain.................................... -- -- .08 -- ------- ------ ------ -------- Total distributions..................................... -- -- .08 -- ------- ------ ------ -------- Net asset value, end of period.............................. $ 11.53 $10.04 $ 9.05 $ 8.64 ======= ====== ====== ======== Total return(%)............................................. 14.84(c) 10.95(b) 5.62(b) (13.60)(c) RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands).................... $13,070 $6,269 $ 945 $ 121 Ratio of expenses to average net assets(e) With expense reimbursement(%)............................. -- 3.20 3.30 2.95(d) Without expense reimbursement(%).......................... 3.10(d) 3.57 7.93 21.49(d) Ratio of net investment income (loss) to average net assets(%)................................................. .13(d) (.98)(a) (.51)(a) (.23)(a)(d) Portfolio turnover rate(%).................................. 4 27 14 -- Average commission rate(f).................................. $ .0023 $.0018 N/A N/A
(See Notes to Financial Statements) 149 FINANCIAL HIGHLIGHTS (CONTINUED)
FOR THE PERIOD FOR THE SIX APRIL 30, 1996 CLASS C MONTHS ENDED (COMMENCEMENT) JUNE 30, TO DECEMBER 31, ------------ --------------- 1997* 1996 SELECTED PER SHARE DATA ------------ --------------- Net asset value, beginning of period........................ $10.06 $ 9.89 ------ ------ Income (loss) from investment operations Net investment income (loss).............................. .01(g) (.02)(a) Net realized and unrealized gain on investment transactions............................................ 1.49(g) .19 ------ ------ Total from investment operations........................ 1.50 .17 ------ ------ Net asset value, end of period.............................. $11.56 $10.06 ====== ====== Total return(%)(c).......................................... 14.91 1.73 RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands).................... $3,948 $1,854 Ratio of expenses to average net assets(e) With expense reimbursement(%)(d).......................... -- 3.16 Without expense reimbursement(%)(d)....................... 3.12 3.53 Ratio of net investment income (loss) to average net assets(%)(d).............................................. .12 (.94)(a) Portfolio turnover rate(%).................................. 4 27 Average commission rate(f).................................. $.0023 $.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 fees paid indirectly through an expense offset arrangement, if any. (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. (g) Based on average shares outstanding. * Unaudited.
(See Notes to Financial Statements) 150 NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 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 traded on a U.S. or foreign stock exchange, or the National Association of Securities Dealers Automated Quotation ("NASDAQ") System, are valued at the last quoted sale price reported as of the close of regular trading on the exchange the security is traded most extensively. If there is no such sale, the security is valued at the calculated mean between the last bid and asked price on the exchange. Securities not traded on an exchange or NASDAQ, but traded in another over-the-counter market are valued at the average between the current bid and asked prices in such markets. Short-term obligations and commercial paper are valued at amortized cost, which approximates market. Debt securities (other than short-term obligations and commercial paper) are valued on the basis of valuations furnished by a pricing service authorized by the Board of Trustees (the Board), which determines valuations based upon market transactions for normal, institutional-size trading units of such securities. 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 June 30, 1997, 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 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. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency transactions from foreign investment activity are translated into U.S. dollars on the following basis: (i) market value of securities, and dividends and interest receivable are translated at the closing daily rate of exchange; and, (ii) purchases and sales of investment securities are translated at the rate at which related foreign contracts are obtained or at the exchange rate prevailing on the date of the transaction. Exchange gains or losses from currency translation of other assets and liabilities, if significant, are reported as a separate component of Net realized and unrealized gain (loss) on investment transactions. 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 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. 151 NOTES TO FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 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 period, custody fees were reduced by $33,816 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 and expenses are reflected as Administrative services fee and Fund accounting in the Statement of Operations. Ivy Mackenzie Distributors, Inc. (IMDI), a wholly owned subsidiary of MIMI, is the underwriter and distributor of the Fund's shares, and as such, purchases shares from the Fund at net asset value to settle orders from investment dealers. For the six months ended June 30, 1997, the net amount of underwriting discount retained by IMDI was $9,631. 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 $18,015, $48,795 and $15,190, 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 $13,916, $10,765 and $3,687, 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:
SIX MONTHS ENDED YEAR ENDED JUNE 30, 1997 DECEMBER 31, 1996 ---------------------- ---------------------- CLASS A SHARES AMOUNT SHARES AMOUNT ------- -------- ----------- -------- ----------- Sold.......................... 689,206 $ 7,403,046 770,476 $ 7,578,070 Repurchased................... (143,570) (1,548,022) (169,014) (1,663,673) -------- ----------- -------- ----------- Net increase.................. 545,636 $ 5,855,024 601,462 $ 5,914,397 ======== =========== ======== ===========
SIX MONTHS ENDED YEAR ENDED JUNE 30, 1997 DECEMBER 31, 1996 ---------------------- ---------------------- CLASS B SHARES AMOUNT SHARES AMOUNT ------- -------- ----------- -------- ----------- Sold.......................... 577,016 $ 6,190,226 605,573 $ 5,942,047 Issued on reinvestment of distributions................ -- -- 39 388 Repurchased................... (67,633) (722,868) (85,800) (845,585) -------- ----------- -------- ----------- Net increase.................. 509,383 $ 5,467,358 519,812 $ 5,096,850 ======== =========== ======== ===========
FROM APRIL 30, 1996 SIX MONTHS ENDED (COMMENCEMENT) JUNE 30, 1997 TO DECEMBER 31, 1996 ---------------------- ---------------------- CLASS C SHARES AMOUNT SHARES AMOUNT ------- -------- ----------- -------- ----------- Sold.......................... 191,516 $ 2,054,986 186,226 $ 1,829,278 Issued on reinvestment of distributions................ -- -- 14 142 Repurchased................... (34,121) (363,975) (2,054) (20,527) -------- ----------- -------- ----------- Net increase.................. 157,395 $ 1,691,011 184,186 $ 1,808,893 ======== =========== ======== ===========
152 June 30, 1997 IVY FUNDS(R) Ivy Pan-Europe Fund - --------------- Semi-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 THROUGHOUT THE CENTURIES, THE CASTLE KEEP HAS BEEN A SOURCE OF LONG-RANGE VISION AND STRATEGIC ADVANTAGE. MARKET COMMENTARY: We would like to take this opportunity to welcome you as a shareholder of the Ivy Pan-Europe Fund. There are many potential benefits to investing internationally including additional diversification, minimizing risk and maximizing return. The Ivy Pan-Europe Fund is positioned to benefit from continuing corporate restructuring, more competitive currencies and a lower interest rate environment in Western Europe. A majority of the Ivy Pan-Europe Fund is invested in large-capitalization, blue-chip stocks with some exposure to what we believe to be significantly undervalued, smaller-capitalization European companies. In many cases, current price-to-earnings ratios in Europe are relatively high due to depressed earnings. We believe economic growth will accelerate as the benefits of weaker currencies and very favorable interest rates take hold. And, just as restructuring has been an important theme in America over the last decade, market forces are causing a similar process in Europe. On the currency front, according to our research, the deutschemark was approaching fair value in the 1.70 range. However, the surprise result of the French election caused us to rethink this view. With the socialist party far less committed to European Monetary Union (EMU) than its predecessor, there could be far more pressure on the entire currency system. We believe a few scenarios are possible. First, in an effort to save jobs (a key feature of the French socialist platform) the Maastricht rules could be relaxed. This would make it easier for "weaker" countries such as Italy, Spain and Portugal to join, thereby placing additional downward pressure on the core European currencies. Second, influenced by Germany's hard line, the Maastricht treaty could be interpreted more strictly, which would result in a more limited initial group (Germany plus the Benelux countries). Third, EMU could be disbanded entirely. We believe that the first scenario is the most likely and pressure on European currencies could reignite. The Ivy Pan-Europe Fund is well diversified among 17 countries with the largest commitments to the United Kingdom (21%), France (12%) and Sweden (12%). Some of the Fund's larger-company holdings include: Volkswagen, Electrolux, Shell and ING. Smaller-capitalization stocks are: Leica Camera, Safilo and Grupo Anaya. We believe the longer-term benefits of international investing cannot be overlooked and encourage investors to stay the course. IVY MANAGEMENT, INC. BOARD OF TRUSTEES John S. Anderegg, Jr. Paul H. Broyhill Keith J. Carlson Stanley Channick Frank W. DeFriece, Jr. Roy J. Glauber Michael G. Landry Joseph G. Rosenthal Richard N. Silverman J. Brendan Swan OFFICERS Michael G. Landry, Chairman Keith J. Carlson, President James W. Broadfoot, Vice President C. William Ferris, Secretary/Treasurer LEGAL COUNSEL Dechert Price & Rhoads Boston, MA CUSTODIAN Brown Brothers Harriman & Co. Boston, MA TRANSFER AGENT Ivy Mackenzie Services Corp. P.O. Box 3022 Boca Raton, FL 33431-0922 1-800-777-6472 AUDITORS Coopers & Lybrand L.L.P. Fort Lauderdale, FL INVESTMEMT MANAGER Ivy Management, Inc. 700 South Federal Highway Boca Raton, FL 33432 1-800-456-5111 DISTRIBUTOR Ivy Mackenzie Distributors, Inc. 700 South Federal Highway Boca Raton, FL 33432 1-800-456-5111 [IVY MACKENZIE LOGO] 153 PORTFOLIO OF INVESTMENTS JUNE 30, 1997 (UNAUDITED)
EQUITY SECURITIES -- 92.3% SHARES VALUE - ------------------------------------------ AUSTRIA -- 2.2% Creditanstalt-Bankverein.................. 80 $ 3,217 Julius Meinl International AG............. 12 372 ----------- 3,589 ----------- BELGIUM -- 0.7% Solvay S.A................................ 2 1,179 ----------- CZECH REPUBLIC -- 1.4% SPT Telekom a.s........................... 22 2,309 ----------- DENMARK -- 2.0% Unidanmark A/S............................ 58 3,263 ----------- FINLAND -- 3.3% Enso OY -- R Shares....................... 171 1,580 Pohjola Insurance Group B................. 76 2,253 UPM -- Kymmene Corp....................... 63 1,455 ----------- 5,288 ----------- FRANCE -- 11.8% Banque Nationale de Paris................. 72 2,970 Bongrain S.A.............................. 3 1,175 Bouygues.................................. 16 1,318 Elf Gabon................................. 7 1,662 Eurotunnel S.A.*.......................... 1,300 1,428 Groupe Danone............................. 13 2,150 Scor...................................... 56 2,257 Societe Generale.......................... 27 3,017 SoGen S.A................................. 64 1,341 Usinor Sacilor............................ 96 1,733 ----------- 19,051 ----------- GERMANY -- 7.7% BMW AG.................................... 1 825 Daimler-Benz AG........................... 19 1,547 Dyckerhoff AG............................. 3 1,088 Leica Camera AG........................... 51 1,259 Merck KGaA................................ 112 4,885 Porsche AG -- Preferred................... 1 1,303 Volkswagen AG............................. 2 1,517 ----------- 12,424 ----------- HUNGARY -- 1.0% BorsodChem GDR 144A*...................... 41 1,594 ----------- ITALY -- 2.1% Fiat S.p.A.*.............................. 447 1,608 Safilo S.p.A.............................. 77 1,787 ----------- 3,395 ----------- NETHERLANDS -- 7.5% Akzo Nobel NV............................. 11 1,510 Fortis Amev NV............................ 58 2,587 Hagemeyer NV.............................. 33 1,708 Hoogovens NV.............................. 32 1,787 ING Groep NV.............................. 56 2,587 Nedlloyd Groep NV......................... 65 1,881 ----------- 12,060 ----------- NORWAY -- 5.0% Bergesen.................................. 136 3,214 Saga Petroleum Series A Free.............. 256 4,861 ----------- 8,075 ----------- PORTUGAL -- 2.2% Cimpor Cimentos........................... 67 1,564 Portugal Telecom S.A. ADR................. 50 2,006 ----------- 3,570 ----------- RUSSIA -- 1.5% LUKoil Holding Co. -- Sponsored ADR....... 30 2,353 ----------- SPAIN -- 4.6% Corp. Financiera Reunida, S.A. (COFIR).... 767 $ 3,233 Grupo Anaya S.A........................... 108 2,115 Telefonica de Espana S.A. ADR............. 25 2,156 ----------- 7,504 ----------- SWEDEN -- 11.8% ABB AB -- B Shares........................ 236 3,296 AssiDoman AB.............................. 55 1,565 Astra AB "B" Shares....................... 101 1,801 Electrolux AB............................. 24 1,732 Granges AB................................ 12 161 S.K.F. AB Series "B"...................... 130 3,362 Sandvik AB -- "B" Shares.................. 144 4,088 Stora Kopparbergs Bergslags Aktiebolag (STORA)................................. 100 1,630 Volvo AB B Shares......................... 54 1,446 ----------- 19,081 ----------- SWITZERLAND -- 7.0% Edipresse S.A............................. 9 2,130 Fotolabo S.A.............................. 4 1,276 Georg Fischer AG Bearer................... 1 1,393 Holderbank Financiere Glaris AG........... 1 946 Jelmoli Holding AG Bearer................. 2 1,248 Pargesa Holding S.A....................... 2 2,661 Sulzer AG Registered...................... 2 1,715 ----------- 11,369 ----------- UNITED KINGDOM -- 20.5% Albert Fisher Group PLC................... 310 223 Barclays PLC.............................. 152 3,016 British Steel plc......................... 625 1,550 Cadbury Schweppes PLC ADR................. 235 2,094 HSBC Holdings plc......................... 107 3,292 Hanson PLC Sponsored ADR.................. 50 1,250 Hazelwood Foods PLC....................... 1,115 2,078 Imperial Chemical Industries PLC - Sponsored ADR........................... 121 1,683 Jarvis Hotels PLC......................... 609 1,424 National Westminster Bank PLC ADR......... 240 3,225 PizzaExpress PLC.......................... 186 1,947 Shell Transport & Trading Co.............. 747 5,091 Standard Chartered PLC.................... 193 2,942 Waterford Wedgwood PLC.................... 967 1,255 Willis Corroon Group PLC.................. 958 2,065 ----------- 33,135 ----------- TOTAL EQUITY SECURITIES (Cost -- $145,765)(a)................... 149,239 OTHER ASSETS, LESS LIABILITIES -- 7.7%.... 12,517 ----------- NET ASSETS -- 100%........................ $ 161,756 =========== ADR - American Depository Receipt NV - Non-voting * Non-income producing security. (a) Cost is the same for Federal income tax purposes. OTHER INFORMATION: At June 30, 1997, net unrealized appreciation based on cost for financial statement and Federal income tax purposes is as follows: Gross unrealized appreciation..................... $ 6,863 Gross unrealized depreciation..................... (3,389) ----------- Net unrealized appreciation................... $ 3,474 =========== Purchases and sales of securities other than short-term obligations aggregated $145,764 and $0, respectively, for the period ended June 30, 1997.
(See Notes to Financial Statements) 154 STATEMENT OF ASSETS AND LIABILITIES JUNE 30, 1997 (UNAUDITED) ASSETS Investments, at value (identified cost -- $145,765)......... $ 149,239 Cash........................................................ 12,500 Receivables Dividends and interest.................................... 360 Manager for expense reimbursement......................... 6,810 Deferred organization expenses.............................. 58,759 ----------- Total assets.............................................. 227,668 ----------- LIABILITIES Payables Management fee............................................ 131 12b-1 service and distribution fees....................... 34 Other payables to related parties......................... 1,693 Accrued expenses............................................ 64,054 ----------- Total liabilities......................................... 65,912 ----------- NET ASSETS.................................................. $ 161,756 =========== CLASS A Net asset value and redemption price per share ($161,756/15,696 shares outstanding)...................... $ 10.31 =========== Maximum offering price per share ($10.31 X 100/94.25)*...... $ 10.94 =========== NET ASSETS CONSIST OF Capital paid-in........................................... $ 156,989 Undistributed net realized loss on investments and foreign currency transactions................................... (5) Undistributed net investment income....................... 1,298 Net unrealized appreciation on investments and foreign currency transactions................................... 3,474 ----------- NET ASSETS.................................................. $ 161,756 ===========
* On sales of more than $50,000 the offering price is reduced. (See Notes to Financial Statements) 155 STATEMENT OF OPERATIONS FOR THE PERIOD MAY 13, 1997 (COMMENCEMENT) TO JUNE 30, 1997 (UNAUDITED) INVESTMENT INCOME Dividends, net of $77 foreign taxes withheld.............. $ 1,484 Interest.................................................. 281 ---------- 1,765 ---------- EXPENSES Management fee............................................ $ 212 Transfer agent............................................ 45 Administrative services fee............................... 21 Custodian fees............................................ 300 Auditing and accounting fees.............................. 1,500 Fund accounting........................................... 1,650 12b-1 service and distribution fees....................... 53 Legal..................................................... 3,000 Other..................................................... 495 ---------- 7,276 Expenses reimbursed by manager............................ (6,809) ---------- Net expenses............................................ 467 ---------- NET INVESTMENT INCOME....................................... 1,298 ---------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS Net realized loss on investments and foreign currency transactions............................................ (5) Net unrealized appreciation during the period on investments and foreign currency transactions........... 3,474 ---------- Net gain on investment transactions..................... 3,469 ---------- INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $ 4,767 ==========
(See Notes to Financial Statements) 156 STATEMENT OF CHANGES IN NET ASSETS FOR THE PERIOD MAY 13, 1997 (COMMENCEMENT) TO JUNE 30, 1997 (UNAUDITED) INCREASE IN NET ASSETS Operations Net investment income....................................... $ 1,298 Net realized loss on investments and foreign currency transactions............................................ (5) Net unrealized appreciation during the period on investments............................................. 3,474 -------- Net increase resulting from operations.................. 4,767 -------- Fund share transactions (Note 4) Class A................................................. 156,989 Class B................................................. -- Class C................................................. -- -------- Net increase resulting from Fund share transactions..... 156,989 -------- NET ASSETS -- END OF PERIOD................................. $161,756 ======== UNDISTRIBUTED NET INVESTMENT INCOME......................... $ 1,298 ========
(See Notes to Financial Statements) 157 FINANCIAL HIGHLIGHTS
FOR THE PERIOD MAY 13, 1997 (COMMENCEMENT) TO JUNE 30, 1997 ----------------- CLASS A SELECTED PER SHARE DATA** ----------------- Net asset value, beginning of period........................ $10.02 ------ Income from investment operations Net investment income(a).................................. .08 Net realized and unrealized gain on investment transactions............................................ .21 ------ Total from investment operations........................ .29 ------ Net asset value, end of period.............................. $10.31 ====== Total return(%)(b).......................................... 2.89 RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in thousands).................... $ 162 Ratio of expenses to average net assets With expense reimbursement(%)(c).......................... 2.20 Without expense reimbursement(%)(c)....................... 34.21 Ratio of net investment income to average net assets(%)(a)(c)........................................... 6.10 Portfolio turnover rate(%).................................. 0 Average commission rate(d).................................. $.0133
(a) Net investment income is net of expenses reimbursed by manager. (b) Total return represents aggregate total return and does not reflect a sales charge. (c) Annualized. (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. * Unaudited. ** Based on average shares outstanding. (See Notes to Financial Statements) 158 NOTES TO FINANCIAL STATEMENTS (UNAUDITED) Ivy Pan-Europe 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 traded on a U.S. or foreign stock exchange, or the National Association of Securities Dealers Automated Quotation ("NASDAQ") System, are valued at the last quoted sale price reported as of the close of regular trading on the exchange the security is traded most extensively. If there is no such sale, the security is valued at the calculated mean between the last bid and asked price on the exchange. Securities not traded on an exchange or NASDAQ, but traded in another over-the-counter market are valued at the average between the current bid and asked prices in such markets. Short-term obligations and commercial paper are valued at amortized cost, which approximates market. Debt securities (other than short-term obligations and commercial paper) are valued on the basis of valuations furnished by a pricing service authorized by the Board of Trustees (the Board), which determines valuations based upon market transactions for normal, institutional-size trading units of such securities. 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 June 30, 1997, 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. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency transactions from foreign investment activity are translated into U.S. dollars on the following basis: (i) market value of securities, and dividends and interest receivable are translated at the closing daily rate of exchange; and, (ii) purchases and sales of investment securities are translated at the rate at which related foreign contracts are obtained or at the exchange rate prevailing on the date of the transaction. Exchange gains or losses from currency translation of other assets and liabilities, if significant, are reported as a separate component of Net realized and unrealized gain (loss) on investment transactions. 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 will be amortized on a straight-line basis for a period not to exceed five years. 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 Fund's average net assets. Currently, IMI voluntarily limits the Fund's total operating expenses (excluding taxes, 12b-1 fees, broker- 159 NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) age commissions, interest, litigation and indemnification expenses, and other extraordinary expenses) to an annual rate of 1.95% of the Fund's 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 and expenses are reflected as Administrative services fee and Fund accounting in the Statement of Operations. Ivy Mackenzie Distributors, Inc. (IMDI), a wholly owned subsidiary of MIMI, is the underwriter and distributor of the Fund's shares, and as such, purchases shares from the Fund at net asset value to settle orders from investment dealers. From May 13, 1997 (Commencement) to June 30, 1997, the net amount of underwriting discount retained by IMDI was $16. 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 $53, $0 and $0, 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 $45, $0 and $0, 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 May 13, 1997 (Commencement) to June 30, 1997, for Class A, Class B and Class C were as follows:
CLASS A SHARES AMOUNT ------- ------ -------- Sold...................................................... 15,696 $156,989 ------ -------- Net increase.............................................. 15,696 $156,989 ====== ========
CLASS B SHARES AMOUNT ------- ------ -------- Sold...................................................... 1 $ 10 Repurchased............................................... (1) (10) ------ -------- Net increase.............................................. -- $ -- ====== ========
CLASS C SHARES AMOUNT ------- ------ -------- Sold...................................................... 1 $ 10 Repurchased............................................... (1) (10) ------ -------- Net increase.............................................. -- $ -- ====== ========
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