Exhibit 17(g)(ii)
IVY BOND FUND
IVY DEVELOPING MARKETS FUND
IVY GLOBAL FUND
IVY GLOBAL SCIENCE & TECHNOLOGY FUND
IVY GROWTH FUND
IVY INTERNATIONAL SMALL COMPANIES FUND
IVY US BLUE CHIP FUND
IVY US EMERGING GROWTH FUND
series of
IVY FUND
6300 Lamar Avenue
P.O. Box 29217
Shawnee Mission, Kansas 66201-9217
913-236-2000
888-WADDELL
STATEMENT OF ADDITIONAL INFORMATION
April 17, 2003
Ivy Fund (the "Trust") is an open-end management investment company
that currently consists of fifteen portfolios, each of which is
diversified. This Statement of Additional Information ("SAI") relates to
the Class A, B, C and Advisor Class shares of Ivy Developing Markets Fund,
Ivy Global Fund, Ivy Growth Fund and Ivy US Emerging Growth Fund, and to
the Class A, B, C, I and Advisor Class shares of Ivy Bond Fund, Ivy Global
Science & Technology Fund, Ivy International Small Companies Fund and Ivy
US Blue Chip Fund (each a "Fund" and, collectively, the "Funds"). The
other seven portfolios of the Trust are described in a separate SAI.
This SAI is not a prospectus and should be read in conjunction with
the prospectus for the Funds dated April 17, 2003, as supplemented from
time to time (the "Prospectus"), which may be obtained upon request and
without charge from the Trust at the address and telephone number above.
Each Fund's Annual Report to shareholders dated December 31, 2002
(each, an "Annual Report") is incorporated by reference into this SAI.
Each Fund's Annual Report may be obtained without charge from the Trust at
the address and telephone number above.
INVESTMENT MANAGER
Waddell & Reed Ivy Investment Company ("WRIICO")
6300 Lamar Avenue
P.O. Box 29217
Shawnee Mission, Kansas 66201-9217
DISTRIBUTOR
Ivy Funds Distributors, Inc. ("IFDI")
6300 Lamar Avenue
P.O. Box 29217
Shawnee Mission, Kansas 66201-9217
TABLE OF CONTENTS
GENERAL INFORMATION.............................................3
INVESTMENT OBJECTIVES, STRATEGIES AND RESTRICTIONS..............3
IVY BOND FUND...............................................4
IVY DEVELOPING MARKETS FUND.................................6
IVY GLOBAL FUND.............................................9
IVY GLOBAL SCIENCE & TECHNOLOGY FUND.......................12
IVY GROWTH FUND............................................14
IVY INTERNATIONAL SMALL COMPANIES FUND.....................17
IVY US BLUE CHIP FUND......................................20
IVY US EMERGING GROWTH FUND................................23
RISK CONSIDERATIONS............................................26
PORTFOLIO TURNOVER.............................................44
TRUSTEES AND OFFICERS..........................................44
PRINCIPAL HOLDERS OF SECURITIES................................51
INVESTMENT ADVISORY AND OTHER SERVICES.........................59
BROKERAGE ALLOCATION...........................................73
CAPITALIZATION AND VOTING RIGHTS...............................75
SPECIAL RIGHTS AND PRIVILEGES..................................76
REDEMPTIONS....................................................86
CONVERSION OF CLASS B SHARES...................................88
NET ASSET VALUE................................................88
DETERMINATION OF OFFERING PRICE................................89
TAXATION.......................................................91
PERFORMANCE INFORMATION........................................97
FINANCIAL STATEMENTS..........................................117
APPENDIX A....................................................118
GENERAL INFORMATION
Each Fund is organized as a separate, diversified portfolio of the
Trust, an open-end management investment company organized as a
Massachusetts business trust on December 21, 1983. Ivy Bond Fund commenced
operations (Class A shares) on September 6, 1985. The inception date for
Class B and Class I shares of Ivy Bond Fund was April 1, 1994. The
inception date for Class C shares of Ivy Bond Fund was April 30, 1996.
Advisor Class shares were first offered on January 1, 1998. Ivy Developing
Markets Fund commenced operations (Class A and Class B shares) on November
1, 1994; the inception dates for the Fund's Class C and Advisor Class
shares were April 30, 1996 and April 30, 1998, respectively. Ivy Global
Fund commenced operations (Class A shares) on April 18, 1991; the
inception dates for the Fund's Class B, Class C and Advisor Class shares
were April 1, 1994, April 30, 1996 and April 30, 1998, respectively. Ivy
Global Science & Technology Fund commenced operations on July 22, 1996
(Class A, Class B and Class C shares); the inception date for the Fund's
Advisor Class shares was April 15, 1998. Ivy Growth Fund commenced
operations (Class A shares) on March 1, 1984. The inception dates for Ivy
Growth Fund's Class B, Class C and Advisor Class shares were October 22,
1993, April 30, 1996 and April 30, 1998, respectively. Ivy International
Small Companies Fund commenced operations on January 1, 1997 (Class A,
Class B and Class C shares); the inception date for the Fund's Advisor
Class shares was July 1, 1999. Ivy US Blue Chip Fund commenced operations
(Class A, B, C and Advisor Class shares) on November 2, 1998. There are no
Class I shares outstanding. Ivy US Emerging Growth Fund commenced
operations (Class A shares) on March 3, 1993. The inception dates for Ivy
US Emerging Growth Fund's Class B, Class C and Advisor Class shares were
October 22, 1993, April 30, 1996 and February 18, 1998, respectively. The
Trust is governed by a Board of Trustees (the "Board"), responsible for
supervision and management of the Funds.
Descriptions in this SAI of a particular investment practice or
technique in which any Fund may engage or a financial instrument which any
Fund may purchase are meant to describe the spectrum of investments that
WRIICO, in its discretion, might, but is not required to, use in managing
each Fund's portfolio assets. For example, WRIICO may, in its discretion,
at any time employ a given practice, technique or instrument for one or
more funds but not for all funds advised by it. It is also possible that
certain types of financial instruments or investment techniques described
herein may not be available, permissible, economically feasible or
effective for their intended purposes in some or all markets, in which
case a Fund would not use them. Investors should also be aware that
certain practices, techniques, or instruments could, regardless of their
relative importance in a Fund's overall investment strategy, from time to
time have a material impact on that Fund's performance.
INVESTMENT OBJECTIVES, STRATEGIES AND RESTRICTIONS
Each Fund has its own investment objectives and policies, which are
described in the Prospectus under the captions "Summary" and "Additional
Information About Strategies and Risks." Descriptions of each Fund's
policies, strategies and investment restrictions, as well as additional
information regarding the characteristics and risks associated with each
Fund's investment techniques, are set forth below.
Whenever an investment objective, policy or restriction set forth in
the Prospectus or this SAI states a maximum percentage of assets that may
be invested in any security or other asset or describes a policy regarding
quality standards, such percentage limitation or standard shall, unless
otherwise indicated, apply to a Fund only at the time a transaction is
entered into. Accordingly, if a percentage limitation is adhered to at the
time of investment, a later increase or decrease in the percentage which
results from circumstances not involving any affirmative action by a Fund,
such as a change in market conditions or a change in a Fund's asset level
or other circumstances beyond a Fund's control, will not be considered a
violation.
IVY BOND FUND
The Fund seeks a high level of current income by investing primarily
in (i) investment grade corporate bonds (including those rated Aaa, Aa, A
or Baa by Moody's Investors Service, Inc. ("Moody's") or AAA, AA, A or BBB
by Standard & Poor's Ratings Services ("S&P"), or, if unrated, considered
by WRIICO to be of comparable quality) and (ii) U.S. Government securities
(including mortgage-backed securities issued by U.S. Government agencies
or instrumentalities) that mature in more than 13 months. As a fundamental
policy, the Fund normally invests at least 80% of its net assets, plus the
amount of any borrowings for investment purposes, in these fixed income
securities. For temporary defensive purposes, the Fund may invest without
limit in U.S. Government securities maturing in 13 months or less,
certificates of deposit, bankers' acceptances, commercial paper and
repurchase agreements. The Fund may also invest up to 35% of its total
assets in such money market securities in order to meet redemptions or to
maximize income to the Fund while it is arranging longer-term investments.
The Fund may invest up to 35% of its net assets in corporate debt
securities, including zero coupon bonds (subject to the restrictions set
forth below), rated Ba or below by Moody's or BB or below by S&P, or, if
unrated, considered by WRIICO to be of comparable quality (commonly
referred to as "high yield" or "junk" bonds). The Fund will not invest in
debt securities rated less than C by either Moody's or S&P. See Appendix A
for a description of Moody's and S&P's corporate bond ratings.
The Fund may invest up to 5% of its net assets in dividend-paying
common and preferred stocks (including adjustable rate preferred stocks
and securities convertible into common stocks), municipal bonds, zero
coupon bonds, and securities sold on a "when-issued" or firm commitment
basis. As a temporary measure for extraordinary or emergency purposes, the
Fund may borrow from banks up to 10% of the value of its total assets.
The Fund may invest up to 20% of its net assets in debt securities of
foreign issuers, including non-U.S. dollar-denominated debt securities,
American Depository Receipts ("ADRs"), Global Depository ("GDRs"),
American Depository Shares ("ADSs") and Global Depository Shares ("GDSs"),
Eurodollar securities and debt securities issued, assumed or guaranteed by
foreign governments or political subdivisions or instrumentalities
thereof. The Fund may also enter into forward foreign currency contracts,
but not for speculative purposes. The Fund may not invest more than 15% of
the value of its net assets in illiquid securities.
The Fund may purchase put and call options, provided the premium paid
for such options does not exceed 10% of the Fund's net assets. The Fund
may also sell covered put options with respect to up to 50% of the value
of its net assets, and may write covered call options so long as not more
than 20% of the Fund's net assets in subject to being purchased upon the
exercise of the calls. For hedging purposes only, the Fund may engage in
transactions in interest rate futures contracts, currency futures
contracts and options on interest rate futures and currency futures
contracts.
INVESTMENT RESTRICTIONS FOR IVY BOND FUND
The Fund's investment objectives as set forth in the "Summary"
section of the Prospectus, together with the investment restrictions set
forth below, are fundamental policies of the Fund and may not be changed
without the approval of a majority of the outstanding voting shares of the
Fund. The Fund has adopted the following fundamental investment
restrictions:
(i) The Fund has elected to be classified as a diversified series of
an open-end investment company.
(ii) The Fund will not borrow money, except as permitted under the
Investment Company Act of 1940, as amended, and as interpreted
or modified by regulatory authority having jurisdiction, from
time to time.
(iii) The Fund will not issue senior securities, except as
permitted under the Investment Company Act of 1940, as amended,
and as interpreted or modified by regulatory authority having
jurisdiction, from time to time.
(iv) The Fund will not engage in the business of underwriting
securities issued by others, except to the extent that the Fund
may be deemed to be an underwriter in connection with the
disposition of portfolio securities.
(v) The Fund will not purchase or sell real estate (which term does
not include securities of companies that deal in real estate or
mortgages or investments secured by real estate or interests
therein), except that the Fund may hold and sell real estate
acquired as a result of the Fund's ownership of securities.
(vi) The Fund will not purchase physical commodities or contracts
relating to physical commodities, although the Fund may invest
in commodities futures contracts and options thereon to the
extent permitted by the Prospectus or this SAI.
(vii) The Fund will not make loans to other persons, except (a)
loans of portfolio securities, and (b) to the extent that entry
into repurchase agreements and the purchase of debt instruments
or interests in indebtedness in accordance with the Fund's
investment objective and policies may be deemed to be loans.
(viii) The Fund will not concentrate its investments in a
particular industry, as the term "concentrate" is interpreted in
connection with the Investment Company Act of 1940, as amended,
and as interpreted or modified by regulatory authority having
jurisdiction, from time to time.
ADDITIONAL RESTRICTIONS FOR IVY BOND FUND
The Fund has adopted the following additional restrictions, which are
not fundamental and which may be changed without shareholder approval, to
the extent permitted by applicable law, regulation or regulatory policy.
Under these restrictions, the Fund may not:
(i) purchase any security if, as a result, the Fund would then have
more than 5% of its total assets (taken at current value)
invested in securities of companies (including predecessors)
less than three years old;
(ii) purchase or sell real estate limited partnership interests;
(iii) purchase or retain securities of any company if officers
and Trustees of the Trust and officers and directors of WRIICO
who individually own more than / of 1% of the securities of that
company together own beneficially more than 5% of such
securities;
(iv) purchase or sell interests in oil, gas and mineral leases (other
than securities of companies that invest in or sponsor such
programs);
(v) invest more than 15% of its net assets taken at market value at
the time of the investment in "illiquid securities." Illiquid
securities may include securities subject to legal or
contractual restrictions on resale (including private
placements), repurchase agreements maturing in more than seven
days, certain options traded over the counter that the Fund has
purchased, securities being used to cover certain options that
the Fund has written, securities for which market quotations are
not readily available, or other securities which legally or in
WRIICO's opinion, subject to the Board's supervision, may be
deemed illiquid, but shall not include any instrument that, due
to the existence of a trading market, to the Fund's compliance
with certain conditions intended to provide liquidity, or to
other factors, is liquid;
(vi) make investments in securities for the purpose of exercising
control over or management of the issuer;
(vii) purchase securities on margin, except such short-term
credits as are necessary for the clearance of transactions. The
deposit or payment by the Fund of initial or variation margin in
connection with futures contracts or relate options transactions
is not considered the purchase of a security on margin;
(viii) borrow amounts in excess of 10% of its total assets, taken
at the lower of cost or market value, and then only from banks
as a temporary measure for extraordinary or emergency purposes;
(ix) mortgage, pledge, hypothecate or in any manner transfer, as
security for indebtedness, any securities owned or held by the
Fund (except as may be necessary in connection with permitted
borrowings and then not in excess of 20% of the Fund's total
assets); provided, however, this does not prohibit escrow,
collateral or margin arrangements in connection with its use of
options, short sales, futures contracts and options on future
contracts;
(x) participate on a joint or a joint and several basis in any
trading account in securities. The "bunching" of orders of the
Fund -- or of the Fund and of other accounts under the
investment management of the persons rendering investment advice
to the Fund -- for the sale or purchase of portfolio securities
shall not be considered participation in a joint securities
trading account; or
(xi) make short sales of securities or maintain a short position.
IVY DEVELOPING MARKETS FUND
Ivy Developing Markets Fund's principal objective is long-term
growth. Consideration of current income is secondary to this principal
objective. In pursuing its objective, the Fund invests primarily in the
equity securities of companies that WRIICO believes will benefit from the
economic development and growth of emerging markets. The Fund considers
countries having emerging markets to be those that (i) are generally
considered to be "developing" or "emerging" by the World Bank and the
International Finance Corporation, or (ii) are classified by the United
Nations (or otherwise regarded by their authorities) as "emerging." Under
normal market conditions, the Fund invests at least 80% of its net assets,
plus any borrowings for investment purposes, in equity securities
(including common stock, preferred stock and securities convertible into
common stock) debt obligations, warrants, options (subject to the
restrictions set forth below), rights, and sponsored or unsponsored ADRs,
GDRs, ADSs and GDSs that are listed on stock exchanges or traded
over-the-counter of companies that are located in, or expected to profit
from, countries whose markets are generally viewed as "developing" or
"emerging" by the World Bank and the International Finance Corporation, or
classified as "emerging" by the United Nations.
The Fund normally invests its assets in the securities of issuers
located in at least three emerging market countries, and may invest 25% or
more of its total assets in the securities of issuers located in any one
country. WRIICO's determination as to whether a company qualifies as an
Emerging Market growth company is based primarily on information contained
in financial statements, reports, analyses and other pertinent information
(some of which may be obtained directly from the company).
For purposes of capital appreciation, Ivy Developing Markets Fund may
invest up to 35% of its total assets in (i) debt securities of government
or corporate issuers in emerging market countries, (ii) equity and debt
securities of issuers in developed countries (including the United
States), and (iii) cash or cash equivalents such as bank obligations
(including certificates of deposit and bankers' acceptances), commercial
paper, short-term notes and repurchase agreements. For temporary defensive
purposes, the Fund may invest without limit in such instruments. The Fund
may also invest in zero coupon bonds and purchase securities on a
"when-issued" or firm commitment basis.
The Fund will not invest more than 20% of its total assets in debt
securities rated Ba or lower by Moody's or BB or lower by S&P, or if
unrated, considered by WRIICO to be of comparable quality (commonly
referred to as "high yield" or "junk" bonds). The Fund will not invest in
debt securities rated less than C by either Moody's or S&P.
For temporary or emergency purposes, the Fund may borrow from banks
in accordance with the provisions of the Investment Company Act of 1940,
as amended, (the "1940 Act"), but may not purchase securities at any time
during which the value of the Fund's outstanding loans exceeds 10% of the
value of the Fund's total assets. The Fund may engage in foreign currency
exchange transactions and enter into forward foreign currency contracts.
The Fund may also invest in other investment companies in accordance with
the provisions of the 1940 Act, and up to 15% of its net assets in
illiquid securities.
The Fund may purchase put and call options on securities and stock
indices, provided the premium paid for such options does not exceed 5% of
the Fund's net assets. The Fund may also sell covered put options with
respect to up to 10% of the value of its net assets, and may write covered
call options so long as not more than 25% of the Fund's net assets are
subject to being purchased upon the exercise of the calls. For hedging
purposes only, the Fund may engage in transactions in (and options on)
stock index and foreign currency futures contracts, provided that the
Fund's equivalent exposure in such contracts does not exceed 15% of its
total assets.
INVESTMENT RESTRICTIONS FOR IVY DEVELOPING MARKETS FUND
Ivy Developing Markets Fund's investment objectives as set forth in
the "Summary" section of the Prospectus, together with the investment
restrictions set forth below, are fundamental policies of the Fund and may
not be changed without the approval of a majority (as defined in the 1940
Act) of the outstanding voting shares of the Fund. The Fund has adopted
the following fundamental investment restrictions:
(i) The Fund has elected to be classified as a diversified series of
an open-end investment company.
(ii) The Fund will not borrow money, except as permitted under the
1940 Act, as interpreted or modified by regulatory authority
having jurisdiction, from time to time.
(iii) The Fund will not issue senior securities, except as
permitted under the 1940 Act, as interpreted or modified by
regulatory authority having jurisdiction, from time to time.
(iv) The Fund will not engage in the business of underwriting
securities issued by others, except to the extent that the Fund
may be deemed to be an underwriter in connection with the
disposition of portfolio securities.
(v) The Fund will not purchase or sell real estate (which term does
not include securities of companies that deal in real estate or
mortgages or investments secured by real estate or interests
therein), except that the Fund may hold and sell real estate
acquired as a result of the Fund's ownership of securities.
(vi) The Fund will not purchase physical commodities or contracts
relating to physical commodities, although the Fund may invest
in commodities futures contracts and options thereon to the
extent permitted by the Prospectus and this SAI.
(vii) The Fund will not make loans to other persons, except (a)
loans of portfolio securities, and (b) to the extent that entry
into repurchase agreements and the purchase of debt instruments
or interests in indebtedness in accordance with the Fund's
investment objective and policies may be deemed to be loans.
(viii) The Fund will not concentrate its investments in a
particular industry, as the term "concentrate" is interpreted in
connection with the Investment Company Act of 1940, as amended,
and as interpreted or modified by regulatory authority having
jurisdiction, from time to time.
ADDITIONAL RESTRICTIONS FOR IVY DEVELOPING MARKETS FUND
Unless otherwise indicated, Ivy Developing Markets Fund has adopted
the following additional restrictions, which are not fundamental and which
may be changed without shareholder approval to the extent permitted by
applicable law, regulation or regulatory policy. Under these restrictions,
the Fund may not:
(i) invest in oil, gas or other mineral leases or exploration or
development programs;
(ii) invest in companies for the purpose of exercising control of
management;
(iii) invest more than 5% of its total assets in warrants, valued
at the lower of cost or market, or more than 2% of its total
assets in warrants, so valued, which are not listed on either
the New York or American Stock Exchanges;
(iv) purchase securities of other investment companies, except in
connection with a merger, consolidation or sale of assets, and
except that it may purchase shares of other investment companies
subject to such restrictions as may be imposed by the Investment
Company Act of 1940 and rules thereunder;
(v) invest more than 15% of its net assets taken at market value at
the time of investment in "illiquid securities." Illiquid
securities may include securities subject to legal or
contractual restrictions on resale (including private
placements), repurchase agreements maturing in more than seven
days, certain options traded over the counter that the Fund has
purchased, securities being used to cover certain options that
the Fund has written, securities for which market quotations are
not readily available, or other securities which legally or in
WRIICO's opinion, subject to the Board's supervision, may be
deemed illiquid, but shall not include any instrument that, due
to the existence of a trading market, to the Fund's compliance
with certain conditions intended to provide liquidity, or to
other factors, is liquid;
(vi) borrow money, except for temporary or emergency purposes. The
Fund may not purchase securities at any time during which the
value of the Fund's outstanding loans exceeds 10% of the value
of the Fund's total assets;
(vii) purchase securities on margin;
(viii) sell securities short except for short sales "against the
box"; or
(ix) purchase from or sell to any of its officers or trustees, or
firms of which any of them are members or which they control,
any securities (other than capital stock of the Fund), but such
persons or firms may act a brokers for the Fund for customary
commissions to the extent permitted by the 1940 Act.
Under the 1940 Act, the Fund is permitted, subject to the above
investment restrictions, to borrow money only from banks. The Trust has no
current intention of borrowing amounts in excess of 5% of the Fund's
assets. The Fund will continue to interpret fundamental investment
restrictions (v) to prohibit investment in real estate limited partnership
interests; this restriction shall not, however, prohibit investment in
readily marketable securities of companies that invest in real estate or
interests therein, including real estate investment trusts.
IVY GLOBAL FUND
Ivy Global Fund seeks long-term capital growth through a flexible
policy of investing in stocks and debt obligations of companies and
governments of any nation. Any income realized will be incidental. Under
normal conditions, the Fund will invest in the equity securities
(including common stock, preferred stock and securities convertible into
common stock) of companies in different countries. The Fund may also
invest in preferred stock, sponsored or unsponsored ADRs, GDRs, ADSs and
GDSs, and investment-grade debt securities (i.e., those rated Baa or
higher by Moody's or BBB or higher by S&P, or if unrated, considered by
WRIICO to be of comparable quality), including corporate bonds, notes,
debentures, convertible bonds and zero coupon bonds.
The Fund may invest up to 25% of its net assets in debt securities
rated Ba or below by Moody's or BB or below by S&P, or if unrated,
considered by WRIICO to be of comparable quality (commonly referred to as
"high yield" or "junk" bonds). The Fund will not invest in debt securities
rated less than C by either Moody's or S&P.
The Fund may invest in equity real estate investment trusts,
warrants, and securities issued on a "when-issued" or firm commitment
basis, and may engage in foreign currency exchange transactions and enter
into forward foreign currency contracts. The Fund may also invest in other
investment companies in accordance with the provisions of the 1940 Act,
and may invest up to 15% of its net assets in illiquid securities. The
Fund may not invest more than 5% of its total assets in restricted
securities.
For temporary defensive purposes and during periods when WRIICO
believes that circumstances warrant, Ivy Global Fund may invest without
limit in U.S. Government securities, obligations issued by domestic or
foreign banks (including certificates of deposit, time deposits and
bankers' acceptances), and domestic or foreign commercial paper (which, if
issued by a corporation, must be rated Prime-1 by Moody's or A-1 by S&P,
or if unrated has been issued by a company that at the time of investment
has an outstanding debt issue rated Aaa or Aa by Moody's or AAA or AA by
S&P). The Fund may also enter into repurchase agreements, and, for
temporary or emergency purposes, may borrow up to 10% of the value of its
total assets from banks.
The Fund may purchase put and call options on securities and stock
indices, provided the premium paid for such options does not exceed 10% of
the Fund's net assets. The Fund may also sell covered put options with
respect to up to 50% of the value of its net assets, and may write covered
call options so long as not more than 20% of the Fund's net assets are
subject to being purchased upon the exercise of the calls. The Fund may
also write and buy straddles and spreads. For hedging purposes only, the
Fund may engage in transactions in (and options on) stock index and
foreign currency futures contracts, provided that the Fund's equivalent
exposure in such contracts does not exceed 20% of its total assets.
INVESTMENT RESTRICTIONS FOR IVY GLOBAL FUND
Ivy Global Fund's investment objectives as set forth in the "Summary"
section of the Prospectus, together with the investment restrictions set
forth below, are fundamental policies of the Fund and may not be changed
without the approval of a majority of the outstanding voting shares of the
Fund. The Fund has adopted the following fundamental investment
restrictions:
(i) The Fund has elected to be classified as a diversified series of
an open-end investment company.
(ii) The Fund will not borrow money, except as permitted under the
1940 Act, as interpreted or modified by regulatory authority
having jurisdiction, from time to time.
(iii) The Fund will not issue senior securities, except as
permitted under the 1940 Act, as interpreted or modified by
regulatory authority having jurisdiction, from time to time.
(iv) The Fund will not engage in the business of underwriting
securities issued by others, except to the extent that the Fund
may be deemed to be an underwriter in connection with the
disposition of portfolio securities.
(v) The Fund will not purchase or sell real estate (which term does
not include securities of companies that deal in real estate or
mortgages or investments secured by real estate or interests
therein), except that the Fund may hold and sell real estate
acquired as a result of the Fund's ownership of securities.
(vi) The Fund will not purchase physical commodities or contracts
relating to physical commodities, although the Fund may invest
in commodities futures contracts and options thereon to the
extent permitted by the Prospectus and this SAI.
(vii) The Fund will not make loans to other persons, except (a)
loans of portfolio securities, and (b) to the extent that entry
into repurchase agreements and the purchase of debt instruments
or interests in indebtedness in accordance with the Fund's
investment objective and policies may be deemed to be loans.
(viii) The Fund will not concentrate its investments in a
particular industry, as the term "concentrate" is interpreted in
connection with the 1940 Act, as interpreted or modified by
regulatory authority having jurisdiction, from time to time.
ADDITIONAL RESTRICTIONS FOR IVY GLOBAL FUND
Ivy Global Fund has adopted the following additional restrictions,
which are not fundamental and which may be changed without shareholder
approval, to the extent permitted by applicable law, regulation or
regulatory policy.
Under these restrictions, the Fund may not:
(i) purchase or sell real estate limited partnership interests;
(ii) purchase or sell interests in oil, gas or mineral leases (other
than securities of companies that invest in or sponsor such
programs);
(iii) invest in oil, gas and/or mineral exploration or
development programs;
(iv) purchase securities on margin, except such short-term credits as
are necessary for the clearance of transactions, but the Fund
may make margin deposits in connection with transactions in
options, futures and options on futures;
(v) make investments in securities for the purpose of exercising
control over or management of the issuer;
(vi) participate on a joint or a joint and several basis in any
trading account in securities. The "bunching" of orders of the
Fund and of other accounts under the investment management of
WRIICO for the sale or purchase of portfolio securities shall
not be considered participation in a joint securities trading
account;
(vii) borrow amounts in excess of 10% of its total assets, taken
at the lower of cost or market value, and then only from banks
as a temporary measure for extraordinary or emergency purposes.
All borrowings will be repaid before any additional investments
are made;
(viii) purchase any security if, as a result, the Fund would then
have more than 5% of its total assets (taken at current value)
invested in securities restricted as to disposition under the
U.S. securities laws; or
(ix) purchase securities of another investment company, except in
connection with a merger, consolidation, reorganization or
acquisition of assets, and except that the Fund may invest in
securities of other investment companies subject to the
restrictions of the 1940 Act and rules thereunder.
The Fund does not interpret fundamental restriction (v) to prohibit
investment in real estate investment trusts.
IVY GLOBAL SCIENCE & TECHNOLOGY FUND
Ivy Global Science & Technology Fund's principal investment objective
is long-term capital growth. Any income realized will be incidental. Under
normal conditions, the Fund will invest at least 80% of its net assets,
plus the amount of any borrowings for investment purposes, in the equity
securities (including common, preferred stock and securities convertible
into common stock) of companies throughout the world that are expected to
profit from the development, advancement and use of science and
technology. Under this investment policy, at least three different
countries (one of which may be the United States) will be represented in
the Fund's overall portfolio holdings. Industries likely to be represented
in the Fund's portfolio include computers and peripheral products,
software, electronic components and systems, telecommunications, media and
information services, pharmaceuticals, hospital supply and medical
devices, biotechnology, environmental services, chemicals and synthetic
materials, and defense and aerospace. The Fund may also invest in
companies that are expected to benefit indirectly from the
commercialization of technological and scientific advances. In recent
years, rapid advances in these industries have stimulated unprecedented
growth. While this is no guarantee of future performance, WRIICO believes
that these industries offer substantial opportunities for long-term
capital appreciation. Investments made by the Fund may include securities
issued pursuant to IPOs. The Fund may also engage in short-term trading.
Although the Fund generally invests in common stock, it may also
invest in preferred stock, securities convertible into common stock,
sponsored or unsponsored ADRs, GDRs, ADSs and GDSs and investment-grade
debt securities (i.e., those rated Baa or higher by Moody's or BBB or
higher by S&P, or if unrated, considered by WRIICO to be of comparable
quality), including corporate bonds, notes, debentures, convertible bonds
and zero coupon bonds. The fund may also invest up to 5% of its net assets
in debt securities that are rated Ba or below by Moody's or BB or below by
S&P, or if unrated, are considered by WRIICO to be of comparable quality
(commonly referred to as "high yield" or "junk" bonds). The Fund will not
invest in debt securities rated less than C by either Moody's or S&P.
The Fund may invest in warrants, purchase securities on a "when-
issued" or firm commitment basis, engage in foreign currency exchange
transactions and enter into forward foreign currency contracts. The Fund
may also invest (i) in other investment companies in accordance with the
provisions of the 1940 Act and (ii) up to 15% of its net assets in
illiquid securities.
For temporary defensive purposes and during periods when WRIICO
believes that circumstances warrant, Ivy Global Science & Technology Fund
may invest without limit in U.S. Government securities, obligations issued
by domestic or foreign banks (including certificates of deposit, time
deposits and bankers' acceptances), and domestic or foreign commercial
paper (which, if issued by a corporation, must be rated Prime-1 by Moody's
or A-1 by S&P, or if unrated has been issued by a company that at the time
of investment has an outstanding debt issue rated Aaa or Aa by Moody's or
AAA or AA by S&P). The Fund may also enter into repurchase agreements,
and, for temporary or emergency purposes, may borrow up to 10% of the
value of its total assets from banks.
The Fund may purchase put and call options on stock indices and on
individual securities, provided the premium paid for such options does not
exceed 10% of the value of the Fund's net assets. The Fund may also sell
covered put options with respect to up to 50% of the value of its net
assets, and may write covered call options so long as not more than 20% of
the Fund's net assets are subject to being purchased upon the exercise of
the calls. For hedging purposes only, the Fund may engage in transactions
in (and options on) stock index and foreign currency futures contracts,
provided that the Fund's equivalent exposure in such contracts does not
exceed 20% of the value of its total assets.
INVESTMENT RESTRICTIONS FOR IVY GLOBAL SCIENCE & TECHNOLOGY FUND
Ivy Global Science & Technology Fund's investment objective, as set
forth in the "Summary" section of the Prospectus, and the investment
restrictions set forth below are fundamental policies of the Fund and may
not be changed without the approval of a majority (as defined in the 1940
Act) of the Fund's outstanding voting shares. The Fund has adopted the
following fundamental investment restrictions:
(i) The Fund has elected to be classified as a diversified series of
an open-end investment company.
(ii) The Fund will not borrow money, except as permitted under the
1940 Act, as interpreted or modified by regulatory authority
having jurisdiction, from time to time.
(iii) The Fund will not issue senior securities, except as
permitted under the 1940 Act, as interpreted or modified by
regulatory authority having jurisdiction, from time to time.
(iv) The Fund will not engage in the business of underwriting
securities issued by others, except to the extent that the Fund
may be deemed to be an underwriter in connection with the
disposition of portfolio securities.
(v) The Fund will not purchase or sell real estate (which term does
not include securities of companies that deal in real estate or
mortgages or investments secured by real estate or interests
therein), except that the Fund may hold and sell real estate
acquired as a result of the Fund's ownership of securities.
(vi) The Fund will not purchase physical commodities or contracts
relating to physical commodities, although the Fund may invest
in commodities futures contracts and options thereon to the
extent permitted by the Prospectus and this SAI.
(vii) The Fund will not make loans to other persons, except (a)
loans of portfolio securities, and (b) to the extent that entry
into repurchase agreements and the purchase of debt instruments
or interests in indebtedness in accordance with the Fund's
investment objective and policies may be deemed to be loans.
(viii) The Fund will not concentrate its investments in a
particular industry, as the term "concentrate" is interpreted in
connection with the Investment Company Act of 1940, as amended,
and as interpreted or modified by regulatory authority having
jurisdiction, from time to time.
ADDITIONAL RESTRICTIONS FOR IVY GLOBAL SCIENCE & TECHNOLOGY FUND
Ivy Global Science & Technology Fund has adopted the following
additional restrictions, which are not fundamental and which may be
changed without shareholder approval to the extent permitted by applicable
law, regulation or regulatory policy. Under these restrictions, the Fund
may not:
(i) invest in oil, gas or other mineral leases or exploration or
development programs;
(ii) invest in companies for the purpose of exercising control or
management;
(iii) invest more than 5% of its total assets in warrants, valued
at the lower of cost or market, or more than 2% of its total
assets in warrants, so valued, which are not listed on either
the New York or American Stock Exchanges;
(iv) invest more than 15% of its net assets taken at market value at
the time of investment in "illiquid securities." Illiquid
securities may include securities subject to legal or
contractual restrictions on resale (including private
placements), repurchase agreements maturing in more than seven
days, certain options traded over the counter that the Fund has
purchased, securities being used to cover certain options that a
Fund has written, securities for which market quotations are not
readily available, or other securities which legally or in
WRIICO's opinion, subject to the Board's supervision, may be
deemed illiquid, but shall not include any instrument that, due
to the existence of a trading market, to the Fund's compliance
with certain conditions intended to provide liquidity, or to
other factors, is liquid;
(v) borrow amounts in excess of 10% of its total assets, taken at
the lower of cost or market value, and then only from banks as a
temporary measure for emergency purposes.
(vi) purchase securities on margin;
(vii) sell securities short, except for short sales "against the
box"; or
(viii) purchase from or sell to any of its officers or trustees,
or firms of which any of them are members or which they control,
any securities (other than capital stock of the Fund), but such
persons or firms may act as brokers for the Fund for customary
commissions to the extent permitted by the 1940 Act.
Under the 1940 Act, the Fund is permitted, subject to the above
investment restrictions, to borrow money only from banks. The Trust has no
current intention of borrowing amounts in excess of 5% of the Fund's
assets. The Fund will continue to interpret fundamental investment
restriction (v) to prohibit investment in real estate limited partnership
interests; this restriction shall not, however, prohibit investment in
readily marketable securities of companies that invest in real estate or
interests therein, including real estate investment trusts.
IVY GROWTH FUND
Ivy Growth Fund's principal investment objective is long-term capital
growth primarily through investment in equity securities, with current
income being a secondary consideration. Under normal conditions, the Fund
invests primarily in equity securities (including common stock,
preferred stock and securities convertible into common stock) of US
companies of any size. The Fund seeks to achieve its principal objective
of long-term growth by investing primarily in large- and mid-cap stocks,
and seeks to provide additional diversification by investing a small
portion of its assets in small-cap US stocks.
Ivy Growth Fund may invest up to 5% of its net assets in foreign
equity securities, primarily those traded in European, Pacific Basin and
Latin American markets, some of which may be emerging markets involving
special risks, as described below. Individual foreign securities are
selected based on value indicators, such as a low price-earnings ratio,
and are reviewed for fundamental financial strength.
For temporary defensive purposes and during periods when WRIICO
believes that circumstances warrant, the Fund may invest without limit in
investment grade debt securities (e.g., U.S. Government securities or
other corporate debt securities rated at least Baa by Moody's Investors
Service, Inc. ("Moody's") or BBB by Standard & Poors Ratings Services
("S&P"), or, if unrated, considered by WRIICO to be of comparable
quality), preferred stocks, or cash or cash equivalents such as bank
obligations (including certificates of deposit and bankers' acceptances),
commercial paper, short-term notes and repurchase agreements.
The Fund may invest up to 5% of its net assets in debt securities
rated Ba or below by Moody's or BB or below by S&P, or if unrated,
considered by WRIICO to be of comparable quality (commonly referred to as
"high yield" or "junk" bonds). The Fund will not invest in debt securities
rated less than C by either Moody's or S&P.
The Fund may borrow up to 10% of the value of its total assets, but
only for temporary purposes when it would be advantageous to do so from an
investment standpoint. The Fund may invest up to 5% of its net assets in
warrants. The Fund may not invest more than 15% of its net assets in
illiquid securities. The Fund may enter into forward foreign currency
contracts and may also invest in equity real estate investment trusts.
Ivy Growth Fund may write put options, with respect to not more than
10% of the value of its net assets, on securities and stock indices, and
may write covered call options with respect to not more than 25% of the
value of its net assets. The Fund may purchase options, provided the
aggregate premium paid for all options held does not exceed 5% of its net
assets. For hedging purposes only, the Fund may enter into stock index
futures contracts as a means of regulating its exposure to equity markets.
The Fund's equivalent exposure in stock index futures contracts will not
exceed 15% of its total assets.
INVESTMENT RESTRICTIONS FOR IVY GROWTH FUND
Ivy Growth Fund's investment objectives as set forth in the "Summary"
section of the Prospectus, together with the investment restrictions set
forth below, are fundamental policies of the Fund and may not be changed
without the approval of a majority (as defined in the 1940 Act) of the
outstanding voting shares of the Fund. The Fund has adopted the following
fundamental investment restrictions:
(i) The Fund has elected to be classified as a diversified series of
an open-end investment company.
(ii) The Fund will not borrow money, except as permitted under the
Investment Company Act of 1940, as amended, and as interpreted
or modified by regulatory authority having jurisdiction, from
time to time.
(iii) The Fund will not issue senior securities, except as
permitted under the Investment Company Act of 1940, as amended,
and as interpreted or modified by regulatory authority having
jurisdiction, from time to time.
(iv) The Fund will not engage in the business of underwriting
securities issued by others, except to the extent that the Fund
may be deemed to be an underwriter in connection with the
disposition of portfolio securities.
(v) The Fund will not purchase or sell real estate (which term does
not include securities of companies that deal in real estate or
mortgages or investments secured by real estate or interests
therein), except that the Fund may hold and sell real estate
acquired as a result of the Fund's ownership of securities.
(vi) The Fund will not purchase physical commodities or contracts
relating to physical commodities, although the Fund may invest
in commodities futures contracts and options thereon to the
extent permitted by its Prospectus and this SAI.
(vii) The Fund will not make loans to other persons, except (a)
loans of portfolio securities, and (b) to the extent that entry
into repurchase agreements and the purchase of debt instruments
or interests in indebtedness in accordance with the Fund's
investment objective and policies may be deemed to be loans.
(viii) The Fund will not concentrate its investments in a
particular industry, as the term "concentrate" is interpreted in
connection with the Investment Company Act of 1940, as amended,
and as interpreted or modified by regulatory authority having
jurisdiction, from time to time.
ADDITIONAL RESTRICTIONS FOR IVY GROWTH FUND
Ivy Growth Fund has adopted the following additional restrictions
which are not fundamental and which may be changed without shareholder
approval to the extent permitted by applicable law, regulation or
regulatory policy.
Under these restrictions, the Fund may not:
(i) invest in oil, gas or other mineral leases or exploration or
development programs;
(ii) engage in the purchase and sale of puts, calls, straddles or
spreads (except to the extent described in the Prospectus and in
this SAI);
(iii) invest in companies for the purpose of exercising control
of management;
(iv) invest more than 5% of its total assets in warrants, valued at
the lower of cost or market, or more than 2% of its total assets
in warrants, so valued, which are not listed on either the New
York or American Stock Exchanges;
(v) purchase any security if, as a result, the Fund would then have
more than 5% of its total assets (taken at current value)
invested in securities of companies (including predecessors)
less than three years old;
(vi) invest more than 5% of the value of its total assets in the
securities of issuers which are not readily marketable;
(vii) borrow money, except for temporary purposes where
investment transactions might advantageously require it. Any
such loan may not be for a period in excess of 60 days, and the
aggregate amount of all outstanding loans may not at any time
exceed 10% of the value of the total assets of the Fund at the
time any such loan is made;
(viii) purchase securities on margin;
(ix) sell securities short;
(x) purchase from or sell to any of its officers or trustees, or
firms of which any of them are members or which they control,
any securities (other than capital stock of the Fund), but such
persons or firms may act as brokers for the Fund for customary
commissions to the extent permitted by the Investment Company
Act of 1940; or
(xi) purchase the securities of any other open-end investment
company, except as part of a plan of merger or consolidation.
Under the 1940 Act, the Fund is permitted, subject to its investment
restrictions, to borrow money only from banks. The Trust has no current
intention of borrowing amounts in excess of 5% of the Fund's assets. The
Fund will continue to interpret fundamental investment restriction (v) to
prohibit investment in real estate limited partnership interests; this
restriction shall not, however, prohibit investment in readily marketable
securities of companies that invest in real estate or interests therein,
including real estate investment trusts.
IVY INTERNATIONAL SMALL COMPANIES FUND
Ivy International Small Companies Fund's principal investment
objective is long-term growth primarily through investment in foreign
equity securities. Consideration of current income is secondary to this
principal objective. Under normal circumstances the Fund's sub-advisor,
Henderson Investment Management Limited ("Henderson") will invest at least
80% of the Fund's net assets, plus the amount of any borrowings for
investment purposes, in the equity securities (including common stock,
preferred stock and securities convertible into common stocks) of foreign
issuers having total market capitalization of less than $2 billion at
initial purchase. Under this investment policy, at least three different
countries (other than the United States) will be represented in the Fund's
overall portfolio holdings. For temporary defensive purposes, the Fund may
also invest in equity securities principally traded in the United States.
The Fund will invest its assets in a variety of economic sectors, industry
segments and individual securities in order to reduce the effects of price
volatility in any area and to enable shareholders to participate in
markets that do not necessarily move in concert with the U.S. market. The
factors that Henderson considers in determining the appropriate
distribution of investments among various countries and regions include:
prospects for relative economic growth, expected levels of inflation,
government policies influencing business conditions and the outlook for
currency relationships. Individual securities are selected based largely
on prospects for earnings growth. The Fund may purchase securities issued
pursuant to IPOs. The Fund may engage in short-term trading.
When economic or market conditions warrant, the Fund may invest
without limit in U.S. Government securities, investment-grade debt
securities, zero coupon bonds, preferred stocks, warrants, or cash or cash
equivalents such as bank obligations (including certificates of deposit
and bankers' acceptances), commercial paper, short-term notes and
repurchase agreements. The Fund may also invest up to 5% of its net assets
in debt securities rated Ba or below by Moody's or BB or below by S&P, or
if unrated, are considered by Henderson to be of comparable quality
(commonly referred to as "high yield" or "junk" bonds). The Fund will not
invest in debt securities rated less than C by either Moody's or S&P.
For temporary or emergency purposes, Ivy International Small
Companies Fund may borrow from banks in accordance with the provisions of
the 1940 Act, but may not purchase securities at any time during which the
value of the Fund's outstanding loans exceeds 10% of the value of the
Fund's assets. The Fund may engage in foreign currency exchange
transactions and enter into forward foreign currency contracts. The Fund
may also invest in other investment companies in accordance with the
provisions of the 1940 Act, and may invest up to 15% of its net assets in
illiquid securities.
The Fund may purchase put and call options on securities and stock
indices, provided the premium paid for such options does not exceed 5% of
the Fund's net assets. The Fund may also sell covered put options with
respect to up to 10% of the value of its net assets, and may write covered
call options so long as not more than 25% of the Fund's net assets are
subject to being purchased upon the exercise of the calls. For hedging
purposes only, the Fund may engage in transactions in stock index and
foreign currency futures contracts, provided that the Fund's equivalent
exposure in such contracts does not exceed 15% of its total assets. The
Fund may also write or buy straddles or spreads.
INVESTMENT RESTRICTIONS FOR IVY INTERNATIONAL SMALL COMPANIES FUND
Ivy International Small Companies Fund's investment objectives as set
forth in the "Summary" section of the Prospectus, together with the
investment restrictions set forth below, are fundamental policies of the
Fund and may not be changed without the approval of a majority of the
outstanding voting shares of the Fund. The Fund has adopted the following
fundamental investment restrictions:
(i) The Fund has elected to be classified as a diversified series of
an open-end investment company.
(ii) The Fund will not borrow money, except as permitted under the
1940 Act, as interpreted or modified by regulatory authority
having jurisdiction, from time to time.
(iii) The Fund will not issue senior securities, except as
permitted under the 1940 Act, as interpreted or modified by
regulatory authority having jurisdiction, from time to time.
(iv) The Fund will not engage in the business of underwriting
securities issued by others, except to the extent that the Fund
may be deemed to be an underwriter in connection with the
disposition of portfolio securities.
(v) The Fund will not purchase or sell real estate (which term does
not include securities of companies that deal in real estate or
mortgages or investments secured by real estate or interests
therein), except that the Fund may hold and sell real estate
acquired as a result of the Fund's ownership of securities.
(vi) The Fund will not purchase physical commodities or contracts
relating to physical commodities, although the Fund may invest
in commodities futures contracts and options thereon to the
extent permitted by the Prospectus and this SAI.
(vii) The Fund will not make loans to other persons, except (a)
loans of portfolio securities, and (b) to the extent that entry
into repurchase agreements and the purchase of debt instruments
or interests in indebtedness in accordance with the Fund's
investment objective and policies may be deemed to be loans.
(viii) The Fund will not concentrate its investments in a
particular industry, as the term "concentrate" is interpreted in
connection with the Investment Company Act of 1940, as amended,
and as interpreted or modified by regulatory authority having
jurisdiction, from time to time.
ADDITIONAL RESTRICTIONS FOR IVY INTERNATIONAL SMALL COMPANIES FUND
Ivy International Small Companies Fund has adopted the following
additional restrictions, which are not fundamental and which may be
changed without shareholder approval, to the extent permitted by
applicable law, regulation or regulatory policy.
Under these restrictions, the Fund may not:
(i) purchase or sell real estate limited partnership interests;
(ii) purchase or sell interests in oil, gas and mineral leases (other
than securities of companies that invest in or sponsor such
programs);
(iii) invest in oil, gas and/or mineral exploration or
development programs;
(iv) invest more than 15% of its net assets taken at market value at
the time of the investment in "illiquid securities." Illiquid
securities may include securities subject to legal or
contractual restrictions on resale (including private
placements), repurchase agreements maturing in more than seven
days, certain options traded over the counter that the Fund has
purchased, securities being used to cover certain options that
the Fund has written, securities for which market quotations are
not readily available, or other securities which legally or in
WRIICO's opinion, subject to the Board's supervision, may be
deemed illiquid, but shall not include any instrument that, due
to the existence of a trading market, to the Fund's compliance
with certain conditions intended to provide liquidity, or to
other factors, is liquid;
(v) borrow money, except for temporary or emergency purposes. The
Fund may not purchase securities at any time during which the
value of the Fund's outstanding loans exceeds 10% of the value
of the Fund's total assets;
(vi) purchase securities of other investment companies, except in
connection with a merger, consolidation or sale of assets, and
except that the Fund may purchase shares of other investment
companies subject to such restrictions as may be imposed by the
1940 Act and rules thereunder;
(vii) sell securities short, except for short sales "against the
box;"
(viii) participate on a joint or a joint and several basis in any
trading account in securities. The "bunching" of orders of the
Fund and of other accounts under the investment management of
the Fund's investment advisor for the sale or purchase of
portfolio securities shall not be considered participation in a
joint securities trading account;
(ix) make investments in securities for the purpose of exercising
control over or management of the issuer; or
(x) purchase securities on margin, except such short-term credits as
are necessary for the clearance of transactions, but the Fund
may make margin deposits in connection with transactions in
options, futures and options on futures.
IVY US BLUE CHIP FUND
Ivy US Blue Chip Fund's investment objective is long-term capital
growth primarily through investment in equity securities, with current
income being a secondary consideration. Under normal conditions, the Fund
will invest at least 80% of its net assets, plus the amount of any
borrowings for investment purposes, in equity securities (including common
stock preferred stock and securities convertible into common stock) of
U.S. companies that WRIICO believes are "blue chip" companies. Generally,
the median market capitalization of companies targeted for investment by
the Fund will be greater than $5 billion. For investment purposes,
however, Blue Chip companies are those companies whose market
capitalization is greater than $1 billion at the time of investment.
Blue Chip companies are those which occupy (or in WRIICO's judgment
have the potential to occupy) leading market positions that are expected
to be maintained or enhanced over time. Such companies tend to have a
lengthy history of profit growth and dividend payment, and a reputation
for quality management structure, products and services. Securities of
Blue Chip companies generally are considered to be highly liquid because,
compared to those of lesser-capitalized companies, more shares of these
securities are outstanding in the marketplace and their trading volume
tends to be higher.
For temporary defensive purposes and during periods when WRIICO
believes that circumstances warrant, Ivy US Blue Chip Fund may invest
without limit in investment grade debt securities (e.g., U.S. Government
securities or other corporate debt securities rated at least Baa by
Moody's or BBB by S&P, or, if unrated, are considered by WRIICO to be of
comparable quality), preferred stocks, or cash or cash equivalents such as
bank obligations (including certificates of deposit and bankers'
acceptances), commercial paper, short-term notes and repurchase
agreements.
Ivy US Blue Chip Fund may borrow up to 10% of the value of its total
assets, for temporary purposes when it would be advantageous to do so from
an investment standpoint. The Fund may invest up to 5% of its net assets
in warrants. The Fund may not invest more than 15% of its net assets in
illiquid securities. The Fund may also invest in equity real estate
investment trusts ("REITs").
The Fund may write put options on securities and stock indices, with
respect to not more than 10% of the value of its net assets, and may write
covered call options with respect to not more than 25% of the value of its
net assets. The Fund may purchase options, provided the aggregate premium
paid for all options held does not exceed 5% of its total assets. The Fund
may purchase interest rate and other financial futures contracts and
related options. For hedging purposes only, the Fund may enter into stock
index futures contracts as a means of regulating its exposure to equity
markets. The Fund's equivalent exposure in stock index futures contracts
will not exceed 15% of its total assets.
INVESTMENT RESTRICTIONS FOR IVY US BLUE CHIP FUND
Ivy US Blue Chip Fund's investment objective, as set forth in the
Prospectus under "Investment Objectives and Policies," and the investment
restrictions set forth below are fundamental policies of the Fund and may
not be changed with respect to the approval of a majority (as defined in
the 1940 Act) of the outstanding voting shares of the Fund. The Fund has
adopted the following fundamental investment restrictions:
(i) The Fund has elected to be classified as a diversified series of
an open-end investment company.
(ii) The Fund will not borrow money, except as permitted under the
Investment Company Act of 1940, as amended, and as interpreted
or modified by regulatory authority having jurisdiction, from
time to time.
(iii) The Fund will not issue senior securities, except as
permitted under the Investment Company Act of 1940, as amended,
and as interpreted or modified by regulatory authority having
jurisdiction, from time to time.
(iv) The Fund will not engage in the business of underwriting
securities issued by others, except to the extent that the Fund
may be deemed to be an underwriter in connection with the
disposition of portfolio securities.
(v) The Fund will not purchase or sell real estate (which term does
not include securities of companies that deal in real estate or
mortgages or investments secured by real estate or interests
therein), except that the Fund may hold and sell real estate
acquired as a result of the Fund's ownership of securities.
(vi) The Fund will not purchase physical commodities or contracts
relating to physical commodities, although the Fund may invest
in commodities futures contracts and options thereon to the
extent permitted by the Prospectus and this SAI.
(vii) The Fund will not make loans to other persons, except (a)
loans of portfolio securities, and (b) to the extent that entry
into repurchase agreements and the purchase of debt instruments
or interests in indebtedness in accordance with the Fund's
investment objective and policies may be deemed to be loans.
(viii) The Fund will not concentrate its investments in a
particular industry, as the term "concentrate" is interpreted in
connection with the Investment Company Act of 1940, as amended,
and as interpreted or modified by regulatory authority having
jurisdiction, from time to time.
ADDITIONAL RESTRICTIONS FOR IVY US BLUE CHIP FUND
Ivy US Blue Chip Fund has adopted the following additional
restrictions, which are not fundamental and which may be changed without
shareholder approval, to the extent permitted by applicable law,
regulation or regulatory policy. Under these restrictions, the Fund may
not:
(i) purchase any security if, as a result, the Fund would then have
more than 5% of its total assets (taken at current value)
invested in securities of companies (including predecessors)
less than three years old;
(ii) invest in oil, gas or other mineral leases or exploration or
development programs;
(iii) engage in the purchase and sale of puts, calls, straddles
or spreads (except to the extent described in the Prospectus and
in this SAI);
(iv) invest in companies of the purpose of exercising control of
management;
(v) invest more than 5% of its total assets in warrants, valued at
the lower of cost or market, or more than 2% of its total assets
in warrants, so valued, which are not listed on either the New
York or American Stock Exchanges;
(vi) purchase or retain securities of any company if officers and
Trustees of the Trust and officers and directors of WRIICO who
individually own more than 1/2 of 1% of the securities of that
company together own beneficially more than 5% of such
securities;
(vii) invest more than 15% of its net assets in "illiquid
securities." Illiquid securities may include securities subject
to legal or contractual restrictions on resale (including
private placements), repurchase agreements maturing in more than
seven days, certain options traded over the counter that the
Fund has purchased, securities being used to cover certain
options that the Fund has written, securities for which market
quotations are not readily available, or other securities which
legally or in WRIICO's opinion, subject to the Board's
supervision, may be deemed illiquid, but shall not include any
such instrument that, due to the existence of a trading market
or to other factors, is liquid;
(viii) purchase securities of another investment company, except
in connection with a merger, consolidation, reorganization or
acquisition or assets, and except that the Fund may (i) invest
in securities of other investment companies subject to the
restrictions set forth in Section 12(d)(1) of the 1940 Act and
(ii) acquire any securities of registered open-end investment
companies or registered unit investment trusts in reliance on
subparagraphs (f) and (g) of Section 12(d)(1) of the 1940 Act;
(ix) purchase securities on margin, except such short-term credits as
are necessary for the clearance of transactions, the deposit or
payment by the Fund of initial or variation margins in
connection with futures contracts or related options
transactions is not considered the purchase of a security on
margin;
(x) sell securities short;
(xi) purchase from or sell to any of its officers or trustees, or
firms of which any of them are members or which they control,
any securities (other than shares of the Fund), but such persons
or firms may act as brokers for the Fund for customary
commissions to the extent permitted by the 1940 Act; or
(xii) borrow amounts in excess of 10% of its total assets, taken
at the lower of cost or market value, as a temporary measure for
extraordinary or emergency purposes or where investment
transactions might advantageously require it, or except in
connection with reverse repurchase agreements, provided that the
Fund maintains net asset coverage of at least 300% for all
borrowings.
Under the 1940 Act, the Fund is permitted, subject to the Fund's
investment restrictions, to borrow money only from banks. The Trust has no
current intention of borrowing amounts in excess of 5% of the Fund's
assets. The Fund will continue to interpret fundamental investment
restriction (v) above to prohibit investment in real estate limited
partnership interests; this restriction shall not, however, prohibit
investment in readily marketable securities of companies that invest in
real estate or interests therein, including REITs. Despite fundamental
investment restriction (vi) above, the Fund may invest in interest rate
and other financial futures contracts and related options.
IVY US EMERGING GROWTH FUND
Ivy US Emerging Growth Fund's principal investment objective is long-
term capital growth primarily through investment in equity securities,
with current income being a secondary consideration. Under normal
conditions, the Fund invests at least 80% of its net assets, plus the
amount of any borrowings for investment purposes, in the equity securities
(including common stock, preferred stock and securities convertible into
common stock) of small- and medium-sized U.S. companies, that are in the
early stages of their life cycles and that WRIICO believes have the
potential to increase their sales and earnings at above-average rates.
These may include securities issued pursuant to initial public offerings
("IPOs"). U.S. companies are companies whose securities are traded mainly
on U.S. markets and that are organized under the laws of the U.S. or that
have more than half their business in the U.S. The Fund may engage in
short-term trading.
Ivy US Emerging Growth Fund may invest up to 25% of its net assets in
foreign equity securities, primarily those traded in European, Pacific
Basin and Latin American markets, some of which may be emerging markets
involving special risks, as described below. Individual foreign securities
are selected based on value indicators, such as a low price-earnings
ratio, and are reviewed for fundamental financial strength.
For temporary defensive purposes and during periods when WRIICO
believes that circumstances warrant, the Fund may invest without limit in
investment grade debt securities (e.g., U.S. Government securities or
other corporate debt securities rated as least Baa by Moody's or BBB by
S&P, or, if unrated, are considered by WRIICO to be of comparable
quality), preferred stocks, or cash or cash equivalents such as bank
obligations (including certificates of deposit and bankers' acceptances),
commercial paper, short-term notes and repurchase agreements.
The Fund may borrow up to 10% of the value of its total assets, but
only for temporary purposes when it would be advantageous to do so from an
investment standpoint. The Fund may invest up to 5% of its net assets in
warrants. The Fund may not invest more than 15% of its net assets in
illiquid securities. The Fund may enter into forward foreign currency
contracts.
Ivy US Emerging Growth Fund may write put options, with respect to
not more than 10% of the value of its net assets, on securities and stock
indices, and may write covered call options with respect to not more than
25% of the value of its net assets. The Fund may purchase options,
provided the aggregate premium paid for all options held does not exceed
5% of its net assets. For hedging purposes only, the Fund may enter into
stock index futures contracts as a means of regulating its exposure to
equity markets. The Fund's equivalent exposure in stock index futures
contracts will not exceed 15% of its total assets.
INVESTMENT RESTRICTIONS FOR IVY US EMERGING GROWTH FUND
Ivy US Emerging Growth Fund's investment objectives as set forth in
the "Summary" section of the Prospectus, together with the investment
restrictions set forth below, are fundamental policies of the Fund and may
not be changed without the approval of a majority of the outstanding
voting shares of the Fund. The Fund has adopted the following fundamental
investment restrictions:
(i) The Fund has elected to be classified as a diversified series of
an open-end investment company.
(ii) The Fund will not borrow money, except as permitted under the
Investment Company Act of 1940, as amended, and as interpreted
or modified by regulatory authority having jurisdiction, from
time to time.
(iii) The Fund will not issue senior securities, except as
permitted under the Investment Company Act of 1940, as amended,
and as interpreted or modified by regulatory authority having
jurisdiction, from time to time.
(iv) The Fund will not engage in the business of underwriting
securities issued by others, except to the extent that the Fund
may be deemed to be an underwriter in connection with the
disposition of portfolio securities.
(v) The Fund will not purchase or sell real estate (which term does
not include securities of companies that deal in real estate or
mortgages or investments secured by real estate or interests
therein), except that the Fund may hold and sell real estate
acquired as a result of the Fund's ownership of securities.
(vi) The Fund will not purchase physical commodities or contracts
relating to physical commodities, although the Fund may invest
in commodities futures contracts and options thereon to the
extent permitted by the Prospectus and this SAI.
(vii) The Fund will not make loans to other persons, except (a)
loans of portfolio securities, and (b) to the extent that entry
into repurchase agreements and the purchase of debt instruments
or interests in indebtedness in accordance with the Fund's
investment objective and policies may be deemed to be loans.
(viii) The Fund will not concentrate its investments in a
particular industry, as the term "concentrate" is interpreted in
connection with the Investment Company Act of 1940, as amended,
and as interpreted or modified by regulatory authority having
jurisdiction, from time to time.
ADDITIONAL RESTRICTIONS FOR IVY US EMERGING GROWTH FUND
Ivy US Emerging Growth Fund has adopted the following additional
restrictions, which are not fundamental and which may be changed without
shareholder approval, to the extent permitted by applicable law,
regulation or regulatory policy. Under these restrictions, the Fund may
not:
(i) purchase any security if, as a result, the Fund would then have
more than 5% of its total assets (taken at current value)
invested in securities of companies (including predecessors)
less than three years old;
(ii) invest in oil, gas or other mineral leases or exploration or
development programs;
(iii) engage in the purchase and sale of puts, calls, straddles
or spreads (except to the extent described in the Prospectus and
in this SAI);
(iv) invest in companies for the purpose of exercising control of
management;
(v) invest more than 5% of its total assets in warrants, valued at
the lower of cost or market, or more than 2% of its total assets
in warrants, so valued, which are not listed on either the New
York or American Stock Exchanges;
(vi) purchase or retain securities of any company if officers and
Trustees of the Trust and officers and directors of WRIICO who
individually own more than 1/2 of 1% of the securities of that
company together own beneficially more than 5% of such
securities;
(vii) invest more than 15% of its net assets taken at market
value at the time of investment in "illiquid securities."
Illiquid securities may include securities subject to legal or
contractual restrictions on resale (including private
placements), repurchase agreements maturing in more than seven
days, certain options traded over the counter that the Fund has
purchased, securities being used to cover certain options that a
fund has written, securities for which market quotations are not
readily available, or other securities which legally or in
WRIICO's opinion, subject to the Board's supervision, may be
deemed illiquid, but shall not include any instrument that, due
to the existence of a trading market, to the Fund's compliance
with certain conditions intended to provide liquidity, or to
other factors, is liquid;
(viii) purchase securities of other investment companies, except
in connection with a merger, consolidation or sale of assets,
and except that it may purchase shares of other investment
companies subject to such restrictions as may be imposed by the
1940 Act and rules thereunder or by any state in which its
shares are registered;
(ix) purchase securities on margin;
(x) sell securities short;
(xi) purchase from or sell to any of its officers or trustees, or
firms of which any of them are members or which they control,
any securities (other than capital stock of the Fund), but such
persons or firms may act as brokers for the Fund for customary
commissions to the extent permitted by the Investment Company
Act of 1940; or
(xii) borrow money, except for temporary purposes where
investment transactions might advantageously require it. Any
such loan may not be for a period in excess of 60 days, and the
aggregate amount of all outstanding loans may not at any time
exceed 10% of the value of the total assets of the Fund at the
time any such loan is made.
The Trust has no current intention of borrowing amounts in excess of
5% of the Fund's assets. The Fund will continue to interpret fundamental
investment restriction (v) above to prohibit investment in real estate
limited partnership interests; this restriction shall not, however,
prohibit investment in readily marketable securities of companies that
invest in real estate or interests therein, including REITs.
RISK CONSIDERATIONS
EQUITY SECURITIES
Equity securities can be issued by companies to raise cash; all
equity securities represent a proportionate ownership interest in a
company. As a result, the value of equity securities rises and falls with
a company's success or failure. The market value of equity securities can
fluctuate significantly, with smaller companies being particularly
susceptible to price swings. Transaction costs in smaller company stocks
may also be higher than those of larger companies.
CONVERTIBLE SECURITIES
The convertible securities in which a Fund may invest include
corporate bonds, notes, debentures, preferred stock and other securities
that may be converted or exchanged at a stated or determinable exchange
ratio into underlying shares of common stock. Investments in convertible
securities can provide income through interest and dividend payments as
well as an opportunity for capital appreciation by virtue of their
conversion or exchange features. Because convertible securities can be
converted into equity securities, their values will normally vary in some
proportion with those of the underlying equity securities. Convertible
securities usually provide a higher yield than the underlying equity,
however, so that the price decline of a convertible security may sometimes
be less substantial than that of the underlying equity security. The
exchange ratio for any particular convertible security may be adjusted
from time to time due to stock splits, dividends, spin-offs, other
corporate distributions or scheduled changes in the exchange ratio.
Convertible debt securities and convertible preferred stocks, until
converted, have general characteristics similar to both debt and equity
securities. Although to a lesser extent than with debt securities
generally, the market value of convertible securities tends to decline as
interest rates increase and, conversely, tends to increase as interest
rates decline. In addition, because of the conversion or exchange feature,
the market value of convertible securities typically changes as the market
value of the underlying common stock changes, and, therefore, also tends
to follow movements in the general market for equity securities. When the
market price of the underlying common stock increases, the price of a
convertible security tends to rise as a reflection of the value of the
underlying common stock, although typically not as much as the price of
the underlying common stock. While no securities investments are without
risk, investments in convertible securities generally entail less risk
than investments in common stock of the same issuer.
As debt securities, convertible securities are investments that
provide for a stream of income. Like all debt securities, there can be no
assurance of income or principal payments because the issuers of the
convertible securities may default on their obligations. Convertible
securities generally offer lower yields than non-convertible securities of
similar quality because of their conversion or exchange features.
Convertible securities generally are subordinated to other similar
but non-convertible securities of the same issuer, although convertible
bonds, as corporate debt obligations, are senior in right of payment to
all equity securities, and convertible preferred stock is senior to common
stock, of the same issuer. However, convertible bonds and convertible
preferred stock typically have lower coupon rates than similar non-
convertible securities. Convertible securities may be issued as fixed
income obligations that pay current income.
SMALL COMPANIES
Investing in smaller company stocks involves certain special
considerations and risks that are not usually associated with investing in
larger, more established companies. For example, the securities of small
or new companies may be subject to more abrupt or erratic market movements
because they tend to be thinly traded and are subject to a greater degree
to changes in the issuer's earnings and prospects. Small companies also
tend to have limited product lines, markets or financial resources.
Transaction costs in smaller company stocks also may be higher than those
of larger companies.
INITIAL PUBLIC OFFERINGS
Securities issued through an initial public offering (IPO) can
experience an immediate drop in value if the demand for the securities
does not continue to support the offering price. Information about the
issuers of IPO securities is also difficult to acquire since they are new
to the market and may not have lengthy operating histories. A Fund may
engage in short-term trading in connection with its IPO investments, which
could produce higher trading costs and adverse tax consequences. The
number of securities issued in an IPO is limited, so it is likely that IPO
securities will represent a smaller component of a Fund's portfolio as the
Fund's assets increase (and thus have a more limited effect on the Fund's
performance).
ADJUSTABLE RATE PREFERRED STOCKS
Adjustable rate preferred stocks have a variable dividend, generally
determined on a quarterly basis according to a formula based upon a
specified premium or discount to the yield on a particular U.S. Treasury
security rather than a dividend which is set for the life of the issue.
Although the dividend rates on these stocks are adjusted quarterly and
their market value should therefore be less sensitive to interest rate
fluctuations than are other fixed income securities and preferred stocks,
the market values of adjustable rate preferred stocks have fluctuated and
can be expected to continue to do so in the future.
DEBT SECURITIES
IN GENERAL. Investment in debt securities involves both interest rate
and credit risk. Generally, the value of debt instruments rises and falls
inversely with fluctuations in interest rates. As interest rates decline,
the value of debt securities generally increases. Conversely, rising
interest rates tend to cause the value of debt securities to decrease.
Bonds with longer maturities generally are more volatile than bonds with
shorter maturities. The market value of debt securities also varies
according to the relative financial condition of the issuer. In general,
lower-quality bonds offer higher yields due to the increased risk that the
issuer will be unable to meet its obligations on interest or principal
payments at the time called for by the debt instrument.
INVESTMENT-GRADE DEBT SECURITIES. Bonds rated Aaa by Moody's
Investors Service, Inc. ("Moody's") and AAA by Standard & Poor's Ratings
Group ("S&P") are judged to be of the best quality (i.e., capacity to pay
interest and repay principal is extremely strong). Bonds rated Aa/AA are
considered to be of high quality (i.e., capacity to pay interest and repay
principal is very strong and differs from the highest rated issues only to
a small degree). Bonds rated A are viewed as having many favorable
investment attributes, but elements may be present that suggest a
susceptibility to the adverse effects of changes in circumstances and
economic conditions than debt in higher rated categories. Bonds rated
Baa/BBB (considered by Moody's to be "medium grade" obligations) are
considered to have an adequate capacity to pay interest and repay
principal, but certain protective elements may be lacking (i.e., such
bonds lack outstanding investment characteristics and have some
speculative characteristics). The Funds may invest in debt securities that
are given an investment-grade rating by Moody's or S&P, and may also
invest in unrated debt securities that are considered by WRIICO to be of
comparable quality.
LOW-RATED DEBT SECURITIES. Securities rated lower than Baa by Moody's
or BBB by S&P, and comparable unrated securities (commonly referred to as
"high yield" or "junk" bonds), including many emerging markets bonds, are
considered to be predominantly speculative with respect to the issuer's
continuing ability to meet principal and interest payments. The lower the
ratings of corporate debt securities, the more their risks render them
like equity securities. Such securities carry a high degree of risk
(including the possibility of default or bankruptcy of the issuers of such
securities), and generally involve greater volatility of price and risk of
principal and income (and may be less liquid) than securities in the
higher rating categories. (See Appendix A for a more complete description
of the ratings assigned by Moody's and S&P and their respective
characteristics.)
Lower rated and unrated securities are especially subject to adverse
changes in general economic conditions and to changes in the financial
condition of their issuers. Economic downturns may disrupt the high yield
market and impair the ability of issuers to repay principal and interest.
Also, an increase in interest rates would likely have an adverse impact on
the value of such obligations. During an economic downturn or period of
rising interest rates, highly leveraged issuers may experience financial
stress which could adversely affect their ability to service their
principal and interest payment obligations. Prices and yields of high
yield securities will fluctuate over time and, during periods of economic
uncertainty, volatility of high yield securities may adversely affect a
Fund's net asset value. In addition, investments in high yield zero coupon
or pay-in-kind bonds, rather than income-bearing high yield securities,
may be more speculative and may be subject to greater fluctuations in
value due to changes in interest rates.
Changes in interest rates may have a less direct or dominant impact
on high yield bonds than on higher quality issues of similar maturities.
However, the price of high yield bonds can change significantly or
suddenly due to a host of factors including changes in interest rates,
fundamental credit quality, market psychology, government regulations,
U.S. economic growth and, at times, stock market activity. High yield
bonds may contain redemption or call provisions. If an issuer exercises
these provisions in a declining interest rate market, a Fund may have to
replace the security with a lower yielding security.
The trading market for high yield securities may be thin to the
extent that there is no established retail secondary market or because of
a decline in the value of such securities. A thin trading market may limit
the ability of each Fund to accurately value high yield securities in the
Fund's portfolio, could adversely affect the price at which that Fund
could sell such securities, and cause large fluctuations in the daily net
asset value of that Fund's shares. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may decrease
the value and liquidity of low-rated debt securities, especially in a
thinly traded market. When secondary markets for high yield securities
become relatively less liquid, it may be more difficult to value the
securities, requiring additional research and elements of judgment. These
securities may also involve special registration responsibilities,
liabilities and costs, and liquidity and valuation difficulties.
Credit quality in the high yield securities market can change
suddenly and unexpectedly, and even recently issued credit ratings may not
fully reflect the actual risks posed by a particular high yield security.
For these reasons, it is the policy of WRIICO not to rely exclusively on
ratings issued by established credit rating agencies, but to supplement
such ratings with its own independent and on-going review of credit
quality. The achievement of each Fund's investment objectives by
investment in such securities may be more dependent on WRIICO's credit
analysis than is the case for higher quality bonds. Should the rating of a
portfolio security be downgraded, WRIICO will determine whether it is in
the best interest of a Fund to retain or dispose of such security.
However, should any individual bond held by a Fund be downgraded below a
rating of C, WRIICO currently intends to dispose of such bond based on
then existing market conditions.
Prices for high yield securities may be affected by legislative and
regulatory developments. For example, Federal rules require savings and
loan institutions to gradually reduce their holdings of this type of
security. Also, Congress has from time to time considered legislation that
would restrict or eliminate the corporate tax deduction for interest
payments in these securities and regulate corporate restructurings. Such
legislation may significantly depress the prices of outstanding securities
of this type.
U.S. GOVERNMENT SECURITIES. U.S. Government securities are
obligations of, or guaranteed by, the U.S. Government, its agencies or
instrumentalities. Securities guaranteed by the U.S. Government include:
(1) direct obligations of the U.S. Treasury (such as Treasury bills,
notes, and bonds) and (2) Federal agency obligations guaranteed as to
principal and interest by the U.S. Treasury (such as GNMA certificates,
which are mortgage-backed securities). When such securities are held to
maturity, the payment of principal and interest is unconditionally
guaranteed by the U.S. Government, and thus they are of the highest
possible credit quality. U.S. Government securities that are not held to
maturity are subject to variations in market value due to fluctuations in
interest rates.
Mortgage-backed securities are securities representing part ownership
of a pool of mortgage loans. For example, GNMA certificates are securities
in which the timely payment of principal and interest is guaranteed by the
full faith and credit of the U.S. Government. Although the mortgage loans
in the pool will have maturities of up to 30 years, the actual average
life of the loans typically will be substantially less because the
mortgages will be subject to principal amortization and may be prepaid
prior to maturity. Prepayment rates vary widely and may be affected by
changes in market interest rates. In periods of falling interest rates,
the rate of prepayments tends to increase, thereby shortening the actual
average life of the security. Conversely, rising interest rates tend to
decrease the rate of prepayment, thereby lengthening the actual average
life of the security (and increasing the security's price volatility).
Accordingly, it is not possible to predict accurately the average life of
a particular pool. Reinvestment of prepayment may occur at higher or lower
rates than the original yield on the certificates. Due to the prepayment
feature and the need to reinvest prepayments of principal at current
rates, mortgage-backed securities can be less effective than typical bonds
of similar maturities at "locking in" yields during periods of declining
interest rates, and may involve significantly greater price and yield
volatility than traditional debt securities. Such securities may
appreciate or decline in market value during periods of declining or
rising interest rates, respectively.
Securities issued by U.S. Government instrumentalities and certain
federal agencies are neither direct obligations of nor guaranteed by the
U.S. Treasury; however, they involve Federal sponsorship in one way or
another. Some are backed by specific types of collateral, some are
supported by the issuer's right to borrow from the Treasury, some are
supported by the discretionary authority of the Treasury to purchase
certain obligations of the issuer, others are supported only by the credit
of the issuing government agency or instrumentality. These agencies and
instrumentalities include, but are not limited to, Federal Land Banks,
Farmers Home Administration, Central Bank for Cooperatives, Federal
Intermediate Credit Banks, Federal Home Loan Banks, Federal National
Mortgage Association, Federal Home Loan Mortgage Association and Student
Loan Marketing Association.
MUNICIPAL SECURITIES. Municipal securities are debt obligations that
generally have a maturity at the time of issue in excess of one year and
are issued to obtain funds for various public purposes. The two principal
classifications of municipal bonds are "general obligation" and "revenue"
bonds. General obligation bonds are secured by the issuer's pledge of its
full faith, credit and taxing power for the payment of principal and
interest. Revenue bonds are payable only from the revenues derived from a
particular facility or class of facilities, or, in some cases, from the
proceeds of a special excise of a specific revenue source. Industrial
development bonds or private activity bonds are issued by or on behalf of
public authorities to obtain funds for privately-operated facilities and
are in most cases revenue bonds that generally do not carry the pledge of
the full faith and credit of the issuer of such bonds, but depend for
payment on the ability of the industrial user to meet its obligations (or
on any property pledged as security).
The market prices of municipal securities, like those of taxable debt
securities, go up and down when interest rates change. Thus, the net asset
value per share can be expected to fluctuate and shareholders may receive
more or less than their purchase price for shares they redeem.
ZERO COUPON BONDS. Zero coupon bonds are debt obligations issued
without any requirement for the periodic payment of interest. Zero coupon
bonds are issued at a significant discount from face value. The discount
approximates the total amount of interest the bonds would accrue and
compound over the period until maturity at a rate of interest reflecting
the market rate at the time of issuance. If a Fund holds zero coupon bonds
in its portfolio, it would recognize income currently for Federal income
tax purposes in the amount of the unpaid, accrued interest and generally
would be required to distribute dividends representing such income to
shareholders currently, even though funds representing such income would
not have been received by the Fund. Cash to pay dividends representing
unpaid, accrued interest may be obtained from, for example, sales proceeds
of portfolio securities and Fund shares and from loan proceeds. The
potential sale of portfolio securities to pay cash distributions from
income earned on zero coupon bonds may result in a Fund being forced to
sell portfolio securities at a time when it might otherwise choose not to
sell these securities and when the Fund might incur a capital loss on such
sales. Because interest on zero coupon obligations is not distributed to a
Fund on a current basis, but is in effect compounded, the value of such
securities of this type is subject to greater fluctuations in response to
changing interest rates than the value of debt obligations which
distribute income regularly.
FIRM COMMITMENT AGREEMENTS AND "WHEN-ISSUED" SECURITIES. New issues
of certain debt securities are often offered on a "when-issued" basis,
meaning the payment obligation and the interest rate are fixed at the time
the buyer enters into the commitment, but delivery and payment for the
securities normally take place after the date of the commitment to
purchase. Firm commitment agreements call for the purchase of securities
at an agreed-upon price on a specified future date. A Fund may use such
investment techniques in order to secure what is considered to be an
advantageous price and yield to the Fund and not for purposes of
leveraging such Fund's assets. In either instance, each Fund will maintain
in a segregated account with its Custodian cash or liquid securities equal
(on a daily market-to-market basis) to the amount of its commitment to
purchase the underlying securities.
ILLIQUID SECURITIES
Each Fund may purchase securities other than in the open market.
While such purchases may often offer attractive opportunities for
investment not otherwise available on the open market, the securities so
purchased are often "restricted securities" or "not readily marketable"
(i.e., they cannot be sold to the public without registration under the
Securities Act of 1933, as amended (the "1933 Act"), or the availability
of an exemption from registration (such as Rule 144A) or because they are
subject to other legal or contractual delays in or restrictions on
resale). This investment practice, therefore, could have the effect of
increasing the level of illiquidity of a Fund. It is each Fund's policy
that illiquid securities (including repurchase agreements of more than
seven days duration, certain restricted securities, and other securities
which are not readily marketable) may not constitute, at the time of
purchase, more than 15% of the value of the Fund's net assets. The Trust's
Board of Trustees has approved guidelines for use by WRIICO in determining
whether a security is liquid and therefore not subject to the 15% limitation.
Generally speaking, restricted securities may be sold (i) only to
qualified institutional buyers; (ii) in a privately negotiated transaction
to a limited number of purchasers; (iii) in limited quantities after they
have been held for a specified period of time and other conditions are met
pursuant to an exemption from registration; or (iv) in a public offering
for which a registration statement is in effect under the 1933 Act.
Issuers of restricted securities may not be subject to the disclosure and
other investor protection requirements that would be applicable if their
securities were publicly traded. If adverse market conditions were to
develop during the period between a Fund's decision to sell a restricted
or illiquid security and the point at which that Fund is permitted or able
to sell such security, the Fund might obtain a price less favorable than
the price that prevailed when it decided to sell. Where a registration
statement is required for the resale of restricted securities, a Fund may
be required to bear all or part of the registration expenses. A Fund may
be deemed to be an "underwriter" for purposes of the 1933 Act when selling
restricted securities to the public and, if so, could be liable to
purchasers of such securities if the registration statement prepared by
the issuer is materially inaccurate or misleading.
Since it is not possible to predict with assurance that the market for
securities eligible for resale under Rule 144A will continue to be liquid,
WRIICO will monitor such restricted securities subject to the supervision
of the Board of Trustees. Among the factors WRIICO may consider in
reaching liquidity decisions relating to Rule 144A and other illiquid
securities are: (1) the frequency of trades and quotes for the security;
(2) the number of dealers wishing to purchase or sell the security and the
number of other potential purchasers; (3) dealer undertakings to make a
market in the security; and (4) the nature of the security and the nature
of the market for the security (i.e., the time needed to dispose of the
security, the method of soliciting offers, and the mechanics of the
transfer).
FOREIGN SECURITIES
The securities of foreign issuers in which the Funds may invest
include non-U.S. dollar-denominated debt securities, Euro dollar
securities, sponsored and unsponsored American Depository Receipts
("ADRs"), Global Depository Receipts ("GDRs"), American Depository Shares
("ADSs"), Global Depository Shares ("GDSs") and related depository
instruments, and debt securities issued, assumed or guaranteed by foreign
governments or political subdivisions or instrumentalities thereof.
Shareholders should consider carefully the substantial risks involved in
investing in securities issued by companies and governments of foreign
nations, which are in addition to the usual risks inherent in each Fund's
domestic investments.
Although WRIICO intends to invest each Fund's assets only in nations
that are generally considered to have relatively stable and friendly
governments, there is the possibility of expropriation, nationalization,
repatriation or confiscatory taxation, taxation on income earned in a
foreign country and other foreign taxes, foreign exchange controls (which
may include suspension of the ability to transfer currency from a given
country), default on foreign government securities, political or social
instability or diplomatic developments which could affect investments in
securities of issuers in those nations. In addition, in many countries
there is less publicly available information about issuers than is
available for U.S. companies. Moreover, foreign companies are not
generally subject to uniform accounting, auditing and financial reporting
standards, and auditing practices and requirements may not be comparable
to those applicable to U.S. companies. In many foreign countries, there is
less governmental supervision and regulation of business and industry
practices, stock exchanges, brokers, and listed companies than in the
United States. Foreign securities transactions may also be subject to
higher brokerage costs than domestic securities transactions. The foreign
securities markets of many of the countries in which each Fund may invest
may also be smaller, less liquid and subject to greater price volatility
than those in the United States. In addition, each Fund may encounter
difficulties or be unable to pursue legal remedies and obtain judgment in
foreign courts.
Foreign bond markets have different clearance and settlement
procedures and in certain markets there have been times when settlements
have been unable to keep pace with the volume of securities transactions,
making it difficult to conduct such transactions. Delays in settlement
could result in temporary periods when assets of a Fund are uninvested and
no return is earned thereon. The inability of each Fund to make intended
security purchases due to settlement problems could cause that Fund to
miss attractive investment opportunities. Further, the inability to
dispose of portfolio securities due to settlement problems could result
either in losses to a Fund because of subsequent declines in the value of
the portfolio security or, if the Fund has entered into a contract to sell
the security, in possible liability to the purchaser. It may be more
difficult for each Fund's agents to keep currently informed about
corporate actions such as stock dividends or other matters that may affect
the prices of portfolio securities. Communications between the United
States and foreign countries may be less reliable than within the United
States, thus increasing the risk of delayed settlements of portfolio
transactions or loss of certificates for portfolio securities. Moreover,
individual foreign economies may differ favorably or unfavorably from the
United States economy in such respects as growth of gross national
product, rate of inflation, capital reinvestment, resource self-
sufficiency and balance of payments position. WRIICO seeks to mitigate the
risks to each Fund associated with the foregoing considerations through
investment variation and continuous professional management.
DEPOSITORY RECEIPTS
ADRs, GDRs, ADSs, GDSs and related securities are depository
instruments, the issuance of which is typically administered by a U.S. or
foreign bank or trust company. These instruments evidence ownership of
underlying securities issued by a U.S. or foreign corporation. ADRs are
publicly traded on exchanges or over-the-counter ("OTC") in the United
States. Unsponsored programs are organized independently and without the
cooperation of the issuer of the underlying securities. As a result,
information concerning the issuer may not be as current or as readily
available as in the case of sponsored depository instruments, and their
prices may be more volatile than if they were sponsored by the issuers of
the underlying securities.
EMERGING MARKETS
Some of the Funds could have significant investments in securities
traded in emerging markets. Investors should recognize that investing in
such countries involves special considerations, in addition to those set
forth above, that are not typically associated with investing in United
States securities and that may affect each Fund's performance favorably or
unfavorably.
In recent years, many emerging market countries around the world have
undergone political changes that have reduced government's role in
economic and personal affairs and have stimulated investment and growth.
Historically, there is a strong direct correlation between economic growth
and stock market returns. While this is no guarantee of future
performance, WRIICO believes that investment opportunities (particularly
in the energy, environmental services, natural resources, basic materials,
power, telecommunications and transportation industries) may result within
the evolving economies of emerging market countries from which each Fund
and its shareholders will benefit.
Investments in companies domiciled in developing countries may be
subject to potentially higher risks than investments in developed
countries. Such risks include (i) less social, political and economic
stability; (ii) a small market for securities and/or a low or nonexistent
volume of trading, which result in a lack of liquidity and in greater
price volatility; (iii) certain national policies that may restrict each
Fund's investment opportunities, including restrictions on investment in
issuers or industries deemed sensitive to national interests; (iv) foreign
taxation; (v) the absence of developed structures governing private or
foreign investment or allowing for judicial redress for injury to private
property; (vi) the absence, until relatively recently in certain Eastern
European countries, of a capital market structure or market-oriented
economy; (vii) the possibility that recent favorable economic developments
in Eastern Europe may be slowed or reversed by unanticipated political or
social events in such countries; and (viii) the possibility that currency
devaluations could adversely affect the value of each Fund's investments.
Further, many emerging markets have experienced and continue to experience
high rates of inflation.
Despite the dissolution of the Soviet Union, the Communist Party may
continue to exercise a significant role in certain Eastern European
countries. To the extent of the Communist Party's influence, investments
in such countries will involve risks of nationalization, expropriation and
confiscatory taxation. The communist governments of a number of Eastern
European countries expropriated large amounts of private property in the
past, in many cases without adequate compensation, and there can be no
assurance that such expropriation will not occur in the future. In the
event of such expropriation, each Fund could lose a substantial portion of
any investments it has made in the affected countries. Further, few (if
any) accounting standards exist in Eastern European countries. Finally,
even though certain Eastern European currencies may be convertible into
U.S. dollars, the conversion rates may be artificial in relation to the
actual market values and may be adverse to a Fund's net asset value.
Certain Eastern European countries that do not have well-established
trading markets are characterized by an absence of developed legal
structures governing private and foreign investments and private property.
In addition, certain countries require governmental approval prior to
investments by foreign persons, or limit the amount of investment by
foreign persons in a particular company, or limit the investment of
foreign persons to only a specific class of securities of a company that
may have less advantageous terms than securities of the company available
for purchase by nationals.
Authoritarian governments in certain Eastern European countries may
require that a governmental or quasi-governmental authority act as
custodian of each Fund's assets invested in such country. To the extent
such governmental or quasi-governmental authorities do not satisfy the
requirements of the Investment Company Act of 1940, as amended (the "1940
Act"), with respect to the custody of a Fund's cash and securities, that
Fund's investment in such countries may be limited or may be required to
be effected through intermediaries. The risk of loss through governmental
confiscation may be increased in such countries.
FOREIGN SOVEREIGN DEBT OBLIGATIONS
Investment in sovereign debt can involve a high degree of risk. The
governmental entity that controls the repayment of sovereign debt may not
be able or willing to repay the principal and/or interest when due in
accordance with the terms of such debt. A governmental entity's
willingness or ability to repay principal and interest due in a timely
manner may be affected by, among other factors, its cash flow situation,
the extent of its foreign reserves, the availability of sufficient foreign
exchange on the date a payment is due, the relative size of the debt
service burden to the economy as a whole, the governmental entity's policy
towards the International Monetary Fund, and the political constraints to
which a governmental entity may be subject. Governmental entities may also
be dependent on expected disbursements from foreign governments,
multilateral agencies and others abroad to reduce principal and interest
arrearages on their debt. The commitment on the part of these governments,
agencies and others to make such disbursements may be conditioned on a
governmental entity's implementation of economic reforms and/or economic
performance and the timely service of such debtor's obligations. Failure
to implement such reforms, achieve such levels of economic performance or
repay principal or interest when due may result in the cancellation of
such third parties' commitments to lend funds to the governmental entity,
which may further impair such debtor's ability or willingness to service
its debts in a timely manner. Consequently, governmental entities may
default on their sovereign debt. Holders of sovereign debt may be
requested to participate in the rescheduling of such debt and to extend
further loans to governmental entities. There is no bankruptcy proceeding
by which sovereign debt on which governmental entities have defaulted may
be collected in whole or in part.
FOREIGN CURRENCIES
Investment in foreign securities usually will involve currencies of
foreign countries. Moreover, some of the Funds may temporarily hold funds
in bank deposits in foreign currencies during the completion of investment
programs and may purchase forward foreign currency contracts. Because of
these factors, the value of the assets of each Fund as measured in U.S.
dollars may be affected favorably or unfavorably by changes in foreign
currency exchange rates and exchange control regulations, and each Fund
may incur costs in connection with conversions between various currencies.
Although each Fund's custodian values the Fund's assets daily in terms of
U.S. dollars, each Fund does not intend to convert its holdings of foreign
currencies into U.S. dollars on a daily basis. Each Fund will do so from
time to time, however, and investors should be aware of the costs of
currency conversion. Although foreign exchange dealers do not charge a fee
for conversion, they do realize a profit based on the difference (the
"spread") between the prices at which they are buying and selling various
currencies. Thus, a dealer may offer to sell a foreign currency to a Fund
at one rate, while offering a lesser rate of exchange should the Fund
desire to resell that currency to the dealer. Each Fund will conduct its
foreign currency exchange transactions either on a spot (i.e., cash) basis
at the spot rate prevailing in the foreign currency exchange market, or
through entering into forward contracts to purchase or sell foreign
currencies.
Because some of the Funds will normally be invested in both U.S. and
foreign securities markets, changes in these Funds' share price may have a
low correlation with movements in U.S. markets. Each Fund's share price
will reflect the movements of the different stock and bond markets in
which it is invested (both U.S. and foreign), and of the currencies in
which the investments are denominated. Thus, the strength or weakness of
the U.S. dollar against foreign currencies may account for part of each
Fund's investment performance. U.S. and foreign securities markets do not
always move in step with each other, and the total returns from different
markets may vary significantly. Foreign currencies in which each Fund's
assets are denominated may be devalued against the U.S. dollar, resulting
in a loss to the Fund.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS
Some of the Funds may enter into forward foreign currency contracts
in order to protect against uncertainty in the level of future foreign
exchange rates in the purchase and sale of securities. A forward contract
is an obligation to purchase or sell a specific currency for an agreed
price at a future date (usually less than a year), and typically is
individually negotiated and privately traded by currency traders and their
customers. A forward contract generally has no deposit requirement, and no
commissions are charged at any stage for trades. Although foreign exchange
dealers do not charge a fee for commissions, they do realize a profit
based on the difference between the price at which they are buying and
selling various currencies. Although these contracts are intended to
minimize the risk of loss due to a decline in the value of the hedged
currencies, at the same time, they tend to limit any potential gain which
might result should the value of such currencies increase.
While a Fund may enter into forward contracts to reduce currency
exchange risks, changes in currency exchange rates may result in poorer
overall performance for a Fund than if it had not engaged in such
transactions. Moreover, there may be an imperfect correlation between a
Fund's portfolio holdings of securities denominated in a particular
currency and forward contracts entered into by the Fund. An imperfect
correlation of this type may prevent a Fund from achieving the intended
hedge or expose the Fund to the risk of currency exchange loss.
Some of the Funds may purchase currency forwards and combine such
purchases with sufficient cash or short-term securities to create
unleveraged substitutes for investments in foreign markets when deemed
advantageous. A Fund may also combine the foregoing with bond futures
or interest rate futures contracts to create the economic equivalent of an
unhedged foreign bond position.
Some of the Funds may also cross-hedge currencies by entering into
transactions to purchase or sell one or more currencies that are expected
to decline in value relative to other currencies to which a Fund has or
in which a Fund expects to have portfolio exposure.
Currency transactions are subject to risks different from those of
other portfolio transactions. Because currency control is of great
importance to the issuing governments and influences economic planning and
policy, purchases and sales of currency and related instruments can be
negatively affected by government exchange controls, blockages, and
manipulations or exchange restrictions imposed by governments. These can
result in losses to a Fund if it is unable to deliver or receive currency
or funds in settlement of obligations and could also cause hedges it has
entered into to be rendered useless, resulting in full currency exposure
as well as incurring transactions costs. Buyers and sellers of currency
futures are subject to the same risks that apply to the use of futures
generally. Further, settlement of a currency futures contract for the
purchase of most currencies must occur at a bank based in the issuing
nation. Trading options on currency futures is relatively new, and the
ability to establish and close out positions on such options is subject to
the maintenance of a liquid market which may not always be available.
Currency exchange rates may fluctuate based on factors extrinsic to that
country's economy.
OTHER INVESTMENT COMPANIES
Each Fund may invest up to 10% of its total assets in the shares of
other investment companies. As a shareholder of an investment company, a
Fund would bear its ratable shares of the fund's expenses (which often
include an asset-based management fee). Each Fund could also lose money by
investing in other investment companies, since the value of their
respective investments and the income they generate will vary daily based
on prevailing market conditions.
REPURCHASE AGREEMENTS
Repurchase agreements are contracts under which a Fund buys a money
market instrument and obtains a simultaneous commitment from the seller to
repurchase the instrument at a specified time and at an agreed-upon yield.
Under guidelines approved by the Board, each Fund is permitted to enter
into repurchase agreements only if the repurchase agreements are at least
fully collateralized with U.S. Government securities or other securities
that WRIICO has approved for use as collateral for repurchase agreements
and the collateral must be marked-to-market daily. Each Fund will enter
into repurchase agreements only with banks and broker-dealers deemed to be
creditworthy by WRIICO under the above-referenced guidelines. In the
unlikely event of failure of the executing bank or broker-dealer, each
Fund could experience some delay in obtaining direct ownership of the
underlying collateral and might incur a loss if the value of the security
should decline, as well as costs in disposing of the security.
BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS
Certificates of deposit are negotiable certificates issued against
funds deposited in a commercial bank for a definite period of time and
earning a specified return. Bankers' acceptances are negotiable drafts or
bills of exchange, normally drawn by an importer or exporter to pay for
specific merchandise, which are "accepted" by a bank (meaning, in effect,
that the bank unconditionally agrees to pay the face value of the
instrument at maturity). In addition to investing in certificates of
deposit and bankers' acceptances, each Fund may invest in time deposits in
banks or savings and loan associations. Time deposits are generally
similar to certificates of deposit, but are uncertificated. Each Fund's
investments in certificates of deposit, time deposits, and bankers'
acceptance are limited to obligations of (i) banks having total assets in
excess of $1 billion, (ii) U.S. banks which do not meet the $1 billion
asset requirement, if the principal amount of such obligation is fully
insured by the Federal Deposit Insurance Corporation (the "FDIC"), (iii)
savings and loan association which have total assets in excess of $1
billion and which are members of the FDIC, and (iv) foreign banks if the
obligation is, in WRIICO's opinion, of an investment quality comparable to
other debt securities which may be purchased by a Fund. Each Fund's
investments in certificates of deposit of savings associations are limited
to obligations of Federal and state-chartered institutions whose total
assets exceed $1 billion and whose deposits are insured by the FDIC.
COMMERCIAL PAPER
Commercial paper represents short-term unsecured promissory notes
issued in bearer form by bank holding companies, corporations and finance
companies. Each Fund may invest in commercial paper that is rated Prime-1
by Moody's Investors Service, Inc. ("Moody's") or A-1 by Standard & Poor's
Corporation ("S&P") or, if not rated by Moody's or S&P, is issued by
companies having an outstanding debt issue rated Aaa or Aa by Moody's or
AAA or AA by S&P.
BORROWING
Borrowing may exaggerate the effect on each Fund's net asset value of
any increase or decrease in the value of each Fund's portfolio securities.
Money borrowed will be subject to interest costs (which may include
commitment fees and/or the cost of maintaining minimum average balances).
Although the principal of each Fund's borrowings will be fixed, each
Fund's assets may change in value during the time a borrowing is
outstanding, thus increasing exposure to capital risk.
WARRANTS
The holder of a warrant has the right, until the warrant expires, to
purchase a given number of shares of a particular issuer at a specified
price. Such investments can provide a greater potential for profit or loss
than an equivalent investment in the underlying security. However, prices
of warrants do not necessarily move in a tandem with the prices of the
underlying securities, and are, therefore, considered speculative
investments. Warrants pay no dividends and confer no rights other than a
purchase option. Thus, if a warrant held by a Fund were not exercised by
the date of its expiration, the Fund would lose the entire purchase price
of the warrant.
REAL ESTATE INVESTMENT TRUSTS (REITS)
A REIT is a corporation, trust or association that invests in real
estate mortgages or equities for the benefit of its investors. REITs are
dependent upon management skill, may not be diversified and are subject to
the risks of financing projects. Such entities are also subject to heavy
cash flow dependency, defaults by borrowers, self-liquidation and the
possibility of failing to qualify for tax-free pass-through of income
under the Internal Revenue Code of 1986, as amended (the "Code"), and to
maintain exemption from the 1940 Act. By investing in REITs indirectly
through a Fund, a shareholder will bear not only his or her proportionate
share of the expenses of the Fund, but also, indirectly, similar expenses
of the REITs.
OPTIONS TRANSACTIONS
IN GENERAL. A call option is a short-term contract (having a duration
of less than one year) pursuant to which the purchaser, in return for the
premium paid, has the right to buy the security underlying the option at
the specified exercise price at any time during the term of the option.
The writer of the call option, who receives the premium, has the
obligation, upon exercise of the option, to deliver the underlying
security against payment of the exercise price. A put option is a similar
contract pursuant to which the purchaser, in return for the premium paid,
has the right to sell the security underlying the option at the specified
exercise price at any time during the term of the option. The writer of
the put option, who receives the premium, has the obligation, upon
exercise of the option, to buy the underlying security at the exercise
price. The premium paid by the purchaser of an option will reflect, among
other things, the relationship of the exercise price to the market price
and volatility of the underlying security, the time remaining to
expiration of the option, supply and demand, and interest rates.
If the writer of a U.S. exchange-traded option wishes to terminate
the obligation, the writer may effect a "closing purchase transaction."
This is accomplished by buying an option of the same series as the option
previously written. The effect of the purchase is that the writer's
position will be canceled by the Options Clearing Corporation. However, a
writer may not effect a closing purchase transaction after it has been
notified of the exercise of an option. Likewise, an investor who is the
holder of an option may liquidate his or her position by effecting a
"closing sale transaction." This is accomplished by selling an option of
the same series as the option previously purchased. There is no guarantee
that either a closing purchase or a closing sale transaction can be
effected at any particular time or at any acceptable price. If any call or
put option is not exercised or sold, it will become worthless on its
expiration date. Closing purchase transactions are not available for OTC
transactions. In order to terminate an obligation in an OTC transaction,
the Fund would negotiate directly with the counterparty.
A Fund will realize a gain (or a loss) on a closing purchase
transaction with respect to a call or a put previously written by the Fund
if the premium, plus commission costs, paid by the Fund to purchase the
call or the put is less (or greater) than the premium, less commission
costs, received by the Fund on the sale of the call or the put. A gain
also will be realized if a call or a put that a Fund has written lapses
unexercised, because the Fund would retain the premium. Any such gains (or
losses) are considered short-term capital gains (or losses) for Federal
income tax purposes. Net short-term capital gains, when distributed by any
Fund, are taxable as ordinary income. See "Taxation."
A Fund will realize a gain (or a loss) on a closing sale
transaction with respect to a call or a put previously purchased by the
Fund if the premium, less commission costs, received by the Fund on the
sale of the call or the put is greater (or less) than the premium, plus
commission costs, paid by the Fund to purchase the call or the put. If a
put or a call expires unexercised, it will become worthless on the
expiration date, and the Fund will realize a loss in the amount of the
premium paid, plus commission costs. Any such gain or loss will be long-
term or short-term gain or loss, depending upon the Fund's holding period
for the option.
Exchange-traded options generally have standardized terms and are
issued by a regulated clearing organization (such as the Options Clearing
Corporation), which, in effect, guarantees the completion of every
exchange-traded option transaction. In contrast, the terms of OTC options
are negotiated by each Fund and its counterparty (usually a securities
dealer or a financial institution) with no clearing organization
guarantee. When a Fund purchases an OTC option, it relies on the party
from whom it has purchased the option (the "counterparty") to make
delivery of the instrument underlying the option. If the counterparty
fails to do so, the Fund will lose any premium paid for the option, as
well as any expected benefit of the transaction. Accordingly, WRIICO will
assess the creditworthiness of each counterparty to determine the
likelihood that the terms of the OTC option will be satisfied.
WRITING OPTIONS ON INDIVIDUAL SECURITIES. Some of the Funds may write
(sell) covered call options on the Fund's securities in an attempt to realize
a greater current return than would be realized on the securities alone.
Each Fund may also write covered call options to hedge a possible stock or
bond market decline (only to the extent of the premium paid to the Fund
for the options). In view of the investment objectives of each Fund, a
Fund generally would write call options only in circumstances where the
investment advisor to the Fund does not anticipate significant
appreciation of the underlying security in the near future or has
otherwise determined to dispose of the security.
A "covered" call option means generally that so long as a Fund is
obligated as the writer of a call option, the Fund will (i) own the
underlying securities subject to the option, or (ii) have the right to
acquire the underlying securities through immediate conversion or exchange
of convertible preferred stocks or convertible debt securities owned by
the Fund. Although each Fund receives premium income from these
activities, any appreciation realized on an underlying security will be
limited by the terms of the call option. Each Fund may purchase call
options on individual securities only to effect a "closing purchase
transaction."
As the writer of a call option, a Fund receives a premium for
undertaking the obligation to sell the underlying security at a fixed
price during the option period, if the option is exercised. So long as a
Fund remains obligated as a writer of a call option, it forgoes the
opportunity to profit from increases in the market price of the underlying
security above the exercise price of the option, except insofar as the
premium represents such a profit (and retains the risk of loss should the
value of the underlying security decline).
PURCHASING OPTIONS ON INDIVIDUAL SECURITIES. Some of the Funds may
purchase a put option on an underlying security owned by the Fund as a
defensive technique in order to protect against an anticipated decline in
the value of the security. A Fund, as the holder of the put option, may sell
the underlying security at the exercise price regardless of any decline in
its market price. In order for a put option to be profitable, the market
price of the underlying security must decline sufficiently below the
exercise price to cover the premium and transaction costs that the Fund must
pay. These costs will reduce any profit a Fund might have realized had it
sold the underlying security instead of buying the put option. The premium
paid for the put option would reduce any capital gain otherwise available
for distribution when the security is eventually sold. The purchase of put
options will not be used by any Fund for leverage purposes.
A Fund may also purchase a put option on an underlying security
that it owns and at the same time write a call option on the same security
with the same exercise price and expiration date. Depending on whether the
underlying security appreciates or depreciates in value, the Fund would
sell the underlying security for the exercise price either upon exercise
of the call option written by it or by exercising the put option held by
it. A Fund would enter into such transactions in order to profit from the
difference between the premium received by the Fund for the writing of the
call option and the premium paid by the Fund for the purchase of the put
option, thereby increasing the Fund's current return. A Fund may write
(sell) put options on individual securities only to effect a "closing sale
transaction."
PURCHASING AND WRITING OPTIONS ON SECURITIES INDICES. A Fund may
purchase and sell (write) put and call options on securities indices. An
index assigns relative values to the securities included in the index and
the index fluctuates with changes in the market values of the securities
so included. Call options on indices are similar to call options on
individual securities, except that, rather than giving the purchaser the
right to take delivery of an individual security at a specified price,
they give the purchaser the right to receive cash. The amount of cash is
equal to the difference between the closing price of the index and the
exercise price of the option, expressed in dollars, times a specified
multiple (the "multiplier"). The writer of the option is obligated, in
return for the premium received, to make delivery of this amount.
The multiplier for an index option performs a function similar to the
unit of trading for a stock option. It determines the total dollar value
per contract of each point in the difference between the exercise price of
an option and the current level of the underlying index. A multiplier of
100 means that a one-point difference will yield $100. Options on
different indices have different multipliers.
When a Fund writes a call or put option on a stock index, the option
is "covered," in the case of a call, or "secured," in the case of a put,
if the Fund maintains in a segregated account with the Custodian cash or
liquid securities equal to the contract value. A call option is also
covered if a Fund holds a call on the same index as the call written where
the exercise price of the call held is (i) equal to or less than the
exercise price of the call written or (ii) greater than the exercise price
of the call written, provided that the Fund maintains in a segregated
account with the Custodian the difference in cash or liquid securities. A
put option is also "secured" if a Fund holds a put on the same index as
the put written where the exercise price of the put held is (i) equal to
or greater than the exercise price of the put written or (ii) less than
the exercise price of the put written, provided that the Fund maintains in
a segregated account with the Custodian the difference in cash or liquid
securities.
RISKS OF OPTIONS TRANSACTIONS. The purchase and writing of options
involves certain risks. During the option period, the covered call writer
has, in return for the premium on the option, given up the opportunity to
profit from a price increase in the underlying securities above the
exercise price, but, as long as its obligation as a writer continues, has
retained the risk of loss should the price of the underlying security
decline. The writer of a U.S. option has no control over the time when it
may be required to fulfill its obligation as a writer of the option. Once
an option writer has received an exercise notice, it cannot effect a
closing purchase transaction in order to terminate its obligation under
the option and must deliver the underlying securities (or cash in the case
of an index option) at the exercise price. If a put or call option
purchased by a Fund is not sold when it has remaining value, and if the
market price of the underlying security (or index), in the case of a put,
remains equal to or greater than the exercise price or, in the case of a
call, remains less than or equal to the exercise price, the Fund will lose
its entire investment in the option. Also, where a put or call option on a
particular security (or index) is purchased to hedge against price
movements in a related security (or securities), the price of the put or
call option may move more or less than the price of the related security
(or securities). In this regard, there are differences between the
securities and options markets that could result in an imperfect
correlation between these markets, causing a given transaction not to
achieve its objective.
There can be no assurance that a liquid market will exist when a Fund
seeks to close out an option position. Furthermore, if trading
restrictions or suspensions are imposed on the options markets, a Fund may
be unable to close out a position. Finally, trading could be interrupted,
for example, because of supply and demand imbalances arising from a lack
of either buyers or sellers, or the options exchange could suspend trading
after the price has risen or fallen more than the maximum amount specified
by the exchange. Closing transactions can be made for OTC options only by
negotiating directly with the counterparty or by a transaction in the
secondary market, if any such market exists. Transfer of an OTC option is
usually prohibited absent the consent of the original counterparty. There
is no assurance that a Fund will be able to close out an OTC option
position at a favorable price prior to its expiration. An OTC counterparty
may fail to deliver or to pay, as the case may be. In the event of
insolvency of the counterparty, a Fund might be unable to close out an OTC
option position at any time prior to its expiration. Although a Fund may
be able to offset to some extent any adverse effects of being unable to
liquidate an option position, the Fund may experience losses in some cases
as a result of such inability.
When conducted outside the U.S., options transactions may not be
regulated as rigorously as in the U.S., may not involve a clearing
mechanism and related guarantees, and are subject to the risk of
governmental actions affecting trading in, or the prices of, foreign
securities, currencies and other instruments. The value of such positions
also could be adversely affected by: (i) other complex foreign political,
legal and economic factors, (ii) lesser availability than in the U.S. of
data on which to make trading decisions, (iii) delays in each Fund's
ability to act upon economic events occurring in foreign markets during
non-business hours in the U.S., (iv) the imposition of different exercise
and settlement terms and procedures and margin requirements than in the
U.S., and (v) lower trading volume and liquidity.
A Fund's options activities also may have an impact upon the level
of its portfolio turnover and brokerage commissions. See "Portfolio
Turnover."
A Fund's success in using options techniques depends, among other
things, on WRIICO's ability to predict accurately the direction and
volatility of price movements in the options and securities markets, and
to select the proper type, timing of use and duration of options.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
IN GENERAL. A Fund may enter into futures contracts and options on
futures contracts for hedging purposes. A futures contract provides for
the future sale by one party and purchase by another party of a specified
quantity of a commodity at a specified price and time. When a purchase or
sale of a futures contract is made by a Fund, the Fund is required to
deposit with its custodian (or broker, if legally permitted) a specified
amount of cash or liquid securities ("initial margin"). The margin
required for a futures contract is set by the exchange on which the
contract is traded and may be modified during the term of the contract.
The initial margin is in the nature of a performance bond or good faith
deposit on the futures contract which is returned to the Fund upon
termination of the contract, assuming all contractual obligations have
been satisfied. A futures contract held by a Fund is valued daily at the
official settlement price of the exchange on which it is traded. Each day
a Fund pays or receives cash, called "variation margin," equal to the
daily change in value of the futures contract. This process is known as
"marking to market." Variation margin does not represent a borrowing or
loan by a Fund but is instead a settlement between the Fund and the broker
of the amount one would owe the other if the futures contract expired. In
computing daily net asset value, each Fund will mark-to-market its open
futures position.
Each Fund is also required to deposit and maintain margin with
respect to put and call options on futures contracts written by it. Such
margin deposits will vary depending on the nature of the underlying
futures contract (and the related initial margin requirements), the
current market value of the option, and other futures positions held by
the Fund.
Although some futures contracts call for making or taking delivery of
the underlying securities, generally these obligations are closed out
prior to delivery of offsetting purchases or sales of matching futures
contracts (same exchange, underlying security or index, and delivery
month). If an offsetting purchase price is less than the original sale
price, a Fund generally realizes a capital gain, or if it is more, the
Fund generally realizes a capital loss. Conversely, if an offsetting sale
price is more than the original purchase price, a Fund generally realizes
a capital gain, or if it is less, the Fund generally realizes a capital
loss. The transaction costs must also be included in these calculations.
When purchasing a futures contract, a Fund will maintain with its
Custodian (and mark-to-market on a daily basis) cash or liquid securities
that, when added to the amounts deposited with a futures commission
merchant ("FCM") as margin, are equal to the market value of the futures
contract. Alternatively, a Fund may "cover" its position by purchasing a
put option on the same futures contract with a strike price as high as or
higher than the price of the contract held by the Fund, or, if lower, may
cover the difference with cash or short-term securities.
When selling a futures contract, a Fund will maintain with its
Custodian in a segregated account (and mark-to-market on a daily basis)
cash or liquid securities that, when added to the amounts deposited with
an FCM as margin, are equal to the market value of the instruments
underlying the contract. Alternatively, a Fund may "cover" its position by
owning the instruments underlying the contract (or, in the case of an
index futures contract, a portfolio with a volatility substantially
similar to that of the index on which the futures contract is based), or
by holding a call option permitting the Fund to purchase the same futures
contract at a price no higher than the price of the contract written by
the Fund (or at a higher price if the difference is maintained in liquid
assets with the Fund's custodian).
When selling a call option on a futures contract, a Fund will maintain
with its Custodian in a segregated account (and mark-to-market on a daily
basis) cash or liquid securities that, when added to the amounts deposited
with an FCM as margin, equal the total market value of the futures
contract underlying the call option. Alternatively, a Fund may cover its
position by entering into a long position in the same futures contract at
a price no higher than the strike price of the call option, by owning the
instruments underlying the futures contract, or by holding a separate call
option permitting the Fund to purchase the same futures contract at a
price not higher than the strike price of the call option sold by the
Fund, or covering the difference if the price is higher.
When selling a put option on a futures contract, a Fund will
maintain with its Custodian (and mark-to-market on a daily basis) cash or
liquid securities that equal the purchase price of the futures contract
less any margin on deposit. Alternatively, a Fund may cover the position
either by entering into a short position in the same futures contract, or
by owning a separate put option permitting it to sell the same futures
contract so long as the strike price of the purchased put option is the
same or higher than the strike price of the put option sold by the Fund,
or, if lower, the Fund may hold securities to cover the difference.
RISKS ASSOCIATED WITH FUTURES AND RELATED OPTIONS. There can be no
guarantee that there will be a correlation between price movements in the
hedging vehicle and in any Fund's portfolio securities being hedged. In
addition, there are significant differences between the securities and
futures markets that could result in an imperfect correlation between the
markets, causing a given hedge not to achieve its objectives. The degree
of imperfection of correlation depends on circumstances such as variations
in speculative market demand for futures and futures options on
securities, including technical influences in futures trading and futures
options, and differences between the financial instruments being hedged
and the instruments underlying the standard contracts available for
trading in such respects as interest rate levels, maturities, and
creditworthiness of issuers. A decision as to whether, when and how to
hedge involves the exercise of skill and judgment, and even a well-
conceived hedge may be unsuccessful to some degree because of market
behavior or unexpected interest rate trends.
Futures exchanges may limit the amount of fluctuation permitted in
certain futures contract prices during a single trading day. The daily
limit establishes the maximum amount that the price of a futures contract
may vary either up or down from the previous day's settlement price at the
end of the current trading session. Once the daily limit has been reached
in a futures contract subject to the limit, no more trades may be made on
that day at a price beyond that limit. The daily limit governs only price
movements during a particular trading day and therefore does not limit
potential losses because the limit may work to prevent the liquidation of
unfavorable positions. For example, futures prices have occasionally moved
to the daily limit for several consecutive trading days with little or no
trading, thereby preventing prompt liquidation of positions and subjecting
some holders of futures contracts to substantial losses.
There can be no assurance that a liquid market will exist at a time
when a Fund seeks to close out a futures or a futures option position, and
the Fund would remain obligated to meet margin requirements until the
position is closed. In addition, there can be no assurance that an active
secondary market will continue to exist.
Currency futures contracts and options thereon may be traded on
foreign exchanges. Such transactions may not be regulated as effectively
as similar transactions in the United States; may not involve a clearing
mechanism and related guarantees; and are subject to the risk of
governmental actions affecting trading in, or the prices of, foreign
securities. The value of such position also could be adversely affected by
(i) other complex foreign political, legal and economic factors,
(ii) lesser availability than in the United States of data on which to
make trading decisions, (iii) delays in a Fund's ability to act upon
economic events occurring in foreign markets during non business hours in
the United States, (iv) the imposition of different exercise and
settlement terms and procedures and margin requirements than in the United
States, and (v) lesser trading volume.
SECURITIES INDEX FUTURES CONTRACTS
A Fund may enter into securities index futures contracts as an
efficient means of regulating that Fund's exposure to the equity markets.
A Fund will not engage in transactions in futures contracts for
speculation, but only as a hedge against changes resulting from market
conditions in the values of securities held in the Fund's portfolio or
which it intends to purchase. An index futures contract is a contract to
buy or sell units of an index at a specified future date at a price agreed
upon when the contract is made. Entering into a contract to buy units of
an index is commonly referred to as purchasing a contract or holding a
long position in the index. Entering into a contract to sell units of an
index is commonly referred to as selling a contract or holding a short
position. The value of a unit is the current value of the stock index. For
example, the S&P 500 Index is composed of 500 selected common stocks, most
of which are listed on the New York Stock Exchange (the "Exchange"). The
S&P 500 Index assigns relative weightings to the 500 common stocks
included in the Index, and the Index fluctuates with changes in the market
values of the shares of those common stocks. In the case of the S&P 500
Index, contracts are to buy or sell 500 units. Thus, if the value of the
S&P 500 Index were $150, one contract would be worth $75,000 (500 units x
$150). The index futures contract specifies that no delivery of the actual
securities making up the index will take place. Instead, settlement in
cash must occur upon the termination of the contract, with the settlement
being the difference between the contract price and the actual level of
the stock index at the expiration of the contract. For example, if a Fund
enters into a futures contract to buy 500 units of the S&P 500 Index at a
specified future date at a contract price of $150 and the S&P 500 Index is
at $154 on that future date, the Fund will gain $2,000 (500 units x gain
of $4). If a Fund enters into a futures contract to sell 500 units of the
stock index at a specified future date at a contract price of $150 and the
S&P 500 Index is at $154 on that future date, the Fund will lose $2,000
(500 units x loss of $4).
RISKS OF SECURITIES INDEX FUTURES. A Fund's success in using
hedging techniques depends, among other things, on WRIICO's ability to
predict correctly the direction and volatility of price movements in the
futures and options markets as well as in the securities markets and to
select the proper type, time and duration of hedges. The skills necessary
for successful use of hedges are different from those used in the
selection of individual stocks.
A Fund's ability to hedge effectively all or a portion of its
securities through transactions in index futures (and therefore the extent
of its gain or loss on such transactions) depends on the degree to which
price movements in the underlying index correlate with price movements in
the Fund's securities. Inasmuch as such securities will not duplicate the
components of an index, the correlation probably will not be perfect.
Consequently, a Fund will bear the risk that the prices of the
securities being hedged will not move in the same amount as the hedging
instrument. This risk will increase as the composition of the Fund's
portfolio diverges from the composition of the hedging instrument.
Although a Fund intends to establish positions in these
instruments only when there appears to be an active market, there is no
assurance that a liquid market will exist at a time when a Fund seeks to
close a particular option or futures position. Trading could be
interrupted, for example, because of supply and demand imbalances arising
from a lack of either buyers or sellers. In addition, the futures
exchanges may suspend trading after the price has risen or fallen more
than the maximum amount specified by the exchange. In some cases, a Fund
may experience losses as a result of its inability to close out a
position, and it may have to liquidate other investments to meet its cash
needs.
Although some index futures contracts call for making or taking
delivery of the underlying securities, generally these obligations are
closed out prior to delivery by offsetting purchases or sales of matching
futures contracts (same exchange, underlying security or index, and
delivery month). If an offsetting purchase price is less than the original
sale price, a Fund generally realizes a capital gain, or if it is more, a
Fund generally realizes a capital loss. Conversely, if an offsetting sale
price is more than the original purchase price, a Fund generally realizes
a capital gain, or if it is less, the Fund generally realizes a capital
loss. The transaction costs must also be included in these calculations.
A Fund will only enter into index futures contracts or futures
options that are standardized and traded on a U.S. or foreign exchange or
board of trade, or similar entity, or quoted on an automated quotation
system. Each Fund will use futures contracts and related options only for
"bona fide hedging" purposes, as such term is defined in applicable
regulations of the CFTC.
When purchasing an index futures contract, a Fund will maintain
with its Custodian (and mark-to-market on a daily basis) cash or liquid
securities that, when added to the amounts deposited with an FCM as
margin, are equal to the market value of the futures contract.
Alternatively, a Fund may "cover" its position by purchasing a put option
on the same futures contract with a strike price as high as or higher than
the price of the contract held by the Fund.
When selling an index futures contract, a Fund will maintain with
its Custodian (and mark-to-market on a daily basis) cash or liquid
securities that, when added to the amounts deposited with an FCM as
margin, are equal to the market value of the instruments underlying the
contract. Alternatively, a Fund may "cover" its position by owning the
instruments underlying the contract (or, in the case of an index futures
contract, a portfolio with a volatility substantially similar to that of
the index on which the futures contract is based), or by holding a call
option permitting the Fund to purchase the same futures contract at a
price no higher than the price of the contract written by the Fund (or at
a higher price if the difference is maintained in cash or liquid assets in
a segregated account with the Fund's custodian).
COMBINED TRANSACTIONS
A Fund may enter into multiple transactions, including multiple
options transactions, multiple futures transactions and multiple currency
transactions (including forward currency contracts) and some combination
of futures, options and currency transactions ("component" transactions),
instead of a single transaction, as part of a single or combined strategy
when, in the opinion of WRIICO, it is in the best interests of the Fund to
do so. A combined transaction will usually contain elements of risk that
are present in each of its component transactions. Although combined
transactions are normally entered into based on WRIICO's judgment that the
combined strategies will reduce risk or otherwise more effectively achieve
the desired portfolio management goal, it is possible that the combination
will instead increase such risks or hinder achievement of the management
objective.
PORTFOLIO TURNOVER
Each Fund purchases securities that are believed by WRIICO to have above
average potential for capital appreciation. Securities are disposed of in
situations where it is believed that potential for such appreciation has
lessened or that other securities have a greater potential. Therefore,
each Fund may purchase and sell securities without regard to the length of
time the security is to be, or has been, held. A change in securities held
by a Fund is known as "portfolio turnover" and may involve the payment by
the Fund of dealer markup or underwriting commission and other transaction
costs on the sale of securities, as well as on the reinvestment of the
proceeds in other securities. Each Fund's portfolio turnover rate is
calculated by dividing the lesser of purchases or sales of portfolio
securities for the most recently completed fiscal year by the monthly
average of the value of the portfolio securities owned by the Fund during
that year. For purposes of determining a Fund's portfolio turnover rate,
all securities whose maturities at the time of acquisition were one year
or less is excluded. The portfolio turnover rate for Ivy Developing
Markets Fund was significantly higher in 2002 than it was in 2001 because
of the increase in portfolio trading activity due to the decrease in
assets (caused by increased redemption activity.) A high turnover rate will
increase transaction costs and commission costs that will be borne by the
Fund and could generate taxable income or loss to the shareholder.
2001 2002
Ivy Bond Fund 22% 15%
Ivy Developing Markets Fund 14% 48%
Ivy Global Fund 72% 61%
Ivy Global Science & Technology Fund 135% 153%
Ivy Growth Fund 114% 89%
Ivy International Small Companies Fund 118% 146%
Ivy US Blue Chip Fund 74% 85%
Ivy US Emerging Growth Fund 133% 109%
TRUSTEES AND OFFICERS
Each Fund's Board of Trustees (the "Board") is responsible for the overall
management of the Fund, including general supervision and review of the
Fund's investment activities. The Board, in turn, elects the officers who
are responsible for administering each Fund's day-to-day operations.
The address for each Trustee and Executive Officer in the following
tables is 6300 Lamar Avenue, P.O. Box 29217, Shawnee Mission, KS,
66201-9217. Each Trustee and Officer serves an indefinite term, until he or
she dies, resigns or becomes disqualified. The non-Independent Trustees (as
defined below) and Executive Officers of the Trust and their principal
occupations during the past five years are:
Name and Age
|
Position(s) Held with
Trust
|
Term of Office and Length of Time Served
|
Principal
Occupation(s)
During Past 5 Years
| Total Number of Funds Overseen |
Other
Directorships
Held
|
Keith A. Tucker*
(58) | Trustee and Chairman | Trustee since December 16, 2002 | Chairman of the Board, Director and CEO of Waddell & Reed Financial, Inc. (Waddell & Reed); Chairman of the Board of Waddell & Reed, Inc. ("WRI") (underwriter); Chairman of the Board and Director of Waddell & Reed Investment Management Co. ("WRIMCO"); Chairman of the Board and Director of Waddell & Reed Services Co.; President and CEO of Waddell & Reed Financial Services, Inc.; Chairman of the Board of Waddell & Reed Development, Inc.; Chairman of the Board of Waddell & Reed Distributors, Inc. | 63 | Chairman of the Board and Director of Waddell & Reed Advisors Funds (20 portfolios overseen); Chairman of the Board and Director of W&R Funds, Inc. (12 portfolios overseen); Chairman of the Board and Director of W&R Target Funds, Inc. (12 portfolios overseen); Chairman of the Board and Director of Waddell & Reed InvestEd Portfolios, Inc. (3 portfolios overseen). |
Henry J. Herrmann*
(60) | Trustee and President | Trustee since December 16, 2002 | Chairman of the Board, CEO and President of WRIICO; President, Chief Investment Officer and Director of Waddell & Reed; President and CEO of WRIMCO; Chief Investment Officer of WRIMCO; Chief Investment Officer of Waddell & Reed Financial Services, Inc.; Executive Vice President of Waddell & Reed Financial Services, Inc.; President and Chief Executive Officer of Waddell & Reed Ivy Investment Company ("WRIICO"); formerly, Chairman of the Board of Austin, Calvert & Flavin, Inc. | 63 | Chairman of the Board and Director, Ivy Services Inc. ("ISI"); Director of WRI; Director of Waddell & Reed Development, Inc.; Director of Waddell & Reed Services Co.; Director of Austin Calvert & Flavin, Inc.; Director and President of Waddell & Reed Advisors Funds (20 portfolios overseen); Director and President of W&R Funds, Inc. (12 portfolios overseen); Director and President of W&R Target Funds, Inc. (12 portfolios overseen); Director and President of Waddell & Reed InvestEd Portfolios, Inc. (3 portfolios overseen). |
Kristen A. Richards
(35) | Secretary and Vice President | Appointed December 17, 2002 | Vice President, Associate General Counsel and Chief Compliance Officer of WRIICO and WRIMCO; Vice President, Secretary and Associate General Counsel of each of the Waddell & Reed Advisors Funds, W&R Funds, Inc., W&R Target Funds, Inc. and W&R InvestEd Portfolios, Inc.; formerly Assistant Secretary of each of those funds; formerly, Compliance Officer of WRIMCO | 63 | None |
Ted Howard (60) | Treasurer | Appointed March 31, 2003 | Senior Vice President of Waddell & Reed Services Company ("WRSCO"); Vice President, Treasurer, Principal Accounting Officer and Principal Financial Officer of each of the Waddell & Reed Advisors Funds, W&R Funds, Inc., W&R Target Funds, Inc. and W&R InvestEd Portfolios, Inc. | 63 | None |
*Trustees considered by the Trust and its counsel to be "interested persons"
(as defined in the 1940 Act) of the Funds or of their investment manager
because of their employment by Waddell & Reed or its subsidiaries.
The Trustees who are not "interested persons" of the Trust within the
meaning of Section 2(a)(19) of the 1940 Act ("Independent Trustees") and
their principal occupations during the past five years are:
Name and Age
|
Position(s) Held with
Trust
|
Term of Office and Length of Time Served
|
Principal
Occupation(s)
During Past 5 Years
| Total Number of Funds Overseen |
Other
Directorships
Held
|
Jarold W. Boettcher (62) | Trustee | Trustee since December 16, 2002 | President of Boettcher Enterprises, Inc. (agriculture products and services) since 1979; President of Boettcher Supply, Inc. (electrical and plumbing supplies distributor) since 1979; President of Boettcher Aerial, Inc. (Aerial Ag Applicator) since 1983 | 15 | Director of Guaranty State Bank & Trust Co.; Director of Guaranty, Inc. |
James D. Gressett
(52) | Trustee | Trustee since December 16, 2002 | CEO of PacPizza, Inc. (Pizza Hut franchise) since 2000; Secretary of Street Homes, LLP (homebuilding company) since 2001; President of Alien, Inc. (real estate development), 1997 to 2001 | 15 | Director of Collins Financial Services, a debt recovery company |
Joseph Harroz, Jr.
(36) | Trustee | Trustee since December 16, 2002 | General Counsel, University of Oklahoma, Cameron University and Rogers State University; University-wide Vice President of the University of Oklahoma since 1994; Adjunct Professor of Law, University of Oklahoma College of Law; Managing Member, Harroz Investment, LLC (commercial real estate), since 1998; Managing Member, JHJ Investments, LLC (commercial real estate) since 2002 | 63 | Co-Lead Independent Director of Waddell & Reed Advisors Funds (20 portfolios overseen); Co-Lead Independent Director of W&R Target Funds, Inc. (12 portfolios overseen); Co-Lead Independent Director of W&R Funds, Inc. (12 portfolios overseen); Co-Lead Independent Director of Waddell & Reed InvestEd Portfolios, Inc. (3 portfolios overseen) |
Glendon E. Johnson, Jr. (51) | Trustee | Trustee since December 16, 2002 | Of Counsel, Lee & Smith, PC (law firm) since 1996; Member/Manager, Castle Valley Ranches, LLC (ranching) since 1995 | 15 | None |
Eleanor B. Schwartz (66) | Trustee | Trustee since December 16, 2002 | Professor of Business Administration, University of Missouri--Kansas City since 1980; Chancellor of University of Missouri--Kansas City, 1991-1999 | 63 | Director of Waddell & Reed Advisors Funds (20 portfolios overseen); Director of W&R Target Funds, Inc. (12 portfolios overseen); Director of W&R Funds, Inc. (12 portfolios overseen); Director of Waddell & Reed InvestEd Portfolios, Inc. (3 portfolios overseen) |
Michael G. Smith
(58) | Trustee | Trustee since December 16, 2002 | Retired; formerly, Managing Director--Institutional Sales, Merrill Lynch (1983-1999) | 15 | Director, Executive Board, Cox Business School, Southern Methodist University (since 1998); Director, Northwestern Mutual Life Series Funds & Mason Street Advisors Funds (since February, 2003) (29 portfolios overseen) |
Edward M. Tighe
(60) | Trustee | 3 years | Chairman, CEO and Director of JBE Technology Group, Inc. (telecommunications and computer network consulting); CEO and Director of Asgard Holding, LLC (computer network and security services); President of Global Mutual Fund Services.; President and CEO of Global Technology | 15 | Director of Hansberger Institutional Funds (2 portfolios overseen); Director of Asgard Holding, LLC |
The Board has an Audit Committee, an Executive Committee, a Valuation
Committee, and a Governance Committee. The function of the Audit Committee
is to assist the Board in fulfilling its responsibilities to shareholders
of the Fund relating to accounting and reporting, internal controls and
the adequacy of auditing relative thereto. As of December 17, 2002, the Audit
Committee consists of Michael G. Smith, Jarold W. Boettcher and Glendon E.
Johnson, Jr. During the last fiscal year, the Audit Committee held 4 meetings.
The function of the Executive Committee is to act as necessary on
behalf of the full Board. When the Board is not in session, the Executive
Committee has and may exercise any or all of the powers of the Board in
the management of the business and affairs of the Fund except the power to
increase or decrease the size of, or fill vacancies on the Board, and
except as otherwise prohibited by law. As of December 17, 2002, the Executive
Committee consists of Keith A. Tucker, Henry J. Herrmann and Edward M. Tighe.
During the last fiscal year, Executive Committee did not meet.
The function of the Valuation Committee is to consider the valuation
of portfolio securities which may be difficult to price. As of December 17,
2002 the Valuation Committee consists of Keith A Tucker and Henry J. Herrmann.
During the last fiscal year, the Valuation Committee met 4 times.
The function of the Governance Committee is to consider the
responsibilities and actions of the Board of Trustees. As of December 17, 2002,
the Governance Committee consists of Joseph Harroz, Jr., Eleanor B. Schwartz
and James D. Gressett. During the last year, the Governance Committee held
4 meetings.
COMPENSATION TABLE
IVY FUND
(FISCAL YEAR ENDED DECEMBER 31, 2002)
NAME, POSITION | AGGREGATE COMPENSA-TION FROM TRUST | PENSION OR RETIREMENT BENEFITS ACCRUED AS PART OF FUND EXPENSES | ESTIMATED ANNUAL BENEFITS UPON RETIREMENT | TOTAL COMPENSA-TION FROM TRUST AND FUND COMPLEX PAID TO TRUSTEES* |
John S. Anderegg, Jr. (Trustee through December 16, 2002) | $23,000 | N/A | N/A | $23,000 |
Jarold W. Boettcher (Trustee) | $0 | N/A | N/A | $0 |
Stanley Channick (Trustee through December 16, 2002) | $24,000 | N/A | N/A | $24,000 |
Roy J. Glauber (Trustee through December 16, 2002) | $24,000 | N/A | N/A | $24,000 |
James D. Gressett (Trustee) | $0 | N/A | N/A | $0 |
Joseph Harroz, Jr. (Trustee) | $0 | N/A | N/A | $0 |
Henry J. Herrmann (Trustee and President) | $0 | N/A | N/A | $0 |
Glendon E. Johnson, Jr. (Trustee) | $0 | N/A | N/A | $0 |
Joseph G. Rosenthal (Trustee through December 16, 2002) | $24,000 | N/A | N/A | $24,000 |
Eleanor B. Schwartz (Trustee) | $0 | N/A | N/A | $0 |
Richard N. Silverman (Trustee through December 16, 2002) | $24,000 | N/A | N/A | $24,000 |
Michael G. Smith (Trustee) | $0 | N/A | N/A | $0 |
J. Brendan Swan (Trustee through December 16, 2002) | $24,000 | N/A | N/A | $24,000 |
Edward M. Tighe (Trustee) | $24,000 | N/A | N/A | $24,000 |
Keith A. Tucker (Trustee and Chairman) | $0 | N/A | N/A | $0 |
*The Fund complex consists of Ivy Fund.
As of December 31, 2002, the Officers and Trustees of the Trust as a
group owned beneficially or of record less than 1% of the outstanding
Class A, Class B, Class C, Class I and Advisor Class shares of each of the
fifteen Ivy funds that are series of the Trust.
The following table sets forth the dollar range of shares of the Fund held
directly or indirectly by the Trustees:
Name of Trustee | Dollar Range of Shares in Ivy Bond Fund | Dollar Range of Shares in Ivy Developing Markets Fund | Dollar Range of Shares in Ivy Global Fund | Dollar Range of Shares in Ivy Global Science & Technology Fund |
Jarold W. Boettcher | $ - | $ - | $ - | $ - |
James D. Gressett | - | - | - | - |
Joseph Harroz, Jr. | - | - | - | - |
Henry J. Herrmann | - | - | - | - |
Glendon E. Johnson, Jr. | - | - | - | - |
Eleanor B. Schwartz | - | - | - | - |
Michael G. Smith | - | - | - | - |
Edward M. Tighe | - | - | - | - |
Keith A. Tucker | - | - | - | - |
Name of Trustee | Dollar Range of Shares in Ivy Growth Fund | Dollar Range of Shares in Ivy International Small Companies Fund | Dollar Range of Shares in Ivy US Blue Chip Fund | Dollar Range of Shares in Ivy US Emerging Growth Fund |
Jarold W. Boettcher | $ - | $ - | $ - | $ - |
James D. Gressett | - | - | - | - |
Joseph Harroz, Jr. | - | - | - | - |
Henry J. Herrmann | - | - | - | - |
Glendon E. Johnson, Jr. | - | - | - | - |
Eleanor B. Schwartz | - | - | - | - |
Michael G. Smith | - | - | - | - |
Edward M. Tighe | - | - | - | - |
Keith A. Tucker | - | - | - | - |
Name of Trustee |
Aggregate Dollar Range of Shares in all Funds Overseen by the Trustee in the Ivy Fund Family |
Jarold W. Boettcher | $ - |
James D. Gressett | - |
Joseph Harroz, Jr. | - |
Henry J. Herrmann | - |
Glendon E. Johnson, Jr. | - |
Eleanor B. Schwartz | - |
Michael G. Smith | - |
Edward M. Tighe | $10,001 - $50,000 |
Keith A. Tucker | - |
PERSONAL INVESTMENTS BY EMPLOYEES OF WRIICO, IFDI, HENDERSON AND THE
TRUST. WRIICO, IFDI and the Trust have adopted a Code of Ethics and
Business Conduct Policy, and Henderson has incorporated a
code of ethics into its Compliance and Procedures Manual (the "Codes of
Ethics") which are each designed to identify and address certain conflicts
of interest between personal investment activities and the interests of
investment advisory clients such as each Fund, in compliance with Rule
17j-1 under the 1940 Act. The Codes of Ethics permit personnel of WRIICO,
IFDI, Henderson and the Trust subject to the Codes of Ethics to
engage in personal securities transactions, including with respect to
securities held by one or more Funds, subject to certain requirements and
restrictions.
PRINCIPAL HOLDERS OF SECURITIES
SHARE OWNERSHIP
To the knowledge of the Trust as of March 31, 2003, no shareholder
owned beneficially or of record 5% or more of any Fund's outstanding
shares of any class, with the following exceptions:
Title of Class of Shares | Name and Address of Beneficial Owner | Amount and Nature of Beneficial Ownership | Percentage of Class Owned |
Ivy Bond Fund - Class A | MLPF&S FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTN: FUND ADMINISTRATION 4800 DEER LAKE DR. E, 3RD FLOOR JACKSONVILLE, FL 32246 | 219,494.14 | 5.68 |
Ivy Global Science & Technology Fund - Class A | SECURITY TRUST COMPANY AS TRUSTEE FBO LOCAL 104 SUPLEMENTAL PENSION PLAN 2390 EAST CAMELBACK RD STE 240 PHOENIX, AZ 85016 | 60,224.07 | 10.08 |
Ivy International Small Companies Fund - Class A | MLPF&S FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTN: FUND ADMINISTRATION 4800 DEER LAKE DR. E, 3RD FLOOR JACKSONVILLE, FL 32246 | 27,896.17 | 13.10 |
Ivy Bond Fund - Class B | MLPF&S FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTN: FUND ADMINISTRATION 4800 DEER LAKE DR. E, 3RD FLOOR JACKSONVILLE, FL 32246 | 985,867.04 | 49.72 |
Ivy Developing Markets Fund - Class B | MLPF&S FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTN: FUND ADMINISTRATION 4800 DEER LAKE DR. E, 3RD FLOOR JACKSONVILLE, FL 32246 | 72,280.58 | 27.96 |
Ivy Growth Fund - Class B | MLPF&S FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTN: FUND ADMINISTRATION 4800 DEER LAKE DR. E, 3RD FLOOR JACKSONVILLE, FL 32246 PERSHING LLC P.O. BOX 2052 JERSEY CITY, NJ 07303-9998 | 56,723.19 18,789.11 | 18.63 6.17 |
Ivy Global Fund - Class B | MLPF&S FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTN: FUND ADMINISTRATION 4800 DEER LAKE DR. E, 3RD FLOOR JACKSONVILLE, FL 32246 | 30,145.67 | 19.12 |
Ivy Global Science & Technology Fund - Class B | MERRILL LYNCH PIERCE FENNER & SMITH INC. MUTUAL FUND OPERATIONS - SERVICE TEAM 4800 DEER LAKE DR E, 3RD FLOOR JACKSONVILLE, FL 32246 | 44,249.89 | 8.65 |
Ivy International Small Companies Fund - Class B | MLPF&S FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTN: FUND ADMINISTRATION 4800 DEER LAKE DR. E, 3RD FLOOR JACKSONVILLE, FL 32246 | 52,422.24 | 25.16 |
Ivy US Blue Chip Fund - Class B | MLPF&S FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTN: FUND ADMINISTRATION 4800 DEER LAKE DR. E, 3RD FLOOR JACKSONVILLE, FL 32246 | 245,247.50 | 21.34 |
Ivy US Emerging Growth Fund - Class B | MLPF&S FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTN: FUND ADMINISTRATION 4800 DEER LAKE DR. E, 3RD FLOOR JACKSONVILLE, FL 32246 | 126,954.59 | 16.98 |
Ivy Bond Fund - Class C | MLPF&S FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTN: FUND ADMINISTRATION 4800 DEER LAKE DR. E, 3RD FLOOR JACKSONVILLE, FL 32246 PRUDENTIAL SECURITES INC FBO MARKS SECURITIES LLC 104 N WOODSTOCK ST PHILADELPHIA, PA 19103-1111 | 103,017.19 15,086.68 | 40.76 5.96 |
Ivy Developing Markets Fund - Class C | MLPF&S FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTN: FUND ADMINISTRATION 4800 DEER LAKE DR. E, 3RD FLOOR JACKSONVILLE, FL 32246 PERSHING LLC P.O. BOX 2052 JERSEY CITY, NJ 07303-9998 | 22,107.83 7,301.27 | 30.42 10.04 |
Ivy Growth Fund - Class C | FIRST PRESBYTERIAN CHURCH OF MCALESTER A NON PROFIT CORPORATION PO BOX 1550 222 E WASHINGTON MCALESTER, OK 74502-1550 DEAN WITTER REYNOLDS CUST FOR JUDITH GLASSBERG PO BOX 250 CHURCH STREET STATION NEW YORK, IL 60614-1971 DEAN WITTER REYNOLDS CUST FOR NORMAN GLASSBERG PO BOX 250 CHURCH STREET STATION NEW YORK, IL 60614-1971 ROBERT J LAWS & KATHERINE A LAWS TTEES THE LAWS FAMILY TRUST U/A DTD 11/06/2001 P.O. BOX 723 RAMONA, CA 92065 SALOMON SMITH BARNEY INC. 00121013039 333 WEST 34TH ST - 3RD FLOOR NEW YORK, NY 10001 IBT CUST IRA FBO BETTY J CARSON 201 POINT SAL DUNES WAY GUADALUPE, CA 93434 | 3,693.88 3,141.09 3,141.09 2,756.89 1,743.39 1,502.45 | 13.46 11.45 11.45 10.05 6.35 5.47 |
Ivy Global Fund - Class C | MLPF&S FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTN: FUND ADMINISTRATION 4800 DEER LAKE DR. E, 3RD FLOOR JACKSONVILLE, FL 32246 PAINEWEBBER FOR THE BENEFIT OF USB PAINEWEBBER CDN FBO EVE GARRETT P.O. BOX 3321 WEEHAWKEN, NJ 07086-8154 SALOMON SMITH BARNEY INC. 00121066732 333 WEST 34TH ST - 3RD FLOOR NEW YORK, NY 10001 SMITH BARNEY INC. 00107866133 388 GREENWICH STREET NEW YORK, NY 10013 SMITH BARNEY INC. 00112701249 388 GREENWICH STREET NEW YORK, NY 10013 | 3,506.47 1,307.19 1,177.86 1,041.02 982.07 | 35.79 13.34 12.02 10.62 10.02 |
Ivy Global Science & Technology Fund - Class C | MERRILL LYNCH PIERCE FENNER & SMITH INC. MUTUAL FUND OPERATIONS - SERVICE TEAM 4800 DEER LAKE DR. E, 3RD FLOOR JACKSONVILLE, FL 32246 PAINEWEBBER FOR THE BENEFIT OF GREAT POND LIMITED PARNERTSHIP L L L P 1046 GREAT POND ROAD NO. ANDOVER, MA 01845-1204 | 16,869.62 6,197.20 | 14.06 5.16 |
Ivy International Small Companies Fund - Class C | MLPF&S FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTN: FUND ADMINISTRATION 4800 DEER LAKE DR. E, 3RD FLOOR JACKSONVILLE, FL 32246 IBT CUST IRA FBO TERRY K RAMNANAN 7459 N MONTE AVENUE FRESNO, CA 93711 | 77,795.96 11,468.73 | 54.87 8.08 |
Ivy US Blue Chip Fund - Class C | MLPF&S FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTN: FUND ADMINISTRATION 4800 DEER LAKE DR. E, 3RD FLOOR JACKSONVILLE, FL 32246 AG EDWARDS & SONS CUSTODIAN FOR DIANA H. PROSS ROLLOVER IRA ACCOUNT 1705 S 170TH ST. OMAHA, NE 68130-1204 AG EDWARDS & SONS CUSTODIAN FOR TERRY D O’NEALL IRA ACCOUNT 5 SINGLETON CIRCLE BELLA VISTA, AR 72715-4942 SALOMON SMITH BARNEY INC. 00121018626 333 WEST 34TH ST - 3RD FLOOR NEW YORK, NY 10001 SALOMON SMITH BARNEY INC. 00121067244 333 WEST 34TH ST - 3RD FLOOR NEW YORK, NY 10001 | 15,575.86 5,370.36 4,884.87 4,316.03 3,615.91 | 24.62 8.48 7.72 6.82 5.71 |
Ivy US Emerging Growth Fund - Class C | MLPF&S FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTN: FUND ADMINISTRATION 4800 DEER LAKE DR. E, 3RD FLOOR JACKSONVILLE, FL 32246 FIRST CLEARING CORPORATION A/C 3109-0705 ROBERT FEINBERG AND HARRIET FEINBERG JTWROS 1824 BYBERRY RD BENSALEM, PA 19020-4455 | 31,275.34 9,162.45 | 32.80 9.61 |
Ivy Bond Fund - Advisor Class | WEDBUSH MORGAN SECURITIES A/C 7008-4781 1000 WILSHIRE BLVD. LOS ANGELES, CA 90017 FISERV SECURITIES INC. FAO 55516053 ATTN: MUTUAL FUNDS ONE COMMERCE SQUARE 2005 MARKET STREET SUITE 1200 PHILADELPHIA, PA 19103 FISERV SECURITIES INC. FAO 55884696 ATTN: MUTUAL FUNDS ONE COMMERCE SQUARE 2005 MARKET STREET SUITE 1200 PHILADELPHIA, PA 19103 NFSC FEBO # 279-055662 C/JAMES FERRIS/BRO B YANOWITCH/J BROADFOOT TTES U/A 01/01/98 925 S FEDERAL HWY STE 600 BOCA RATON, FL 33432-6143 | 151,063.49 23,626.56 16,355.15 15,223.81 | 63.45 9.92 6.86 6.39 |
Ivy Developing Markets Fund - Advisor Class | NFSC FEBO #279-055662 C/JAMES FERRIS/BRO B YANOWITCH/J BROADFOOT TTES U/A 01/01/98 925 S FEDERAL HWY STE 600 BOCA RATON, FL 33432-6143 IBT CUST ROTH IRA FBO SLADE KOSOVA 7445 TEXAS TRAIL BOCA RATON, FL 33487 | 4,421.19 1,393.36 | 75.97 23.94 |
Ivy Growth Fund - Advisor Class | NFSC FEBO C/JAMES FERRIS/BRO B YANOWITCH/J BROADFOOT TTES U/A 01/01/98 925 S FEDERAL HWY STE 600 BOCA RATON, FL 33432-6143 GEORGE A DEVINO 12331 NW 53RD STREET CORAL SPRINGS, FL 33076 | 9,110.24 905.35 | 89.72 8.91 |
Ivy Global Fund - Advisor Class | EDWARD A VOGT & ANN B VOGT JT TEN 32103 MILLINGTON RD MILLINGTON, MD 21651 NFSC FEBO #279-055662 C/JAMES FERRIS/BRO B YANOWITCH/J BROADFOOT TTES U/A 01/01/98 925 S FEDERAL HWY STE 600 BOCA RATON, FL 33432-6143 | 3,768.00 3,567.65 | 49.84 47.19 |
Ivy Global Science & Technology Fund - Advisor Class | NFSC FEBO #279-055662 C/JAMES FERRIS/BRO B YANOWITCH/J BROADFOOT TTES U/A 01/01/98 925 S FEDERAL HWY STE 600 BOCA RATON, FL 33432-6143 ROBERT CHAPIN & MICHELLE BROADFOOT TTEE OF THE NELLA MANES TRUST U/A/D 04/09/92 117 THATCH PALM COVE BOCA RATON, FL 33432 MICHELLE C BROADFOOT 117 THATCH PALM COVE BOCA RATON, FL 33432 LPL FINANCIAL SERVICES A/C 3989-2389 9785 TOWNE CENTRE DRIVE SAN DIEGO, CA 92121-1968 LPL FINANCIAL SERVICES A/C 7129-4679 9785 TOWNE CENTRE DRIVE SAN DIEGO, CA 92121-1968 | 4,972.06 3,321.39 1,074.98 748.94 724.49 | 35.19 23.50 7.60 5.30 5.12 |
Ivy International Small Companies Fund - Advisor Class | MLPF&S FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTN: FUND ADMINISTRATION 4800 DEER LAKE DR E, 3RD FLOOR JACKSONVILLE, FL 32246 NFSC FEBO #279-055662 C/JAMES FERRIS/BRO B YANOWITCH/J BROADFOOT TTES U/A 01/01/98 925 S FEDERAL HWY STE 600 BOCA RATON, FL 33432-6143 | 29,375.99 5,093.63 | 83.42 14.46 |
Ivy US Blue Chip Fund - Advisor Class | MACKENZIE INVESTMENT MGMT INC. ATTN: BEV YANOWITCH VIA MIZNER FINANCIAL PLAZA 925 S FEDERAL HWY STE 600 BOCA RATON, FL 33432 NFSC FEBO C/JAMES FERRIS/BRO B YANOWITCH/J BRAODFOOT TTES UA 01/01/98 925 S FEDERAL HWY STE 600 BOCA RATON, FL 33432 | 51,179.70 19,553.61 | 72.35 27.64 |
Ivy US Emerging Growth Fund - Advisor Class | NFSC FEBO #279-055662 C/JAMES FERRIS/BRO B YANOWITCH/J BROADFOOT TTES U/A 01/01/98 925 S FEDERAL HWY STE 600 BOCA RATON, FL 33432-6143 CHARLES SCHWAB & CO. INC. REINVEST ACCOUNT ATTN: MUTUAL FUND DEPT. 101 MONTGOMERY STREET SAN FRANCISCO, CA 94104 JAMES W. BROADFOOT & DOUGLAS E BROADFOOT & MARY BROADFOOT TTEE OF THE U/W JAMES W. BROADFOOT TRUST 117 THATCH PALM COVE BOCA RATON, FL 33432 | 10,271.07 4,208.39 1,247.54 | 46.93 19.23 5.70 |
INVESTMENT ADVISORY AND OTHER SERVICES
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES
Waddell & Reed Ivy Investment Company ("WRIICO"), 6300 Lamar Avenue,
P.O. Box 29217, Shawnee Mission, KS 66201-9217, provides business
management services and investment advisory services to the Funds. WRIICO
is an SEC registered investment advisor with approximately $1.6 billion in
assets under management as of December 31, 2002.
Until December 31, 2002, Ivy Management, Inc. ("IMI") provided
business management services to the Funds and investment advisory services
to the Funds. On December 31, 2002, IMI, an indirect wholly owned
subsidiary of Waddell & Reed Financial, Inc. ("Waddell & Reed") and a
wholly owned subsidiary of Ivy Acquisition Corporation ("IAC"), merged
with and into IAC, a wholly owned subsidiary of Waddell & Reed. Upon
effectiveness of the merger, IAC changed its name to Waddell & Reed Ivy
Investment Company ("WRIICO").
Effective December 31, 2002, WRIICO assumed all of IMI's duties with
respect to the Funds and began providing business management services to
the Funds and investment advisory services to all Funds other than Ivy
Global Natural Resources Fund. The terms and conditions of the agreements
under which WRIICO provides those services to the Funds are exactly the
same as the terms and conditions of the agreements in effect prior to
December 31, 2002 between the Funds and IMI. IMI employees or officers who
were serving as portfolio managers of the Funds, if any, continue to serve as
portfolio managers of the Funds after the merger, as employees or officers
of WRIICO. Each of the portfolio managers who was an employee or officer
of IMI, if any, has the same title with WRIICO as he or she had with IMI.
The new agreements are substantially identical in all respects to the
agreements in effect prior to December 16, 2002 except for the dates of
execution and termination and other non-material changes, with the
exception of the new agreements between WRIICO, Henderson Global Investors
(North America) Inc. ("HGINA") and Henderson Investment Management Ltd.
("Henderson") with respect to Ivy European Opportunities Fund and Ivy
International Small Companies Fund (the "New Henderson Agreements"). Under
the New Henderson Agreements, HGINA will act as subadviser to WRIICO for
these two Funds. Henderson, the two Funds' former subadviser, continues as
a subadviser, but pursuant to a subadvisory agreement with HGINA instead
of with WRIICO. The New Henderson Agreements also increased the
subadvisory fee rates that WRIICO pays to HGINA for the subadvisory
services (although the overall advisory fee rates each of the two Funds
pays for advisory services has not changed). Under the New Henderson
Agreements, WRIICO pays HGINA for its services a fee payable monthly at an
annual rate of 0.45% of the first $100,000,000 of net assets and 0.40%
thereafter of the portion of each Fund's average daily net assets managed
by HGINA. Henderson's existing portfolio management team continues to
manage these two Funds.
Henderson, 4 Broadgate, London, England EC2M 2DA, serves as
subadvisor to Ivy International Small Companies Fund. For its services,
Henderson receives a fee from WRIICO that is equal, on an annual basis, to
0.22% of each Fund's average net assets. Henderson is a wholly owned
subsidiary of Henderson plc, located at the same address as Henderson.
Henderson plc is a wholly owned subsidiary of AMP Limited, an Australian
life insurance and financial services company located at AMP Building, 24th
Floor, 33 Alfred Street, Sydney, New South Wales 2000 Australia.
The Agreement between WRIICO and the Funds obligates WRIICO to make
investments for the account of each Fund in accordance with its best
judgment and within the investment objectives and restrictions set forth in
the Prospectus, the 1940 Act and the provisions of the Code relating to
regulated investment companies, subject to policy decisions adopted by the
Board. WRIICO also determines the securities to be purchased or sold by
each Fund and places orders with brokers or dealers who deal in such
securities.
Under the Agreement, WRIICO also provides certain business management
services. WRIICO is obligated to (1) coordinate with each Fund's Custodian
and monitor the services it provides to each Fund; (2) coordinate with and
monitor any other third parties furnishing services to each Fund;
(3) provide each Fund with necessary office space, telephones and other
communications facilities as are adequate for the Fund's needs;
(4) provide the services of individuals competent to perform
administrative and clerical functions that are not performed by employees
or other agents engaged by each Fund or by WRIICO acting in some other
capacity pursuant to a separate agreement or arrangements with each Fund;
(5) maintain or supervise the maintenance by third parties of such books
and records of the Trust as may be required by applicable Federal or state
law; (6) authorize and permit WRIICO's directors, officers and employees
who may be elected or appointed as trustees or officers of the Trust to
serve in such capacities; and (7) take such other action with respect to
the Trust, after approval by the Trust as may be required by applicable
law, including without limitation the rules and regulations of the SEC and
of state securities commissions and other regulatory agencies.
Ivy Bond Fund pays WRIICO a monthly fee for providing business
management and investment advisory services at an annual rate of 0.50% of
the first $500 million of the Fund's average net assets, reduced to 0.40%
of the Fund's average net assets in excess of $500 million. During the
fiscal years ended December 31, 2000, 2001, and 2002, Ivy Bond Fund paid
IMI fees of $563,599, $332,360 and $270,234, respectively. During the same
periods, there were no expense reimbursements.
Ivy Developing Markets pays WRIICO a monthly fee for providing
business management and investment advisory services at an annual rate of
1.00% of the Fund's average net assets. During the fiscal years ended
December 31, 2000, 2001, and 2002, Ivy Developing Markets Fund paid IMI
fees of $147,842, $69,023 and $53,057, respectively. During the same
periods, IMI reimbursed Fund expenses in the amount of $204,372, $148,768
and $130,561, respectively.
Ivy Global Fund pays WRIICO a monthly fee for providing business
management and investment advisory services at an annual rate of 1.00% of
the Fund's average net assets During the fiscal years ended December 31,
2000, 2001, and 2002, Ivy Global Fund paid IMI fees of $163,977, $97,794
and $61,356, respectively. During the same periods, IMI reimbursed Fund
expenses in the amount of $153,851, $202,092 and $137,953, respectively.
Ivy Global Science & Technology Fund pays WRIICO a monthly fee for
providing business management and investment advisory services at an
annual rate of 1.00% of the Fund's average net assets During the fiscal
years ended December 31, 2000, 2001, and 2002, Ivy Global Science &
Technology Fund paid IMI fees of $1,119,519, $415,731 and $167,880,
respectively. During the same periods, IMI reimbursed Fund expenses in the
amount of $0, $106,670 and $197,902, respectively.
Ivy Growth Fund Pays WRIICO a monthly fee for providing business
management and investment advisory services that is equal, on an annual
basis, to 0.85% of the first $350 million of the Fund's average net
assets, reduced to 0.75% on its average net assets in excess of $350
million. During the fiscal years ended December 31, 2000, 2001 and 2002,
Ivy Growth Fund paid IMI fees of $3,041,015, $1,857,265, and $1,232,314
respectively. During the same periods, there were no expense
reimbursements.
From February 1, 1999 to November 6, 2000, Henderson served as
subadvisor with respect to 50% of the net assets of Ivy International
Small Companies Fund. Since November 7, 2000, Henderson has served as
subadvisor with respect to 100% of the net assets of Ivy International
Small Companies Fund. For its services, Henderson receives a fee from
WRIICO that is equal, on an annual basis, to 0.22% of that portion of the
Fund's assets that Henderson manages. During the fiscal years ended
December 31, 2000, 2001, and 2002, Ivy International Small Companies Fund
paid IMI fees of $109,655, $172,723 and $71,997, respectively. During the
same periods, IMI reimbursed Fund expenses in the amount of $167,518,
$156,893 and $166,048, respectively.
Ivy US Blue Chip Fund pays WRIICO a monthly fee for providing
business management and investment advisory services at an annual rate of
0.75% of the Fund's average net assets. During the fiscal years ended
December 31, 2000, 2001 and 2002, Ivy US Blue Chip Fund paid IMI fees of
$390,662, $497,756, and $355,192, respectively. During the same periods,
IMI reimbursed Fund expenses in the amount of $126,188, $179,897, and
$238,824, respectively.
Ivy US Emerging Growth Fund pays WRIICO a monthly fee for providing
business management and investment advisory services at an annual rate of
0.85% of the Fund's average net assets. During the fiscal years ended
December 31, 2000, 2001 and 2002, Ivy US Emerging Growth Fund paid IMI
fees of $1,711,602, $902,288, and $397,693, respectively. During the same
periods, there were no expense reimbursements.
Under the Agreement, the Trust pays the following expenses: (1) the
fees and expenses of the Trust's Independent Trustees; (2) the salaries
and expenses of any of the Trust's officers or employees who are not
affiliated with WRIICO; (3) interest expenses; (4) taxes and governmental
fees, including any original issue taxes or transfer taxes applicable to
the sale or delivery of shares or certificates therefor; (5) brokerage
commissions and other expenses incurred in acquiring or disposing of
portfolio securities; (6) the expenses of registering and qualifying
shares for sale with the SEC and with various state securities
commissions; (7) accounting and legal costs; (8) insurance premiums; (9)
fees and expenses of the Trust's Custodian and Transfer Agent and any
related services; (10) expenses of obtaining quotations of portfolio
securities and of pricing shares; (11) expenses of maintaining the Trust's
legal existence and of shareholders' meetings; (12) expenses of
preparation and distribution to existing shareholders of periodic reports,
proxy materials and prospectuses; and (13) fees and expenses of membership
in industry organizations.
With respect to Ivy Developing Markets Fund, Ivy Global Fund, Ivy
International Small Companies Fund and Ivy US Blue Chip Fund, WRIICO
currently limits each Fund's total operating expenses (excluding Rule 12b-1
fees, interest, taxes, brokerage commissions, litigation, class-specific
expenses, indemnification expenses, and extraordinary expenses) to an
annual rate of 2.50% of that Fund's average net assets, which may lower
each Fund's expenses and increase its yield.
The Agreement may be terminated with respect to each Fund at any
time, without payment of any penalty, by the vote of a majority of the
Board, or by a vote of a majority of the outstanding voting securities of
the Fund, on 60 days' written notice to WRIICO, or by WRIICO on 60 days'
written notice to the Trust. The Agreement shall terminate automatically
in the event of its assignment (as defined in the 1940 Act).
In approving the investment advisory agreement, the Board considered a
number of factors, including: (1) Waddell & Reed's organizational structure
and senior personnel; (2) Waddell & Reed's operations and, in particular,
its mutual fund advisory and distribution activities; and (3) the
personnel, operations and financial condition, and investment management
capabilities, methodologies, and performance of WRIICO as investment
adviser and manager to the Funds.
Based upon their review and consideration of the factors described
above, and such other factors and information it considered relevant, the
Board recognized that the Fund's investment manager is deemed to owe a
fiduciary duty to each Fund and approved the investment advisory
agreement.
In approving the subadvisory agreement, the Board considered (1) the
fees paid by Ivy European Opportunities Fund and Ivy International Small
Companies Fund and the terms of the business management and investment
advisory agreement between the Funds and the Fund's investment manager and
the subadvisory agreement between the Fund's investment manager and
Henderson; (2) the services that the Fund's investment manager performs
under the management agreement and the investment advisory services that
Henderson performs for the Funds under the subadvisory agreement; and (3)
that the Fund's investment manager continues to be ultimately responsible
for Henderson's compliance with each Fund's investment objective and
policies and applicable securities laws, and is also responsible for the
selection of the subadviser and monitoring its performance, as well as the
overall success or failure of each Fund.
Based upon their review and consideration of the factors described
above, and such other factors and information it considered relevant, the
Board recognized that Henderson is deemed to owe a fiduciary duty to each
Fund and approved the subadvisory agreement.
DISTRIBUTION SERVICES
IFDI, a wholly owned subsidiary of WRIICO, formerly known as Ivy
Mackenzie Distributors, Inc., serves as the exclusive distributor of Ivy
Fund's shares pursuant to an Amended and Restated Distribution Agreement
with the Trust dated March 16, 1999, as amended from time to time (the
"Distribution Agreement"). IFDI distributes shares of each Fund through
broker-dealers who are members of the National Association of Securities
Dealers, Inc. and who have executed dealer agreements with IFDI. IFDI
distributes shares of each Fund on a continuous basis, but reserves the
right to suspend or discontinue distribution on that basis. IFDI is not
obligated to sell any specific amount of Fund shares.
Each Fund has authorized IFDI to accept on its behalf purchase and
redemption orders. IFDI is also authorized to designate other
intermediaries to accept purchase and redemption orders on each Fund's
behalf. Each Fund will be deemed to have received a purchase or redemption
order when an authorized intermediary or, if applicable, an intermediary's
authorized designee, accepts the order. Client orders will be priced at
the Fund's Net Asset Value next computed after an authorized intermediary
or the intermediary's authorized designee accepts them.
Pursuant to the Distribution Agreement, IFDI is entitled to deduct a
commission on all Class A Fund shares sold equal to the difference, if
any, between the public offering price, as set forth in each Fund's then-
current prospectus, and the net asset value on which such price is based.
Out of that commission, IFDI may reallow to dealers such concessions as
IFDI may determine from time to time. In addition, IFDI is entitled to
deduct a CDSC on the redemption of Class A shares sold without an initial
sales charge and Class B and Class C shares, in accordance with, and in
the manner set forth in, the Prospectus.
Under the Distribution Agreement, each Fund bears, among other
expenses, the expenses of registering and qualifying its shares for sale
under Federal and state securities laws and preparing and distributing to
existing shareholders periodic reports, proxy materials and prospectuses.
During the fiscal years ended December 31, 2000, 2001, and 2002, IFDI
received from sales of Class A shares of Ivy Bond Fund $33,783 and
$20,231, and $13,291, respectively, in sales commissions, of which $4,302,
$4,228, and $2,856, respectively, was retained after dealer allowance.
During the fiscal year ended December 31, 2002, IMI on behalf of IFDI
received $37,498 in CDSCs on redemptions of Class B shares of Ivy Bond
Fund. During the fiscal year ended December 31, 2002, IMI on behalf of
IFDI received $7,318 in CDSCs on redemptions of Class C shares of Ivy Bond
Fund.
During the fiscal years ended December 31, 2000, 2001, and 2002, IFDI
received from sales of Class A shares of Ivy Developing Markets Fund
$4,060, $1,571 and $1,615, respectively, in sales commissions, of which
$498, $247, and $233, respectively, was retained after dealer allowance.
During the fiscal year ended December 31, 2002, IMI on behalf of IFDI
received $6,348 in CDSCs on redemptions of Class B shares of Ivy
Developing Markets Fund. During the fiscal year ended December 31, 2002,
IMI on behalf of IFDI received $0 in CDSCs on redemptions of Class C
shares of Ivy Developing Markets.
During the fiscal years ended December 31, 2000, 2001, and 2002, IFDI
received from sales of Class A shares of Ivy Global Fund $7,354, $2,842
and $2,017, respectively, in sales commissions, of which $1,131, $452, and
$301, respectively, was retained after dealer allowance. During the fiscal
year ended December 31, 2002, IMI on behalf of IFDI received $2,646 in
CDSCs on redemptions of Class B shares of Ivy Global Fund. During the
fiscal year ended December 31, 2002, IMI on behalf of IFDI received $940
in CDSCs on redemptions of Class C shares of Ivy Global Fund.
During the fiscal years ended December 31, 2000, 2001, and 2002, IFDI
received from sales of Class A shares of Ivy Global Science & Technology
Fund $404,324, $71,362, and $26,112, respectively, in sales commissions,
of which $54,216, $10,413, and $4,494, respectively, was retained after
dealer allowance. During the fiscal year ended December 31, 2002, IMI on
behalf of IFDI received $23,952 in CDSCs on redemptions of Class B shares
of Ivy Global Science & Technology Fund. During the fiscal year ended
December 31, 2002, IMI on behalf of IFDI received $150 in CDSCs on
redemptions of Class C shares of Ivy Global Science & Technology Fund.
During the fiscal years ended December 31, 2000, 2001, and 2002, IFDI
received from sales of Class A shares of Ivy Growth Fund $111,676,
$67,933, and $54,741, respectively, in sales commissions, of which
$15,235, $12,009, and $6,343, respectively, was retained after dealer
allowance. During the fiscal year ended December 31, 2002, IMI on behalf
of IFDI received $4,246 in CDSCs on redemptions of Class B shares of Ivy
Growth Fund. During the fiscal year ended December 31, 2002, IMI on behalf
of IFDI received $7 in CDSCs on redemptions of Class C shares of Ivy
Growth Fund.
During the fiscal years ended December 31, 2000, 2001, and 2002, IFDI
received from sales of Class A shares of Ivy International Small Companies
Fund $140,497, $12,188, and $2,329, respectively, in sales commissions, of
which $17,200, $2,017, and $347, respectively, was retained after dealer
allowance. During the fiscal year ended December 31, 2002, IMI on behalf
of IFDI received $12,693 in CDSCs on redemptions of Class B shares of Ivy
International Small Companies Fund. During the fiscal year ended December
31, 2002, IMI on behalf of IFDI received $151 in CDSCs on redemptions of
Class C shares of Ivy International Small Companies Fund.
During the fiscal years ended December 31, 2000, 2001, and 2002,
IFDI received from sales of Class A shares of Ivy US Blue Chip Fund
$39,484, $28,365, and $12,287, respectively, in sales commissions, of
which $5,219, $4,203 and $1,846 respectively, was retained after dealer
allowance. During the fiscal year ended December 31, 2002, IMI on behalf
of IFDI received $30,480 in CDSCs on redemptions of Class B shares of Ivy
US Blue Chip Fund. During the fiscal year ended December 31, 2002, IMI on
behalf of IFDI received $100 in CDSCs on redemptions of Class C shares of
Ivy US Blue Chip Fund.
During the fiscal years ended December 31, 2000, 2001, and 2002, IFDI
received from sales of Class A shares of Ivy US Emerging Growth Fund
$225,396, $23,617 and $34,289 respectively, in sales commissions, of which
$35,768, $4,218 and $5,499 respectively, was retained after dealer
allowance. During the fiscal year ended December 31, 2002, IMI on behalf
of IFDI received $39,881 in CDSCs on redemptions of Class B shares of Ivy
US Emerging Growth Fund. During the fiscal year ended December 31, 2002,
IMI on behalf of IFDI received $1,084 in CDSCs on redemptions of Class C
shares of Ivy US Emerging Growth Fund.
The Distribution Agreement will continue in effect for successive
one-year periods, provided that such continuance is specifically approved
at least annually by the vote of a majority of the Independent Trustees,
cast in person at a meeting called for that purpose and by the vote of
either a majority of the entire Board or a majority of the outstanding
voting securities of each Fund. The Distribution Agreement may be
terminated with respect to any Fund at any time, without payment of any
penalty, by IFDI on 60 days' written notice to the Fund or by the Fund by
vote of either a majority of the outstanding voting securities of the Fund
or a majority of the Independent Trustees on 60 days' written notice to
IFDI. The Distribution Agreement shall terminate automatically in the
event of its assignment.
Payments to Dealers: WRIICO on behalf of IFDI currently intends to
pay to dealers a sales commission of 4% of the sale price of Class B
shares they have sold, and WRIICO or one of its subsidiaries will receive
the entire amount of the CDSC paid by shareholders on the redemption of
Class B shares to finance the 4% commission and related marketing
expenses. With respect to Class C shares, WRIICO on behalf of IFDI
currently intends to pay to dealers a sales commission of 1% of the sale
price of Class C shares that they have sold, a portion of which is to
compensate the dealers for providing Class C shareholder account services
during the first year of investment. WRIICO or one of its subsidiaries
will receive the entire amount of the CDSC paid by shareholders on the
redemption of Class C shares to finance the 1% commission and related
marketing expenses.
RULE 18f-3 PLAN. On February 23, 1995, the SEC adopted Rule 18f-3
under the 1940 Act, which permits a registered open-end investment company
to issue multiple classes of shares in accordance with a written plan
approved by the investment company's board of directors/trustees and filed
with the SEC. The Board has adopted a Rule 18f-3 plan on behalf of each
Fund. The key features of the Rule 18f-3 plan are as follows: (i) shares
of each class of each Fund represent an equal pro rata interest in the
Fund and generally have identical voting, dividend, liquidation, and other
rights, preferences, powers, restrictions, limitations, qualifications,
terms and conditions, except that each class bears certain class-specific
expenses and has separate voting rights on certain matters that relate
solely to that class or in which the interests of shareholders of one
class differ from the interests of shareholders of another class;
(ii) subject to certain limitations described in the Prospectus, shares of
a particular class of each Fund may be exchanged for shares of the same
class of another Ivy fund; and (iii) each Fund's Class B shares will
convert automatically into Class A shares of that Fund after a period of
eight years, based on the relative net asset value of such shares at the
time of conversion.
RULE 12b-1 DISTRIBUTION PLANS.
The Trust has adopted on behalf of each Fund, in accordance with
Rule 12b-1 under the 1940 Act, separate Rule 12b-1 distribution plans
pertaining to each Fund's Class A, Class B and Class C shares (each, a
"Plan"). In adopting each Plan, a majority of the Independent Trustees
have concluded in accordance with the requirements of Rule 12b-1 that
there is a reasonable likelihood that each Plan will benefit each Fund and
its shareholders. The Trustees of the Trust believe that the Plans should
result in greater sales and/or fewer redemptions of each Fund's shares,
although it is impossible to know for certain the level of sales and
redemptions of the Fund's shares in the absence of a Plan or under an
alternative distribution arrangement.
Under each Plan, each Fund pays IFDI a service fee, accrued daily and
paid monthly, at the annual rate of up to 0.25% of the average daily net
assets attributable to its Class A, Class B or Class C shares, as the case
may be. This fee is a reimbursement to IFDI for service fees paid by IFDI
to non-affiliated entities or to affiliated brokers. The services for
which service fees may be paid include, among other things, advising
clients or customers regarding the purchase, sale or retention of shares
of each Fund, answering routine inquiries concerning the Fund and
assisting shareholders in changing options or enrolling in specific plans.
Pursuant to each Plan, service fee payments made out of or charged against
the assets attributable to a Fund's Class A, Class B or Class C shares
must be in reimbursement for services rendered for or on behalf of the
affected class. The expenses not reimbursed in any one month may be
reimbursed in a subsequent month. The Class A Plan does not provide for
the payment of interest or carrying charges as distribution expenses.
Class A shares of the Ivy Growth Fund and Ivy US Blue Chip Fund issued
prior to January 1, 1992 are not subject to an ongoing service fee. For
those Funds, the annual service fee attributable to the Class A shares of
the Fund may equal up to 0.25% of the net assets attributable to Class A
shares issued on or after January 1, 1992. Since the calculation of the
service fee does not take into account shares outstanding prior to January
1, 1992, this arrangement results in a rate of service fee payable by each
Fund that is lower than 0.25% of the net assets attributable to Class A
shares of the Fund. For the fiscal year ended December 31, 2002, the
combined service fees were 0.06% and 0.21% of the average net assets
attributable to Class A shares of the Ivy Growth Fund and Ivy US Blue Chip
Fund, respectively.
Under each Fund's Class B and Class C Plans, each Fund also pays IFDI
a distribution fee, accrued daily and paid monthly, at the annual rate of
0.75% of the average daily net assets attributable to its Class B or Class
C shares. This fee is paid to IFDI as compensation and is not dependent on
IFDI's expenses incurred. IFDI may reallow to dealers all or a portion of
the service and distribution fees as IFDI may determine from time to time.
The distribution fee compensates IFDI for expenses incurred in connection
with activities primarily intended to result in the sale of each Fund's
Class B or Class C shares, including the printing of prospectuses and
reports for persons other than existing shareholders and the preparation,
printing and distribution of sales literature and advertising materials.
Pursuant to each Class B and Class C Plan, IFDI may include interest,
carrying or other finance charges in its calculation of distribution
expenses, if not prohibited from doing so pursuant to an order of or a
regulation adopted by the SEC.
Among other things, each Plan provides that (1) IFDI will submit to
the Board at least quarterly, and the Trustees will review, written
reports regarding all amounts expended under the Plan and the purposes for
which such expenditures were made; (2) each Plan will continue in effect
only so long as such continuance is approved at least annually, and any
material amendment thereto is approved, by the votes of a majority of the
Board, including the Independent Trustees, cast in person at a meeting
called for that purpose; (3) payments by any Fund under each Plan shall
not be materially increased without the affirmative vote of the holders of
a majority of the outstanding shares of the relevant class; and (4) while
each Plan is in effect, the selection and nomination of Independent
Trustees, as defined below, shall be committed to the discretion of the
then current Independent Trustees.
IFDI may make payments for distribution assistance and for
administrative and accounting services from resources that may include the
management fees paid by each Fund. IFDI also may make payments (such as
the service fee payments described above) to unaffiliated broker-dealers,
banks, investment advisors, financial institutions and other entities for
services rendered in the distribution of a Fund's shares. To qualify for
such payments, shares may be subject to a minimum holding period. However,
no such payments will be made to any dealer or broker or other party if at
the end of each year the amount of shares held does not exceed a minimum
amount. The minimum holding period and minimum level of holdings will be
determined from time to time by IFDI.
A report of the amount expended pursuant to each Plan, and the
purposes for which such expenditures were incurred, must be made to the
Board for its review at least quarterly.
The Class B Plan and underwriting agreement permits IFDI to sell its
right to receive distribution fees under the Class B Plan and CDSCs to
third parties. WRIICO on behalf of IFDI enters into such transactions to
finance the payment of commissions to brokers at the time of sale and
other distribution-related expenses. The Trust has agreed that the
distribution fee will not be terminated or modified (including a
modification by change in the rules relating to the conversion of Class B
shares into shares of another class) for any reason (including a
termination of the underwriting agreement) except:
(i) to the extent required by a change in the 1940 Act, the rules or
regulations under the 1940 Act, or the Conduct Rules of the
NASD, in each case enacted, issued, or promulgated after March
16, 1999;
(ii) on a basis which does not alter the amount of the distribution
payments to IFDI computed with reference to Class B shares the
date of original issuance of which occurred on or before
December 31, 1998;
(iii) in connection with a Complete Termination (as defined in the
Class B Plan); or
(iv) on a basis determined by the Board of Trustees acting in good
faith so long as (a) neither the Trust nor any successor trust
or fund or any trust or fund acquiring a substantial portion of
the assets of the Trust (collectively, the "Affected Funds") nor
the sponsors of the Affected Funds pay, directly or indirectly,
as a fee, a trailer fee, or by way of reimbursement, any fee,
however denominated, to any person for personal services,
account maintenance services or other shareholder services
rendered to the holder of Class B shares of the Affected Funds
from and after the effective date of such modification or
termination, and (b) the termination or modification of the
distribution fee applies with equal effect to all outstanding
Class B shares from time to time of all Affected Funds
regardless of the date of issuance thereof.
In the Distribution Agreement, the Trust has also agreed that it will
not take any action to waive or change any CDSC in respect of any Class B
share the date of original issuance of which occurred on or before
December 31, 1998, except as provided in the Trust's prospectus or
statement of additional information, without the consent of IFDI and its
transferees.
During the fiscal year ended December 31, 2002, Ivy Bond Fund paid
IFDI $84,849 pursuant to its Class A plan. During the fiscal year ended
December 31, 2002, Ivy Bond Fund paid IFDI $177,437 pursuant to its Class
B plan. During the fiscal year ended December 31, 2002, Ivy Bond Fund paid
IFDI $20,523 pursuant to its Class C plan.
During the fiscal year ended December 31, 2002, IMI or IFDI
expended the following amounts in marketing Class A shares of Ivy Bond
Fund: advertising $974; printing and mailing of prospectuses to persons
other than current shareholders, $5,670; compensation to underwriters $0;
compensation to dealers, $14,272; compensation to sales personnel
$122,766; interest, carrying or other financing charges $0; seminars and
meetings, $3,568; travel and entertainment, $13,231; general and
administrative, $28,762; telephone, $3,374; and occupancy and equipment
rental, $15,562.
During the fiscal year ended December 31, 2002, IMI or IFDI
expended the following amounts in marketing Class B shares of Ivy Bond
Fund: advertising, $509; printing and mailing of prospectuses to persons
other than current shareholders, $2,984; compensation of underwriters $0;
compensation to dealers, $52,779; compensation to sales personnel,
$64,036; interest, carrying or other financing charges $0; seminars and
meetings, $13,195; travel and entertainment, $6,837; general and
administrative, $15,002; telephone, $1,756; and occupancy and equipment
rental $8,126.
During the fiscal year ended December 31, 2002, IMI or IFDI
expended the following amounts in marketing Class C shares of Ivy Bond
Fund: advertising, $60; printing and mailing of prospectuses to persons
other than current shareholders, $336; compensation to underwriters $0;
compensation to dealers, $14,087; compensation to sales personnel, $7,479;
interest, carrying or other financing charges $0; seminars and meetings,
$3,521; travel and entertainment, $798; general administrative, $1,759;
telephone, $205; and occupancy and equipment rental, $946.
During the fiscal year ended December 31, 2002, Ivy Developing
Markets Fund paid IFDI $6,667 pursuant to its Class A plan. During the
fiscal year ended December 31, 2002, Ivy Developing Markets Fund paid IFDI
$20,152 pursuant to its Class B plan. During the fiscal year ended
December 31, 2002, Ivy Developing Markets Fund paid IFDI $5,622 pursuant
to its Class C plan.
During the fiscal year ended December 31, 2002, IMI or IFDI
expended the following amounts in marketing Class A shares of Ivy
Developing Markets Fund: advertising $75; printing and mailing of
prospectuses to persons other than current shareholders, $467;
compensation to underwriters $0; compensation to dealers, $1,110;
compensation to sales personnel $9,541; interest, carrying or other
financing charges $0; seminars and meetings, $278; travel and
entertainment, $1,029; general and administrative, $2,217; telephone,
$261; and occupancy and equipment rental, $1,220.
During the fiscal year ended December 31, 2002, IMI or IFDI
expended the following amounts in marketing Class B shares of Ivy
Developing Markets Fund: advertising, $54; printing and mailing of
prospectuses to persons other than current shareholders, $336;
compensation of underwriters $0; compensation to dealers, $9,514;
compensation to sales personnel, $7,080; interest, carrying or other
financing charges $0; seminars and meetings, $2,378; travel and
entertainment, $794; general and administrative, $1,646; telephone, $196;
and occupancy and equipment rental, $901.
During the fiscal year ended December 31, 2002, IMI or IFDI
expended the following amounts in marketing Class C shares of Ivy
Developing Markets Fund: advertising, $16; printing and mailing of
prospectuses to persons other than current shareholders, $93; compensation
to underwriters $0; compensation to dealers, $583; compensation to sales
personnel, $2,003; interest, carrying or other financing charges $0;
seminars and meetings, $145; travel and entertainment, $220; general
administrative, $468; telephone, $55; and occupancy and equipment rental,
$255.
During the fiscal year ended December 31, 2002, Ivy Global Fund paid
IFDI $10,406 pursuant to its Class A plan. During the fiscal year ended
December 31, 2002, Ivy Global Fund paid IFDI $17,747 pursuant to its Class
B plan. During the fiscal year ended December 31, 2002, Ivy Global Fund
paid IFDI $1,182 pursuant to its Class C plan.
During the fiscal year ended December 31, 2002, IMI or IFDI
expended the following amounts in marketing Class A shares of Ivy Global
Fund: advertising $115; printing and mailing of prospectuses to persons
other than current shareholders, $701; compensation to underwriters $0;
compensation to dealers, $1,698; compensation to sales personnel $14,923;
interest, carrying or other financing charges $0; seminars and meetings,
$425; travel and entertainment, $1,672; general and administrative,
$3,473; telephone, $414; and occupancy and equipment rental, $1,897.
During the fiscal year ended December 31, 2002, IMI or IFDI
expended the following amounts in marketing Class B shares of Ivy Global
Fund: advertising, $47; printing and mailing of prospectuses to persons
other than current shareholders, $295; compensation of underwriters $0;
compensation to dealers, $5,265; compensation to sales personnel, $6,242;
interest, carrying or other financing charges $0; seminars and meetings,
$1,316; travel and entertainment, $723; general and administrative,
$1,447; telephone, $173; and occupancy and equipment rental, $793.
During the fiscal year ended December 31, 2002, IMI or IFDI
expended the following amounts in marketing Class C shares of Ivy Global
Fund: advertising, $4; printing and mailing of prospectuses to persons
other than current shareholders, $19; compensation to underwriters $0;
compensation to dealers, $179; compensation to sales personnel, $412;
interest, carrying or other financing charges $0; seminars and meetings,
$45; travel and entertainment, $46; general administrative, $96;
telephone, $11; and occupancy and equipment rental, $53.
During the fiscal year ended December 31, 2002, Ivy Global Science &
Technology Fund paid IFDI $20,504 pursuant to its Class A plan. During the
fiscal year ended December 31, 2002, Ivy Global Science & Technology Fund
paid IFDI $66,839 pursuant to its Class B plan. During the fiscal year
ended December 31, 2002, Ivy Global Science & Technology Fund paid IFDI
$16,780 pursuant to its Class C plan.
During the fiscal year ended December 31, 2002, IMI or IFDI
expended the following amounts in marketing Class A shares of Ivy Global
Science & Technology Fund: advertising $207; printing and mailing of
prospectuses to persons other than current shareholders, $1,344;
compensation to, underwriters $0; compensation to dealers, $3,046;
compensation to sales personnel $28,199; interest, carrying or other
financing charges $0; seminars and meetings, $762; travel and
entertainment, $3,443; general and administrative, $6,498; telephone,
$792; and occupancy and equipment rental, $3,581.
During the fiscal year ended December 31, 2002, IMI or IFDI
expended the following amounts in marketing Class B shares of Ivy Global
Science & Technology Fund: advertising, $164; printing and mailing of
prospectuses to persons other than current shareholders, $1,093;
compensation of underwriters $0; compensation to dealers, $123,405;
compensation to sales personnel, $22,773; interest, carrying or other
financing charges $0; seminars and meetings, $30,851; travel and
entertainment, $2,860; general and administrative, $5,229; telephone,
$642; and occupancy and equipment rental $2,892.
During the fiscal year ended December 31, 2002, IMI or IFDI
expended the following amounts in marketing Class C shares of Ivy Global
Science & Technology Fund: advertising, $40; printing and mailing of
prospectuses to persons other than current shareholders, $267;
compensation to underwriters $0; compensation to dealers, $2,020;
compensation to sales personnel, $5,747; interest, carrying or other
financing charges $0; seminars and meetings, $505; travel and
entertainment, $725; general administrative, $1,323; telephone, $163; and
occupancy and equipment rental, $727.
During the fiscal year ended December 31, 2002, Ivy Growth Fund paid
IFDI $79,323 pursuant to its Class A plan. During the fiscal year ended
December 31, 2002, Ivy Growth Fund paid WRIICO or IFDI $37,410 pursuant to
its Class B plan. During the fiscal year ended December 31, 2002, Ivy
Growth Fund paid WRIICO or IFDI $2,104 pursuant to its Class C plan.
During the fiscal year ended December 31, 2002, IMI or IFDI
expended the following amounts in marketing Class A shares of Ivy Growth
Fund: advertising $3,830; printing and mailing of prospectuses to persons
other than current shareholders, $23,433; compensation to underwriters $0;
compensation to dealers, $56,779; compensation to sales personnel
$496,408; interest, carrying or other financing charges $0 seminars and
meetings, $14,194; travel and entertainment, $55,938; general and
administrative, $115,413; telephone, $13,722; and occupancy and equipment
rental, $63,098.
During the fiscal year ended December 31, 2002, IMI or IFDI
expended the following amounts in marketing Class B shares of Ivy Growth
Fund: advertising, $96; printing and mailing of prospectuses to persons
other than current shareholders, $623; compensation to underwriters $0;
compensation to dealers, $30,259; compensation to sales personnel,
$12,804; interest, carrying or other financing charges $0; seminars and
meetings, $7,565; travel and entertainment, $1,520; general and
administrative, $2,951; telephone, $357; and occupancy and equipment
rental $1,633.
During the fiscal year ended December 31, 2002, IMI or IFDI
expended the following amounts in marketing Class C shares of Ivy Growth
Fund: advertising, $5; printing and mailing of prospectuses to persons
other than current shareholders, $32; compensation to underwriters $0;
compensation to dealers, $370; compensation to sales personnel, $718;
interest, carrying or other financing charges $0; seminars and meetings,
$92; travel and entertainment, $92; general administrative, $165;
telephone, $21; and occupancy and equipment rental, $90.
During the fiscal year ended December 31, 2002, Ivy International
Small Companies Fund paid IFDI $6,574 pursuant to its Class A plan. During
the fiscal year ended December 31, 2002, Ivy International Small Companies
Fund paid IFDI $22,835 pursuant to its Class B plan. During the fiscal
year ended December 31, 2002, Ivy US International Small Companies Fund
paid IFDI $16,659 pursuant to its Class C plan.
During the fiscal year ended December 31, 2002, IMI or IFDI
expended the following amounts in marketing Class A shares of Ivy
International Small Companies Fund: advertising $76; printing and mailing
of prospectuses to persons other than current shareholders, $441;
compensation to underwriters $0; compensation to dealers, $1,015;
compensation to sales personnel $10,006; interest, carrying or other
financing charges $0; seminars and meetings, $254; travel and
entertainment, $1,208; general and administrative, $2,331; telephone,
$282; and occupancy and equipment rental, $1,259.
During the fiscal year ended December 31, 2002, IMI or IFDI
expended the following amounts in marketing Class B shares of Ivy
International Small Companies Fund: advertising, $64; printing and mailing
of prospectuses to persons other than current shareholders, $391;
compensation of underwriters $0; compensation to dealers, $37,775;
compensation to sales personnel, $8,691; interest, carrying or other
financing charges $0; seminars and meetings, $9,444; travel and
entertainment, $1,039; general and administrative, $2,020; telephone,
$244; and occupancy and equipment rental, $1,097.
During the fiscal year ended December 31, 2002, IMI or IFDI
expended the following amounts in marketing Class C shares of Ivy
International Small Companies Fund: advertising, $48; printing and
mailing of prospectuses to persons other than current shareholders, $285;
compensation to underwriters $0; compensation to dealers, $2,747;
compensation to sales personnel, $6,320; interest, carrying or other
financing charges $0; seminars and meetings, $686; travel and
entertainment, $751; general administrative, $1,470; telephone, $177; and
occupancy and equipment rental, $798.
During the fiscal year ended December 31, 2002, Ivy US Blue Chip Fund
paid IFDI $66,022 pursuant to its Class A plan. During the fiscal year
ended December 31, 2002, Ivy US Blue Chip Fund paid IFDI $142,492 pursuant
to its Class B plan. During the fiscal year ended December 31, 2002, Ivy
US Blue Chip Fund paid IFDI $7,596 pursuant to its Class C plan.
During the fiscal year ended December 31, 2002, IMI or IFDI
expended the following amounts in marketing Class A shares of Ivy US Blue
Chip Fund: advertising $881; printing and mailing of prospectuses to
persons other than current shareholders, $5,393; compensation to
underwriters $0; compensation to dealers, $12,905; compensation to sales
personnel $113,208; interest, carrying or other financing charges $0;
seminars and meetings, $3,226; travel and entertainment, $12,533; general
and administrative, $26,334; telephone, $3,116; and occupancy and
equipment rental, $14,414.
During the fiscal year ended December 31, 2002, IMI or IFDI
expended the following amounts in marketing Class B shares of Ivy US Blue
Chip Fund: advertising, $381; printing and mailing of prospectuses to
persons other than current shareholders, $2,437; compensation of
underwriters $0; compensation to dealers, $77,933; compensation to sales
personnel, $50,029; interest, carrying or other financing charges $0;
seminars and meetings, $19,483; travel and entertainment, $5,734; general
and administrative, $11,568; telephone, $1,383; and occupancy and
equipment rental, $6,383.
During the fiscal year ended December 31, 2002, IMI or IFDI
expended the following amounts in marketing Class C shares of Ivy US Blue
Chip Fund: advertising, $19; printing and mailing of prospectuses to
persons other than current shareholders, $128; compensation to
underwriters $0; compensation to dealers, $923; compensation to sales
personnel, $2,643; interest, carrying or other financing charges $0;
seminars and meetings, $231; travel and entertainment, $321; general
administrative, $609; telephone, $74; and occupancy and equipment rental,
$336.
During the fiscal year ended December 31, 2002, Ivy US Emerging
Growth Fund paid IFDI $68,411 pursuant to its Class A plan. During the
fiscal year ended December 31, 2002, Ivy US Emerging Growth Fund paid IFDI
$163,675 pursuant to its Class B plan. During the fiscal year ended
December 31, 2002, Ivy US Emerging Growth Fund paid IFDI $23,569 pursuant
to its Class C plan.
During the fiscal year ended December 31, 2002, IMI or IFDI
expended the following amounts in marketing Class A shares of Ivy US
Emerging Growth Fund: advertising $700; printing and mailing of
prospectuses to persons other than current shareholders, $4,522;
compensation to underwriters $0; compensation to dealers, $10,249;
compensation to sales personnel $95,374; interest, carrying or other
financing charges $0; seminars and meetings, $2,562; travel and
entertainment, $11,731; general and administrative, $21,978; telephone,
$2,681; and occupancy and equipment rental, $12,100.
During the fiscal year ended December 31, 2002, IMI or IFDI
expended the following amounts in marketing Class B shares of Ivy US
Emerging Growth Fund: advertising, $419; printing and mailing of
prospectuses to persons other than current shareholders, $2,650;
compensation to underwriters $0; compensation to dealers, $99,329;
compensation to sales personnel, $56,912; interest, carrying or other
financing charges $0; seminars and meetings, $24,833; travel and
entertainment, $6,990; general and administrative, $13,142; telephone,
$1,603; and occupancy and equipment rental $7,207.
During the fiscal year ended December 31, 2002, IMI or IFDI
expended the following amounts in marketing Class C shares of Ivy US
Emerging Growth Fund: advertising, $60; printing and mailing of
prospectuses to persons other than current shareholders, $378;
compensation to underwriters $0; compensation to dealers, $2,167;
compensation to sales personnel, $8,144; interest, carrying or other
financing charges $0; seminars and meetings, $541; travel and
entertainment, $1,019; general and administrative, $1,879; telephone,
$230; and occupancy and equipment rental, $1,030.
Each Plan may be amended at any time with respect to the class of
shares of the Fund to which the Plan relates by vote of the Trustees,
including a majority of the Independent Trustees, cast in person at a
meeting called for the purpose of considering such amendment. Each Plan
may be terminated at any time with respect to the class of shares of the
Fund to which the Plan relates, without payment of any penalty, by vote of
a majority of the Independent Trustees, or by vote of a majority of the
outstanding voting securities of that class.
If the Distribution Agreement or the Distribution Plans are
terminated (or not renewed) with respect to any of the Ivy funds (or class
of shares thereof), each may continue in effect with respect to any other
fund (or Class of shares thereof) as to which they have not been
terminated (or have been renewed).
CUSTODIAN
Pursuant to a Custodian Agreement with the Trust, UMB Bank, n.a. (the
"Custodian"), located at 928 Grand Boulevard, Kansas City, Missouri, 64106,
maintains custody of the assets of each Fund held in the United States.
Rules adopted under the 1940 Act permit the Trust to maintain its foreign
securities and cash in the custody of certain eligible foreign banks and
securities depositories. Pursuant to those rules, the Custodian has
entered into subcustodial agreements for the holding of each Fund's
foreign securities. With respect to each Fund, the Custodian may receive,
as partial payment for its services to each Fund, a portion of the Trust's
brokerage business, subject to its ability to provide best price and
execution.
FUND ACCOUNTING SERVICES
Pursuant to a Fund Accounting Services Agreement, WRIICO (formerly,
IMI) provides certain accounting and pricing services for each Fund. As of
March 18, 2003, WRIICO assigned its responsibilities under the Fund
Accounting Services Agreement to Waddell & Reed Services Company. As
compensation for those services, each Fund pays WRIICO a monthly fee plus
out-of-pocket expenses as incurred. The monthly fee is based upon the net
assets of each Fund except Ivy Bond Fund at the preceding month end at the
following rates: $1,250 when net assets are $10 million and under; $2,500
when net assets are over $10 million to $40 million; $5,000 when net assets
are over $40 million to $75 million; and $6,500 when net assets are over
$75 million. The monthly fee is based upon the net assets of Ivy Bond Fund
at the preceding month end at the following rates: $1,000 when net assets
are $20 million and under; $1,500 when net assets are over $20 million to
$75 million; $4,000 when net assets are over $75 million to $100 million;
and $6,000 when net assets are over $100 million.
During the fiscal year ended December 31, 2002, Ivy Bond Fund paid
IMI $46,704 under the agreement.
During the fiscal year ended December 31, 2002, Ivy Developing
Markets Fund paid IMI $17,176 under the agreement.
During the fiscal year ended December 31, 2002, Ivy Global Fund paid
IMI $17,570 under the agreement.
During the fiscal year ended December 31, 2002, Ivy Global Science &
Technology Fund paid IMI $36,906 under the agreement.
During the fiscal year ended December 31, 2002, Ivy Growth Fund paid
IMI $138,319 under the agreement.
During the fiscal year ended December 31, 2002, Ivy International
Small Companies Fund paid IMI $19,290 under the agreement.
During the fiscal year ended December 31, 2002, Ivy US Blue Chip Fund
paid IMI $72,248 under the agreement.
During the fiscal year ended December 31, 2002, Ivy US Emerging
Growth Fund paid IMI $68,748 under the agreement
TRANSFER AGENT
Pursuant to a Transfer Agency Services Agreement, PFPC Global Fund
Services, Inc. ("PFPC"), a Massachusetts corporation, located at 4400
Computer Drive, Westborough, MA 01581, is the transfer agent for each
Fund. Under the Agreement, each Fund pays a monthly fee at an annual rate
of $17.00 for each open Class A, Class B, Class C and Advisor Class
account. In addition, each Fund with Class I shares pays a monthly fee at
an annual rate of $10.25 per open Class I account. In addition, each Fund
pays a monthly fee at an annual rate of $3.60 per account that is closed
plus certain out-of-pocket expenses. Such fees and expenses for the fiscal
year ended December 31, 2002 for Ivy Bond Fund totaled $158,464. Such fees
and expenses for the fiscal year ended December 31, 2002 for Ivy
Developing Markets Fund totaled $39,217. Such fees and expenses for the
fiscal year ended December 31, 2002 for Ivy Global Fund totaled $32,709.
Such fees and expenses for the fiscal year ended December 31, 2002 for Ivy
Global Science & Technology Fund totaled $170,051. Such fees and expenses
for the fiscal year ended December 31, 2002 for Ivy Growth Fund totaled
$627,178. Such fees and expenses for the fiscal year ended December 31,
2002 for Ivy International Small Companies Fund totaled $42,502. Such fees
and expenses for the fiscal year ended December 31, 2002 for Ivy US Blue
Chip Fund totaled $232,254. Such fees and expenses for the fiscal year
ended December 31, 2002 for Ivy US Emerging Growth Fund totaled $256,383.
Certain broker-dealers that maintain shareholder accounts with each Fund
through an omnibus account provide transfer agent and other shareholder-
related services that would otherwise be provided by PFPC if the
individual accounts that comprise the omnibus account were opened by their
beneficial owners directly. PFPC pays such broker-dealers a per account
fee for each open account within the omnibus account, or a fixed rate
(e.g., 0.10%) fee, based on the average daily net asset value of the
omnibus account (or a combination thereof).
ADMINISTRATOR
Pursuant to an Administrative Services Agreement, WRIICO provides
certain administrative services to each Fund. As of March 18, 2003, WRIICO
assigned its responsibilities under the Administrative Services Agreement
to Waddell & Reed Services Company. As compensation for these services,
each Fund pays WRIICO a monthly fee at the annual rate of 0.10% of the
Fund's average daily net asset value of its Class A, Class B, Class C, and
Advisor Class shares. Such fees for the fiscal year ended December 31, 2002
for Ivy Bond Fund totaled $54,047. Such fees for the fiscal year ended
December 31, 2002 for Ivy Developing Markets Fund totaled $5,306. Such fees
for the fiscal year ended December 31, 2002 for Ivy Global Fund totaled
$6,136. Such fees for the fiscal year ended December 31, 2002 for Ivy
Global Science & Technology Fund totaled $16,788. Such fees for the fiscal
year ended December 31, 2002 for Ivy Growth Fund totaled $144,978. Such
fees for the fiscal year ended December 31, 2002 for Ivy International
Small Companies Fund totaled $7,200. Such fees for the fiscal year ended
December 31, 2002 for Ivy US Blue Chip Fund totaled $47,359. Such fees for
the fiscal year ended December 31, 2002 for Ivy US Emerging Growth Fund
totaled $46,787.
AUDITORS
Deloitte & Touche LLP, located at 1010 Grand Boulevard, Kansas City,
Missouri, has been selected as auditors for the Trust. The audit services
performed by Deloitte & Touche LLP include audits of the annual financial
statements of each of the funds of the Trust. Deloitte & Touche LLP
audited the December 31, 2002 financial statements of each of the funds in
the Trust; prior to December 31, 2002, other auditors audited the
financial statements of each of the funds in the Trust. Other services
provided by Deloitte & Touche LLP principally relate to filings with the
SEC and the preparation of the funds' tax returns.
BROKERAGE ALLOCATION
Subject to the overall supervision of the President and the Board,
WRIICO or Henderson (for Ivy International Small Companies Fund) places
orders for the purchase and sale of each Fund's portfolio securities.
Purchases and sales of securities on a securities exchange are effected
through brokers who charge a commission for their services. Purchases and
sales of debt securities are usually principal transactions and therefore,
brokerage commissions are usually not required to be paid by any Fund for
such purchases and sales (although the price paid generally includes
undisclosed compensation to the dealer). The prices paid to underwriters
of newly-issued securities usually include a concession paid by the issuer
to the underwriter, and purchases of after-market securities from dealers
normally reflect the spread between the bid and asked prices. In
connection with OTC transactions, WRIICO attempts to deal directly with
the principal market makers, except in those circumstances where WRIICO
believes that a better price and execution are available elsewhere.
WRIICO selects broker-dealers to execute transactions and evaluates
the reasonableness of commissions on the basis of quality, quantity, and
the nature of the firms' professional services. Commissions to be charged
and the rendering of investment services, including statistical, research,
and counseling services by brokerage firms, are factors to be considered
in the placing of brokerage business. The types of research services
provided by brokers may include general economic and industry data, and
information on securities of specific companies. Research services
furnished by brokers through whom the Trust effects securities
transactions may be used by WRIICO in servicing all of its accounts. In
addition, not all of these services may be used by WRIICO in connection
with the services it provides to the Funds or the Trust. WRIICO may
consider sales of shares of Ivy funds as a factor in the selection of
broker-dealers and may select broker-dealers who provide it with research
services. WRIICO may choose broker-dealers that provide WRIICO with
research services and may cause a client to pay such broker-dealers
commissions which exceed those other broker-dealers may have charged, if
WRIICO views the commissions as reasonable in relation to the value of the
brokerage and/or research services. WRIICO will not, however, seek to
execute brokerage transactions other than at the best price and execution,
taking into account all relevant factors such as price, promptness of
execution and other advantages to clients, including a determination that
the commission paid is reasonable in relation to the value of the
brokerage and/or research services.
During the fiscal years ended December 31, 2000 and 2001, Ivy Bond
Fund paid brokerage commissions of $6,098 and $0.00, respectively. For
the fiscal year ended December 31, 2002, Ivy Bond Fund paid a total of
$0.00 in brokerage commissions with respect to portfolio transactions
aggregating $0.00.
During the fiscal years ended December 31, 2000 and 2001, Ivy
Developing Markets Fund paid brokerage commissions of $85,023 and
$21,551, respectively. For the fiscal year ended December 31, 2002, Ivy
Developing Markets Fund paid a total of $17,667 in brokerage commissions
with respect to portfolio transactions aggregating $5,534,024. Of such
amount, $16,477 in brokerage commissions with respect to portfolio
transactions aggregating $5,135,021 was placed with broker-dealers who
provided research services.
During the fiscal years ended December 31, 2000 and 2001, Ivy Global
Fund paid brokerage commissions of $79,124 and $30,347, respectively. For
the fiscal year ended December 31, 2002, Ivy Global Fund paid a total of
$13,881 in brokerage commissions with respect to portfolio transactions
aggregating $8,968,854. Of such amount, $11,475 in brokerage commissions
with respect to portfolio transactions aggregating $6,576,602 was placed
with broker-dealers who provided research services.
During the fiscal years ended December 31, 2000 and 2001, Ivy Global
Science & Technology Fund paid brokerage commissions of $227,942 and
$251,805, respectively. For the fiscal year ended December 31, 2002, Ivy
Global Science & Technology Fund paid a total of $132,451 in brokerage
commissions with respect to portfolio transactions aggregating
$56,978,743. Of such amount, $121,224 in brokerage commissions with
respect to portfolio transactions aggregating $51,398,232 was placed with
broker-dealers who provided research services.
During the fiscal years ended December 31, 2000 and 2001, Ivy Growth
Fund paid brokerage commissions of $894,392 and $945,243, respectively.
For the fiscal year ended December 31, 2002, Ivy Growth Fund paid a total
of $506,798 in brokerage commissions with respect to portfolio
transactions aggregating $287,277,129. Of such amount, $437,760 in
brokerage commissions with respect to portfolio transactions aggregating
$232,237,321 was placed with broker-dealers who provided research
services.
During the fiscal years ended December 31, 2000 and 2001, Ivy
International Small Companies Fund paid brokerage commissions of $89,221
and $83,331, respectively. For the fiscal year ended December 31, 2002,
Ivy International Small Companies Fund paid a total of $47,582 in
brokerage commissions with respect to portfolio transactions aggregating
$25,052,180. Of such amount, $47,055 in brokerage commissions with respect
to portfolio transactions aggregating $24,735,394 was placed with broker-
dealers who provided research services.
During the fiscal years ended December 31, 2000 and 2001, Ivy US Blue
Chip Fund paid brokerage commissions of $78,308 and $135,687,
respectively. For the fiscal year ended December 31, 2002, Ivy US Blue
Chip Fund paid a total of $115,443 in brokerage commissions with respect
to portfolio transactions aggregating $91,053,750. Of such amount, $86,890
in brokerage commissions with respect to portfolio transactions
aggregating $62,662,873 was placed with broker-dealers who provided
research services.
During the fiscal years ended December 31, 2000 and 2001, Ivy US
Emerging Growth Fund paid brokerage commissions of $588,138 and $766,661,
respectively. For the fiscal year ended December 31, 2002, Ivy US Emerging
Growth Fund paid a total of $284,440 in brokerage commissions with respect
to portfolio transactions aggregating $123,830,543. Of such amount,
$227,455 in brokerage commissions with respect to portfolio transactions
aggregating $91,615,427 was placed with broker-dealers who provided
research services.
Brokerage commissions vary from year to year in accordance with the
extent to which a particular Fund is more or less actively traded.
Each Fund may, under some circumstances, accept securities in lieu of
cash as payment for Fund shares. Each Fund will accept securities only to
increase its holdings in a portfolio security or to take a new portfolio
position in a security that WRIICO deems to be a desirable investment for
that Fund. While no minimum has been established, it is expected that each
Fund will not accept securities having an aggregate value of less than $1
million. The Trust may reject in whole or in part any or all offers to pay
for Fund shares with securities and may discontinue accepting securities
as payment for Fund shares at any time without notice. The Trust will
value accepted securities in the manner and at the same time provided for
valuing portfolio securities of each Fund, and each Fund's shares will be
sold for net asset value determined at the same time the accepted
securities are valued. The Trust will only accept securities delivered in
proper form and will not accept securities subject to legal restrictions
on transfer. The acceptance of securities by the Trust must comply with
the applicable laws of certain states.
CAPITALIZATION AND VOTING RIGHTS
The capitalization of the Trust consists of an unlimited number of
shares of beneficial interest (no par value per share). When issued,
shares of each class of each Fund are fully paid, non-assessable,
redeemable and fully transferable. No class of shares of any Fund has
preemptive rights or subscription rights.
The Declaration of Trust permits the Trustees to create separate
series or portfolios and to divide any series or portfolio into one or
more classes. The Trustees have authorized fifteen series, each of which
represents a fund. The Trustees have further authorized the issuance of
Class A, Class B, and Class C shares for Ivy Money Market Fund, and Class
A, Class B, Class C and Advisor Class shares for Ivy Bond Fund, Ivy
Cundill Global Value Fund, Ivy Developing Markets Fund, Ivy European
Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund,
Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy International
Fund, Ivy International Small Companies Fund, Ivy International Value
Fund, Ivy Pacific Opportunities Fund, Ivy US Blue Chip Fund and Ivy US
Emerging Growth Fund, as well as Class I shares for Ivy Bond Fund, Ivy
Cundill Global Value Fund, Ivy European Opportunities Fund, Ivy Global
Science & Technology Fund, Ivy International Fund, Ivy International Small
Companies Fund, Ivy International Value Fund and Ivy US Blue Chip Fund.
Class I shares were closed to further investment effective February 18,
2003 Under the Declaration of Trust, the Trustees may terminate any Fund
without shareholder approval. This might occur, for example, if a Fund
does not reach or fails to maintain an economically viable size.
Shareholders have the right to vote for the election of Trustees of
the Trust and on any and all matters on which they may be entitled to vote
by law or by the provisions of the Trust's By-Laws. The Trust is not
required to hold a regular annual meeting of shareholders, and it does not
intend to do so. Shares of each class of each Fund entitle their holders
to one vote per share (with proportionate voting for fractional shares).
Shareholders of each Fund are entitled to vote alone on matters that only
affect that Fund. All classes of shares of each Fund will vote together,
except with respect to the distribution plan applicable to a class of the
Fund's shares or when a class vote is required by the 1940 Act. On matters
relating to all funds of the Trust, but affecting the funds differently,
separate votes by the shareholders of each fund are required. Approval of
an investment advisory agreement and a change in fundamental policies
would be regarded as matters requiring separate voting by the shareholders
of each fund of the Trust. If the Trustees determine that a matter does
not affect the interests of a Fund, then the shareholders of that Fund
will not be entitled to vote on that matter. Matters that affect the Trust
in general, such as ratification of the selection of independent certified
public accountants, will be voted upon collectively by the shareholders of
all funds of the Trust.
As used in this SAI and the Prospectus, the phrase "majority vote of
the outstanding shares" of a Fund means the vote of the lesser of:
(1) 67% of the shares of that Fund (or of the Trust) present at a meeting
if the holders of more than 50% of the outstanding shares are present in
person or by proxy; or (2) more than 50% of the outstanding shares of that
Fund (or of the Trust).
With respect to the submission to shareholder vote of a matter
requiring separate voting by a Fund, the matter shall have been
effectively acted upon with respect to that Fund if a majority of the
outstanding voting securities of the Fund votes for the approval of the
matter, notwithstanding that: (1) the matter has not been approved by a
majority of the outstanding voting securities of any other fund of the
Trust; or (2) the matter has not been approved by a majority of the
outstanding voting securities of the Trust.
The Amended and Restated Declaration of Trust provides that the
holders of not less than two-thirds of the outstanding shares of the Trust
may remove a person serving as trustee either by declaration in writing or
at a meeting called for such purpose. The Trustees are required to call a
meeting for the purpose of considering the removal of a person serving as
Trustee if requested in writing to do so by the holders of not less than
10% of the outstanding shares of the Trust.
The Trust's shares do not have cumulative voting rights and
accordingly the holders of more than 50% of the outstanding shares could
elect the entire Board, in which case the holders of the remaining shares
would not be able to elect any Trustees.
Under Massachusetts law, the Trust's shareholders could, under
certain circumstances, be held personally liable for the obligations of
the Trust. However, the Amended and Restated Declaration of Trust
disclaims liability of the shareholders, Trustees or officers of the Trust
for acts or obligations of the Trust, which are binding only on the assets
and property of the Trust, and requires that notice of the disclaimer be
given in each contract or obligation entered into or executed by the Trust
or its Trustees. The Amended and Restated Declaration of Trust provides
for indemnification out of Fund property for all loss and expense of any
shareholder of any Fund held personally liable for the obligations of that
Fund. The risk of a shareholder of the Trust incurring financial loss on
account of shareholder liability is limited to circumstances in which the
Trust itself would be unable to meet its obligations and, thus, should be
considered remote. No series of the Trust is liable for the obligations of
any other series of the Trust.
SPECIAL RIGHTS AND PRIVILEGES
Information as to how to purchase Fund shares is contained in the
prospectus. The Trust offers, and (except as noted below) bears the cost
of providing, to investors the following rights and privileges. The Trust
reserves the right to amend or terminate any one or more of these rights
and privileges. Notice of amendments to or terminations of rights and
privileges will be provided to shareholders in accordance with applicable
law.
Certain of the rights and privileges described below refer to funds,
other than the Funds, whose shares are also distributed by IFDI. These
funds are: Ivy Cundill Global Value Fund, Ivy European Opportunities
Fund, Ivy Global Natural Resources Fund, Ivy International Fund, Ivy
International Value Fund, Ivy Money Market Fund and Ivy Pacific
Opportunities Fund (the other seven series of the Trust). Shareholders
should obtain a current prospectus before exercising any right or
privilege that may relate to these funds.
AUTOMATIC INVESTMENT METHOD
The Automatic Investment Method, which enables a Fund shareholder to
have specified amounts automatically drawn each month from his or her bank
for investment in Fund shares, is available for all classes of shares,
except Class I. The minimum initial and subsequent investment under this
method is $50 per month, $250 for Advisor Class shares (except in the case
of a tax qualified retirement plan for which the minimum initial and
subsequent investment is $25 per month). A shareholder may terminate the
Automatic Investment Method at any time upon delivery to PFPC of telephone
instructions or written notice. See "Automatic Investment Method" in the
Prospectus. To begin the plan, complete Sections 8 and 9 of the Account
Application.
EXCHANGE OF SHARES
As described in the Prospectus, shareholders of each Fund have an
exchange privilege with other Ivy funds. Before effecting an exchange,
shareholders of a Fund should obtain and read the currently effective
prospectus for the Ivy fund into which the exchange is to be made.
A 2% redemption fee or short-term trading fee will be imposed on
redemptions and exchanges of Class A shares of each Fund made within 30
days of purchase and, as of June 15, 2003, will be imposed on redemptions
and exchanges of Advisor Class shares of each Fund made within 30 days of
purchase. This fee will be retained by the Fund. See "Redemptions" below.
INITIAL SALES CHARGE SHARES. Class A shareholders may exchange their
Class A shares ("outstanding Class A shares") for Class A shares of
another Ivy fund ("new Class A Shares") on the basis of the relative net
asset value per Class A share, plus an amount equal to the difference, if
any, between the sales charge previously paid on the outstanding Class A
shares and the sales charge payable at the time of the exchange on the new
Class A shares. (The additional sales charge will be waived for Class A
shares that have been invested for a period of 12 months or longer.)
Class A shareholders may also exchange their shares for shares of Ivy
Money Market Fund (no initial sales charge will be assessed at the time of
such an exchange). In certain short-term transactions, Class A shares may
be subject to a fee upon redemption or exchange. See "REDEMPTIONS" below.
Each Fund may, from time to time, waive the initial sales charge on
its Class A shares sold to clients of The Legend Group and United Planners
Financial Services of America, Inc. This privilege will apply only to
Class A Shares of a Fund that are purchased using all or a portion of the
proceeds obtained by such clients through redemptions of shares of a
mutual fund (other than one of the Funds) on which a sales charge was paid
(the "NAV transfer privilege"). Purchases eligible for the NAV transfer
privilege must be made within 60 days of redemption from the other fund,
and the Class A shares purchased are subject to a 1.00% CDSC on shares
redeemed within the first year after purchase. The NAV transfer privilege
also applies to Fund shares purchased directly by clients of such dealers
as long as their accounts are linked to the dealer's master account. The
normal service fee, as described in the "Initial Sales Charge Alternative
- - Class A Shares" section of the Prospectus, will be paid to those dealers
in connection with these purchases. IFDI may from time to time pay a
special cash incentive to The Legend Group or United Planners Financial
Services of America, Inc. in connection with sales of shares of a Fund by
its registered representatives under the NAV transfer privilege.
Additional information on sales charge reductions or waivers may be
obtained from IFDI at the address listed on the cover of this Statement of
Additional Information.
On August 19, 1999, Ivy US Emerging Growth Fund and Hudson Capital
Appreciation Fund ("Hudson Capital") entered into an Agreement and Plan of
Reorganization (the "Plan") pursuant to which all or substantially all of
the assets of Hudson Capital would be acquired by Ivy US Emerging Growth
Fund in exchange solely for Class A and Class B voting shares of
beneficial interest of Ivy US Emerging Growth Fund (the "Reorganization").
In connection with the Reorganization, the parties agreed that no sales
charge would be imposed in connection with the issuance of Ivy US Emerging
Growth Fund shares to shareholders of Hudson Capital pursuant to the Plan.
In addition, the parties agreed that former Class N shareholders of Hudson
Capital would be exempt from the initial sales charge on additional
purchases of Class A shares of Ivy US Emerging Growth Fund.
CONTINGENT DEFERRED SALES CHARGE SHARES
CLASS A: Class A shareholders may exchange their Class A shares that
are subject to a contingent deferred sales charge ("CDSC"), as described
in the Prospectus ("outstanding Class A shares"), for Class A shares of
another Ivy fund ("new Class A shares") on the basis of the relative net
asset value per Class A share, without the payment of any CDSC that would
otherwise be due upon the redemption of the outstanding Class A shares.
Class A shareholders of any Fund exercising the exchange privilege will
continue to be subject to that Fund's CDSC period following an exchange if
such period is longer than the CDSC period, if any, applicable to the new
Class A shares.
For purposes of computing the CDSC that may be payable upon the
redemption of the new Class A shares, the holding period of the
outstanding Class A shares is "tacked" onto the holding period of the new
Class A shares.
CLASS B: Class B shareholders may exchange their Class B shares
("outstanding Class B shares") for Class B shares of another Ivy fund
("new Class B shares") on the basis of the relative net asset value per
Class B share, without the payment of any CDSC that would otherwise be due
upon the redemption of the outstanding Class B shares. Class B
shareholders of any Fund exercising the exchange privilege will continue
to be subject to that Fund's CDSC schedule (or period) following an
exchange if such schedule is higher (or such period is longer) than the
CDSC schedule (or period) applicable to the new Class B shares.
Class B shares of any Fund acquired through an exchange of Class B
shares of another Ivy fund will be subject to that Fund's CDSC schedule
(or period) if such schedule is higher (or such period is longer) than the
CDSC schedule (or period) applicable to the Ivy fund from which the
exchange was made.
For purposes of both the conversion feature and computing the CDSC
that may be payable upon the redemption of the new Class B shares (prior
to conversion), the holding period of the outstanding Class B shares is
"tacked" onto the holding period of the new Class B shares.
The following CDSC table applies to Class B shares of Ivy Bond Fund,
Ivy Cundill Global Value Fund, Ivy Developing Markets Fund, Ivy European
Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund,
Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy International
Fund, Ivy International Small Companies Fund, Ivy International Value
Fund, Ivy Pacific Opportunities Fund, Ivy US Blue Chip Fund and Ivy US
Emerging Growth Fund.
CONTINGENT DEFERRED SALES
CHARGE AS A PERCENTAGE OF
DOLLAR AMOUNT SUBJECT TO
YEAR SINCE PURCHASE CHARGE
First 5%
Second 4%
Third 3%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh and thereafter 0%
CLASS C: Class C shareholders may exchange their Class C shares
("outstanding Class C shares") for Class C shares of another Ivy fund
("new Class C shares") on the basis of the relative net asset value per
Class C share, without the payment of any CDSC that would otherwise be due
upon redemption. (Class C shares are subject to a CDSC of 1.00% if
redeemed within one year of the date of purchase.)
CLASS I AND ADVISOR CLASS: Subject to the restrictions set forth in
the following paragraph, Advisor Class shareholders may exchange their
outstanding shares for the same class of shares of another Ivy Fund on the
basis of the relative net asset value per share. Class I shares were
closed to further investment effective February 18, 2003 and no exchanges
among Class I shares may be made.
ALL CLASSES: The minimum value of shares which may be exchanged into
an Ivy fund in which shares are not already held is $1,000 ($5,000,000 in
the case of Class I; $10,000 in the case of Advisor Class). No exchange
out of any Fund (other than by a complete exchange of all Fund shares) may
be made if it would reduce the shareholder's interest in that Fund to less
than $1,000 ($250,000 in the case of Class I; $10,000 in the case of
Advisor Class).
Each exchange will be made on the basis of the relative net asset
value per share of the Ivy funds involved in the exchange next computed
following receipt by PFPC of telephone instructions by PFPC or a properly
executed request. Exchanges, whether written or telephonic, must be
received by PFPC by the close of regular trading on the Exchange (normally
4:00 p.m., eastern time) to receive the price computed on the day of
receipt. Exchange requests received after that time will receive the price
next determined following receipt of the request. The exchange privilege
may be modified or terminated at any time, upon at least 60 days' notice
to the extent required by applicable law. See "Redemptions."
An exchange of shares between any of the Ivy funds will result in a
taxable gain or loss. Generally, this will be a capital gain or loss
(long-term or short-term, depending on the holding period of the shares)
in the amount of the difference between the net asset value of the shares
surrendered and the shareholder's tax basis for those shares. However, in
certain circumstances, shareholders will be ineligible to take sales
charges into account in computing taxable gain or loss on an exchange. See
"Taxation."
With limited exceptions, gain realized by a tax-deferred retirement
plan will not be taxable to the plan and will not be taxed to the
participant until distribution. Each investor should consult his or her
tax advisor regarding the tax consequences of an exchange transaction.
LETTER OF INTENT
Reduced sales charges apply to initial investments in Class A shares
of each Fund made pursuant to a non-binding Letter of Intent. A Letter of
Intent may be submitted by an individual, his or her spouse and children
under the age of 21, or a trustee or other fiduciary of a single trust
estate or single fiduciary account. See the Account Application in the
Prospectus. Any investor may submit a Letter of Intent stating that he or
she will invest, over a period of 13 months, at least $50,000 in Class A
shares of any Fund. A Letter of Intent may be submitted at the time of an
initial purchase of Class A shares of a Fund or within 90 days of the
initial purchase, in which case the Letter of Intent will be back dated. A
shareholder may include, as an accumulation credit, the value (at the
applicable offering price) of all Class A shares of Ivy Bond Fund, Ivy
Cundill Global Value Fund, Ivy Developing Markets Fund, Ivy European
Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund,
Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy International
Fund, Ivy International Small Companies Fund, Ivy International Value
Fund, Ivy Pacific Opportunities Fund, Ivy US Blue Chip Fund and Ivy US
Emerging Growth Fund (and shares that have been exchanged into Ivy Money
Market Fund from any of the other funds in the Ivy funds) held of record
by him or her as of the date of his or her Letter of Intent. During the
term of the Letter of Intent, the Transfer Agent will hold Class A shares
representing 5% of the indicated amount (less any accumulation credit
value) in escrow. The escrowed Class A shares will be released when the
full indicated amount has been purchased. If the full indicated amount is
not purchased during the term of the Letter of Intent, the investor is
required to pay IFDI an amount equal to the difference between the dollar
amount of sales charge that he or she has paid and that which he or she
would have paid on his or her aggregate purchases if the total of such
purchases had been made at a single time. Such payment will be made by an
automatic liquidation of Class A shares in the escrow account. A Letter of
Intent does not obligate the investor to buy or the Trust to sell the
indicated amount of Class A shares, and the investor should read carefully
all the provisions of such letter before signing.
RETIREMENT PLANS
Shares may be purchased in connection with several types of tax-
deferred retirement plans. Shares of more than one fund distributed by
IFDI may be purchased in a single application establishing a single
account under the plan, and shares held in such an account may be
exchanged among the Ivy funds in accordance with the terms of the
applicable plan and the exchange privilege available to all shareholders.
Initial and subsequent purchase payments in connection with tax-deferred
retirement plans must be at least $25 per participant.
The following fees will be charged to individual shareholder accounts
as described in the retirement prototype plan document:
Retirement Plan New Account Fee no fee
Retirement Plan Annual Maintenance Fee $10.00 per fund account
For shareholders whose retirement accounts are diversified across
several Ivy funds, the annual maintenance fee will be limited to not more
than $20.
The following discussion describes the tax treatment of certain tax-
deferred retirement plans under current Federal income tax law. State
income tax consequences may vary. An individual considering the
establishment of a retirement plan should consult with an attorney and/or
an accountant with respect to the terms and tax aspects of the plan.
INDIVIDUAL RETIREMENT ACCOUNTS: Shares of each Fund may be used as a
funding medium for an Individual Retirement Account ("IRA"). Eligible
individuals may establish an IRA by adopting a model custodial account
available from PFPC, who may impose a charge for establishing the account.
Individuals should consult their tax advisors before investing IRA assets
in the Fund if that Fund primarily distributes exempt-interest dividends.
An individual who has not reached age 70-1/2 and who receives
compensation or earned income is eligible to contribute to an IRA, whether
or not he or she is an active participant in a retirement plan. An
individual who receives a distribution from another IRA, a qualified
retirement plan, a qualified annuity plan or a tax-sheltered annuity or
custodial account ("403(b) plan") that qualifies for "rollover" treatment
is also eligible to establish an IRA by rolling over the distribution
either directly or within 60 days after its receipt. Tax advice should be
obtained in connection with planning a rollover contribution to an IRA.
An individual may deduct his or her annual contributions to an IRA in
computing his or her Federal income tax within the limits described above,
provided he or she (or his or her spouse, if they file a joint Federal
income tax return) is not an active participant in a qualified retirement
plan (such as a qualified corporate, sole proprietorship, or partnership
pension, profit sharing, 401(k) or stock bonus plan), qualified annuity
plan, 403(b) plan, simplified employee pension, or governmental plan. If
he or she (or his or her spouse) is an active participant, whether the
individual's contribution to an IRA is fully deductible, partially
deductible or not deductible depends on (i) adjusted gross income and
(ii) whether it is the individual or the individual's spouse who is an
active participant, in the case of married individuals filing jointly.
Contributions may be made up to the maximum permissible amount even if
they are not deductible. Rollover contributions are not includable in
income for Federal income tax purposes and therefore are not deductible
from it.
Generally, earnings on an IRA are not subject to current Federal
income tax until distributed. Distributions attributable to tax-deductible
contributions and to IRA earnings are taxed as ordinary income.
Distributions of non-deductible contributions are not subject to Federal
income tax. In general, distributions from an IRA to an individual before
he or she reaches age 59-1/2 are subject to a nondeductible penalty tax
equal to 10% of the taxable amount of the distribution. The 10% penalty
tax does not apply to amounts withdrawn from an IRA after the individual
reaches age 59-1/2, becomes disabled or dies, or if withdrawn in the form
of substantially equal payments over the life or life expectancy of the
individual and his or her designated beneficiary, if any, or rolled over
into another IRA, amounts withdrawn and used to pay for deductible medical
expenses and amounts withdrawn by certain unemployed individuals not in
excess of amounts paid for certain health insurance premiums, amounts used
to pay certain qualified higher education expenses, and amounts used
within 120 days of the date the distribution is received to pay for
certain first-time homebuyer expenses. Distributions must begin to be
withdrawn not later than April 1 of the calendar year following the
calendar year in which the individual reaches age 70-1/2. Failure to take
certain minimum required distributions will result in the imposition of a
50% non-deductible penalty tax.
ROTH IRAs: Shares of each Fund also may be used as a funding medium
for a Roth Individual Retirement Account ("Roth IRA"). A Roth IRA is
similar in numerous ways to the regular (traditional) IRA, described
above. Some of the primary differences are as follows.
A single individual earning below $95,000 can contribute up to $3,000
($3,500 if 50 or older) per year to a Roth IRA for years 2003 through
2004. The maximum contribution amount diminishes and gradually falls to
zero for single filers with adjusted gross incomes ranging from $95,000 to
$110,000. Married couples earning less than $150,000 combined, and filing
jointly, can contribute a full $6,000 per year ($7,000 if 50 or older) or
($3,000 per IRA) ($7,000 per IRA if 50 or older). The maximum contribution
amount for married couples filing jointly phases out from $150,000 to
$160,000. An individual whose adjusted gross income exceeds the maximum
phase-out amount cannot contribute to a Roth IRA.
An eligible individual can contribute money to a traditional IRA and
a Roth IRA as long as the total contribution to all IRAs does not exceed
$3,000 ($3,500 if 50 or older). Contributions to a Roth IRA are not
deductible. Contributions to a Roth IRA may be made even after the
individual for whom the account is maintained has attained age 70 1/2.
No distributions are required to be taken prior to the death of the
original account holder. If a Roth IRA has been established for a minimum
of five years, distributions can be taken tax-free after reaching age 59
1/2, for a first-time home purchase ($10,000 maximum, one time use), or
upon death or disability. All other distributions from a Roth IRA (other
than the amount of nondeductible contributions) are taxable and subject to
a 10% tax penalty unless an exception applies. Exceptions to the 10%
penalty include: reaching age 59 1/2, death, disability, deductible
medical expenses, the purchase of health insurance for certain unemployed
individual and qualified higher education expenses.
An individual with an income of less than $100,000 (who is not
married filing separately) can roll his or her existing IRA into a Roth
IRA. However, the individual must pay taxes on the taxable amount in his
or her traditional IRA. After 1998, all taxes on such a rollover will have
to be paid in the tax year in which the rollover is made.
QUALIFIED PLANS: For those self-employed individuals who wish to
purchase shares of one or more Ivy funds through a qualified retirement
plan, an Agreement and a Retirement Plan are available from PFPC. The
Retirement Plan may be adopted as a profit sharing plan or a money
purchase pension plan. A profit sharing plan permits an annual
contribution to be made in an amount determined each year by the self-
employed individual within certain limits prescribed by law. A money
purchase pension plan requires annual contributions at the level specified
in the Agreement. There is no set-up fee for qualified plans and the
annual maintenance fee is $20.00 per account.
In general, if a self-employed individual has any common law
employees, employees who have met certain minimum age and service
requirements must be covered by the Retirement Plan. A self-employed
individual generally must contribute the same percentage of income for
common law employees as for himself or herself.
A self-employed individual may contribute up to the lesser of $40,000
or 100% of compensation or earned income to a money purchase pension plan
or to a profit sharing plan each year on behalf of each participant. To be
deductible, total contributions to a money purchase plan or profit sharing
plan generally may not exceed 25% of the total compensation or earned
income of all participants. The amount of compensation or earned income of
any one participant that may be included in computing the deduction is
limited (generally to $200,000 for benefits accruing in plan years
beginning after 2001, with annual inflation adjustments). A self-employed
individual's contributions to a retirement plan on his or her own behalf
must be deducted in computing his or her earned income.
Corporate employers may also adopt the Custodial Agreement and
Retirement Plan for the benefit of their eligible employees. Similar
contribution and deduction rules apply to corporate employers.
Distributions from the Retirement Plan generally are made after a
participant's severance from employment. A 10% penalty tax generally
applies to distributions to an individual before he or she reaches age 59-
1/2, unless the individual (1) has reached age 55 and separated from
service; (2) dies; (3) becomes disabled; (4) uses the withdrawal to pay
tax-deductible medical expenses; (5) takes the withdrawal as part of a
series of substantially equal payments over his or her life expectancy or
the joint life expectancy of himself or herself and a designated
beneficiary; or (6) rolls over the distribution.
The Transfer Agent will arrange for Fiduciary Trust Company of New
Hampshire to furnish custodial services to the employer and any
participating employees.
DEFERRED COMPENSATION FOR PUBLIC SCHOOLS AND CHARITABLE ORGANIZATIONS
("403(B)(7) ACCOUNT"): Section 403(b)(7) of the Internal Revenue Code of
1986, as amended (the "Code") permits public school systems and certain
charitable organizations to use mutual fund shares held in a custodial
account to fund deferred compensation arrangements with their employees. A
custodial account agreement is available for those employers whose
employees wish to purchase shares of the Trust in conjunction with such an
arrangement. The special application for a 403(b)(7) Account is available
from PFPC.
Distributions from the 403(b)(7) Account may be made only following
death, disability, severance from employment, attainment of age 59-1/2, or
incurring a financial hardship. A 10% penalty tax generally applies to
distributions to an individual before he or she reaches age 59-1/2, unless
the individual (1) has reached age 55 and separated from service; (2) dies
or becomes disabled; (3) uses the withdrawal to pay tax-deductible medical
expenses; (4) takes the withdrawal as part of a series of substantially
equal payments over his or her life expectancy or the joint life
expectancy of himself or herself and a designated beneficiary; or (5)
rolls over the distribution. There is no set-up fee for 403(b)(7) Accounts
and the annual maintenance fee is $20.00 per account.
SIMPLIFIED EMPLOYEE PENSION ("SEP") IRAs: An employer may deduct
contributions to a SEP up to the lesser of $40,000 or 25% of compensation.
SEP accounts generally are subject to all rules applicable to IRA
accounts, except the deduction limits, and are subject to certain employee
participation requirements. No new salary reduction SEPs ("SARSEPs") may
be established after 1996, but existing SARSEPs may continue to be
maintained, and non-salary reduction SEPs may continue to be established
as well as maintained after 1996.
SIMPLE PLANS: An employer may establish a SIMPLE IRA or a SIMPLE
401(k) for years after 1996. An employee can make pre-tax salary reduction
contributions to a SIMPLE Plan, up to $7,000 for 2002 (as increased for
2003 through 2005 and indexed thereafter). Subject to certain limits, the
employer will either match a portion of employee contributions, or will
make a contribution equal to 2% of each employee's compensation without
regard to the amount the employee contributes. An employer cannot maintain
a SIMPLE Plan for its employees if the employer maintains or maintained
any other qualified retirement plan with respect to which any
contributions or benefits have been credited.
REINVESTMENT PRIVILEGE
Shareholders who have redeemed Class A shares of a Fund may reinvest
all or a part of the proceeds of the redemption back into Class A shares
of the same Fund at net asset value (without a sales charge) within 60
days from the date of redemption. This privilege may be exercised only
once. The reinvestment will be made at the net asset value next determined
after receipt by PFPC of the reinvestment order accompanied by the funds
to be reinvested. No compensation will be paid to any sales personnel or
dealer in connection with the transaction.
Any redemption is a taxable event. A loss realized on a redemption
generally may be disallowed for tax purposes if the reinvestment privilege
is exercised within 30 days after the redemption. In certain
circumstances, shareholders will be ineligible to take sales charges into
account in computing taxable gain or loss on a redemption if the
reinvestment privilege is exercised. See "Taxation."
REDUCED SALES CHARGES AND RIGHTS OF ACCUMULATION
A scale of reduced sales charges applies to any investment of $50,000
or more in Class A shares of each Fund. See "Initial Sales Charge
Alternative -- Class A Shares" in the Prospectus. The reduced sales charge
is applicable to investments made at one time by an individual, his or her
spouse and children under the age of 21, or a trustee or other fiduciary
of a single trust estate or single fiduciary account (including a pension,
profit sharing or other employee benefit trust created pursuant to a plan
qualified under Section 401 of the Code). "Rights of Accumulation" are
also applicable to current purchases of all of the funds of Ivy Fund by
any of the persons enumerated above, where the aggregate quantity of
Class A shares of such funds (and shares that have been exchanged into Ivy
Money Market Fund from any of the other funds in the Ivy funds) and of any
other investment company distributed by IFDI, previously purchased or
acquired and currently owned, determined at the higher of current offering
price or amount invested, plus the Class A shares being purchased, amounts
to $50,000 or more for all funds other than Ivy Bond Fund; or $100,000 or
more for Ivy Bond Fund.
At the time an investment takes place, PFPC must be notified by the
investor or his or her dealer that the investment qualifies for the
reduced sales charge on the basis of previous investments. The reduced
sales charge is subject to confirmation of the investor's holdings through
a check of the particular fund's records.
SYSTEMATIC WITHDRAWAL PLAN
A shareholder (except shareholders with accounts in Class I) may
establish a Systematic Withdrawal Plan (a "Withdrawal Plan"), by telephone
instructions or by delivery to PFPC of a written election to have his or
her shares withdrawn periodically (minimum distribution - $50 for Advisor
Class shares), accompanied by a surrender to PFPC of all share
certificates then outstanding in such shareholder's name, properly
endorsed by the shareholder. To be eligible to elect a Withdrawal Plan, a
Class A, Class B or Class C shareholder must have at least $5,000 in his
or her account; an Advisor Class shareholder must continually maintain an
account balance of $10,000. A Withdrawal Plan may not be established if
the investor is currently participating in the Automatic Investment
Method. A Withdrawal Plan may involve the depletion of a shareholder's
principal, depending on the amount withdrawn.
A redemption under a Withdrawal Plan is a taxable event. Shareholders
contemplating participating in a Withdrawal Plan should consult their tax
advisors.
Additional investments made by investors participating in a
Withdrawal Plan must equal at least $1,000 each for Class A, Class B or
Class C shareholders and at least $250 for Advisor Class shareholders
while the Withdrawal Plan is in effect. Making additional purchases while
a Withdrawal Plan is in effect may be disadvantageous to the investor
because of applicable initial sales charges or CDSCs.
An investor may terminate his or her participation in the Withdrawal
Plan at any time by delivering written notice to PFPC. If all shares held
by the investor are liquidated at any time, participation in the
Withdrawal Plan will terminate automatically. The Trust or PFPC may
terminate the Withdrawal Plan option at any time after reasonable notice
to shareholders.
GROUP SYSTEMATIC INVESTMENT PROGRAM
Shares of each Fund may be purchased in connection with investment
programs established by employee or other groups using systematic payroll
deductions or other systematic payment arrangements. The Trust does not
itself organize, offer or administer any such programs. However, it may,
depending upon the size of the program, waive the minimum initial and
additional investment requirements for purchases by individuals in
conjunction with programs organized and offered by others. Unless shares
of a Fund are purchased in conjunction with IRAs (see "How to Buy Shares"
in the Prospectus), such group systematic investment programs are not
entitled to special tax benefits under the Code. The Trust reserves the
right to refuse purchases at any time or suspend the offering of shares in
connection with group systematic investment programs, and to restrict the
offering of shareholder privileges, such as check writing, simplified
redemptions and other optional privileges, as described in the Prospectus,
to shareholders using group systematic investment programs.
With respect to each shareholder account established on or after
September 15, 1972 under a group systematic investment program, the Trust
and WRIICO each currently charge a maintenance fee of $3.00 (or portion
thereof) that for each twelve-month period (or portion thereof) that the
account is maintained. The Trust may collect such fee (and any fees due to
WRIICO) through a deduction from distributions to the shareholders
involved or by causing on the date the fee is assessed a redemption in
each such shareholder account sufficient to pay such fee. The Trust
reserves the right to change these fees from time to time without advance
notice.
Class A shares of each Fund are made available to Merrill Lynch Daily
K Plan (the "Plan") participants at NAV without an initial sales charge
if:
(i) the Plan is recordkept on a daily valuation basis by Merrill
Lynch and, on the date the Plan Sponsor signs the Merrill Lynch
Recordkeeping Service Agreement, the Plan has $3 million or more
in assets invested in broker/dealer funds not advised or managed
by Merrill Lynch Asset Management, L.P. ("MLAM") that are made
available pursuant to a Service Agreement between Merrill Lynch
and the fund's principal underwriter or distributor and in funds
advised or managed by MLAM (collectively, the "Applicable
Investments");
(ii) the Plan is recordkept on a daily valuation basis by an
independent recordkeeper whose services are provided through a
contract or alliance arrangement with Merrill Lynch, and on the
date the Plan Sponsor signs the Merrill Lynch Recordkeeping
Service Agreement, the Plan has $3 million or more in assets,
excluding money market funds, invested in Applicable
Investments; or
(iii) the Plan has 500 or more eligible employees, as determined by
Merrill Lynch plan conversion manager, on the date the Plan
Sponsor signs the Merrill Lynch Recordkeeping Service Agreement.
Alternatively, Class B shares of each Fund are made available to Plan
participants at NAV without a CDSC if the Plan conforms with the
requirements for eligibility set forth in (i) through (iii) above but
either does not meet the $3 million asset threshold or does not have 500
or more eligible employees.
Plans recordkept on a daily basis by Merrill Lynch or an independent
recordkeeper under a contract with Merrill Lynch that are currently
investing in Class B shares of any Fund convert to Class A shares once the
Plan has reached $5 million invested in Applicable Investments, or 10
years after the date of the initial purchase by a participant under the
Plan--the Plan will receive a Plan level share conversion.
REDEMPTIONS
Shares of each Fund are redeemed at their net asset value next
determined after a proper redemption request has been received by PFPC,
less any applicable CDSC or redemption fee.
Unless a shareholder requests that the proceeds of any redemption be
wired to his or her bank account, payment for shares tendered for
redemption is made by check within seven days after tender in proper form,
except that the Trust reserves the right to suspend the right of
redemption or to postpone the date of payment upon redemption beyond seven
days, (i) for any period during which the Exchange is closed (other than
customary weekend and holiday closings) or during which trading on the
Exchange is restricted, (ii) for any period during which an emergency
exists as determined by the SEC as a result of which disposal of
securities owned by a Fund is not reasonably practicable or it is not
reasonably practicable for the Fund to fairly determine the value of its
net assets, or (iii) for such other periods as the SEC may by order permit
for the protection of shareholders of a Fund.
Under unusual circumstances, when the Board deems it in the best
interest of a Fund's shareholders, the Fund may make payment for shares
repurchased or redeemed in whole or in part in securities of that Fund
taken at current values. If any such redemption in kind is to be made,
each Fund may make an election pursuant to Rule 18f-1 under the 1940 Act.
This will require the particular Fund to redeem with cash at a
shareholder's election in any case where the redemption involves less than
$250,000 (or 1% of that Fund's net asset value at the beginning of each
90-day period during which such redemptions are in effect, if that amount
is less than $250,000). Should payment be made in securities, the
redeeming shareholder may incur brokerage costs in converting such
securities to cash.
The Trust may redeem those accounts of shareholders who have
maintained an investment, including sales charges paid, of less than
$1,000 in any Fund for a period of more than 12 months for Class A, Class
B, Class C and Class I shareholders; $10,000 or less for Advisor Class
shareholders for a period of more than 12 months. All accounts below that
minimum will be redeemed simultaneously when WRIICO deems it advisable.
The $1,000 balance for Class A, Class B, Class C and Class I shareholders
and $10,000 balance for Advisor Class shareholders, will be determined by
actual dollar amounts invested by the shareholder, unaffected by market
fluctuations. The Trust will notify any such shareholder by certified mail
of its intention to redeem such account, and the shareholder shall have 60
days from the date of such letter to invest such additional sums as shall
raise the value of such account above that minimum. Should the shareholder
fail to forward such sum within 60 days of the date of the Trust's letter
of notification, the Trust will redeem the shares held in such account and
transmit the redemption in value thereof to the shareholder. However,
those shareholders who are investing pursuant to the Automatic Investment
Method will not be redeemed automatically unless they have ceased making
payments pursuant to the plan for a period of at least six consecutive
months, and these shareholders will be given six-months' notice by the
Trust before such redemption. Shareholders in certain retirement plans or
accounts who wish to avoid tax consequences must "rollover" any sum so
redeemed into another eligible plan within 60 days. The Trustees of the
Trust may change the minimum account size.
If a shareholder has given authorization for telephonic redemption
privilege, shares can be redeemed and proceeds sent by Federal wire to a
single previously designated bank account. Delivery of the proceeds of a
wire redemption request of $250,000 or more may be delayed by any Fund for
up to seven days if deemed appropriate under then-current market
conditions. The Trust reserves the right to change this minimum or to
terminate the telephonic redemption privilege without prior notice. The
Trust cannot be responsible for the efficiency of the Federal wire system
of the shareholder's dealer of record or bank. The shareholder is
responsible for any charges by the shareholder's bank.
Each Fund employs reasonable procedures that require personal
identification prior to acting on redemption or exchange instructions
communicated by telephone to confirm that such instructions are genuine.
In the absence of such instructions, a Fund may be liable for any losses
due to unauthorized or fraudulent telephone instructions.
Class A shares of the Fund held for less than 30 days are redeemable
at a price equal to 98% of the then current net asset value per share. As
of June 15, 2003, a redemption fee of 2% will also apply to any redemption
or exchange proceeds if a shareholder sells or exchanges Advisor Class
shares after holding them less than 30 days. This 2% fee, also referred to
in the Prospectus and this statement of additional information as a
redemption fee, exchange fee or short-term trading fee, directly affects
the amount that a shareholder who is subject to the discount receives upon
exchange or redemption. It is intended to encourage long-term investment
in the Fund, to avoid transaction and other expenses caused by early
redemptions and to facilitate portfolio management. The fee is not a
deferred sales charge, is not a commission paid to WRIICO or its
subsidiaries, and does not benefit WRIICO in any way. The Fund reserves
the right to modify the terms of or terminate this fee at any time.
The redemption fee may generally be waived for any redemption of
Class A shares (a) Class A shares purchased through certain retirement and
educational plans, including 401(k) plans, 403(b) plans, 457 plans, Keogh
accounts, Profit Sharing and Money Purchase Pension Plans and 529 plans,
and through certain third party fee-based asset allocation programs, (b)
purchased through the reinvestment of dividends or capital gains
distributions paid by the Fund, (c) due to the death of the registered
shareholder of a Fund account, or, due to the death of all registered
shareholders of a Fund account with more than one registered shareholder,
(i.e., joint tenant account), upon receipt by PFPC of appropriate written
instructions and documentation satisfactory to the PFPC, or (d) by the
Fund upon exercise of its right to liquidate accounts (i) falling below
the minimum account size by reason of shareholder redemptions or (ii) when
the shareholder has failed to provide tax identification information.
However, if Class A shares are purchased for a retirement plan
account through a broker, financial institution or recordkeeper
maintaining an omnibus account for the shares, these waivers may not
apply. (Before purchasing Class A shares or Advisor Class shares, please
check with your account representative concerning the availability of the
fee waivers.) In addition, these waivers do not apply to IRA and SEP-IRA
accounts. For this purpose and without regard to the shares actually
redeemed, the shares will be treated as redeemed as follows: first,
reinvestment shares; second, purchased shares held 30 days or more; and
third, purchased shares held for less than 30 days. Finally, if a
redeeming shareholder acquires Class A shares or Advisor Class shares
through a transfer from another shareholder, the applicability of the
discount, if any, will be determined by reference to the date the shares
were originally purchased, and not from the date of transfer between
shareholders.
CONVERSION OF CLASS B SHARES
As described in the Prospectus, Class B shares of each Fund will
automatically convert to Class A shares of that Fund, based on the
relative net asset values per share of the two classes, no later than the
month following the eighth anniversary of the initial issuance of such
Class B shares of the Fund occurs. For the purpose of calculating the
holding period required for conversion of Class B shares, the date of
initial issuance shall mean: (1) the date on which such Class B shares
were issued, or (2) for Class B shares obtained through an exchange, or a
series of exchanges, (subject to the exchange privileges for Class B
shares) the date on which the original Class B shares were issued. For
purposes of conversion of Class B shares, Class B shares purchased through
the reinvestment of dividends and capital gain distributions paid in
respect of Class B shares will be held in a separate sub-account. Each
time any Class B shares in the shareholder's regular account (other than
those shares in the sub-account) convert to Class A shares, a pro rata
portion of the Class B shares in the sub-account will also convert to
Class A shares. The portion will be determined by the ratio that the
shareholder's Class B shares converting to Class A shares bears to the
shareholder's total Class B shares not acquired through the reinvestment
of dividends and capital gain distributions.
NET ASSET VALUE
The price to buy a share of a Fund, called the offering price, is
calculated every business day.
The offering price of a share (the price to buy one share of a
particular class) is the next NAV calculated per share of that class plus,
for Class A shares, the sales charge shown in the table.
In the calculation of a Fund's NAV:
* The security in the Fund's portfolio that are listed or traded
on an exchange are valued primarily using market prices.
* Bonds are generally valued according to prices quoted by an
independent pricing service.
* Short-term debt securities are valued at amortized cost, which
approximates market value.
* Other investment assets for which market prices are unavailable
are valued at their value by or at the direction of the Board of
Trustees.
Each fund is open for business every day the New York Stock Exchange
(NYSE) is open. The Funds normally calculate their NAVs as of the close of
business of the NYSE, normally 4 p.m. Eastern time, except that an option
or futures contract held by a fund may be priced at the close of the
regular session of any other securities exchange on which that instrument
is traded.
As noted, some of the Funds may invest in securities listed on
foreign exchanges, which may trade on Saturdays or on U.S. national
business holidays when the NYSE is closed. Consequently, the NAV of Fund
shares may be significantly affected on days when a Fund does not price
its shares and when you are not able to purchase or redeem a fund's share.
Similarly, if an event materially affecting the value of foreign
investments or foreign currency exchange rates occurs prior to the close
of business of the NYSE but after the time their values are otherwise
determined, such investments or exchange rates may be valued at their fair
value as determined in good faith by or under the direction of Ivy Fund's
Board of Trustees.
When you place an order to buy shares, your order will be processed
at the next offering price calculated after your order is received and
accepted. Note the following:
* All of your purchases must be made in U.S. dollars and checks must be
drawn on U.S. banks. Neither cash nor post-dated checks will be
accepted.
* If you buy shares by check and then sell those shares by any method
other than by exchange to another fund in the Ivy Funds the payment
may be delayed for up to ten (10) days from the date of purchase to
ensure that your previous investment has cleared
The number of shares you receive when you place a purchase order, and
the payment you receive after submitting a redemption request, is based on
each Fund's net asset value next determined after your instructions are
received in proper form by PFPC or by your registered securities dealer.
Each purchase and redemption order is subject to any applicable sales
charge. Since each Fund normally invests in securities that are listed on
foreign exchanges that may trade on weekends or other days when the Fund
does not price its shares, each Fund's net asset value may change on days
when shareholders will not be able to purchase or redeem that Fund's
shares. The sale of each Fund's shares will be suspended during any period
when the determination of its net asset value is suspended pursuant to
rules or orders of the SEC and may be suspended by the Board whenever in
its judgment it is in a Fund's best interest to do so.
DETERMINATION OF OFFERING PRICE
The NAV of each class of the shares of a Fund is the value of the
assets of that class, less the liabilities of that class, divided by the
total number of outstanding shares of that class.
Class A shares of the Funds are sold at their next determined NAV
plus the sales charge described in the Prospectus. The price makeup as of
December 31, 2002, which is the date of the most recent balance sheet for
the Funds incorporated into this SAI by reference, were as follows:
Ivy Bond Fund
NAV per Class A share (Class A net assets divided by
Class A shares outstanding) ............... $8.35
Add: selling commission (4.75% of offering price) 0.42
------
Maximum offering price per Class A share
(Class A NAV divided by 95.25%) ........... $8.77
======
Ivy Developing Markets Fund
NAV per Class A share (Class A net assets divided by
Class A shares outstanding) ............... $5.55
Add: selling commission (5.75% of offering price) 0.34
------
Maximum offering price per Class A share
(Class A NAV divided by 94.25%) ........... $5.89
======
Ivy Global Fund
NAV per Class A share (Class A net assets divided by
Class A shares outstanding) ............... $6.93
Add: selling commission (5.75% of offering price) 0.42
------
Maximum offering price per Class A share
(Class A NAV divided by 94.25%) ........... $7.35
======
Ivy Global Science & Technology Fund
NAV per Class A share (Class A net assets divided by
Class A shares outstanding) ............... $7.14
Add: selling commission (5.75% of offering price) 0.44
------
Maximum offering price per Class A share
(Class A NAV divided by 94.25%) ........... $7.58
======
Ivy Growth Fund
NAV per Class A share (Class A net assets divided by
Class A shares outstanding) ............... $8.28
Add: selling commission (5.75% of offering price) 0.51
------
Maximum offering price per Class A share
(Class A NAV divided by 94.25%) ........... $8.79
======
Ivy International Small Companies Fund
NAV per Class A share (Class A net assets divided by
Class A shares outstanding) ............... $6.11
Add: selling commission (5.75% of offering price) 0.37
------
Maximum offering price per Class A share
(Class A NAV divided by 94.25%) ........... $6.48
======
Ivy US Blue Chip Fund
NAV per Class A share (Class A net assets divided by
Class A shares outstanding) ............... $7.32
Add: selling commission (5.75% of offering price) 0.45
------
Maximum offering price per Class A share
(Class A NAV divided by 94.25%) ........... $7.77
======
Ivy US Emerging Growth Fund
NAV per Class A share (Class A net assets divided by
Class A shares outstanding) ............... $12.56
Add: selling commission (5.75% of offering price) 0.77
------
Maximum offering price per Class A share
(Class A NAV divided by 94.25%) ........... $13.33
======
TAXATION
The following is a general discussion of certain tax rules thought to
be applicable with respect to each Fund. It is merely a summary and is not
an exhaustive discussion of all possible situations or of all potentially
applicable taxes. Accordingly, shareholders and prospective shareholders
should consult a competent tax advisor about the tax consequences to them
of investing in any Fund. The Funds are not managed for tax-efficiency.
Each Fund intends to be taxed as a regulated investment company under
Subchapter M of the Code. Accordingly, each Fund must, among other things,
(a) derive in each taxable year at least 90% of its gross income from
dividends, interest, payments with respect to certain securities loans,
and gains from the sale or other disposition of stock, securities or
foreign currencies, or other income derived with respect to its business
of investing in such stock, securities or currencies; and (b) diversify
its holdings so that, at the end of each fiscal quarter, (i) at least 50%
of the market value of the Fund's assets is represented by cash, U.S.
Government securities, the securities of other regulated investment
companies and other securities, with such other securities limited, in
respect of any one issuer, to an amount not greater than 5% of the value
of the Fund's total assets and 10% of the outstanding voting securities of
such issuer, and (ii) not more than 25% of the value of its total assets
is invested in the securities of any one issuer (other than U.S.
Government securities and the securities of other regulated investment
companies). If a Fund should fail to qualify for pass-through tax
treatment under Subchapter M, then it would be required to pay taxes on
any income and realized capital gains, reducing the amount of income and
capital gains that would otherwise be available for distribution to the
Fund's shareholders.
As a regulated investment company, each Fund generally will not be
subject to U.S. Federal income tax on its income and gains that it
distributes to shareholders, if at least 90% of its investment company
taxable income (which includes, among other items, dividends, interest and
the excess of any short-term capital gains over long-term capital losses)
for the taxable year is distributed. Each Fund intends to distribute all
such income.
Amounts not distributed on a timely basis in accordance with a
calendar year distribution requirement are subject to a nondeductible 4%
excise tax at the Fund level. To avoid the tax, each Fund must distribute
during each calendar year, (1) at least 98% of its ordinary income (not
taking into account any capital gains or losses) for the calendar year (2)
at least 98% of its capital gains in excess of its capital losses
(adjusted for certain ordinary losses) for a one-year period generally
ending on October 31 of the calendar year, and (3) all ordinary income and
capital gains for previous years that were not distributed during such
years. To avoid application of the excise tax, each Fund intends to make
distributions in accordance with the calendar year distribution
requirements. A distribution will be treated as paid on December 31 of the
current calendar year if it is declared by a Fund in October, November or
December of the year with a record date in such a month and paid by the
Fund during January of the following year. Such distributions will be
taxable to shareholders in the calendar year the distributions are
declared, rather than the calendar year in which the distributions are
received.
OPTIONS, FUTURES AND FOREIGN CURRENCY FORWARD CONTRACTS
The taxation of equity options and OTC options on debt securities is
governed by Code section 1234. Pursuant to Code section 1234, the premium
received by each Fund for selling a put or call option is not included in
income at the time of receipt. If the option expires, the premium is
short-term capital gain to the Fund. If a Fund enters into a closing
transaction, the difference between the amount paid to close out its
position and the premium received is short-term capital gain or loss. If a
call option written by a Fund is exercised, thereby requiring the Fund to
sell the underlying security, the premium will increase the amount
realized upon the sale of such security and any resulting gain or loss
will be a capital gain or loss, and will be long-term or short-term
depending upon the holding period of the security. With respect to a put
or call option that is purchased by a Fund, if the option is sold, any
resulting gain or loss will be a capital gain or loss, and will be long-
term or short-term, depending upon the holding period of the option. If
the option expires, the resulting loss is a capital loss and is long-term
or short-term, depending upon the holding period of the option. If the
option is exercised, the cost of the option, in the case of a call option,
is added to the basis of the purchased security and, in the case of a put
option, reduces the amount realized on the underlying security in
determining gain or loss.
Some of the options, futures and foreign currency forward contracts
in which each Fund may invest may be "section 1256 contracts." Gains (or
losses) on these contracts generally are considered to be 60% long-term
and 40% short-term capital gains or losses; however, as described below,
foreign currency gains or losses arising from certain section 1256
contracts are ordinary in character. Also, section 1256 contracts held by
each Fund at the end of each taxable year (and on certain other dates
prescribed in the Code) are "marked-to-market" with the result that
unrealized gains or losses are treated as though they were realized.
The transactions in options, futures and forward contracts undertaken
by each Fund may result in "straddles" for Federal income tax purposes.
The straddle rules may affect the character of gains or losses realized by
each Fund. In addition, losses realized by each Fund on positions that are
part of a straddle may be deferred under the straddle rules, rather than
being taken into account in calculating the taxable income for the taxable
year in which such losses are realized. Because only a few regulations
implementing the straddle rules have been promulgated, the consequences of
such transactions to each Fund are not entirely clear. The straddle rules
may increase the amount of short-term capital gain realized by any Fund,
which is taxed as ordinary income when distributed to shareholders.
Each Fund may make one or more of the elections available under the
Code which are applicable to straddles. If a Fund makes any of the
elections, the amount, character and timing of the recognition of gains or
losses from the affected straddle positions will be determined under rules
that vary according to the election(s) made. The rules applicable under
certain of the elections may operate to accelerate the recognition of
gains or losses from the affected straddle positions.
Because application of the straddle rules may affect the character of
gains or losses, defer losses and/or accelerate the recognition of gains
or losses from the affected straddle positions, the amount which must be
distributed to shareholders as ordinary income or long-term capital gain
may be increased or decreased substantially as compared to a fund that did
not engage in such transactions.
Notwithstanding any of the foregoing, each Fund may recognize gain
(but not loss) from a constructive sale of certain "appreciated financial
positions" if the Fund enters into a short sale, offsetting notional
principal contract, futures or forward contract transaction with respect
to the appreciated position or substantially identical property.
Appreciated financial positions subject to this constructive sale
treatment are interests (including options, futures and forward contracts
and short sales) in stock, partnership interests, certain actively traded
trust instruments and certain debt instruments. Constructive sale
treatment of appreciated financial positions does not apply to certain
transactions closed before the end of the 30th day after the close of each
Fund's taxable year, if the position is held throughout the 60-day period
beginning on the date the transaction is closed and certain other
conditions are met.
CURRENCY FLUCTUATIONS -- "SECTION 988" GAINS OR LOSSES
Gains or losses attributable to fluctuations in exchange rates which
occur between the time each Fund accrues receivables or liabilities
denominated in a foreign currency and the time that Fund actually collects
such receivables or pays such liabilities generally are treated as
ordinary income or ordinary loss. Similarly, on disposition of some
investments, including debt securities denominated in a foreign currency
and certain options, futures and forward contracts, gains or losses
attributable to fluctuations in the value of the foreign currency between
the date of acquisition of the security or contract and the date of
disposition also are treated as ordinary gain or loss. These gains and
losses, referred to under the Code as "section 988" gains or losses,
increase or decrease the amount of each Fund's investment company taxable
income available to be distributed to its shareholders as ordinary income.
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES
Each Fund may invest in shares of foreign corporations which may be
classified under the Code as passive foreign investment companies
("PFICs"). In general, a foreign corporation is classified as a PFIC if at
least one-half of its assets constitute investment-type assets, or 75% or
more of its gross income is investment-type income. If a Fund receives a
so-called "excess distribution" with respect to PFIC stock, that Fund
itself may be subject to a tax on a portion of the excess distribution,
whether or not the corresponding income is distributed by the Fund to
shareholders. In general, under the PFIC rules, an excess distribution is
treated as having been realized ratably over the period during which a
Fund held the PFIC shares. Each Fund itself will be subject to tax on the
portion, if any, of an excess distribution that is so allocated to prior
Fund taxable years and an interest factor will be added to the tax, as if
the tax had been payable in such prior taxable years. Certain
distributions from a PFIC as well as gain from the sale of PFIC shares are
treated as excess distributions. Excess distributions are characterized as
ordinary income even though, absent application of the PFIC rules, certain
excess distributions might have been classified as capital gain.
Each Fund may be eligible to elect alternative tax treatment with
respect to PFIC shares. Each Fund may elect to mark to market its PFIC
shares, resulting in the shares being treated as sold at fair market value
on the last business day of each taxable year. Any resulting gain would be
reported as ordinary income; any resulting loss and any loss from an
actual disposition of the shares would be reported as ordinary loss to the
extent of any net gains reported in prior years. Under another election
that currently is available in some circumstances, each Fund generally
would be required to include in its gross income its share of the earnings
of a PFIC on a current basis, regardless of whether distributions are
received from the PFIC in a given year.
DEBT SECURITIES ACQUIRED AT A DISCOUNT
Some of the debt securities (with a fixed maturity date of more than
one year from the date of issuance) that may be acquired by each Fund may
be treated as debt securities that are issued originally at a discount.
Generally, the amount of the original issue discount ("OID") is treated as
interest income and is included in income over the term of the debt
security, even though payment of that amount is not received until a later
time, usually when the debt security matures.
Some of the debt securities (with a fixed maturity date of more than
one year from the date of issuance) that may be acquired by each Fund in
the secondary market may be treated as having market discount. Generally,
gain recognized on the disposition of, and any partial payment of
principal on, a debt security having market discount is treated as
ordinary income to the extent the gain, or principal payment, does not
exceed the "accrued market discount" on such debt security. In addition,
the deduction of any interest expenses attributable to debt securities
having market discount may be deferred. Market discount generally accrues
in equal daily installments. Each Fund may make one or more of the
elections applicable to debt securities having market discount, which
could affect the character and timing of recognition of income.
Some debt securities (with a fixed maturity date of one year or less
from the date of issuance) that may be acquired by each Fund may be
treated as having acquisition discount, or OID in the case of certain
types of debt securities. Generally, each Fund will be required to include
the acquisition discount, or OID, in income over the term of the debt
security, even though payment of that amount is not received until a later
time, usually when the debt security matures. Each Fund may make one or
more of the elections applicable to debt securities having acquisition
discount, or OID, which could affect the character and timing of
recognition of income.
Each Fund generally will be required to distribute dividends to
shareholders representing discount on debt securities that is currently
includable in income, even though cash representing such income may not
have been received by that Fund. Cash to pay such dividends may be
obtained from sales proceeds of securities held by each Fund.
DISTRIBUTIONS
Distributions of investment company taxable income are taxable to a
U.S. shareholder as ordinary income, whether paid in cash or shares.
Dividends paid by each Fund to a corporate shareholder, to the extent such
dividends are attributable to dividends received from U.S. corporations by
that Fund, may qualify for the dividends received deduction. However, the
revised alternative minimum tax applicable to corporations may reduce the
value of the dividends received deduction. Distributions of net capital
gains (the excess of net long-term capital gains over net short-term
capital losses), if any, designated by each Fund as capital gain
dividends, are taxable to shareholders as long-term capital gains whether
paid in cash or in shares, and regardless of how long the shareholder has
held the Fund's shares; such distributions are not eligible for the
dividends received deduction. Shareholders receiving distributions in the
form of newly issued shares will have a cost basis in each share received
equal to the net asset value of a share of that Fund on the distribution
date. A distribution of an amount in excess of a Fund's current and
accumulated earnings and profits will be treated by a shareholder as a
return of capital which is applied against and reduces the shareholder's
basis in his or her shares. To the extent that the amount of any such
distribution exceeds the shareholder's basis in his or her shares, the
excess will be treated by the shareholder as gain from a sale or exchange
of the shares. Shareholders will be notified annually as to the U.S.
Federal tax status of distributions and shareholders receiving
distributions in the form of newly issued shares will receive a report as
to the net asset value of the shares received.
If the net asset value of shares is reduced below a shareholder's
cost as a result of a distribution by a Fund, such distribution generally
will be taxable even though it represents a return of invested capital.
Shareholders should be careful to consider the tax implications of buying
shares just prior to a distribution. The price of shares purchased at this
time may reflect the amount of the forthcoming distribution. Those
purchasing just prior to a distribution will receive a distribution which
generally will be taxable to them.
DISPOSITION OF SHARES
Upon a redemption, sale or exchange of his or her shares, a
shareholder will realize a taxable gain or loss depending upon his or her
basis in the shares. Such gain or loss will be treated as capital gain or
loss if the shares are capital assets in the shareholder's hands and, if
so, will be long-term or short-term, depending upon the shareholder's
holding period for the shares. Any loss realized on a redemption sale or
exchange will be disallowed to the extent the shares disposed of are
replaced (including through reinvestment of dividends) within a period of
61 days beginning 30 days before and ending 30 days after the shares are
disposed of. In such a case, the basis of the shares acquired will be
adjusted to reflect the disallowed loss. Any loss realized by a
shareholder on the sale of Fund shares held by the shareholder for six
months or less will be treated for tax purposes as a long-term capital
loss to the extent of any distributions of capital gain dividends received
or treated as having been received by the shareholder with respect to such
shares.
In some cases, shareholders will not be permitted to take all or
portion of their sales loads into account for purposes of determining the
amount of gain or loss realized on the disposition of their shares. This
prohibition generally applies where (1) the shareholder incurs a sales
load in acquiring the shares of a Fund, (2) the shares are disposed of
before the 91st day after the date on which they were acquired, and
(3) the shareholder subsequently acquires shares in the same Fund or
another regulated investment company and the otherwise applicable sales
charge is reduced under a "reinvestment right" received upon the initial
purchase of Fund shares. The term "reinvestment right" means any right to
acquire shares of one or more regulated investment companies without the
payment of a sales load or with the payment of a reduced sales charge.
Sales charges affected by this rule are treated as if they were incurred
with respect to the shares acquired under the reinvestment right. This
provision may be applied to successive acquisitions of fund shares.
FOREIGN WITHHOLDING TAXES
Income received by each Fund from sources within a foreign country
may be subject to withholding and other taxes imposed by that country.
If more than 50% of the value of each Fund's total assets at the
close of its taxable year consists of securities of foreign corporations,
each Fund will be eligible and may elect to "pass-through" to its
shareholders the amount of foreign income and similar taxes paid by the
Fund. Pursuant to this election, a shareholder will be required to include
in gross income (in addition to taxable dividends actually received) his
or her pro rata share of the foreign income and similar taxes paid by the
Fund, and will be entitled either to deduct his or her pro rata share of
foreign income and similar taxes in computing his or her taxable income or
to use it as a foreign tax credit against his or her U.S. Federal income
taxes, subject to limitations. No deduction for foreign taxes may be
claimed by a shareholder who does not itemize deductions. Foreign taxes
generally may not be deducted by a shareholder that is an individual in
computing the alternative minimum tax. Each shareholder will be notified
within 60 days after the close of each Fund's taxable year whether the
foreign taxes paid by the Fund will "pass-through" for that year and, if
so, such notification will designate (1) the shareholder's portion of the
foreign taxes paid to each such country and (2) the portion of the
dividend which represents income derived from sources within each such
country.
Generally, except in the case of certain electing individual
taxpayers who have limited creditable foreign taxes and no foreign source
income other than passive investment-type income, a credit for foreign
taxes is subject to the limitation that it may not exceed the
shareholder's U.S. tax attributable to his or her total foreign source
taxable income. For this purpose, if the Fund makes the election described
in the preceding paragraph, the source of the Fund's income flows through
to its shareholders. With respect to the Fund, gains from the sale of
securities generally will be treated as derived from U.S. sources and
section 988 gains will be treated as ordinary income derived from U.S.
sources. The limitation on the foreign tax credit is applied separately to
foreign source passive income, including foreign source passive income
received from the Fund. In addition, the foreign tax credit may offset
only 90% of the revised alternative minimum tax imposed on corporations
and individuals. Furthermore, the foreign tax credit is eliminated with
respect to foreign taxes withheld on dividends if the dividend-paying
shares or the shares of the Fund are held by the Fund or the shareholder,
as the case may be, for less than 16 days (46 days in the case of
preferred shares) during the 30-day period (90-day period for preferred
shares) beginning 15 days (45 days for preferred shares) before the shares
become ex-dividend. In addition, if the Fund fails to satisfy these
holding period requirements, it cannot elect to pass through to
shareholders the ability to claim a deduction for related foreign taxes.
The foregoing is only a general description of the foreign tax credit
under current law. Because application of the credit depends on the
particular circumstances of each shareholder, shareholders are advised to
consult their own tax advisors.
BACKUP WITHHOLDING
Each Fund will be required to report to the Internal Revenue Service
("IRS") all taxable distributions as well as gross proceeds from the
redemption of the Fund's shares, except in the case of certain exempt
shareholders. All such distributions and proceeds will be subject to
withholding of Federal income tax at a rate of 30% ("backup withholding")
in the case of non-exempt shareholders if (1) the shareholder fails to
furnish the Fund with and to certify the shareholder's correct taxpayer
identification number or social security number, (2) the IRS notifies the
shareholder or the Fund that the shareholder has failed to report properly
certain interest and dividend income to the IRS and to respond to notices
to that effect, or (3) when required to do so, the shareholder fails to
certify that he or she is not subject to backup withholding. If the
withholding provisions are applicable, any such distributions or proceeds,
whether reinvested in additional shares or taken in cash, will be reduced
by the amounts required to be withheld.
Distributions may also be subject to additional state, local and
foreign taxes depending on each shareholder's particular situation. Non-
U.S. shareholders may be subject to U.S. tax rules that differ
significantly from those summarized above. This discussion does not
purport to deal with all of the tax consequences applicable to the Funds
or shareholders. Shareholders are advised to consult their own tax
advisors with respect to the particular tax consequences to them of an
investment in any Fund.
PERFORMANCE INFORMATION
Performance information for the classes of shares of each Fund may be
compared, in reports and promotional literature, to: (i) the S&P 500
Index, the Dow Jones Industrial Average ("DJIA"), or other unmanaged
indices so that investors may compare each Fund's results with those of a
group of unmanaged securities widely regarded by investors as
representative of the securities markets in general; (ii) other groups of
mutual funds tracked by Lipper Analytical Services, a widely used
independent research firm that ranks mutual funds by overall performance,
investment objectives and assets, or tracked by other services, companies,
publications or other criteria; and (iii) the Consumer Price Index
(measure for inflation) to assess the real rate of return from an
investment in a Fund. Unmanaged indices may assume the reinvestment of
dividends but generally do not reflect deductions or administrative and
management costs and expenses. Performance rankings are based on
historical information and are not intended to indicate future
performance.
AVERAGE ANNUAL TOTAL RETURNS (BEFORE TAXES)
Each Fund, when advertising average annual total return before taxes
for a class of its shares, computes such return by determining the average
annual compounded rate of return during specified periods that equates the
initial amount invested to the ending redeemable value of such investment
according to the following formula:
P(1 + T){superscript n} = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = period covered by computation expressed in years
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the 1-, 5-, or 10-
year periods at the end of the 1-, 5-, or 10-year
periods (or fractional portion).
The calculation for average annual total returns before taxes is made
assuming that (1) the maximum sales load (or other charges deducted from
payments) is deducted from the initial $1,000 investment; and (2) all
distributions by the Fund are reinvested at the price stated in the
prospectus on the reinvestment dates during the period.
The ending redeemable value (variable "ERV" in the formula) is
determined by assuming complete redemption of the hypothetical investment
and the deduction of all non-recurring charges and the applicable sales
charge at the end of the measuring period.
AVERAGE ANNUAL TOTAL RETURNS (AFTER TAXES ON DISTRIBUTIONS)
Each Fund, when advertising average annual total return after taxes
on distributions for a class of its shares, computes such return by
determining the average annual compounded rate of return during specified
periods that equates the initial amount invested to the ending value of
such investment according to the following formula:
P(1 + T){superscript n} = ATVD
Where: P = a hypothetical initial payment of $1,000
T = average annual total return (after taxes on
distributions)
n = period covered by computation expressed in years
ATVD = ending value of a hypothetical $1,000 payment made at
the beginning of the 1-, 5-, or 10-year periods at the
end of the 1-, 5-, or 10-year periods (or fractional
portion), after taxes on fund distributions but not
after taxes on redemption.
The calculation for average annual total returns after taxes on
distributions is made assuming that (1) the maximum sales load (or other
charges deducted from payments) is deducted from the initial $1,000
investment; and (2) all distributions by the Fund, less taxes due on such
distributions, are reinvested at the price stated in the prospectus on the
reinvestment dates during the period.
The ending value (variable "ATVD" in the formula) is determined by
assuming complete redemption of the hypothetical investment after
deduction of all non-recurring charges and the applicable sales charge at
the end of the measuring period. The Fund assumes that the redemption has
no tax consequences.
Each Fund calculates the taxes due on any distributions by applying
the applicable tax rates to each component of the distributions (i.e.,
ordinary income, short-term capital gain, long-term capital gain). The
taxable amount and tax character of each distribution will be as specified
by the Fund on the dividend declaration date, unless adjusted to reflect
subsequent recharacterizations of distributions. Distributions are
adjusted to reflect the Federal tax impact of the distribution on an
individual taxpayer on the reinvestment date. The effect of applicable tax
credits, such as the foreign tax credit, are taken into account in
accordance with Federal tax law. The Fund calculates taxes due on any
distributions using the highest individual marginal Federal income tax
rates in effect on the reinvestment date. Note that the required tax rates
may vary over the measurement period. The Fund has disregarded any
potential tax liabilities other than Federal tax liabilities (e.g., state
and local taxes); the effect of phaseouts of certain exemptions,
deductions, and credits at various income levels; and the impact of the
Federal alternative minimum tax.
AVERAGE ANNUAL TOTAL RETURNS (AFTER TAXES ON DISTRIBUTIONS AND REDEMPTION
OF SHARES)
The Fund, when advertising average annual total return after taxes on
distributions and redemption for a class of its shares, computes such
return by determining the average annual compounded rate of return during
specified periods that equates the initial amount invested to the ending
value of such investment according to the following formula:
P(1 + T){superscript n} = ATVDR
Where: P = a hypothetical initial payment of $1,000
T = average annual total return (after taxes on
distributions and redemption)
n = period covered by computation expressed in years
ATVDR = ending value of a hypothetical $1,000 payment made at
the beginning of the 1-, 5-, or 10-year periods at the
end of the 1-, 5-, or 10-year periods (or fractional
portion), after taxes on fund distributions and
redemption.
The calculation for average annual total returns after taxes on
distributions and redemption is made assuming that (1) the maximum sales
load (or other charges deducted from payments) is deducted from the
initial $1,000 investment; and (2) all distributions by the Fund, less
taxes due on such distributions, are reinvested at the price stated in the
prospectus on the reinvestment dates during the period.
Each Fund calculates the taxes due on any distributions as described
above under Average Annual Total Returns (After Taxes on Distributions).
The ending value (variable "ATVDR" in the formula) is determined by
assuming complete redemption of the hypothetical investment after
deduction of all non-recurring charges and the applicable sales charge at
the end of the measuring period. The Fund calculates the capital gain or
loss upon redemption by subtracting the tax basis from the redemption
proceeds (after deducting any non-recurring charges). The Fund separately
tracks the basis of shares acquired through the $1,000 initial
hypothetical investment and each subsequent purchase through reinvested
distributions. In determining the basis for a reinvested distribution, the
Fund includes the distribution net of taxes assumed paid from the
distribution. Tax basis is adjusted for any distributions representing
returns of capital and any other tax basis adjustments that would apply to
an individual taxpayer, as permitted by applicable Federal tax law.
The amount and character (e.g., short-term or long-term) of capital
gain or loss upon redemption is separately determined for shares acquired
through the hypothetical $1,000 initial investment and each subsequent
purchase through reinvested distributions. The Fund does not assume that
shares acquired through reinvestment of distributions have the same
holding period as the initial $1,000 investment. The tax character is
determined by the length of the measurement period in the case of the
initial $1,000 investment and the length of the period between
reinvestment and the end of the measurement period in the case of
reinvested distributions.
Each Fund calculates capital gain taxes (or the benefit resulting
from tax losses) using the highest Federal individual capital gains tax
rate for gains of the appropriate character in effect on the redemption
date and in accordance with Federal tax law applicable on the redemption
date. The Fund assumes that a shareholder has sufficient capital gains of
the same character from other investments to offset any capital losses
from the redemption so that the taxpayer may deduct the capital losses in
full.
Each Fund may also quote unaveraged or cumulative total return for a
class which reflects the change in value of an investment in that class
over a stated period of time. Cumulative total returns will be calculated
according to the formula indicated above but without averaging the rate
for the number of years in the period.
Each Fund may, from time to time, include in advertisements,
promotional literature or reports to shareholders or prospective investors
total return data that are not calculated according to the formula set
forth above ("Non-Standardized Return"). Neither initial nor CDSCs are
taken into account in calculating Non-Standardized Return; a sales charge,
if deducted, would reduce the return.
The following table summarizes the calculation of Standardized and
Non-Standardized Return for the Class A, Class B, Class C and Advisor
Class shares of each Fund for the periods indicated. In determining the
average annual total return for a specific class of shares of each Fund,
recurring fees, if any, that are charged to all shareholder accounts are
taken into consideration. For any account fees that vary with the size of
the account of each Fund, the account fee used for purposes of the
following computations is assumed to be the fee that would be charged to
the mean account size of the Fund.
STANDARDIZED RETURN FOR IVY BOND FUND[*] [#] |
| | CLASS A[1] | CLASS B | CLASS C | CLASS I[2] | ADVISOR CLASS[3] |
One year ended December 31, 2002 | 4.30% | 2.65% | 6.79% | N/A | 8.52% |
Return after taxes on distributions*** | 1.95% | N/A | N/A | N/A | N/A |
Return after taxes on distributions and sale of Fund shares*** | 3.43% | N/A | N/A | N/A | N/A |
Five years ended December 31, 2002 | 1.62% | 1.17% | 1.60% | N/A | 2.50% |
Return after taxes on distributions*** | -0.97% | N/A | N/A | N/A | N/A |
Return after taxes on distributions and sale of Fund shares*** | 0.48% | N/A | N/A | N/A | N/A |
Ten years ended December 31, 2002 | 5.47% | N/A | N/A | N/A | N/A |
Return after taxes on distributions*** | 2.40% | N/A | N/A | N/A | N/A |
Return after taxes on distributions and sale of Fund shares*** | 3.35% | N/A | N/A | N/A | N/A |
NON-STANDARDIZED RETURN FOR IVY BOND FUND[**] |
| | CLASS A[4] | CLASS B | CLASS C | CLASS I[2] | ADVISOR CLASS[3] |
One year ended December 31, 2002 | 9.50% | 7.65% | 7.79% | N/A | 8.52% |
Five years ended December 31, 2002 | 2.62% | 1.55% | 1.60% | N/A | 2.50% |
Ten years ended December 31, 2002 | 5.98% | N/A | N/A | N/A | N/A |
[*] The Standardized Return figures for Class A shares reflect the
deduction of the maximum initial sales charge of 4.75%. The
Standardized Return figures for Class B and C shares reflect the
deduction of the applicable CDSC imposed on a redemption of Class B
or C shares held for the period. Class I and Advisor Class shares are
not subject to an initial or a CDSC; therefore, the Non-Standardized
Return figures would be identical to the Standardized Return figures.
[**] The Non-Standardized Return figures do not reflect the deduction
of any initial sales charge or CDSC.
[***]After-tax returns are calculated using the historical highest
individual Federal marginal income tax rates. State and local tax
rates are not included in the tax effect.
[#] Until December 31, 1994, IMI, the predecessor of WRIICO, served
as investment advisor to Ivy Bond Fund, which until that date was a
series of Mackenzie Series Trust. The inception date for the Fund
(and the Class A shares of the Fund) was September 6, 1985; the
inception date for the Class B and Class I shares of the Fund was
April 1, 1994; the inception date for the Class C shares of the Fund
was April 30, 1996; the inception date for the Advisor Class shares
was January 20, 1998.
[1] The Standardized Return figures for the Class A shares reflect
expense reimbursement. Without expense reimbursement, the
Standardized Return for Class A shares for the one, five and ten year
periods ended December 31, 2002 would have been lower.
[2] No Class I shares were outstanding during the time periods
indicated.
[3] Advisor Class shares are not subject to an initial sales charge
or a CDSC; therefore, the Standardized and Non-Standardized Return
figures are identical. Without expense reimbursement, the
Standardized and Non-Standardized Return for Advisor Class shares for
the period from inception through December 31, 2002 and the one and
five year periods ended December 31, 2002 would have been lower.
[4] The Non-Standardized Return figures for Class A shares reflect
expense reimbursement. Without expense reimbursement, the Non-
Standardized Return for Class A shares for the one, five and ten year
periods ended December 31, 2002 would have been lower.
IVY DEVELOPING MARKETS FUND STANDARDIZED RETURN[*] |
| | CLASS A[1] | CLASS B[2] | CLASS C[3] | ADVISOR CLASS[4] |
One year ended December 31, 2002 | -17.32% | -17.32% | -13.93% | -11.96% |
Return after taxes on distributions *** | -17.49% | N/A | N/A | N/A |
Return after taxes on distributions and sale of fund shares *** | -10.56% | N/A | N/A | N/A |
Five years ended December 31, 2002 | -4.86% | -5.01% | -4.60% | N/A |
Return after taxes on distributions *** | -4.98% | N/A | N/A | N/A |
Return after taxes on distributions and sale of fund shares *** | -3.81% | N/A | N/A | N/A |
Inception [#] to year ended December 31, 2002[8]: | -6.40% | -6.53% | -7.87-% | -5.66% |
Return after taxes on distributions *** | -6.78% | N/A | N/A | N/A |
Return after taxes on distributions and sale of fund shares *** | -4.86% | N/A | N/A | N/A |
| |
NON-STANDARDIZED RETURN[**] |
| | CLASS A[5] | CLASS B[6] | CLASS C[7] | ADVISOR CLASS[4] |
One year ended December 31, 2002 | -12.28% | -12.96% | -13.06% | -11.96% |
Five years ended December 31, 2002 | -3.72% | -4.63% | -4.60% | N/A |
Inception [#] to year ended December 31, 2002 | -5.72% | -6.53% | -7.87% | -5.66% |
[*] The Standardized Return figures for Class A shares reflect the
deduction of the maximum initial sales charge of 5.75%. The
Standardized Return figures for Class B and C shares reflect the
deduction of the applicable CDSC imposed on redemption of Class B or
C shares held for the period.
[**] The Non-Standardized Return figures do not reflect the deduction
of any initial sales charge or CDSC.
[***]After-tax returns are calculated using the historical highest
individual Federal marginal income tax rates. State and local tax
rates are not included in the tax effect.
[#] The inception date for the Fund (Class A and Class B shares) was
November 1, 1994. The inception date for Class C shares of the Fund
was April 30, 1996. The inception date for Advisor Class shares was
April 30, 1998.
[1] The Standardized Return figures for the Class A shares reflect
expense reimbursement. Without expense reimbursement, the
Standardized Return for Class A shares for the period from inception
through December 31, 2002 and the one year and five year periods
ended December 31, 2002 would have been lower.
[2] The Standardized Return figures for the Class B shares reflect
expense reimbursement. Without expense reimbursement, the
Standardized Return for Class B shares for the period from inception
through December 31, 2002 and the one year and five year periods
ended December 31, 2002 would have been lower.
[3] The Standardized Return figures for the Class C shares reflect
expense reimbursement. Without expense reimbursement, the
Standardized Return for Class C shares for the period from inception
through December 31, 2002 and the one year and five year periods
ended December 31, 2002 would have been lower.
[4] The Standardized Return figures for the Advisor Class shares
reflect expense reimbursement. Without expense reimbursement, the
Standardized Return for Advisor Class shares for the period from
inception through December 31, 2002 and the one-year ended December
31, 2002 would have been lower. Advisor Class shares are not subject
to an initial sales charge or a CDSC; therefore the Standardized and
Non-Standardized Return figures are identical.
[5] The Non-Standardized Return figures for Class A shares reflect
expense reimbursement. Without expense reimbursement, the Non-
Standardized Return for Class A shares for the period from inception
through December 31, 2002 and the one year and five year periods
ended December 31, 2002 would have been lower.
[6] The Non-Standardized Return figures for Class B shares reflect
expense reimbursement. Without expense reimbursement, the Non-
Standardized Return for Class B shares for the period from inception
through December 31, 2002 and the one year and five year periods
ended December 31, 2002 would have been lower.
[7] The Non-Standardized Return figures for Class C shares reflect
expense reimbursement. Without expense reimbursement, the Non-
Standardized Return for Class C shares for the period from inception
through December 31, 2002 and the one year and five year periods
ended December 31, 2002 would have been lower.
IVY GLOBAL FUND STANDARDIZED RETURN[*] |
| | CLASS A[1] | CLASS B[2] | CLASS C[3] | ADVISOR CLASS[4] |
One year ended December 31, 2002 | -25.01% | -26.14% | -23.51% | -21.36% |
Return after taxes on distributions *** | -25.01% | N/A | N/A | N/A |
Return after taxes on distributions and sale of Fund shares *** | -15.36% | N/A | N/A | N/A |
Five years ended December 31, 2002 | -6.19% | -6.54% | -6.45% | N/A |
Return after taxes on distributions *** | -6.92% | N/A | N/A | N/A |
Return after taxes on distributions and sale of Fund shares *** | -4.33% | N/A | N/A | N/A |
Ten years ended December 31, 2002 | 0.66% | N/A | N/A | N/A |
Return after taxes on distributions *** | -0.72% | N/A | N/A | N/A |
Return after taxes on distributions and sale of Fund shares *** | 0.74% | N/A | N/A | N/A |
| |
NON-STANDARDIZED RETURN[**] |
| | CLASS A[5] | CLASS B[6] | CLASS C[7] | ADVISOR CLASS[4] |
One year ended December 31, 2002 | -20.44% | -22.25% | -22.73-% | -21.36% |
Five years ended December 31, 2002 | -5.07% | -6.17% | -6.45% | N/A |
Ten years ended December 31, 2002 | 1.26% | N/A | N/A | N/A |
Inception [#] to year ended December 31, 2002 | 1.92% | -2.09% | -5.89% | -9.29% |
[*] The Standardized Return figures for Class A shares reflect the
deduction of the maximum initial sales charge of 5.75%. The
Standardized Return figures for Class B and C shares reflect the
deduction of the applicable CDSC imposed on redemption of Class B or
C shares held for the period.
[**] The Non-Standardized Return figures do not reflect the deduction
of any initial sales charge or CDSC.
[***]After-tax returns are calculated using the historical highest
individual Federal marginal income tax rates. State and local tax
rates are not included in the tax effect.
[#] The inception date for the Fund (Class A shares) was April 18,
1991. The inception dates for the Class B and Class C shares of the
Fund were April 1, 1994 and April 30, 1996, respectively. The
inception date for Advisor Class shares was April 30, 1998. Until
December 31, 1994, Mackenzie Investment Management Inc. served as
investment advisor to the Fund.
[1] The Standardized Return figures for the Class A shares reflect
expense reimbursement. Without expense reimbursement, the
Standardized Return for Class A shares for the one, five and ten year
periods ended December 31, 2002 would have been lower.
[2] The Standardized Return figures for the Class B shares reflect
expense reimbursement. Without expense reimbursement, the
Standardized Return for Class B shares for the period from inception
through December 31, 2002 and the one and five year periods ended
December 31, 2002 would have been lower.
[3] The Standardized Return figures for the Class C shares reflect
expense reimbursement. Without expense reimbursement, the
Standardized Return for Class C shares for the period from inception
through December 31, 2002 and the one year and five year periods
ended December 31, 2002 would have been lower.
[4] The Standardized Return figures for the Advisor Class shares
reflect expense reimbursement. Without expense reimbursement, the
Standardized Return for Advisor Class shares for the period from
inception through December 31, 2002 and the one year period ended
December 31, 2002 would have been lower. Advisor Class shares are not
subject to an initial sales charge or a CDSC; therefore the
Standardized and Non-Standardized Return figures are identical.
[5] The Non-Standardized Return figures for Class A shares reflect
expense reimbursement. Without expense reimbursement, the Non-
Standardized Return for Class A shares for the one, five and ten year
periods ended December 31, 2002 would have been lower.
[6] The Non-Standardized Return figures for Class B shares reflect
expense reimbursement. Without expense reimbursement, the Non-
Standardized Return for Class B shares for the period from inception
through December 31, 2002 and the one and five year periods ended
December 31, 2002 would have been lower.
[7] The Non-Standardized Return figures for Class C shares reflect
expense reimbursement. Without expense reimbursement, the Non-
Standardized Return for Class C shares for the period from inception
through December 31, 2002 and the one and five year periods ended
December 31, 2002 would have been lower.
IVY GLOBAL SCIENCE & TECHNOLOGY FUND STANDARDIZED RETURN[*] |
| | CLASS A[1] | CLASS B[2] | CLASS C[3] | CLASS I[4] | ADVISOR CLASS[5] |
One year ended December 31, 2002 | -49.44% | -49.55% | -47.32% | N/A | -46.25% |
Return after taxes on distributions *** | -49.44% | N/A | N/A | N/A | N/A |
Return after taxes on distributions and sale of Fund shares *** | -30.36% | N/A | N/A | N/A | N/A |
Five years ended December 31, 2002 | -15.95% | -15.97% | -15.58% | N/A | N/A |
Return after taxes on distributions *** | -16.39% | N/A | N/A | N/A | N/A |
Return after taxes on distributions and sale of Fund shares *** | -10.65% | N/A | N/A | N/A | N/A |
Inception [#] to year ended December 31, 2002 | -4.67% | -4.64% | -4.42% | N/A | -18.23% |
Return after taxes on distributions *** | -5.08% | N/A | N/A | N/A | N/A |
Return after taxes on distributions and sale of Fund shares *** | -2.55% | N/A | N/A | N/A | N/A |
| |
NON-STANDARDIZED RETURN[**] |
| | CLASS A[6] | CLASS B[7] | CLASS C[8] | CLASS I[4] | ADVISOR CLASS[5] |
One year ended December 31, 2002 | -46.36% | -46.89% | -46.79% | N/A | -46.25% |
Five years ended December 31, 2002 | -14.95% | -15.63% | -15.58% | N/A | N/A |
Inception [#] to year ended December 31, 2002 | -3.80% | -4.50% | -4.42% | N/A | -18.23% |
[*] The Standardized Return figures for Class A shares reflect the
deduction of the maximum initial sales charge of 5.75%. The
Standardized Return figures for Class B and C shares reflect the
deduction of the applicable CDSC imposed on redemption of Class B or
C shares held for the period. Class I and Advisor Class shares are
not subject to an initial sales charge or a CDSC; therefore, the Non-
Standardized Return Figures would be identical to the Standardized
Return Figures.
[**] The Non-Standardized Return figures do not reflect the deduction
of any initial sales charge or CDSC.
[***]After-tax returns are calculated using the historical highest
individual Federal marginal income tax rates. State and local tax
rates are not included in the tax effect.
[#] The inception date for the Fund (and Class A, Class B, Class C
and Class I shares of the Fund) was July 22, 1996. The inception date
for Advisor Class shares was April 15, 1998.
[1] The Standardized Return figures for the Class A shares reflect
expense reimbursement. Without expense reimbursement, the
Standardized Return for Class A shares for the period from inception
through December 31, 2002 and the one and five year periods ended
December 31, 2002 would have been lower.
[2] The Standardized Return figures for the Class B shares reflect
expense reimbursement. Without expense reimbursement, the
Standardized Return for Class B shares for the period from inception
through December 31, 2002 and the one and five year periods ended
December 31, 2002 would have been lower.
[3] The Standardized Return figures for the Class C shares reflect
expense reimbursement. Without expense reimbursement, the
Standardized Return for Class C shares for the period from inception
through December 31, 2002 and the one and five year periods ended
December 31, 2002 would have been lower.
[4] Class I shares are not subject to an initial sales charge or a
CDSC; therefore the Non-Standardized and Standardized Return figures
would be identical. However, there were no outstanding Class I shares
during the periods indicated.
[5] The Standardized Return figures for the Advisor Class shares
reflect expense reimbursement. Without expense reimbursement, the
Standardized Return for Advisor Class shares for the period from
inception through December 31, 2002 and the one year period ended
December 31, 2002 would have been lower. Advisor Class shares are not
subject to an initial sales charge or a CDSC; therefore the
Standardized and Non-Standardized Return figures are identical.
[6] The Non-Standardized Return figures for Class A shares reflect
expense reimbursement. Without expense reimbursement, the Non-
Standardized Return for Class A shares for the period from inception
through December 31, 2002 and the one and five year periods ended
December 31, 2002 would have been lower.
[7] The Non-Standardized Return figures for Class B shares reflect
expense reimbursement. Without expense reimbursement, the Non-
Standardized Return for Class B shares for the period from inception
through December 31, 2002 and the one and five year periods ended
December 31, 2002 would have been lower.
[8] The Non-Standardized Return figures for Class C shares reflect
expense reimbursement. Without expense reimbursement, the Non-
Standardized Return for Class C shares for the period from inception
through December 31, 2002 and the one and five year periods ended
December 31, 2002 would have been lower.
IVY GROWTH FUND
STANDARDIZED RETURN[*] |
| | CLASS A[1] | CLASS B[2] | CLASS C | ADVISOR CLASS[3] |
One year ended December 31, 2002 | -32.78% | -32.96% | -30.29% | -28.67% |
Return after taxes on distributions *** | -32.78% | N/A | N/A | N/A |
Return after taxes on distributions and sale of Fund shares *** | -20.13% | N/A | N/A | N/A |
Five Years ended December 31, 2002 | -9.44% | -9.62% | -9.23% | N/A |
Return after taxes on distributions *** | -10.64% | N/A | N/A | N/A |
Return after taxes on distributions and sale of Fund shares *** | -6.09% | N/A | N/A | N/A |
Ten Years ended December 31, 2002 | 1.02% | N/A | N/A | N/A |
Return after taxes on distributions *** | -0.90% | N/A | N/A | N/A |
Return after taxes on distributions and sale of Fund shares *** | 1.44% | N/A | N/A | N/A |
| |
NON-STANDARDIZED RETURN[**] |
| | CLASS A[4] | CLASS B[5] | CLASS C | ADVISOR CLASS[3] |
One year ended December 31, 2002 | -28.68% | -29.43% | -29.59% | -28.67% |
Five Years ended December 31, 2002 | -8.36% | -9.26% | -9.23% | N/A |
Ten Years ended December 31, 2002 | 1.62% | N/A | N/A | N/A |
Inception [#] to year ended December 31, 2002 | 8.42% | -0.22% | -4.97% | -11.55% |
[*] The Standardized Return figures for Class A shares reflect the
deduction of the maximum initial sales charge of 5.75%. The
Standardized Return figures for Class B and C shares reflect the
deduction of the applicable CDSC imposed on redemption of Class B or
C shares held for the period.
[**] The Non-Standardized Return figures do not reflect the deduction
of any initial sales charge or CDSC.
[***]After-tax returns are calculated using the historical highest
individual Federal marginal income tax rates. State and local tax
rates are not included in the tax effect.
[#] The inception date for Class A shares of Ivy Growth Fund was
January 12, 1960. The inception dates for Class B, Class C and
Advisor Class shares of the Fund were October 22, 1993, April 30,
1996 and April 30, 1998, respectively.
[1] The Standardized Return figures for the Class A shares reflect
expense reimbursement. Without expense reimbursement, the
Standardized Return for Class A shares for the one, five and ten year
periods ended December 31, 2002 would have been lower.
[2] The Standardized Return figures for the Class B shares reflect
expense reimbursement. Without expense reimbursement, the
Standardized Return for Class B shares for the period from inception
through December 31, 2002 and the one and five-year periods ended
December 31, 2002 would have been lower.
[3] Advisor Class shares are not subject to an initial sales charge
or a CDSC; therefore, the Standardized and Non-Standardized Return
figures are identical. Without expense reimbursement, the
Standardized and Non-Standardized Return for Advisor Class shares for
the period from inception through December 31, 2002 and the one-year
period ended December 31, 2002 would have been lower.
[4] The Non-Standardized Return figures for Class A shares reflect
expense reimbursement. Without expense reimbursement, the Non-
Standardized Return for Class A shares for the one, five and ten year
periods ended December 31, 2002 would have been lower.
[5] The Non-Standardized Return figures for Class B shares reflect
expense reimbursement. Without expense reimbursement, the Non-
Standardized Return for Class B shares for the period from inception
through December 31, 2002 and the one and five-year periods ended
December 31, 2002 would have been lower.
IVY INTERNATIONAL SMALL COMPANIES FUND STANDARDIZED RETURN[*] |
| | CLASS A[1] | CLASS B[2] | CLASS C[3] | CLASS I[4] | ADVISOR CLASS[5] |
One year ended December 31, 2002 | -29.51% | -29.46% | -26.37% | N/A | -24.91% |
Return after taxes on distributions *** | -29.51% | N/A | N/A | N/A | N/A |
Return after taxes on distributions and sale of Fund shares *** | -18.12% | N/A | N/A | N/A | N/A |
Five Years ended December 31, 2002 | -6.93% | -6.88% | -6.45% | N/A | N/A |
Return after taxes on distributions *** | -7.21% | N/A | N/A | N/A | N/A |
Return after taxes on distributions and sale of Fund shares *** | -5.28% | N/A | N/A | N/A | N/A |
Inception [#] to year ended December 31, 2002[9] | -7.88% | -7.81% | -7.60% | N/A | -11.85% |
Return after taxes on distributions *** | -8.18% | N/A | N/A | N/A | N/A |
Return after taxes on distributions and sale of Fund shares *** | -5.96% | N/A | N/A | N/A | N/A |
| |
NON-STANDARDIZED RETURN[**] |
| | CLASS A[6] | CLASS B[7] | CLASS C[8] | CLASS I[4] | ADVISOR CLASS[5] |
One year ended December 31, 2002 | -25.21% | -25.75% | -25.62% | N/A | -26.72% |
Five Years ended December 31, 2002 | -5.82% | -6.50% | -6.45% | N/A | N/A |
Inception [#] to year ended December 31, 2002 | -6.97% | -7.65% | -7.60-% | N/A | -14.05% |
[*] The Standardization Return figures for Class A shares reflect
the deduction of the maximum initial sales charge of 5.75%. The
Standardized Return figures for Class B and C shares reflect the
deduction of the applicable CDSC imposed on redemption of Class B or
C shares held for the period.
[**] The Non-Standardized Return figures do not reflect the deduction
of any initial sales charge or CDSC.
[***]After-tax returns are calculated using the historical highest
individual Federal marginal income tax rates. State and local tax
rates are not included in the tax effect.
[#] The inception date for Ivy International Small Companies Fund
(and Class A, Class B, Class C and Class I shares of the Fund) was
January 1, 1997. The inception date for Advisor Class shares was July
1, 1999.
[1] The Standardized Return figures for the Class A shares reflect
expense reimbursement. Without expense reimbursement, the
Standardized Return for Class A shares for the period from inception
through December 31, 2002, and the one and five year periods ended
December 31, 2002 would have been lower.
[2] The Standardized Return figures for the Class B shares reflect
expense reimbursement. Without expense reimbursement, the
Standardized Return for Class B shares for the period from inception
through December 31, 2002 and the one and five year periods ended
December 31, 2002 would have been lower.
[3] The Standardized Return figures for the Class C shares reflect
expense reimbursement. Without expense reimbursement, the
Standardized Return for Class C shares for the period from inception
through December 31, 2002 and the one and five year periods ended
December 31, 2002 would have been lower.
[4] Class I shares are not subject to an initial sales charge or a
CDSC; therefore the Non-Standardized and Standardized Return figures
would be identical. However, there were no outstanding Class I shares
during the periods indicated.
[5] The Standardized Return figures for the Advisor Class shares
reflect expense reimbursement. Without expense reimbursement, the
Standardized Return for Advisor Class shares for the period from
inception through December 31, 2002 and the one year period ended
December 31, 2002 would have been lower. Advisor Class shares are not
subject to an initial sales charge or a CDSC; therefore the
Standardized and Non-Standardized Return figures are identical.
[6] The Non-Standardized Return figures for Class A shares reflect
expense reimbursement. Without expense reimbursement, the Non-
Standardized Return for Class A shares for the period from inception
through December 31, 2002 and the one and five year periods ended
December 31, 2002 would have been lower.
[7] The Non-Standardized Return figures for Class B shares reflect
expense reimbursement. Without expense reimbursement, the Non-
Standardized Return for Class B shares for the period from inception
through December 31, 2002 and the one and five year periods ended
December 31, 2002 would have been lower.
[8] The Non-Standardized Return figures for Class C shares reflect
expense reimbursement. Without expense reimbursement, the Non-
Standardized Return for Class C shares for the period from inception
December 31, 2002 and the one and five year periods ended December
31, 2002 would have been lower.
IVY US BLUE CHIP FUND
STANDARD RETURN[*] |
| | CLASS A[1] | CLASS B[2] | CLASS C[3] | CLASS I[4] | ADVISOR CLASS[5] |
One year ended December 31, 2002 | -26.29% | -26.27% | -23.19% | N/A | -21.50% |
Return after taxes on distributions *** | -26.29% | N/A | N/A | N/A | N/A |
Return after taxes on distributions and sale of Fund shares *** | -16.14% | N/A | N/A | N/A | N/A |
Inception [#] to year ended December 31, 2002 | -8.07% | -8.53% | -8.11% | N/A | -6.44% |
Return after taxes on distributions *** | -8.18% | N/A | N/A | N/A | N/A |
Return after taxes on distributions and sale of Fund shares *** | -6.23% | N/A | N/A | N/A | N/A |
NON-STANDARD RETURN[**] |
| | CLASS A[6] | CLASS B[7] | CLASS C[8] | CLASS I[4] | ADVISOR CLASS[5] |
One year ended December 31, 2002 | -21.79% | -22.39% | -22.42% | N/A | -21.50% |
Inception [#] to year ended December 31, 2002 | -6.75% | -8.08% | -8.11% | N/A | -6.44% |
[*] The Standardized Return figures for Class A shares reflect the
deduction of the maximum initial sales charge of 5.75%. The
Standardized Return figures for Class B and C shares reflect the
deduction of the applicable CDSC imposed on redemption of Class B or
C shares held for the period.
[**] The Non-Standardized Return figures do not reflect the deduction
of any initial sales charge or CDSC.
[***]After-tax returns are calculated using the historical highest
individual Federal marginal income tax rates. State and local tax
rates are not included in the tax effect.
[#] The inception date for Ivy US Blue Chip Fund was November 2,
1998.
[1] The Standardized Return figures for the Class A shares reflect
expense reimbursement. Without expense reimbursement, the
Standardized Return for Class A shares for the one-year period ended
December 31, 2002 and the period from inception through December 31,
2002 would have been lower.
[2] The Standardized Return figures for the Class B shares reflect
expense reimbursement. Without expense reimbursement, the
Standardized Return for Class B shares for the one-year period ended
December 31, 2002 and the period from inception through December 31,
2002 would have been lower.
[3] The Standardized Return figures for the Class C shares reflect
expense reimbursement. Without expense reimbursement, the
Standardized Return for Class C shares for the one-year period ended
December 31, 2002 and the period from inception through December 31,
2002 would have been lower.
[4] Class I Shares are not subject to an initial sales charge or a
CDSC; therefore, the Standardized and Non-Standardized Return figures
would be identical. However, there were no outstanding Class I Shares
during the periods indicated.
[5] Advisor Class shares are not subject to an initial sales charge
or a CDSC; therefore, the Standardized and Non-Standardized Return
figures are identical. Without expense reimbursement, the
Standardized and Non-Standardized Return for Advisor Class shares for
the period from inception through December 31, 2002 and the one-year
period ended December 31, 2002 would have been lower.
[6] The Non-Standardized Return figures for Class A shares reflect
expense reimbursement. Without expense reimbursement, the Non-
Standardized Return for Class A shares for the one-year period ended
December 31, 2002 and the period from inception through December 31,
2002 would have been lower.
[7] The Non-Standardized Return figures for Class B shares reflect
expense reimbursement. Without expense reimbursement, the Non-
Standardized Return for Class B shares for the one-year period ended
December 31, 2002 and the period from inception through December 31,
2002 would have been lower.
[8] The Non-Standardized Return figures for Class C shares reflect
expense reimbursement. Without expense reimbursement, the Non-
Standardized Return for Class C shares for the one-year period ended
December 31, 2002 and the period from inception through December 31,
2002 would have been lower.
IVY US EMERGING GROWTH FUND
STANDARDIZED RETURN[*] |
| | CLASS A[1] | CLASS B[2] | CLASS C | ADVISOR CLASS[3] |
One year ended December 31, 2002 | -41.28% | -41.29% | -38.83% | -37.57% |
Return after taxes on distributions *** | -41.28% | N/A | N/A | N/A |
Return after taxes on distributions and sale of Fund shares *** | -25.35% | N/A | N/A | N/A |
Five years ended December 31, 2002 | -11.09% | -11.09% | -10.72% | N/A |
Return after taxes on distributions *** | -12.13% | N/A | N/A | N/A |
Return after taxes on distributions and sale of Fund shares *** | -7.14% | N/A | N/A | N/A |
Inception [#] to year ended December 31, 2002 | 4.02% | -0.03% | -8.29% | -10.83% |
Return after taxes on distributions *** | 2.77% | N/A | N/A | N/A |
Return after taxes on distributions and sale of Fund shares *** | 4.20% | N/A | N/A | N/A |
| |
NON-STANDARDIZED RETURN[**] |
| | CLASS A[4] | CLASS B[5] | CLASS C | ADVISOR CLASS[3] |
One year ended December 31, 2002 | -37.70% | -38.20% | -38.22% | -37.57% |
Five years ended December 31, 2002 | -10.03% | -10.73% | -10.72% | N/A |
Inception [#] to year ended December 31, 2002 | 4.66% | -0.03% | -8.29% | -10.83% |
[*] The Standardized Return figures for Class A shares reflect the
deduction of the maximum initial sales charge of 5.75%. The
Standardized Return figures for Class B and C shares reflect the
deduction of the applicable CDSC imposed on redemption of Class B or
C shares held for the period.
[**] The Non-Standardized Return figures do not reflect the deduction
of any initial sales charge or CDSC.
[***]After-tax returns are calculated using the historical highest
individual Federal marginal income tax rates. State and local tax
rates are not included in the tax effect.
[#] The inception date for Ivy US Emerging Growth Fund was March 3,
1993. Class A shares of the Fund were first offered for sale to the
public on April 30, 1993, and Class B shares of the Fund were first
offered for sale to the public on October 22, 1993. The inception
date for the Class C shares of the Fund was April 30, 1996, and
Advisor Class shares were first offered to the public on January 1,
1998.
[1] The Standardized Return figures for the Class A shares reflect
expense reimbursement. Without expense reimbursement, the
Standardized Return for Class A shares for the period from inception
through December 31, 2002 and the one and five year periods ended
December 31, 2002 would have been lower.
[2] The Standardized Return figures for the Class B shares reflect
expense reimbursement. Without expense reimbursement, the
Standardized Return for Class B shares for the period from inception
through December 31, 2002 and the one and five-year periods ended
December 31, 2002 would have been lower.
[3] Advisor Class shares are not subject to an initial sales charge
or a CDSC; therefore, the Standardized and Non-Standardized Return
figures are identical. Without expense reimbursement, the
Standardized and Non-Standardized Return for Advisor Class shares for
the period from inception through December 31, 2002 and the one-year
period ended December 31, 2002 would have been lower.
[4] The Non-Standardized Return figures for Class A shares reflect
expense reimbursement. Without expense reimbursement, the Non-
Standardized Return for Class A shares for the period from inception
through December 31, 2002 and the one and five year periods ended
December 31, 2002 would have been lower.
[5] The Non-Standardized Return figures for Class B shares reflect
expense reimbursement. Without expense reimbursement, the Non-
Standardized Return for Class B shares for the period from inception
through December 31, 2002 and the one and five-year periods ended
December 31, 2002 would have been lower.
YIELD
Yield refers to the income generated by an investment in a Fund over
a given period of time. A yield quoted for a class of a Fund is computed
by dividing the net investment income per share of that class earned
during the period for which the yield is shown by the maximum offering
price per share of that class on the last day of that period according to
the following formula:
Yield = 2 ((((a - b)/cd)+1) -1){superscript 6}
Where with respect to a particular class of the Fund:
a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares of the class outstanding
during the period that were entitled to receive dividends.
d = the maximum offering price per share of the class on the
last day of the period.
The yield for Class A shares of Ivy Bond Fund computed according to
the formula for the 30-day period ended on December 31, 2002, the date of
the most recent balance sheet incorporated into this SAI by reference, is
5.24%. The yield for Class B shares of the Fund computed according to the
formula for the 30-day period ended on December 31, 2002, the date of the
most recent balance sheet incorporated into this SAI by reference, is
4.69%. The yield for Class C shares of the Fund computed according to the
formula for the 30-day period ended on December 31, 2002, the date of the
most recent balance sheet incorporated into this SAI by reference, is
4.76%. The yield for Advisor Class shares of the Fund computed according
to the formula for the 30-day period ended on December 31, 2002, the date
of the most recent balance sheet incorporated into this SAI by reference,
is 5.89%.
Change in yields primarily reflect different interest rates received
by the Fund as its portfolio securities change. Yield is also affected by
portfolio quality, portfolio maturity, type of securities held and
operating expenses of the applicable class.
OTHER QUOTATIONS, COMPARISONS AND GENERAL INFORMATION. The foregoing
computation methods are prescribed for advertising and other
communications subject to SEC Rule 482. Communications not subject to this
rule may contain a number of different measures of performance,
computation methods and assumptions, including but not limited to:
historical total returns; results of actual or hypothetical investments;
changes in dividends, distributions or share values; or any graphic
illustration of such data. These data may cover any period of the Trust's
existence and may or may not include the impact of sales charges, taxes or
other factors.
Performance quotations for each Fund will vary from time to time
depending on market conditions, the composition of the Fund's portfolio
and operating expenses of the Fund. These factors and possible differences
in the methods used in calculating performance quotations should be
considered when comparing performance information regarding each Fund's
shares with information published for other investment companies and other
investment vehicles. Performance quotations should also be considered
relative to changes in the value of each Fund's shares and the risks
associated with each Fund's investment objectives and policies. At any
time in the future, performance quotations may be higher or lower than
past performance quotations and there can be no assurance that any
historical performance quotation will continue in the future.
Each Fund may also cite endorsements or use for comparison its
performance rankings and listings reported in such newspapers or business
or consumer publications as, among others: AAII Journal, Barron's, Boston
Business Journal, Boston Globe, Boston Herald, Business Week, Consumer's
Digest, Consumer Guide Publications, Changing Times, Financial Planning,
Financial World, Forbes, Fortune, Growth Fund Guide, Houston Post,
Institutional Investor, International Fund Monitor, Investor's Daily, Los
Angeles Times, Medical Economics, Miami Herald, Money Mutual Fund
Forecaster, Mutual Fund Letter, Mutual Fund Source Book, Mutual Fund
Values, National Underwriter, Nelson's Directory of Investment Managers,
New York Times, Newsweek, No Load Fund Investor, No Load Fund* X, Oakland
Tribune, Pension World, Pensions and Investment Age, Personal Investor,
Rugg and Steele, Time, U.S. News and World Report, USA Today, The Wall
Street Journal, and Washington Post.
FINANCIAL STATEMENTS
Each Fund's Schedule of Investments as of December 31, 2002, Statement of
Assets and Liabilities as of December 31, 2002, Statement of Operations
for the fiscal year ended December 31, 2002, Statement of Changes in Net
Assets for the fiscal years ended December 31, 2002 and 2001, Financial
Highlights, Notes to Financial Statements, and Report of Independent
Certified Public Accountants, which are included in the Fund's December
31, 2002 Annual Report to shareholders, are incorporated by reference into
this SAI.
APPENDIX A
DESCRIPTION OF STANDARD & POOR'S RATINGS SERVICES ("S&P") AND
MOODY'S INVESTORS SERVICE, INC. ("MOODY'S") CORPORATE
BOND AND COMMERCIAL PAPER RATINGS
[From Moody's Rating Definitions, www.moodys.com, December 2000, and
"Standard & Poor's Municipal Ratings Handbook," September 2000 Issue
(McGraw-Hill, New York, 2000).]
MOODY'S:
(a) CORPORATE BONDS. Aaa -- Bonds which are rated Aaa are judged to be
of the best quality. They carry the smallest degree of investment risk and
are generally referred to as "gilt edged." Interest payments are
protected by a large or by an exceptionally stable margin and principal is
secure. While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high-grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there
may be other elements present which make the long-term risk appear
somewhat larger than the Aaa securities.
A -- Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade obligations.
Factors giving security to principal and interest are considered adequate,
but elements may be present which suggest a susceptibility to impairment
some time in the future.
Baa -- Bonds which are rated Baa are considered as medium-grade
obligations (i.e., they are neither highly protected nor poorly secured).
Interest payments and principal security appear adequate for the present
but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds
lack outstanding investment characteristics and in fact have speculative
characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well-assured. Often the
protection of interest and principal payments may be very moderate, and
thereby not well safeguarded during both good and bad times over the
future. Uncertainty of position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may
be in default or there may be present elements of danger with respect to
principal or interest.
Ca -- Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have
other marked shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
(b) COMMERCIAL PAPER. Moody's short-term issuer ratings are opinions
of the ability of issuers to honor senior financial obligations and
contracts. These obligations have an original maturity not exceeding one
year, unless explicitly noted.
Moody's employs the following three designations, all judged to be
investment grade, to indicate the relative repayment ability of rated
issuers:
Issuers rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well-established industries;
high rates of return on funds employed; conservative capitalization
structure with moderate reliance on debt and ample asset protection; broad
margins in earnings coverage of fixed financial charges and high internal
cash generation; well-established access to a range of financial markets
and assured sources of alternate liquidity.
Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound, may be
more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
Issuers rated Prime-3 (or supporting institutions) have an acceptable
ability for repayment of senior short-term obligations. The effect of
industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the
level of debt protection measurements and may require relatively high
financial leverage. Adequate alternate liquidity is maintained.
Issuers rated Not Prime do not fall within any of the Prime rating
categories.
S&P:
(a) LONG-TERM ISSUE CREDIT RATINGS. Issue credit ratings are based
in varying degrees on the following considerations:
* Likelihood of payment -- capacity and willingness of the obligor
to meet its financial commitment on an obligation in accordance
with the terms of the obligation;
* Nature of and provisions of the obligation; and
* Protection afforded by, and relative position of, the obligation
in the event of bankruptcy, reorganization, or other arrangement
under the laws of bankruptcy and other laws affecting creditors'
rights.
The issue ratings definitions are expressed in terms of default risk.
As such, they pertain to senior obligations of an entity. Junior
obligations are typically rated lower than senior obligations, to reflect
the lower priority in bankruptcy, as noted above.
AAA -- An obligation rated 'AAA' has the highest rating assigned by
S&P. The obligor's capacity to meet its financial commitment on the
obligation is extremely strong.
AA -- An obligation rated 'AA' differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its
financial commitment on the obligation is very strong.
A -- An obligation rated 'A' is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher-rated categories. However, the obligor's capacity to
meet its financial commitment on the obligation is still strong.
BBB -- An obligation rated 'BBB' exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity of the obligor to meet its
financial commitment on the obligation.
BB, B, CCC, CC, and C -- Obligations rated 'BB', 'B', 'CCC', 'CC',
and 'C' are regarded as having significant speculative characteristics.
'BB' indicates the least degree of speculation and 'C' the highest. While
such obligations will likely have some quality and protective
characteristics, these may be outweighed by large uncertainties or major
exposures to adverse conditions.
BB -- An obligation rated 'BB' is less vulnerable to nonpayment than
other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions, which
could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.
B -- An obligation rated 'B' is more vulnerable to nonpayment than
obligations rated 'BB,' but the obligor currently has the capacity to meet
its financial commitment on the obligation. Adverse business, financial,
or economic conditions will likely impair the obligor's capacity or
willingness to meet its financial commitment on the obligation.
CCC -- An obligation rated 'CCC' is currently vulnerable to nonpayment
and is dependent upon favorable business, financial, and economic
conditions for the obligor to meet its financial commitment on the
obligation. In the event of adverse business, financial, or economic
conditions, the obligor is not likely to have the capacity to meet its
financial commitment on the obligation.
CC -- An obligation rated 'CC' is currently highly vulnerable to
nonpayment.
C -- The 'C' rating may be used to cover a situation where a
bankruptcy petition has been filed or similar action has been taken, but
payments on this obligation are being continued.
D -- An obligation rated 'D' is in payment default. The 'D' rating
category is used when payments on an obligation are not made on the date
due even if the applicable grace period has not expired, unless S&P
believes that such payments will be made during such grace period. The 'D'
rating also will be used upon the filing of a bankruptcy petition or the
taking of a similar action if payments on an obligation are jeopardized.
(b) COMMERCIAL PAPER. An S&P commercial paper rating is a current
assessment of the likelihood of timely payment of debt having an original
maturity of no more than 365 days. Ratings are graded into several
categories, ranging from 'A' for the highest-quality obligations to 'D'
for the lowest. These categories are as follows:
A-1 -- This designation indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus sign (+)
designation.
A-2 -- Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated 'A-1.'
A-3 -- Issues carrying this designation have an adequate capacity for
timely payment. They are, however, more vulnerable to the adverse effects
of changes in circumstances than obligations carrying the higher
designations.
B -- Issues rated 'B' are regarded as having only speculative
capacity for timely payment.
C -- This rating is assigned to short-term debt obligations with a
doubtful capacity for payment.
D -- Debt rated 'D' is in payment default. The 'D' rating category is
used when interest payments or principal payments are not made on the date
due, even if the applicable grace period has not expired, unless S&P
believes such payments will be made during such grace period.
