MACKENZIE FLORIDA LIMITED TERM MUNICIPAL FUND
a series of
MACKENZIE SERIES TRUST
Via Mizner Financial Plaza
700 South Federal Highway, Suite 300
Boca Raton, Florida 33432
STATEMENT OF ADDITIONAL INFORMATION
October 27, 1995
(as supplemented on January 1, 1996)
_________________________________________________________________
Mackenzie Series Trust (the "Trust") is a
diversified open-
end management investment company that consists of five
fully
managed portfolios, one of which is offered hereby.
This
Statement of Additional Information ("SAI") describes
one of the
portfolios, Mackenzie Florida Limited Term Municipal
Fund (the
"Fund").
This SAI is not a prospectus and should be read in
conjunction with the prospectus for the Fund dated
October 27,
1995 (as supplemented on January 1, 1996) (the
"Prospectus"),
which may be obtained without charge from the Trust at
the
Distributor's address and telephone number listed
below.
INVESTMENT MANAGER
Mackenzie Investment Management Inc. ("MIMI")
Via Mizner Financial Plaza
700 South Federal Highway
Suite 300
Boca Raton, Florida 33432
Telephone: (407) 393-8900
DISTRIBUTOR
Mackenzie Ivy Funds Distribution, Inc.
("MIFDI")
Via Mizner Financial Plaza
700 South Federal Highway
Suite 300
Boca Raton, Florida 33432
Telephone: (800) 456-5111
TABLE OF CONTENTS
PAGE
INVESTMENT OBJECTIVES AND POLICIES
MUNICIPAL SECURITIES
RISK FACTORS AND SPECIAL CONSIDERATIONS
RELATING
TO FLORIDA MUNICIPAL SECURITIES
U.S. GOVERNMENT SECURITIES
BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS
COMMERCIAL PAPER
REPURCHASE AGREEMENTS
BORROWING
RESTRICTED AND ILLIQUID SECURITIES
TEMPORARY INVESTMENTS
OTHER INVESTMENT TECHNIQUES
INVESTMENT RESTRICTIONS
ADDITIONAL RESTRICTIONS
ADDITIONAL RIGHTS AND PRIVILEGES
AUTOMATIC INVESTMENT METHOD
EXCHANGE OF SHARES
LETTER OF INTENT
REINVESTMENT PRIVILEGE
RIGHTS OF ACCUMULATION
SYSTEMATIC WITHDRAWAL PLAN
BROKERAGE ALLOCATION
TRUSTEES AND OFFICERS
PERSONAL INVESTMENTS BY EMPLOYEES OF THE ADVISER
COMPENSATION TABLE
INVESTMENT ADVISORY AND OTHER SERVICES
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY
SERVICES
DISTRIBUTION SERVICES
CUSTODIAN
FUND ACCOUNTING
TRANSFER AND DIVIDEND PAYING AGENT
ADMINISTRATOR
AUDITORS
CAPITALIZATION AND VOTING RIGHTS
NET ASSET VALUE
PORTFOLIO TURNOVER
REDEMPTIONS
CONVERSION OF CLASS B SHARES
TAXATION
GENERAL
DISCOUNT
DISTRIBUTIONS
DISPOSITION OF SHARES
BACKUP WITHHOLDING
OTHER TAXATION
PERFORMANCE INFORMATION
FINANCIAL STATEMENTS
APPENDIX A DESCRIPTION OF STANDARD & POOR'S
CORPORATION
("S&P") AND MOODY'S INVESTORS SERVICE,
INC.
("MOODY'S") CORPORATE BOND, COMMERCIAL
PAPER
AND MUNICIPAL OBLIGATIONS RATINGS
APPENDIX B TAX-EXEMPT VS. TAXABLE INCOME
INVESTMENT OBJECTIVES AND POLICIES
Mackenzie Series Trust (the "Trust") is a
diversified open-
end management investment company organized as a
Massachusetts
business trust on April 22, 1985 under the name
Industrial Series
Trust. The Fund's investment objectives and general
investment
policies are described in the Prospectus. Additional
information
concerning the characteristics of the Fund's
investments is set
forth below.
MUNICIPAL SECURITIES
The Fund may invest in municipal securities within
the three
highest rating categories used by Moody's Investors
Service, Inc.
("Moody's) and Standard & Poor's Corporation ("S&P").
A
description of the ratings is contained in Appendix A
to this
SAI.
The Fund may invest in both "general obligation
bonds" 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
from the revenues derived from a particular facility or
class of
facilities or, in some cases, from the proceeds of a
special
excise tax or other specific revenue source, but not
from the
general taxing power. Municipal bonds are issued for
various
public purposes, including construction of a wide range
of public
facilities such as bridges, highways, housing,
hospitals, mass
transportation, schools, streets, and water and sewer
works.
Other public purposes for which municipal bonds may be
issued
include the refunding of outstanding obligations,
obtaining funds
for general operating expenses and obtaining funds to
loan to
other public institutions and facilities. In addition,
certain
types of industrial development bonds and private
activity bonds
are issued by or on behalf of public authorities to
obtain funds
to provide for privately operated housing facilities
and certain
facilities for water supply, gas, electricity or sewage
or solid
waste disposal.
Industrial development bonds that pay tax-exempt
interest
are, in most cases, revenue bonds and do not generally
carry the
pledge of the full faith and credit of the issuer of
such bonds.
The payment of the principal and interest on such
industrial
development bonds depends solely on the ability of the
user of
the facilities financed by the bonds to meet its
financial
obligations and the pledge, if any, of real and
personal property
so financed as security for such payment. The Fund
will not
invest more than 5% of its assets in securities where
the
principal and interest are the responsibility of an
industrial
user with less than three years' operational history.
In
addition, the Fund will not invest in industrial
development
bonds for the use of privately-owned electric
utilities.
There are, depending on numerous factors,
variations in the
risks involved in holding municipal securities, both
within a
particular rating classification and between
classifications.
The market values of outstanding municipal bonds will
vary as a
result of the rating of the issue and changing
evaluations of the
ability of the issuer to meet interest and principal
payments.
Such market values will also change in response to
changes in the
interest rates payable on new issues of municipal
bonds. Should
such interest rates rise, the values of outstanding
bonds,
including those held in the Fund's portfolio, would
decline;
should such interest rates decline, the values of
outstanding
bonds would increase.
As a result of litigation or other factors, the
power or
ability of issuers of municipal bonds to pay principal
and/or
interest might be adversely affected. Municipal
securities are
subject to the provisions of bankruptcy, insolvency and
other
laws affecting the rights and remedies of creditors,
such as the
Federal Bankruptcy Code, and laws, if any, which may be
enacted
by Congress, state legislatures extending the time for
payment of
principal or interest or both, or imposing other
constraints upon
enforcement of such obligations or upon the power of
municipalities to levy taxes.
The Fund may invest without limitation in issues
of
municipal securities that have similar characteristics,
such as
municipal securities issued by issuers located in the
same
geographic region, and municipal securities (other than
those
issued by non-governmental issuers) that derive
interest payments
from revenues of similar projects (for example,
electric utility
systems, hospitals, or housing finance agencies).
Consequently,
the Fund's portfolio of municipal securities may be
more
susceptible to the risks of adverse economic,
political, or
regulatory developments than would be the case with a
portfolio
of securities required to be more diversified as to
geographic
region and/or source of revenue.
For the purpose of certain requirements under the
Investment
Company Act of 1940, as amended (the "1940 Act"), and
certain of
the Fund's investment restrictions, identification of
the
"issuer" of a municipal security depends on the terms
and
conditions of the security. When the assets and
revenues of a
political subdivision are separate from those of the
government
that created the subdivision and the security is backed
only by
the assets and revenues of the subdivision, the
subdivision would
be deemed to be the sole issuer. Similarly, in the
case of an
industrial development bond or private activity bond,
if that
bond is backed only by the assets and revenues of the
nongovernmental user, then the nongovernmental user
would be
deemed to be the sole issuer. If, however, in either
case, the
creating government or some other entity guarantees the
security,
the guarantee would be considered a separate security
and would
be treated as an issue of the government or other
agency.
Interest on certain types of industrial
development bonds
(or private activity bonds) (generally small issues,
and
obligations to finance certain exempt facilities which
may be
leased to or used by persons other than the issuer)
will not be
exempt from Federal income tax when received by
"substantial
users" or persons related to "substantial users" as
defined in
the Internal Revenue Code of 1986, as amended (the
"Code"). The
term "substantial user" generally includes any
"non-exempt
person" who regularly uses in his or her trade or
business a part
of a facility financed from the proceeds of industrial
development bonds. The Fund may invest periodically in
industrial development bonds and private activity bonds
and,
therefore, may not be an appropriate investment for
entities
which are substantial users of facilities financed by
such bonds
or "related persons" of substantial users. Generally,
an
individual will not be a related person of a
substantial user
under the Code unless the person or his or her
immediate family
(spouse, brothers, sisters and lineal descendants) owns
directly
or indirectly in the aggregate more than 50% in value
of the
equity of the substantial user.
Legislative developments may affect the value of
the
securities in the Fund's portfolio, and therefore the
value of
the Fund's shares, as well as the tax-exempt status of
dividends.
The Board of Trustees of the Trust will monitor the
progress of
any such proposals to determine what, if any, defensive
action
may be taken. If any legislation which would have a
material
adverse effect on the ability of the Fund to pursue its
objective
were adopted, the investment objective and policies of
the Fund
would be reconsidered by the Fund's shareholders.
RISK FACTORS AND SPECIAL CONSIDERATIONS RELATING
TO FLORIDA
MUNICIPAL SECURITIES:
The following information as to certain Florida state
(the
"State") risk factors is given to investors in light of
Mackenzie
Florida Limited Term Municipal Fund's policy of
concentrating
its investments in Florida municipal issuers.
Obligations of the
State or local governments may be affected by budgetary
pressures
affecting the State and economic conditions in the
State. The
following information constitutes only a brief summary,
does not
purport to be a complete description and is based on
information
from sources believed by the Trust to be reliable,
including
official statements relating to securities offerings of
Florida
issuers and periodic publications by national ratings
organizations. Such information, however, has not been
independently verified by the Trust.
FLORIDA ECONOMY. The State's economy has
typically
performed better than the nation's. The State's strong
population growth is one fundamental reason for this
relatively
better economic performance. Since 1984, the State's
average
annual population increase has been around 2.3%, while
the
nation's average annual population increase has been
around 1.0%.
Though the State has grown by an average of 287,300
people per
year from 1985 through 1994, the strength of the
economy has
created an environment that has essentially absorbed
the vast
majority of new residents seeking employment. Since
1985, the
job creation rate for the State is almost twice the
rate for the
nation as a whole.
Over the years, Florida's personal income has been
growing
at a strong pace and has generally outperformed both
the U.S. as
a whole and the southeast in particular. The State's
economy
since the early seventies has diversified in such a way
as to
provide a broader economic base. As a result, the
State's per
capita personal income has tracked closely with the
national
average and has tracked above the southeast. From 1985
through
1994, the State's per capita income rose an average
5.2% per
year, while the national per capita income increased an
average
5.1%.
Florida's income structure differs from that of
the nation
and the southeast. Because Florida has a
proportionally greater
retirement age population, property income and transfer
payments
are a relatively more important source of income. One
positive
aspect of this greater diversity is that transfer
payments are
typically less sensitive to the business cycle than
employment
income and, therefore, act as stabilizing forces in
weak economic
periods. From 1985 through 1994, Florida's total
nominal and per
capita personal income increased by approximately 107%
and 64.6%,
respectively. For the nation, total and per capita
personal
income increased by approximately 80.7% and 63.7%,
respectively.
The service sector is Florida's largest employer.
Presently, the State's service sector employment
constitutes
86.4% of total non-farm employment. While structurally
the
southeast and the nation are endowed with a greater
proportion of
manufacturing jobs, which tend to pay higher wages,
service jobs
are less sensitive to business cycle swings. Moreover,
manufacturing jobs nationwide and in the southeast are
more
concentrated in areas such as heavy equipment, primary
metals,
chemicals and textile mill products. Florida, on the
other hand,
has a concentration of manufacturing jobs in high-tech
and high
value-added sectors, such as electrical and electronic
equipment,
as well as printing and publishing. These kinds of
jobs tend to
be less cyclical than other forms of manufacturing
employment.
The rate of job creation in Florida's manufacturing
sector has
kept pace with that of the U.S since the eighties.
Florida's
unemployment rate throughout the 1980's tracked below
that of the
nation. In recent years, however, as the State's
economic growth
has slowed from its previous highs, the unemployment
rate has
tracked above the national average. The average rate
of
unemployment for Florida since 1980 is 6.3%, while the
national
average is 6.4%.
Tourism is one of the State's most important
industries.
Approximately 39.9 million people visited the State in
1994, as
reported by the Florida Department of Commerce. The
state's
tourist industry over the years has become more
sophisticated,
attracting visitors year-round, thus, to a degree
reducing its
seasonality.
REVENUES AND EXPENDITURES. The State prepares an
annual
budget which is formulated each year and presented to
the
Governor and the Legislature. The Florida Constitution
and
Statutes mandate that the State budget as a whole, and
each
separate fund within the State budget, be kept in
balance from
currently available revenues each State fiscal year
(July 1-
June 30). The Governor and Comptroller are responsible
for
insuring that sufficient revenues are collected to meet
appropriations and that no deficit occurs in any State
fund.
The State is not authorized by law to issue
obligations to
fund governmental operations. The Florida Constitution
provides
that State bonds pledging the full faith and credit of
the State
may be issued only to finance or refinance the cost of
State
fixed capital outlay projects upon approval by a vote
of the
electors, and provides that revenue bonds may be issued
by the
State or its agencies without a vote of the electors
only to
finance or refinance the cost of State fixed capital
outlay
projects which shall be payable solely from funds
derived
directly from sources other than State tax revenues.
Financial operations of the State covering all
receipts and
expenditures are maintained through the use of four
fund types -
the General Revenue Fund, Trust Funds, the Working
Capital Fund
and beginning in fiscal year 1994-1995, the Budget
Stabilization
Fund.
The General Revenue Fund receives the majority of
State tax
revenues. Major sources of tax revenues to the General
Revenue
Fund are the sales and use tax, corporate income tax,
intangible
personal property tax and beverage tax. The greatest
single
source of tax receipts in Florida is the sales and use
tax. All
receipts of the sales and use tax, with the exception
of the tax
on gasoline and special fuels, are credited either to
the General
Revenue Fund, the Solid Waste Management Trust Fund, or
counties
and cities. For the fiscal year ended June 30, 1994,
receipts
from this source were $10,012.50 million, an increase
of 6.9%
from fiscal year 1992-93. The second largest source of
State tax
receipts, including those distributed to local
governments, is
the tax on motor fuels. Collections from this source
in State
fiscal year ending June 30, 1994 were $1,733.4 million.
These
revenues are almost entirely dedicated to trust funds
for
specific purposes and are not included in the State
General
Revenue Fund. The State's alcoholic beverage tax is an
excise
tax on beer, wine and liquor. This tax is one of the
State's
major tax sources, with revenues totalling $439.8
million in the
fiscal year ended June 30, 1994. All receipts of the
corporate
income tax are credited to the General Revenue Fund.
For the
fiscal year ended June 30, 1994, receipts from this
source were
$1,047.4 million, an increase of 23.7% from fiscal year
1992-93.
In fiscal year 1993-94 total intangible personal
property tax
collections were $836.0 million, a 6.7% increase over
the prior
year.
For fiscal year 1994-95, the estimated General
Revenue plus
Working Capital funds available total $14,682.9
million, a 6.1%
increase over 1992-93. This amount reflects a transfer
of $159.0
million in non-recurring revenue due to Hurricane
Andrew, to a
hurricane relief trust fund. The $13,702.1 million in
Estimated
Revenues (excluding the Hurricane Andrew impacts)
represent a
6.6% increase over the analogous figure in 1993-94.
With
combined General Revenue Working Capital Fund and
Budget
Stabilization Fund appropriations at $14,330.8 million,
unencumbered reserves at the end of 1994-95 are
estimated at
$352.1 million.
For fiscal year 1995-96, the estimated General
Revenue plus
Working Capital and Budget Stabilization funds
available total
$15,147.5 million, a 3.2% increase over 1994-95. The
$14,456.7
million in Estimated Revenues and recently legislated
revenue
impacts represent a 5.5% increase over the analogous
figure in
1994-95. With combined General Revenue, Working
Capital Fund,
and Budget Stabilization Fund appropriations at
$14,800.4
million, unencumbered reserves at the end of 1995-96
are
estimated at $347.1 million.
Subject to the limitations described in the
Prospectus,
Florida municipal securities also include debt
obligations issued
by or on behalf of the governments of Puerto Rico, the
U.S.
Virgin Islands and Guam. Mackenzie Florida Limited
Term
Municipal Fund may not invest more than 5% its net
assets in
obligations of each of the U.S. Virgin Islands and
Guam, but may
invest without limitation in obligations of Puerto
Rico.
Accordingly, Mackenzie Florida Limited Term Municipal
Fund may be
adversely affected by local political and economic
conditions and
developments within Puerto Rico affecting the issuers
of such
obligations.
PUERTO RICO ECONOMY. Since 1983, Puerto Rico has
experienced a wide ranging expansion with growth in
almost every
sector of its economy and record levels of employment.
In
February 1995, the number of persons employed in Puerto
Rico
increased to 1,086,000. The unemployment rate as of
February
1995 was 12.5%. Although the increase in real gross
product
slowed to 0.9% in fiscal 1991, and 0.8% in fiscal 1992,
reflecting the effects of the recession in the U.S.
economy, the
growth pattern continued in fiscal 1993 and 1994 with
real gross
product increases of 3.0% and 2.6%. While trends in
the Puerto
Rico economy normally follow those in the United
States, Puerto
Rico did not experience a recession during fiscal 1991
as the
United States recently did, primarily because its
manufacturing
base is comprised of certain industries less prone to
business
cycle fluctuations. Other factors contributing to
Puerto Rico's
decade-long expansion include Commonwealth-sponsored
economic
development programs, the relatively stable prices of
oil
imports, the continued growth in the U.S. economy,
declines in
the exchange value of the U.S. dollar and the
relatively low cost
of borrowing during the period.
In the first seven months of fiscal 1995, the
Economic
Activity Index, a composite index of thirteen economic
indicators
prepared by the Puerto Rico Planning Board, increased
2.7%
compared to fiscal 1994. The Index may not necessarily
change at
the same percentage rate as the real gross product of
Puerto
Rico. The Planning Board's real gross product forecast
for
fiscal 1995 and fiscal 1996, made in February 1995,
shows
increases of 2.9% and 2.7%, respectively. Actual
growth in
fiscal 1996 will continue to depend on several factors,
including
the state of the U.S. economy, the relative stability
in the
price of oil imports, the exchange value of the U.S.
dollar and
the cost of borrowing.
Puerto Rico has a diversified economy with the
manufacturing
and services sectors comprising the principal sectors.
Manufacturing is the largest sector in terms of gross
domestic
product. In fiscal 1994, manufacturing generated $16.3
billion
(or 41.5%) of gross domestic product, as compared with
fiscal
1993 when it generated $15.2 billion (or 41.4%) of
gross domestic
product. Manufacturing in Puerto Rico is more
diversified now
than during the earlier phases of its industrial
development and
includes several industries less prone to business
cycles. In
the last two decades, industrial development has tended
to be
more capital intensive and more dependent on skilled
labor. This
gradual shift in emphasis is best exemplified by the
heavy
investment in the pharmaceutical, scientific
instruments,
computer, microprocessor, medical product and
electrical product
industries over the last decade. One of the factors
assisting
the development of the manufacturing sector has been
the tax
incentives offered by the federal and Commonwealth
governments,
most notably Section 936 of the Code, under which
certain
qualifying U.S. corporations may be entitled to U.S.
corporate
income tax credits. Federal legislation enacted in
1993 amending
Code Section 936 reduces the level of these incentives.
At
present, it is difficult to forecast what the short and
long term
effects of the new limitations to the Section 936
credit will be
on the economy of Puerto Rico.
Over the past decade, Puerto Rico has experienced
significant growth in the services sector in terms of
both income
and employment, showing a favorable trend as compared
with
certain other industrialized economies. During the
period
between 1990 and 1994, the gross domestic product in
the services
sector increased at an annual average rate of 4.7%.
Employment
in this sector increased at an annual average rate of
3.2% during
the same period. The services sector, which accounted
for
approximately 47.3% of total employment, accounted for
$15.0
billion (or 38.2%) of Puerto Rico's gross domestic
product in
fiscal 1994, as compared with $14.4 billion (or 39.2%)
of gross
domestic product in fiscal 1993. The services sector,
particularly wholesale and retail trade and finance,
insurance
and real estate, has experienced significant growth
partly in
response to the expansion of the manufacturing sector.
A major
element in the economic program of the present
administration is
the further development of the local services sector
which has
the capacity to increase its export potential and to
generate
more income and jobs during the coming years.
The United States, Canada and Mexico have entered
into the
North American Free Trade Agreement ("NAFTA"), which
agreement is
designed to eliminate restrictions on trade and
investment flows
among the three countries. Certain of the
Commonwealth's
industries, including those that are lower salaried and
labor
intensive, may face increased competition from Mexico,
while
Puerto Rico's favorable investment environment, highly
skilled
work force, infrastructure development and tax
structure (mainly
Section 936) may tend to create expanded trade
opportunities for
Puerto Rico in such areas as pharmaceutical and high
technology
manufacturing. Reductions in after-tax return
resulting from
changes to Section 936 is not expected to eliminate
Puerto Rico's
competitive advantage in certain key industries over
Mexico,
including pharmaceuticals, electronics and scientific
instruments.
PUERTO RICO DEBT MANAGEMENT. The Commonwealth
exercises
virtually the same control over its internal affairs as
do the
fifty states; however, it differs from the states in
its
relationship with the federal government. Most federal
taxes,
except those such as social security taxes, are not
levied in
Puerto Rico. No federal income tax is collected from
Commonwealth residents on ordinary income earned from
sources in
Puerto Rico, except for federal employees who are
subject to
taxes on their salaries.
The Commonwealth has established policies and
programs
directed at the development of manufacturing and the
expansion
and modernization of the island's infrastructure.
Infrastructure
expansion and modernization have been to a large extent
financed
by bonds and notes issued by the Commonwealth, its
public
corporations and municipalities. The Constitution of
Puerto Rico
provides a limitation on the amount of general
obligations debt
that can be issued. The Commonwealth's policy has been
and
continues to be to maintain the level of such debt
within a
prudent range below the constitutional limitation.
Direct debt
of the Commonwealth is supported by Commonwealth taxes.
Debt of
public corporations, other than bond anticipation
notes, is
generally supported by the revenues of such
corporations from
charges for services or products. However, certain
debt of
public corporations is supported, in whole or in part,
directly
or indirectly, by Commonwealth appropriations or taxes.
Debt of
municipalities, other than bond anticipation notes, is
supported
by real and personal property taxes and municipal
license taxes.
Historically, the Commonwealth has maintained a
fiscal
policy which provides for a prudent relationship
between the
growth of public sector debt and the growth of the
economic base
required to service that debt. The Commonwealth also
has sought
opportunities to realize debt service savings by
refunding
outstanding debt with obligations bearing lower
interest rates.
In certain years, this policy has had the effect of
causing the
rate of growth of public sector debt to be higher than
the rate
of growth of gross domestic product. Over the fiscal
years 1990
to 1994, public sector debt increased 21.4% while gross
product
rose 23.3%. Short-term debt outstanding relative to
total debt
was 7.4% as of December 31, 1994.
U.S. GOVERNMENT SECURITIES
The Fund may invest in 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). In these securities,
the
payment of principal and interest is unconditionally
guaranteed
by the U.S. Government, and thus they are of the
highest possible
credit quality. Such securities are subject to
variations in
market value due to fluctuations in interest rates,
but, if held
to maturity, will be paid in full.
Mortgage-backed securities are securities
representing part
ownership of a pool of mortgage loans. For example,
GNMA
certificates are such securities in which the timely
payment of
principal and interest is guaranteed by the full faith
and credit
of the U.S. Government. Although the mortgage loans in
the pool
will have maturities of up to 30 years, the actual
average life
of the GNMA certificates typically will be
substantially less
because the mortgages will be subject to normal
principal
amortization and may be prepaid prior to maturity.
Prepayment
rates vary widely and may be affected by changes in
market
interest rates. In periods of falling interest rates,
the rate
of prepayment tends to increase, thereby shortening the
actual
average life of the GNMA certificates. Conversely,
when interest
rates are rising, the rate of prepayments tends to
decrease,
thereby lengthening the actual average life of the GNMA
certificates. Accordingly, it is not possible to
predict
accurately the average life of a particular pool.
Reinvestment
of prepayments 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, GNMA certificates can be less effective
than
typical bonds of similar maturities at "locking in"
yields during
periods of declining interest rates. GNMA certificates
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, Bank for
Cooperatives
(including Central Bank for Cooperatives), Federal
Intermediate
Credit Banks, Federal Home Loan Banks, Federal National
Mortgage
Association, Student Loan Marketing Association,
Tennessee Valley
Authority, Export-Import Bank of the United States,
Commodity
Credit Corporation, Federal Financing Bank, Federal
Home Loan
Mortgage Corporation, Small Business Administration and
National
Credit Union Administration.
BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS
The Fund may invest in bank obligations, which may
include
certificates of deposit, bankers' acceptances, and
other short-
term debt 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 on maturity. Investments in certificates of
deposit
and bankers' acceptances are limited to obligations of
(i) banks
having total assets in excess of $1 billion, and (ii)
other banks
if the principal amount of such obligation (currently
$100,000)
is fully insured by the Federal Deposit Insurance
Corporation
("FDIC"). Investments in certificates of deposit of
savings
associations are limited to obligations of federally or
state
chartered institutions that have total assets in excess
of $1
billion and whose deposits are insured by the FDIC.
COMMERCIAL PAPER
The Fund may invest in commercial paper.
Commercial paper
represents short-term unsecured promissory notes issued
in bearer
form by bank holding companies, corporations and
finance
companies. Investments in commercial paper are limited
to
obligations rated Prime-1 by Moody's Investors Service,
Inc.
("Moody's") or A-1 by Standard and Poor's Corporation
("S&P") or,
if not rated by Moody's or S&P, issued by companies
having an
outstanding debt issue currently rated Aaa or Aa by
Moody's or
AAA or AA by S&P.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements.
Repurchase
agreements are agreements under which the Fund buys a
money
market instrument and obtains a simultaneous commitment
from the
seller to repurchase the instrument at a specified time
and at an
agreed-upon yield. The Fund will not enter into a
repurchase
agreement with more than seven days to maturity if, as
a result,
more than 10% of the Fund's net assets would be
invested in
illiquid securities including such repurchase
agreements. The
Fund may enter into repurchase agreements with banks or
broker-
dealers deemed to be creditworthy by MIMI under
guidelines
approved by the Board of Trustees. In the event of
failure of
the executing bank or broker-dealer, the Fund could
experience
some delay in obtaining direct ownership of the
underlying
collateral and might incur a loss if the value of the
security
should decline, as well as costs in disposing of the
security.
BORROWING
As a fundamental policy, the Fund may borrow from
banks as a
temporary measure for extraordinary or emergency
purposes. The
Fund may borrow in amounts up to 10% of its total
assets taken at
cost or market value, whichever is lower. All
borrowings will be
repaid before any additional investments are made. The
Fund may
not mortgage, pledge or in any other manner transfer
any of its
assets as security for any indebtedness. Borrowing may
exaggerate the effect on the Fund's net asset value of
any
increase or decrease in the value of the Fund's
portfolio
securities. Money borrowed will be subject to interest
costs
(which may include commitment fees and/or the cost of
maintaining
minimum average balances).
RESTRICTED AND ILLIQUID SECURITIES
It is the Fund's policy that restricted
securities,
including restricted securities offered and sold to
"qualified
institutional buyers" under Rule 144A under the
Securities Act of
1933, as amended (the "1933 Act"), and any other
illiquid
securities (including certain repurchase agreements and
other
securities which are not readily marketable) may not
constitute,
at the time of purchase, more than 10% of the value of
the Fund's
net assets. 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.
Restricted securities may be sold only in privately
negotiated
transactions or in a public offering with respect to
which a
registration statement is in effect under the 1933 Act.
Where a
registration statement is required, the Fund may be
required to
bear all or part of the registration expenses. There
may be a
lapse of time between the Fund's decision to sell a
restricted or
illiquid security and the point at which the Fund is
permitted or
able to sell such security. If, during such a period,
adverse
market conditions were to develop, the Fund might
obtain a price
less favorable than the price that prevailed when it
decided to
sell. 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, the Fund will carefully
monitor each
of its investments in these securities, focussing on
such
important factors, among others, as valuation,
liquidity and
availability of information. This investment practice
could have
the effect of increasing the level of illiquidity in
the Fund to
the extent that qualified institutional buyers become
for a time
uninterested in purchasing these restricted securities.
TEMPORARY INVESTMENTS
From time to time on a temporary basis, the Fund
may invest
in fixed-income obligations the interest on which is
subject to
Federal income tax. Except when the Fund is in a
"defensive"
investment position, it will not purchase a taxable
security if,
as a result, more than 20% of its total net assets
would be
invested in taxable securities.
The above limitation is a fundamental policy of
the Fund,
i.e., it may not be changed without a majority vote of
the Fund's
outstanding securities. Temporary taxable investments
of the
Fund may consist of obligations issued or guaranteed by
the U.S.
Government or its agencies or instrumentalities,
commercial paper
rated A-l by S&P or Prime-1 by Moody's, corporate
obligations
rated AAA or AA by S&P or Aaa or Aa by Moody's,
certificates of
deposit or bankers' acceptances of domestic banks or
thrifts with
at least $1 billion in assets, or repurchase agreements
with such
banks or with broker-dealers. See Appendix A for a
further
description of repurchase agreements and of the Moody's
and S&P
ratings relating to taxable securities.
OTHER INVESTMENT TECHNIQUES
Although the Fund has not done so in the last year
and has
no current intention of doing so in the foreseeable
future, the
Fund may (i) lend its portfolio securities, (ii)
purchase
securities on a "when-issued" or firm commitment basis,
(iii)
acquire puts or standby commitments, (iv) engage in
transactions
in certain types of financial futures (such as interest
rate
futures) and related options, and options on individual
securities and bond indices, (v) engage in "conversion"
and
spread transactions; and (vi) write straddles.
INVESTMENT RESTRICTIONS
The Fund's investment objectives as set forth in
the
Prospectus under "Investment Objectives and Policies,"
together
with the investment restrictions set forth below, are
fundamental
policies of the Fund and may not be changed without the
approval
of a majority of the Fund's outstanding voting shares.
Under
these restrictions, the Fund may not:
(i) invest in real estate, real estate
mortgage loans,
commodities, commodity futures contracts
or
interests in oil, gas and/or mineral
exploration or
development programs, although the Fund
may purchase
and sell (a) securities that are secured
by real
estate, (b) securities of issuers that
invest or
deal in real estate, and (c) futures
contracts as
described in the Prospectus;
(ii) make investments in securities for the
purpose of
exercising control over or management of
the issuer;
(iii) participate on a joint or a joint and
several basis
in any trading account in securities,
although 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;
(iv) purchase securities on margin, except such
short-
term credits as are necessary for the
clearance of
transactions, although the deposit or
payment by the
Fund of initial or variation margin in
connection
with futures contracts or related options
transactions is not considered the
purchase of a
security on margin;
(v) make loans, except that this restriction
shall not
prohibit (a) the purchase and holding of a
portion
of an issue of publicly distributed debt
securities,
(b) the lending of portfolio securities
(provided
that the loan is secured continuously by
collateral
consisting of U.S. Government securities
or cash or
cash equivalents maintained on daily
marked-to-
market basis in an amount at least equal
to the
current market value of the securities
loaned), or
(c) entry into repurchase agreements with
banks or
broker-dealers;
(vi) borrow amounts in excess of 10% of its
total assets,
taken at lower of cost or market value,
and then
only from banks as a temporary measure for
extraordinary or emergency purposes;
(vii) 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, that this does
not
prohibit escrow, collateral or margin
arrangements
in connection with the Fund's use of
options, short
sales, futures contracts and options on
futures
contracts;
(viii) purchase the securities of issuers
conducting their
principal business activities in the same
industry
if immediately after such purchase the
value of the
Fund's investments in such industry would
exceed 25%
of the value of the total assets of the
Fund;
(ix) act as an underwriter of securities;
(x) make short sales of securities or maintain
a short
position; or
(xi) issue senior securities, except insofar as
the Fund
may be deemed to have issued a senior
security in
connection with any repurchase agreement
or any
permitted borrowing.
ADDITIONAL RESTRICTIONS
The Fund has adopted the following additional
restrictions,
which are not fundamental and which may be changed
without
shareholder approval, to the extent permitted by
applicable law,
regulation or regulatory policy. Under these
restrictions, the
Fund may not:
(i) purchase or sell real estate limited
partnership
interests;
(ii) purchase or sell interests in oil, gas and
mineral
leases (other than securities of companies
that
invest in or sponsor such programs);
(iii) purchase or retain securities of any
company if, to
the knowledge of the Trust, officers and
Trustees of
the Trust and officers and directors of
MIMI or
Mackenzie Financial Corporation who
individually own
more than 1/2 of 1% of the securities of
that
company together own beneficially more
than 5% of
such securities;
(iv) purchase 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;
(v) invest more than 10% 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 that
legally or in the Investment Manager'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; or
(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, or by
any state
in which shares of the Fund are
registered.
In addition, so long as it remains a restriction
of the Ohio
Division of Securities, the Fund will treat securities
eligible
for resale under Rule 144A of the Securities Act of
1933 and
securities of unseasoned issuers as described in
non-fundamental
restriction (iv) above, as subject to the Fund's
restriction on
investing in restricted securities (see "Restricted and
Illiquid
Securities" under "Investment Objectives and Policies,"
above).
Whenever an investment objective, policy or
restriction set
forth in the Prospectus or this SAI states a maximum
percentage
of assets that may be invested in any security or other
asset or
describes a policy regarding quality standards, such
percentage
limitation or standard shall, unless otherwise
indicated, apply
to the Fund only at the time a transaction is entered
into.
Accordingly, if a percentage limitation is adhered to
at the time
of investment by the Fund, a later increase or decrease
in the
percentage that results from circumstances not
involving any
affirmative action by the Fund, such as a change in
market
conditions or a change in the Fund's asset level or
other
circumstances beyond the Fund's control, will not be
considered a
violation.
ADDITIONAL RIGHTS AND PRIVILEGES
The Trust offers to investors (and except as noted
below,
bears the cost of providing) the rights and privileges
described
below. The Trust reserves the right to amend or
terminate any
one or more of such 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 other funds distributed by MIFDI, which funds are
not
described in this SAI. These funds are: Mackenzie
Limited Term
Municipal Fund, Mackenzie National Municipal Fund,
Mackenzie
California Municipal Fund and Mackenzie New York
Municipal Fund,
the four other series of the Trust, and Ivy Bond Fund,
Ivy Canada
Fund, Ivy China Region Fund, Ivy Emerging Growth Fund,
Ivy Global
Fund, Ivy Growth Fund, Ivy Growth with Income Fund, Ivy
International Fund, Ivy International Bond Fund, Ivy
Latin
America Strategy Fund, Ivy Money Market Fund, Ivy New
Century
Fund and Ivy Short-Term Bond Fund, the thirteen series
of Ivy
Fund (collectively, with the Fund, the "Ivy and
Mackenzie
Funds"). Investors should obtain a current prospectus
before
exercising any right or privilege that may relate to
these other
funds.
AUTOMATIC INVESTMENT METHOD
The Automatic Investment Method is available for
Class A and
Class B shareholders of the Fund. The minimum initial
and
subsequent investment pursuant to this plan is $50 per
month.
The Automatic Investment Method may be discontinued at
any time
upon receipt by Mackenzie Ivy Investor Services Corp.
("MIISC")
of telephone instructions or written notice of such
discontinuation from the investor. See "Automatic
Investment
Method" in the Account Application.
EXCHANGE OF SHARES
As described in the Prospectus, shareholders of
the Fund
have an exchange privilege with certain other Ivy and
Mackenzie
Funds. Before effecting an exchange, shareholders of
the Fund
should obtain and read the currently effective
prospectus for the
Ivy or Mackenzie Fund into which the exchange is to be
made.
INITIAL SALES CHARGE SHARES. Class A shareholders
may
exchange their Class A shares ("outstanding Class A
shares") for
Class A shares of another Ivy or Mackenzie Fund (or for
shares of
another Ivy or Mackenzie Fund that currently offers
only a single
class of shares) ("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
outstanding
Class A shares that have been invested for a period of
12 months
or longer.) Class A shareholders may also exchange
their Class A
shares for Class A shares of Ivy Money Market Fund (no
initial
sales charge will be assessed at the time of such an
exchange).
CONTINGENT DEFERRED SALES CHARGE SHARES.
CLASS A: Class A shareholders may exchange their
Class A
shares subject to a contingent deferred sales charge,
as
described in the Prospectus ("outstanding Class A
shares"), for
Class A shares of another Ivy or Mackenzie Fund (or for
shares of
another Ivy or Mackenzie Fund that currently offers
only a single
class of shares) ("new Class A shares") on the basis of
the
relative net asset value per Class A share, without the
payment
of any contingent deferred sales charge that would
otherwise be
due upon the redemption of the outstanding Class A
shares.
Class A shareholders of the Fund exercising the
exchange
privilege will continue to be subject to the Fund's
contingent
deferred sales charge schedule (or period) following an
exchange,
unless the contingent deferred sales charge schedule
that applies
to the new Class A shares is higher (or such period is
longer)
than the contingent deferred sales charge schedule (or
period),
if any, applicable to the outstanding Class A shares,
in which
case the schedule (or period) of the fund into which
the exchange
is made shall apply.
For purposes of the exchange feature and computing
the
contingent deferred sales charge 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 or Mackenzie Fund ("new Class B shares") on
the basis
of the relative net asset value per Class B share,
without the
payment of any contingent deferred sales charge that
would
otherwise be due upon the redemption of the outstanding
Class B
shares. Class B shareholders of the Fund exercising
the exchange
privilege will continue to be subject to the Fund's
contingent
deferred sales charge schedule (or period) following an
exchange,
unless the contingent deferred sales charge schedule
that applies
to the new Class B shares is higher (or such period is
longer)
than the contingent deferred sales charge schedule (or
period)
applicable to the outstanding Class B shares, in which
case the
schedule (or period) of the fund into which the
exchange is made
shall apply.
For purposes of both the exchange feature and
computing the
contingent deferred sales charge 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 contingent deferred sales charge
table ("Table
1") applies to Class B shares of Mackenzie National
Municipal
Fund, Mackenzie California Municipal Fund, Mackenzie
New York
Municipal Fund, Ivy Bond Fund, Ivy Canada Fund, Ivy
Global Fund,
Ivy Growth Fund, Ivy Growth with Income Fund, Ivy
Emerging Growth
Fund, Ivy International Fund, Ivy International Bond
Fund, Ivy
New Century Fund, Ivy Latin America Strategy Fund and
Ivy China
Region Fund ("Table 1 Funds"):
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%
The following contingent deferred sales charge
table ("Table
2") applies to Class B shares of the Fund, Mackenzie
Limited Term
Municipal Fund and Ivy Short-Term Bond Fund ("Table 2
Funds"):
CONTINGENT DEFERRED
SALES
CHARGE AS A
PERCENTAGE OF
DOLLAR AMOUNT
SUBJECT TO
YEAR SINCE PURCHASE CHARGE
First 3%
Second 2 1/2%
Third 2%
Fourth 1 1/2%
Fifth 1%
Sixth and thereafter 0%
The contingent deferred sales charge schedule for
Table 1
Funds is higher (and the period is longer) than the
contingent
deferred sales charge schedule (and period) for Table 2
Funds.
Accordingly, the contingent deferred sales charge
schedule that
applies to the redemption of Table 1 Fund shares would
apply to
all Class B shares that are acquired as a result of an
exchange
between a Table 1 and a Table 2 Fund (taking into
account the
"tacking" of the holding period, if any, of the shares
held
before the exchange).
EXAMPLE: An investor may decide to exchange Class
B shares
of a Table 1 Fund that have been held for two
years
("outstanding Class B shares") for Class B shares
of a Table
2 Fund ("new Class B shares"). The exchange
itself would
not trigger payment of the 4% contingent deferred
sales
charge that would have been due in accordance with
Table 1
upon the redemption of the outstanding Class B
shares. If,
three years later, the investor redeems the new
Class B
shares, a 2% contingent deferred sales charge
would be
assessed in accordance with Table 1, since Table
1's
contingent deferred sales charge schedule is
higher than
that of Table 2, and because by "tacking" the two
year
holding period of the outstanding Class B shares
onto the
three year holding period of the new Class B
shares, the
investor will be deemed to have held the new Class
B shares
for five years.
The minimum amount that a shareholder may exchange
into an
Ivy or Mackenzie Fund in which shares are not already
held is
$1,000. In addition, no exchange out of the Fund
(other than by
a complete exchange of all Fund shares held by the
shareholder)
may be made if it would reduce the shareholder's
interest in the
Fund to less than $1,000. Exchanges are available only
in states
where the exchange can legally be made.
Each exchange will be made on the basis of the
relative net
asset values per share of each fund of the Ivy
Mackenzie Funds
next computed following receipt of telephone
instructions by
MIISC or a properly executed request by the MIISC.
Exchanges,
whether written or telephonic, must be received by
MIISC by the
close of regular trading on the New York Stock Exchange
(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. This exchange privilege may be
modified
or terminated at any time, upon at least 60 days'
notice when
such notice is required by Rules adopted by the
Securities and
Exchange Commission ("SEC"). See "Redemptions."
An exchange of shares between any of the Ivy or
Mackenzie
Funds will result in a taxable gain or loss.
Generally, any such
taxable gain or loss 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 would not be taxable to the plan and
will not be
taxed to the participant until distribution. Each
investor
should consult his or her tax adviser regarding the tax
consequences of an exchange transaction.
LETTER OF INTENT
Reduced sales charges apply to initial investments
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 $100,000 in Class A shares of the
Fund. A
Letter of Intent may be submitted at the time of an
initial
purchase of Class A shares of the Fund or within 90
days of the
initial purchase, in which case the Letter of Intent
will be
backdated. A shareholder may include the value (at the
applicable offering price) of all Class A shares of the
Fund,
Mackenzie Limited Term Municipal Fund, Mackenzie
National
Municipal Fund, Mackenzie California Municipal Fund,
Mackenzie
New York Municipal Fund, Ivy Short-Term Bond Fund, Ivy
Bond Fund,
Ivy Canada Fund, Ivy Global Fund, Ivy Growth Fund, Ivy
Growth
with Income Fund, Ivy Emerging Growth Fund, Ivy
International
Fund, Ivy New Century Fund, Ivy Latin America Strategy
Fund and
Ivy China Region Fund (and shares that have been
exchanged into
Ivy Money Market Fund from any of the other funds in
the Ivy and
Mackenzie Funds), held of record by him or her as of
the date of
his or her Letter of Intent as an accumulation credit
toward the
completion of such Letter. During the term of the
Letter of
Intent, the Fund's transfer agent will hold in escrow
Class A
shares representing 5% of the indicated amount (less
any
accumulation credit value). 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 MIFDI
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
thereof before
signing.
REINVESTMENT PRIVILEGE
Investors who have redeemed Class A shares of the
Fund may
reinvest all or a part of the proceeds of the
redemption back
into Class A shares of the Fund at net asset value
(without a
sales charge) within 60 days from the date of
redemption. This
privilege may be exercised only once. The reinvestment
will be
made at the net asset value next determined after
receipt by the
Fund's transfer agent of the reinvestment order
accompanied by
the funds to be reinvested. No compensation will be
paid to any
sales personnel or dealer in connection with the
transaction.
Any redemption is a taxable event. A loss
realized on a
redemption generally may be disallowed for tax purposes
if the
reinvestment privilege is exercised within 30 days
after the
redemption. In certain circumstances, shareholders
will be
ineligible to take sales charges into account in
computing
taxable gain or loss on a redemption if the
reinvestment
privilege is exercised. See "Taxation."
RIGHTS OF ACCUMULATION
A scale of reduced sales charges applies to
certain invest-
ments in Class A shares of the Fund 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. An investment qualifies for a reduced sales
charge if
the sum of: (a) the combined value, determined at the
higher of
current offering price or amount invested, of Class A
shares held
by the persons identified above in (i) any of the five
series of
the Trust, including the Fund, (ii) any of the series
of Ivy Fund
(except for shares of Ivy Money Market Fund, but
including shares
that have been exchanged from any of the Ivy or
Mackenzie Funds
into Ivy Money Market Fund), and (iii) any other
investment
company distributed by MIFDI currently owned; and (b)
the value
of the Class A shares being purchased, exceeds: (i)
$25,000,
with respect to an investment in the Fund or Mackenzie
Limited
Term Municipal Fund; (ii) $50,000, with respect to an
investment
in Ivy Canada Fund, Ivy Global Fund, Ivy Growth Fund,
Ivy Growth
with Income Fund, Ivy Emerging Growth Fund, Ivy
International
Fund, Ivy International Bond Fund, Ivy New Century
Fund, Ivy
Latin America Strategy Fund or Ivy China Region Fund;
or (iii)
$100,000, with respect to an investment in Mackenzie
National
Municipal Fund, Mackenzie California Municipal Fund,
Mackenzie
New York Municipal Fund, Ivy Short-Term Bond Fund or
Ivy Bond
Fund.
At the time an investment takes place, MIMI, in
the case of
a wire order, or Mackenzie Ivy Investor Services Corp.
("MIISC,"
or the "Transfer Agent"), in the case of a direct mail
remittance, must be notified by the investor or his or
her dealer
that the investment qualifies for the reduced charge on
the basis
of previous investments. The reduced charge is subject
to
confirmation of the investor's holdings through a check
of the
Fund's records.
SYSTEMATIC WITHDRAWAL PLAN
A shareholder may establish a Systematic
Withdrawal Plan
(the "Withdrawal Plan") by telephone instructions to
MIISC (i.e.,
the Transfer Agent) or delivery to the Transfer Agent
of a
written election to so redeem, accompanied by a
surrender to the
Transfer Agent of all share certificates then
outstanding in the
name of such shareholder, properly endorsed by him or
her. A
Withdrawal Plan may not be established if the investor
is
currently participating in the Automatic Investment
Method. The
Withdrawal Plan may involve the use of principal and,
to the
extent that it does, depending on the amount withdrawn,
the
investor's principal may be depleted.
A redemption under the Withdrawal Plan is a
taxable event.
Investors contemplating participation in the Withdrawal
Plan
should consult their tax advisers.
Additional investments made by investors
participating in
the Withdrawal Plan must equal at least $1,000 each
while the
Withdrawal Plan is in effect. Making additional
purchases while
the Withdrawal Plan is in effect may be disadvantageous
to the
investor because of applicable initial or contingent
deferred
sales changes.
An investor may terminate his or her participation
in the
Withdrawal Plan at any time by delivering written
notice to the
Transfer Agent. If all shares held by the investor are
liquidated at any time, the Withdrawal Plan will
terminate
automatically. The Trust or MIMI may terminate the
Withdrawal
Plan at any time after reasonable notice to
shareholders.
BROKERAGE ALLOCATION
Subject to the overall supervision of the
President and the
Board of Trustees of the Trust, MIMI places orders for
the
purchase and sale of the Fund's portfolio securities.
All
portfolio transactions are effected at the best price
and
execution obtainable. Purchases and sales of debt
securities are
usually principal transactions and, therefore,
brokerage
commissions are usually not required to be paid by the
Fund for
such purchases and sales, although the price paid
generally
includes undisclosed compensation to the dealer. The
prices paid
to underwriters of newly-issued securities usually
include a
concession paid by the issuer to the underwriter, and
purchases
of after-market securities from dealers normally
reflect the
spread between the bid and asked prices. In connection
with
over-the-counter transactions, MIMI attempts to deal
directly
with the principal market makers, except in those
circumstances
where it believes that better prices and execution are
available
elsewhere. Subject to the requirement of best price
and
execution, MIMI may select broker-dealers that provide
it with
research services and may consider sales of Fund shares
as a
factor in the selection of broker-dealers.
MIMI selects broker-dealers to execute
transactions and
evaluates the reasonableness of commissions on the
basis of
quality, quantity, and the nature of each firm's
professional
services. Commissions charged and investment services
rendered,
including statistical, research, and counseling
services by
brokerage firms, are among the factors that are
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 MIMI in
servicing
all of its accounts. In addition, not all of these
services may
be used by MIMI in connection with the services it
provides to
the Fund or the Trust. MIMI may consider sales of Fund
shares as
a factor in the selection of broker-dealers and may
select
broker-dealers who provide it with research services.
MIMI will
not, however, execute brokerage transactions other than
at the
best price and execution.
The Fund may, under some circumstances, accept
securities in
lieu of cash as payment for Fund shares. The Fund will
consider
accepting securities only to increase its holdings in a
portfolio
security or to take a new portfolio position in a
security that
MIMI deems to be a desirable investment for the Fund.
While no
minimum has been established, it is expected that the
Fund will
not accept securities having an aggregate value of less
than $1
million. The Trust may reject in whole or in part any
or all
offers to pay for Fund shares with securities and may
discontinue
accepting securities as payment for Fund shares at any
time
without notice. The Trust will value accepted
securities in the
manner and at the same time provided for valuing
portfolio
securities of the Fund, and Fund shares will be sold
for net
asset value determined at the same time the accepted
securities
are valued. The Trust will accept only securities that
are
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 applicable laws of
certain states.
During the fiscal year ended June 30, 1995 and the
period
from April 1, 1994 (commencement) to June 30, 1994, the
Fund did
not pay any brokerage commissions.
TRUSTEES AND OFFICERS
The Trustees and Executive Officers of the Trust,
their
business addresses and principal occupations during the
past five
years are:
POSITION
WITH THE BUSINESS
AFFILIATIONS
NAME, ADDRESS, AGE TRUST AND PRINCIPAL
OCCUPATIONS
Michael G. Landry Trustee President,
Chairman and
700 South Federal Hwy. and Director of
Mackenzie
Suite 300 President Investment
Management Inc.
Boca Raton, FL 33432 (1987-present);
President
Age: 49* and Director of
Ivy
[Deemed to be an Management, Inc.
(1992-
"interested person" of present);
Chairman and
the Trust, as defined Director of
Mackenzie Ivy
under the 1940 Act.] Investor Services
Corp.
(1993-present);
Director
and President of
Mackenzie
Ivy Funds
Distribution,
Inc. (1993-1994);
Chairman
and Director of
Mackenzie
Ivy Funds
Distribution,
Inc.
(1994-present);
President and
Trustee of
Ivy Fund
(1992-present);
President of
Mackenzie
Series Trust
(1987-
present);
Director and
President of The
Mackenzie
Funds Inc.
(1987-1995).
John S. Anderegg, Jr. Trustee Chairman,
Dynamics Research
(71) Corp.
(instruments and
60 Concord Street controls);
Director, Burr-
Wilmington, MA 01887 Brown Corp.
(operational
amplifiers);
Director,
Metritage
Incorporated
(level measuring
instruments);
Trustee of
Ivy Fund
(1967-present).
Paul H. Broyhill (71) Trustee Chairman, BMC
Fund, Inc.
800 Hickory Blvd. (1983-present);
Chairman,
Golfview Park Broyhill Family
Foundation,
Lenoir, NC 28645 Inc.
(1983-present);
Chairman and
President,
Broyhill
Investments, Inc.
(1983-present);
Chairman,
Broyhill Timber
Resources
(1983-present);
Director of
The Mackenzie
Funds Inc.
(1988-1995);
Trustee of Ivy
Fund
(1992-present);
Management of a
personal
portfolio of
fixed income
and equity
investments
(1983-present).
Stanley Channick (71) Trustee President, The
Whitestone
11 Bala Avenue Corporation
(insurance
Bala Cynwyd, PA 19004 agency);
President, Scott
Management
Company
(administrative
services
for insurance
companies);
President, The
Channick
Group
(consultants to
insurance
companies and
national trade
associations);
Trustee of
Ivy Fund
(1984-1993);
Director of The
Mackenzie
Funds Inc.
(1994-1995).
Frank W. DeFriece, Jr. Trustee Director of The
Mackenzie
(74) Funds Inc.
(1987-1995);
322 Seventh Street Trustee and
Second Vice
Bristol, TN 37620- Chairman, East
Tennessee
2218 Public
Communications Corp.
(WSJK-TV)
(1984-present);
Director, Manager
and Vice
President,
Massengill-
DeFriece
Foundation
(charitable
organization)
(1950-present);
Trustee of
Ivy Fund
(1992-present).
Roy J. Glauber (70) Trustee Mallinckrodt
Professor of
Physics, Harvard
University
(since 1974);
Trustee of
Ivy Fund
(1961-1991);
Trustee of
Mackenzie Series
Trust
(1994-present).
Joseph G. Rosenthal Trustee Chartered
Accountant (1958-
(61) present);
Director of The
110 Jardin Drive Mackenzie Funds
Inc. (1987-
Unit #12 1995); Trustee of
Ivy Fund
Concord, Ontario (1992-present).
Canada
L4K 2T7
J. Brendan Swan (65) Trustee President,
Airspray
4701 North Federal International,
Inc.; Joint
Hwy. #465 Managing
Director, Airspray
Pompano Beach, FL International
B.V. (an
33064 environmentally
sensitive
packaging
company); Trustee
of Ivy Fund
(1992-present);
Director, The
Mackenzie
Funds Inc.
(1992-1995).
Keith J. Carlson (39) Vice Senior Vice
President and
700 South Federal Hwy. President Director of
Mackenzie
Suite 300 Investment
Management, Inc.
Boca Raton, FL 33432 (1994-present);
Senior Vice
President,
Secretary and
Treasurer of
Mackenzie
Investment
Management Inc.
(1985-1994);
Senior Vice
President and
Director of
Ivy Management,
Inc. (1994-
present); Senior
Vice
President,
Treasurer and
Director of Ivy
Management,
Inc. (1992-1994);
Vice
President of The
Mackenzie
Funds Inc.
(1987-1995);
President and
Director of
Mackenzie Ivy
Investor
Services Corp.
(1993-
present); Vice
President of
Mackenzie Series
Trust
(1994-present);
Treasurer
of Mackenzie
Series Trust
(1985-1994);
President and
Director of
Mackenzie Ivy
Funds
Distribution, Inc.
(1994-present);
Executive
Vice President
and Director
of Mackenzie Ivy
Funds
Distribution,
Inc. (1993-
1994); Treasurer
of Ivy
Fund (1992-1994);
Vice
President of Ivy
Fund
(1994-present).
C. William Ferris (51) Secretary/ Senior Vice
President,
700 South Federal Hwy. Treasurer
Secretary/Treasurer and
Suite 300 Director of
Mackenzie
Boca Raton, FL 33432 Investment
Management Inc.
(1994-present);
Senior Vice
President,
Finance and
Administration/Compliance
Officer of
Mackenzie
Investment
Management Inc.
(1989-1994);
Senior Vice
President,
Secretary/Treasurer and
Clerk of Ivy
Management,
Inc. (1989-1994);
Senior
Vice President,
Secretary/Treasurer of
Mackenzie Ivy
Funds
Distribution,
Inc. (1993-
1994);
Secretary/Treasurer
and Director of
Mackenzie
Ivy Investor
Services Corp.
(1993-1994);
Secretary of
Mackenzie Series
Trust
(1993-1994);
Secretary/Treasurer and
Director of
Mackenzie Ivy
Investor Services
Corp.
(1993-present);
Secretary/Treasurer of The
Mackenzie Funds
Inc. (1993-
1995);
Secretary/Treasurer
of Mackenzie
Series Trust
(1994-present);
Secretary
of Ivy Fund
(1993-1994);
Secretary/Treasurer of Ivy
Fund
(1994-present).
As of September 29, 1995, all Trustees and
executive
officers of the Trust as a group owned beneficially or
of record
1.8% of the outstanding Class A and Class B shares of
the Fund.
PERSONAL INVESTMENTS BY EMPLOYEES OF THE ADVISER
Employees of MIMI are permitted to make personal
securities
transactions, subject to requirements and restrictions
set forth
in MIMI's Code of Ethics. The Code of Ethics contains
provisions
and requirements designed to identify and address
certain
conflicts of interest between personal investment
activities and
the interests of investment advisory clients such as
the Fund.
Among other things, the Code of Ethics, which generally
complies
with standards recommended by the Investment Company
Institute's
Advisory Group on Personal Investing, prohibits certain
types of
transactions absent prior approval, imposes time
periods during
which personal transactions may not be made in certain
securities, and requires the submission of duplicate
broker
confirmations and monthly reporting of securities
transactions.
Additional restrictions apply to portfolio managers,
traders,
research analysts and others involved in the investment
advisory
process. Exceptions to these and other provisions of
the Code of
Ethics may be granted in particular circumstances after
review by
appropriate personnel.
COMPENSATION TABLE
(for the calendar year ending December 31,
1995)
PENSION OR
RETIREMENT
BENEFITS ESTIMATED
TOTAL
AGGREGATE ACCRUED AS ANNUAL
COMPENSA-
COMPENSA- PART OF BENEFITS
TION FROM
NAME, TION FROM FUND UPON
TRUST PAID
POSITION TRUST EXPENSES RETIREMENT
TO TRUSTEE
John S. 888 N/A N/A
888
Anderegg, Jr.
(Trustee)
Paul H. 888 N/A N/A
888
Broyhill
(Trustee)
Stanley 8,000 N/A N/A
8,000
Channick
(Trustee)
Frank W.
DeFriece, Jr. 888 N/A N/A
888
(Trustee)
Roy J. Glauber 8,000 N/A N/A
8,000
(Trustee)
Michael G.
Landry -0- N/A N/A
-0-
(Trustee and
President)
Joseph G. 888 N/A N/A
888
Rosenthal
(Trustee)
J. Brendan 888 N/A N/A
888
Swan
(Trustee)
Keith J. -0- N/A N/A
-0-
Carlson
(Vice
President)
C. William -0- N/A N/A
-0-
Ferris
(Secretary/
Treasurer)
INVESTMENT ADVISORY AND OTHER SERVICES
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES
Mackenzie Investment Management Inc. ("MIMI")
provides
business management and investment advisory services to
the Fund
pursuant to a Business Management and Investment
Advisory
Agreement (the "Agreement"). The Agreement was
approved by the
Board of Trustees for the Fund on November 19, 1993,
including a
majority of the Trustees who neither are "interested
persons" (as
defined in the 1940 Act) of the Trust nor have any
direct or
indirect financial interest in the operation of the
distribution
plans described below (see "Distribution Services") or
in any
related agreement (the "Independent Trustees'). The
Agreement
was approved by the initial shareholder of the Fund on
March 31,
1994. The continuation of the Agreement was last
approved on
August 26, 1995 by the Board of Trustees, including the
Independent Trustees. MIMI is a subsidiary of
Mackenzie
Financial Corporation ("MFC"), 150 Bloor Street West,
Toronto,
Ontario, Canada, a public corporation organized under
the laws of
Ontario whose shares are listed for trading on The
Toronto Stock
Exchange. MFC is registered in Ontario as a mutual
fund dealer.
Under the Agreement, MIMI makes investments for
the account
of the Fund in accordance with its best judgment and
within the
investment objectives and restrictions set forth in the
Prospectus, the 1940 Act and the provisions of the Code
relating
to regulated investment companies, subject to policy
decisions
adopted by the Trust's Board of Trustees. MIMI also
provides an
investment program, determines the securities to be
purchased or
sold by the Fund and places orders with brokers or
dealers who
deal in such securities.
MIMI also provides certain business management
services
pursuant to the Agreement. MIMI is obligated to (1)
coordinate
with the Fund's custodian and transfer agent and
monitor the
services they provide to the Fund; (2) coordinate with
and
monitor any other third parties furnishing services to
the Fund;
(3) provide the Fund with any necessary office space,
telephones
and other communications facilities; (4) provide the
services of
individuals competent to perform administrative and
clerical
functions that are not performed by employees or other
agents
engaged by the Fund or by MIMI acting in some other
capacity
pursuant to a separate agreement or arrangement with
the Fund;
(5) maintain or supervise the maintenance by third
parties of
such books and records of the Trust as may be required
by
applicable Federal or state law; (6) authorize and
permit MIMI'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.
For MIMI's services under the Agreement, the Fund
pays MIMI
a monthly fee at an annual rate of 0.55% of the Fund's
average
daily net assets. For the fiscal year ended June 30,
1995 and
the period from April 1, 1994 (commencement) to June
30, 1994,
the Fund paid MIMI $35,302 and $2,538, respectively.
The Trust pays the following expenses under the
Agreement:
(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 MIMI; (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.
MIMI voluntarily limits total Fund expenses
(excluding
interest, 12b-1 fees, taxes, brokerage commissions,
litigation
and indemnification expenses, and other extraordinary
expenses)
to an annual rate of 0.64% of the Fund's average daily
net
assets. As long as the Fund's expense limitation
continues, it
may lower the Fund's expenses and increase its yield.
The Fund's
expense limitation may be terminated or revised at any
time, at
which time the Fund's expenses may increase and its
yield may be
reduced, depending on the total assets of the Fund. If
the
Fund's expense limitation is terminated, MIMI will
comply with
any applicable state regulations, which may require
MIMI to make
reimbursements to the Fund in the event that the Fund's
aggregate
operating expenses, including the management and
advisory fee and
shareholder and administrative services fee, but
generally
excluding interest, taxes, brokerage commissions and
extraordinary expense, are in excess of specific
applicable
limitations. At the present time, the most restrictive
state
expense limitation provision limits the Fund's annual
expenses
(excluding interest, taxes, distribution expenses,
brokerage
commissions and extraordinary expenses, and other
expenses
subject to approval by state securities administrators)
to 2.5%
of the first $30 million of its average daily net
assets, 2.0% of
the next $70 million of its average daily net assets
and 1.5% of
its average daily net assets over $100 million. For
the fiscal
year ended June 30, 1995, voluntary expense
reimbursements for
the Fund were $76,855.
The Agreement will continue in effect with respect
to the
Fund for more than its initial two-year period only so
long as
the continuance is specifically approved at least
annually (i) by
the vote of a majority of the Independent Trustees, and
(ii)
either (a) by the vote of a majority of the Fund's
outstanding
voting securities (as defined in the 1940 Act), or (b)
by the
vote of a majority of the entire Board of Trustees. If
the
question of continuance of the Agreement (or adoption
of any new
agreement) is presented to the Fund's shareholders,
continuance
(or adoption) shall be effected only if approved by the
affirmative vote of a majority of the Fund's
outstanding voting
securities. See "Capitalization and Voting Rights."
The
Agreement may be terminated with respect to the Fund at
any time,
without payment of any penalty, by the vote of a
majority of the
Board of Trustees, or by the vote of a majority of the
Fund's
outstanding voting securities, on 60 days' written
notice to
MIMI, or by MIMI on 60 days' written notice to the
Trust. The
Agreement shall terminate automatically in the event of
its
assignment. MIMI and MFC reserve all rights in the
name
"Mackenzie" and permit the use of the name "Mackenzie"
or any
name derived from the name "Mackenzie" by the Fund and
the Trust
only so long as the Agreement or any extension, renewal
or
amendment thereof remains in effect.
DISTRIBUTION SERVICES
Mackenzie Ivy Funds Distribution, Inc. ("MIFDI"),
a wholly
owned subsidiary of MIMI, serves as the exclusive
distributor of
the Class A and Class B shares of the Fund pursuant to
an Amended
and Restated Distribution Agreement with the Trust
dated April 1,
1994 (the "Distribution Agreement"). 1[Effective
October 1, 1993,
MIFDI succeeded to and is continuing MIMI's
broker-dealer
activities. The provisions of the Fund's previous
Distribution
Agreements with MIMI remain unchanged by the
succession.] The
Distribution Agreement does not obligate MIFDI to sell
any
specific amount of Fund shares. 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 of Trustees or a
majority
of the outstanding voting securities of the Fund. The
Distribution Agreement may be terminated with respect
to the Fund
at any time, without payment of any penalty, by MIFDI
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 MIFDI. The Distribution Agreement shall terminate
automatically in the event of its assignment.
Under the terms of the Distribution Agreement,
MIFDI is
entitled to deduct a contingent deferred sales charge
on the
redemption of Class B shares of the Fund in the manner
set forth
in the Prospectus. MIFDI may reallow all or a portion
of the
contingent deferred sales charge to dealers as MIFDI
may
determine from time to time. During the fiscal year
ended June
30, 1995, MIFDI received $24,940 in contingent deferred
sales
charges on redemptions of Class B shares of the Fund.
During the
period from April 1, 1994 (commencement) to June 30,
1994, MIFDI
received no contingent deferred sales charges on
redemptions of
Class B shares of the Fund.
MIFDI is also entitled under the Distribution
Agreement to
deduct a commission on all Class A Fund shares sold
equal to the
difference, if any, between the public offering price,
as set
forth in the Fund's then-current Prospectus, and the
net asset
value on which such price is based. Out of such
commission,
MIFDI may allow to dealers such concession as MIFDI may
determine
from time to time. During the fiscal year ended June
30, 1995
and the period from April 1, 1994 (commencement) to
June 30,
1994, MIFDI received $39,506 and $55,101, respectively,
in
commissions from sales of Class A shares of the Fund,
of which
$9,322 and $6,924, respectively, was retained after
dealers'
reallowances.
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 whose shares are registered on Form
N-1A 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. At a
meeting held on
December 1-2, 1995, the Board of Trustees of the Trust
adopted a
multi-class plan (the "Rule 18f-3 plan") on behalf of
the Fund.
The key features of the Rule 18f-3 plan are as follows:
(i)
shares of each class of the Fund represent an equal pro
rata
interest in the Fund and generally have identical
voting,
dividend, liquidation, and other rights, preferences,
powers,
restrictions, limitations, qualifications, terms and
conditions,
except that each class bears certain class-specific
expenses and
has separate voting rights on certain matters that
relate solely
to that class or in which the interests of shareholders
of one
class differ from the interests of shareholders of
another class;
(ii) subject to certain limitations described in the
Prospectus,
shares of a particular class of the Fund may be
exchanged for
shares of the same class of another Ivy or Mackenzie
fund; and
(iii) the Fund's Class B shares will convert
automatically into
Class A shares of the Fund after a period of eight
years, based
on the relative net asset value of such shares at the
time of
conversion.
CLASS A AND CLASS B DISTRIBUTION PLANS
As described in the Prospectus, the Fund has
adopted
pursuant to Rule 12b-1 under the 1940 Act separate
distribution
plans pertaining to its Class A and Class B shares (the
"Class A
Plan" and the "Class B Plan," collectively, the
"Plans"). In
adopting each Plan, a majority of the Independent
Trustees have
concluded in conformity with the requirements of the
1940 Act
that there is a reasonable likelihood that the Plan
will benefit
the Fund and its shareholders. The Trustees of the
Trust believe
that the Plans should result in greater sales and/or
fewer
redemptions of Fund shares, although it is impossible
to know for
certain the level of sales and redemptions of Fund
shares in the
absence of a Plan or under an alternative distribution
arrangement.
Under the Fund's Class A and Class B Plans, the
Fund pays
MIFDI 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 shares or Class B shares,
as the case
may be. The services for which service fees may be
paid include,
among other services, advising clients or customers
regarding the
purchase, sale or retention of Fund shares, answering
routine
inquiries concerning the Fund and assisting
shareholders in
changing options or enrolling in specific plans.
Pursuant to
these Plans, service fee payments made out of or
charged against
the assets attributable to the Fund's Class A or Class
B shares
must be in reimbursement for services rendered for or
on behalf
of that class of the Fund. The expenses not reimbursed
in any
one given 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.
The Fund also pays to MIFDI a distribution fee
based on the
average daily net assets attributable to its Class B
shares,
accrued daily and paid monthly at the annual rate of
0.50%.
MIFDI may reallow all or a portion of the service and
distribution fees to dealers as MIMI may determine from
time to
time. The distribution fee compensates MIFDI for
expenses
incurred in connection with activities primarily
intended to
result in the sale of Class B shares of the Fund,
including the
printing of prospectuses for persons other than
shareholders and
the preparation, printing and distribution of sales
literature
and advertising materials. Pursuant to the Fund's
Class B Plan,
MIFDI may include interest, carrying or other finance
charges in
its calculation of Class B distribution expenses, if
not
prohibited from doing so pursuant to an order of or a
regulation
adopted by the SEC. The SEC order permitting the
imposition of a
contingent deferred sales charge on Class B shares does
not
currently permit MIFDI to recover such charges.
Among other things, each Plan provides that (1)
MIFDI will
submit to the Board of Trustees of the Trust 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) the 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 Trust's Board of Trustees, including
the
Independent Trustees, cast in person at a meeting
called for that
purpose; (3) payments by the Fund under the 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 the Plan is in effect, the selection and
nomination
of Trustees who are not "interested persons" (as
defined in the
1940 Act) of the Trust shall be committed to the
discretion of
the Trustees who are not "interested persons" of the
Trust.
MIFDI may make payments for distribution
assistance and for
administrative and accounting services from resources
that may
include the management fees paid to MIMI by the Fund.
MIFDI also
may make payments (such as the service fee payments
described
above) to unaffiliated broker-dealers for services
rendered in
the distribution of the Fund's shares. To qualify for
such
payments, shares may be subject to a minimum holding
period.
However, no such payments will be made to any dealer or
broker,
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 MIFDI.
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 with
respect to the
class of shares of the Fund to which the Plan relates
at any
time, 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.
RULE 12B-1 PAYMENTS BY THE FUND FOR
DISTRIBUTION-RELATED
SERVICES:: For the period from April 1, 1994
(commencement) to
June 30, 1994, the Fund paid MIFDI $771 and $1,139
pursuant to
the Class A and Class B plans, respectively. For the
fiscal year
ended June 30, 1995, the Fund paid MIFDI $9,998 and
$18,151
pursuant to the Class A and Class B plans,
respectively.
DISTRIBUTION-RELATED EXPENSES BORNE BY MIFDI:
During the
fiscal year ended June 30, 1995, MIFDI expended the
following
amounts in marketing Class A and Class B shares of the
Fund:
advertising, $523 and $289, respectively; printing and
mailing of
prospectuses to persons other than current
shareholders, $10,343
and $5,722, respectively; compensation to dealers,
$9,442 and
$5,224, respectively; compensation to sales personnel,
$6,251 and
$3,459, respectively; seminars and meetings, $2,360 and
$1,306,
respectively; travel and entertainment, $1,720 and
$951,
respectively; general and administrative, $2,723 and
$1,507,
respectively; telephone, $218 and $121, respectively;
and
occupancy and equipment rental, $532 and $294,
respectively.
CUSTODIAN
Brown Brothers Harriman & Co., a private bank and
member of
the principal securities exchanges, located at 40 Water
Street,
Boston, Massachusetts 02109 (the "Custodian"), has been
retained
to act as Custodian of the Trust's investments. Its
primary
responsibility is to maintain custody of the cash and
securities
in the Fund's portfolio. Brown Brothers may receive,
as partial
payment for its services, a portion of the Trust's
brokerage
business, subject to its ability to provide best price
and
execution. The First National Bank of Boston, One
Financial
Center, Boston, Massachusetts 02111, served as the
Trust's
custodian until May 31, 1993.
FUND ACCOUNTING
Pursuant to the Fund Accounting Services Agreement
dated
July 1, 1991 (effective March 31, 1994 with respect to
the Fund),
MIMI provides certain accounting and pricing services
for the
Fund. As compensation for such services, the Fund pays
MIMI a
monthly fee plus out-of-pocket expenses as incurred.
The monthly
fee is based on the net assets of the Fund at the
preceding month
end at the following rates: $1,000 when the net assets
are less
than $20 million; $1,500 when the net assets are $20 to
$75
million; $4,000 when the net assets are $75 to $100
million; and
$6,000 when the net assets are over $100 million. For
the fiscal
year ended June 30, 1995 and the period from April 1,
1994
(commencement) to June 30, 1994, the Fund paid $13,606
and
$2,906, respectively, to MIMI pursuant to the
agreement.
TRANSFER AND DIVIDEND PAYING AGENT
Mackenzie Ivy Investor Services Corp. ("MIISC," or
the
"Transfer Agent") acts as the Trust's transfer agent
and dividend
paying agent pursuant to a Transfer Agency and
Shareholder
Services Agreement. For transfer agency and
shareholder
services, the Fund pays MIISC an annual fee of $20.75
per open
account and $4.36 for each account that is closed. In
addition,
the Fund reimburses MIISC monthly for out-of-pocket
expenses.
ADMINISTRATOR
MIMI provides various administrative services to
the Trust
pursuant to an Administrative Services Agreement. A
description
of these services and related fees is provided in the
Fund's
Prospectus.
AUDITORS
Coopers & Lybrand L.L.P., independent certified
public
accountants, 200 East Las Olas Boulevard, Suite 1700,
Ft.
Lauderdale, Florida 33301, has been selected as
auditors for the
Trust. The audit services performed by Coopers &
Lybrand L.L.P.
include audits of the annual financial statements of
each of the
funds of the Trust. Other services provided primarily
relate to
filings with the SEC and the review of the Trust's tax
returns.
CAPITALIZATION AND VOTING RIGHTS
The capitalization of the Trust consists of an
unlimited
number of shares of beneficial interest with a par
value of
$0.001 per share. When issued, shares of each Class of
the Fund
are fully paid, non-assessable, redeemable and fully
transferable. No class of shares of the Fund has
preemptive
rights or subscription rights.
The Declaration of Trust permits the Trustees to
create
separate series or portfolios and to divide any series
or
portfolio into one or more classes. The Trustees have
authorized
five series, each of which represents a fund. The
Trustees have
further authorized the issuance of Classes A and B
shares for the
Fund.
Shareholders have the right to vote for the
election of
Trustees of the Trust and on any and all matters on
which they
may be entitled to vote by law or by the provisions of
the
Trust's By-Laws. Shares of each class of a particular
fund
entitle their holders to one vote per share (with
proportionate
voting for fractional shares). On matters affecting
only one
fund, only the shareholders of that fund are entitled
to vote.
All classes of shares of the Fund will vote together,
except with
respect to the distribution plan applicable to its
Class A or
Class B shares or when a class vote is required by the
1940 Act.
On matters relating to all funds, but affecting each
fund
differently, separate votes by the shareholders of the
funds are
required. Approval of an investment advisory agreement
and a
change in fundamental policies would be regarded as
matters
requiring separate voting by the shareholders of the
funds. If
the Trustees determine that a matter does not affect
the
interests of a particular fund, then the shareholders
of that
fund will not be entitled to vote on that matter.
Matters that
affect the Trust in general, such as ratification of
the
selection of independent public accountants, will be
voted upon
collectively by the shareholders of all of the funds
that
comprise the Trust.
As used in this SAI and the Prospectus, the phrase
"majority
vote of the outstanding shares" of the Fund means the
vote of the
lesser of: (1) 67% of the shares of the Fund (or of
the Trust)
present at a meeting if the holders of more than 50% of
the
outstanding shares are present in person or by proxy;
or (2) more
than 50% of the outstanding shares of the Fund (or of
the Trust).
With respect to the submission to shareholder vote of a
matter
requiring separate voting by the Fund, the matter shall
have been
effectively acted upon with respect to the Fund if a
majority of
the outstanding voting securities of the Fund votes for
the
approval of the matter, notwithstanding that: (1) the
matter has
not been approved by a majority of the outstanding
voting
securities of any other fund of the Trust; or (2) the
matter has
not been approved by a majority of the outstanding
voting
securities of the Trust. The 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 of
Trustees, 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 losses
and expenses of any shareholder of a 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.
PRINCIPAL HOLDERS OF SECURITIES: To the knowledge
of the
Trust, as of September 29, 1995, no shareholder owned
beneficially or of record 5% or more of the Fund's
outstanding
shares, except that of the outstanding Class B shares
of the
Fund, Smith Barney Inc., 388 Greenwich Street, New
York, New York
10013, owned of record 10,178.219 shares (5.81%).
NET ASSET VALUE
The market price of the Fund share is its net
asset value.
The net asset value per share is calculated separately
for the
Fund, and is computed by dividing the value of the
assets of the
Fund, less its liabilities, by the number of shares of
the Fund
outstanding. The Fund's liabilities are allocated
between its
Classes. The total of such liabilities allocated to a
Class plus
that Class's distribution fee and any other expenses
specially
allocated to that Class are then deducted from the
proportionate
interest of the Class in the Fund's assets, and the
resulting
amount for each Class is divided by the number of
shares of that
Class outstanding to produce the net asset value per
share.
Portfolio securities are valued and net asset
value per
share is determined as of the close of regular trading
on the New
York Stock Exchange (the "Exchange") (normally 4:00
p.m., eastern
time) on each day the Exchange is open for trading.
The Trust's
offices will be closed, and net asset value will not be
calculated on the following national business holidays:
New
Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Veterans Day, Thanksgiving
Day and
Christmas Day. On any day on which either or both of
the Fund's
Custodian or the Exchange close early as a result of
such day
being a partial holiday or otherwise, the Fund reserve
the right
to advance the time on that day by which purchase and
redemption
requests must be received.
Municipal securities held by the Fund are valued
through a
pricing service and/or in accordance with procedures
approved by
the Board of Trustees. Valuations furnished by a
pricing service
are based on a computerized matrix system and/or
appraisals based
in each case upon information concerning market
transactions and
quotations from recognized municipal securities
dealers. In
valuing the Fund's municipal securities, the pricing
service
considers factors such as yields or prices of municipal
bonds of
comparable quality, type of issue, coupon, maturity and
rating,
indications as to value from dealers, and general
market
conditions. The Trust's officers, under the general
supervision
of the Board of Trustees, will regularly review
procedures used
and valuations provided by the pricing service.
Taxable securities held by the Fund for which
market
quotations are readily available will be valued at
market value,
which is the last reported sale price or, at the mean
between the
latest available bid and asked prices. The Board of
Trustees has
determined that securities having 60 days or less
remaining to
maturity will be valued at their amortized cost, which
approximates market value when such amortized cost is
believed to
reflect the fair market value of such securities.
The sale of the Fund's shares will be suspended
during any
period when the determination of its net asset value is
suspended
pursuant to rules or orders of the SEC, and may be
suspended by
the Board of Trustees whenever in its judgment it is in
the best
interest of the Fund to do so.
PORTFOLIO TURNOVER
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. The Fund's portfolio
turnover rate
is calculated by dividing the lesser of purchases or
sales of
portfolio securities for the most recently completed
fiscal year
by the monthly average of the value of the portfolio
securities
owned by the Fund during that year. For purposes of
determining
the Fund's portfolio turnover rate, all securities
whose
maturities at the time of acquisition were one year or
less are
excluded. The Fund's portfolio turnover rate for the
period from
April 1, 1994 (commencement) to June 30, 1994 and for
the fiscal
year ended June 30, 1995 were 0% and 164%,
respectively. It
should be noted, however, that most of the transactions
represented in the high portfolio turnover rate were
transactions
effected between funds of the Trust, for which
transactions there
were no brokerage commissions or other transaction
costs. A
portfolio turnover rate that exceeds 100% usually
involves
correspondingly higher brokerage commissions and other
transaction costs, which are borne directly by the
Fund. In
addition, any net short-term gains realized from
portfolio
transactions would be taxable to shareholders as
ordinary income.
REDEMPTIONS
Shares of the Fund are redeemed at their net asset
value
next determined after a redemption request in proper
form has
been received by MIISC, less any applicable contingent
deferred
sales charge.
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, to the extent permitted by
Federal
securities laws, (i) for any period during which the
New York
Stock Exchange is closed (other than customary weekend
and
holiday closing) or during which trading on the
Exchange is
restricted, (ii) for any period during which an
emergency exists
as determined by the SEC as a result of which disposal
of
securities owned by the Fund is not reasonably
practicable or it
is not reasonably practicable for the Fund fairly to
determine
the value of its net assets, or (iii) for such other
periods as
the SEC may by order permit for the protection of the
Fund's
shareholders.
Under unusual circumstances, when the Board of
Trustees
deems it in the best interest of the Fund's
shareholders, the
Fund may make payment for shares repurchased or
redeemed, in
whole or in part, in securities of the Fund taken at
current
value. If any such redemption in kind is to be made,
the Fund
intends to make an election pursuant to Rule 18f-1
under the 1940
Act. This will require the Fund to redeem with cash at
a
shareholder's election in any case where the redemption
involves
less than $250,000 (or 1% of the Fund's net asset value
at the
beginning of each 90-day period during which such
redemptions are
in effect, if that amount is less than $250,000). If
payment is
made in the form of Fund securities, the redeeming
shareholder
may incur brokerage costs in converting such securities
to cash.
Subject to state law restrictions, the Trust may
redeem
those accounts of shareholders who have maintained an
investment,
including sales charges paid, of less than $1,000 in
the Fund for
a period of more than 12 months. All accounts below
that minimum
will be redeemed simultaneously when MIMI deems it
advisable.
The $1,000 balance will be determined by actual dollar
amounts
invested by the shareholder, unaffected by market
fluctuations.
The Trust will notify any such shareholder by certified
mail of
its intention to redeem such account, and the
shareholder shall
have 60 days from the date of such letter to invest
such
additional sum as shall raise the value of such account
above
that minimum. Should the shareholder fail to forward
such sum
within 60 days of the date of the Trust's letter of
notification,
the Trust will redeem the shares held in such account
and
transmit the redemption in value thereof to the
shareholder.
However, those shareholders who are investing pursuant
to the
Automatic Investment Method will not be redeemed
automatically
unless they have ceased making payments pursuant to the
plan for
a period of at least six consecutive months, and these
shareholders will be given six months' notice by the
Trust before
such redemption. Shareholders in a qualified
retirement, pension
or profit sharing plan who wish to avoid tax
consequences would
have to "rollover" any sum so redeemed into another
qualified
plan within 60 days. The Trustees of the Trust may
change the
minimum account size.
If a shareholder has given authorization for
telephonic
redemption privilege, shares can be redeemed and
proceeds sent by
Federal wire to a single previously designated bank
account.
Delivery of the proceeds of a wire redemption request
of $250,000
or more may be delayed by the Fund for up to seven days
if deemed
appropriate under then current market conditions. The
Trust
reserves the right to change this minimum or to
terminate the
telephonic redemption privilege without prior notice.
The Trust
cannot be responsible for the efficiency of the Federal
wire
system of the shareholder's dealer of record or bank.
The
shareholder is responsible for any charges by the
shareholder's
bank.
The Fund employ 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
procedures, the
Fund may be liable for any losses due to unauthorized
or
fraudulent telephone instructions.
CONVERSION OF CLASS B SHARES
As described in the Prospectus, Class B shares of
the Fund
will convert automatically to Class A shares, based on
the
relative net asset values per share of the two Classes,
as of the
close of business on the first business day after the
last day of
the calendar quarter in which 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: (i) 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.
TAXATION
The following is a general discussion of certain
tax rules
thought to be applicable with respect to the Fund. It
is merely
a summary and is not an exhaustive discussion of all
possible
situations or of all potentially applicable taxes.
Accordingly,
shareholders and prospective shareholders should
consult a
competent tax advisor about the tax consequences to
them of
investing in any Fund.
GENERAL
The Fund intends to continue to qualify and elect
to be
treated as a regulated investment company under
Subchapter M of
the Code. In order to qualify, the Fund must, among
other
things, (a) derive in each taxable year at least 90% of
its gross
income from dividends, interest, payments with respect
to
securities loans, gains from the sale or other
disposition of
stock, securities, or foreign currencies, or other
income
(including but not limited to gains from options,
futures, and
forward contracts) derived with respect to its business
of
investing in such stock, securities or currencies; (b)
derive in
each taxable year less than 30% of its gross income
from the sale
or other disposition of certain assets (namely (i)
stock or
securities, (ii) options, futures, and forward
contracts (other
than those on foreign currencies), and (iii) foreign
currencies
(including options, futures, and forward contracts on
such
currencies) not directly related to the Fund's
principal business
of investing in stocks or securities (or options and
futures with
respect to stocks and securities)) held less than three
months
(the "30% Limitation"); and (c) 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 of any one issuer limited for purposes of
this
calculation to an amount not greater than 5% of the
Fund's 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 securities of any other issuer (other than
U.S.
Government securities and the securities of other
regulated
investment companies).
As a regulated investment company, the Fund
generally will
not be subject to U.S. Federal income tax on its
investment
company taxable income (which includes, among other
items,
dividends, interest and net short-term capital gains in
excess of
net long-term capital losses) and net capital gains
(net long-
term capital gains in excess of net short-term capital
losses)
that it distributes to shareholders, if at least 90% of
both its
investment company taxable income and its net
tax-exempt interest
income for the taxable year is distributed. The Fund
intends to
distribute such income.
Amounts, other than tax-exempt interest, not
distributed on
a timely basis in accordance with a calendar year
distribution
requirement are subject to a nondeductible 4% excise
tax. To
avoid that tax, the Fund must distribute during each
calendar
year an amount equal to (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 the
twelve-month period 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. A
distribution,
including an "exempt-interest dividend," will be
treated as paid
on December 31 of the current calendar year if it is
declared by
the Fund in October, November or December of that year
to
shareholders of record at some date in such a month and
paid by
the Fund during January of the following calendar year.
Such
distributions will be taken into account by
shareholders in the
calendar year the distributions are declared, rather
than the
calendar year in which the distributions are received.
The Fund may enter into put transactions with
respect to
municipal obligations it holds. The IRS has issued
published and
private rulings concerning the treatment of such put
transactions
for Federal income tax purposes. The Fund's situation
is
distinguishable from those addressed in these rulings;
thus,
there can be no assurance that the Fund will be treated
as the
owner of the municipal obligations subject to the puts
or that
the interest on such obligations received by the Fund
will be
exempt from Federal income tax. If the Fund is not
treated as
the owner of the municipal obligations subject to the
puts,
distributions of income derived from such obligations
would be
taxed as ordinary income.
DISCOUNT
Certain of the bonds purchased by the Fund may be
treated as
bonds that were originally issued at a discount.
Original issue
discount represents interest for Federal income tax
purposes and
can generally be defined as the difference between the
price at
which a security was issued and its stated redemption
price at
maturity. Original issue discount is treated for
Federal income
tax purposes as income earned by the Fund, although no
cash is
actually received by the Fund, and therefore is subject
to the
distribution requirements of the Code. The amount of
income
earned by the Fund generally is determined on the basis
of a
constant yield to maturity that takes into account the
semi-
annual compounding of accrued interest.
In addition, some of the bonds may be purchased by
the Fund
at a discount that exceeds the original issue discount
on such
bonds, if any. This additional discount represents
market
discount for Federal income tax purposes. The gain
realized on
the disposition of any bond, including a tax-exempt
bond, having
market discount will be treated as ordinary income to
the extent
it does not exceed the accrued market discount on such
bond
(unless the Fund elects for all its debt securities
acquired
after the first day of the first taxable year to which
the
election applies having a fixed maturity date of more
than one
year from the date of issue to include market discount
in income
in tax years to which it is attributable). Generally,
market
discount accrues on a daily basis for each day the bond
is held
by the Fund at a constant rate over the time remaining
to the
bond's maturity.
DISTRIBUTIONS
The Fund intends to qualify to pay
"exempt-interest
dividends" to its shareholders but there is no
guarantee that the
Fund will so qualify. The Fund will be so qualified
if, at the
close of each quarter of its taxable year, at least 50%
of the
value of its total assets consist of state and
municipal
securities on which interest payments are exempt from
Federal
income tax and such interest payments when distributed
are
designated as exempt-interest dividends by the Fund.
Exempt-
interest dividends are excludable from a shareholder's
gross
income for Federal income tax purposes.
Exempt-interest
dividends, however, must be taken into account by
shareholders in
determining whether their total incomes are large
enough to
result in taxation of up to 85% of their social
security benefits
or certain railroad retirement benefits.
Exempt-interest
dividends that are attributable to certain private
activity bonds
may constitute an item of tax preference for purposes
of the
alternative minimum tax. For corporate shareholders,
exempt-
interest dividends may comprise all or part of an
adjustment to
alternative minimum taxable income, which may result in
the
imposition or increase in such tax. The Fund will
inform
shareholders annually as to the portion of the
distributions from
the Fund that constituted exempt-interest dividends.
Distributions of investment company taxable income
are
taxable to a U.S. shareholder as ordinary income,
whether paid in
cash or shares. Because no portion of the Fund's
income is
expected to consist of dividends paid by U.S.
corporations, no
portion of the dividends paid by the Fund is expected
to be
eligible for the corporate dividends-received
deduction.
Distributions of net capital gains, if any, that are
designated
as capital gain dividends are taxable as long-term
capital gains,
whether paid in cash or in shares, regardless of how
long the
shareholder has held the Fund's shares, and are not
eligible for
the dividends received deduction. The tax treatment of
distributions from the Fund is the same whether the
dividends are
received in cash or in additional shares. Shareholders
receiving
distributions in the form of newly issued shares will
have a cost
basis in each share received equal to the net asset
value of a
share of the Fund on the reinvestment date. A
distribution of an
amount in excess of the Fund's current and accumulated
earnings
and profits will be treated by a shareholder as a
return of
capital that is applied against and reduces the
shareholder's
basis in his or her shares. To the extent that the
amount of any
such distribution exceeds the shareholder's basis in
his or her
shares, the excess will be treated by the shareholder
as gain
from a sale or exchange of the shares. Shareholders
will be
notified annually as to the U.S. Federal tax status of
distributions and shareholders receiving distributions
in the
form of newly issued shares will receive a report as to
the net
asset value of the shares received.
If the net asset value of shares is reduced below
a
shareholder's cost as a result of a distribution by the
Fund,
such distribution will be taxable (unless it is an
exempt-
interest dividend) even though it represents a return
of invested
capital. Investors 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 that will
nevertheless
be taxable to them (unless it is an exempt-interest
dividend).
Deductions for interest expense incurred to
acquire or carry
shares of the Fund may be subject to limitations that
reduce,
defer, or eliminate such deductions. This includes
limitations
on deducting interest on indebtedness properly
allocable to
investment property (which may include shares of the
Fund). In
addition, a shareholder may not deduct that portion of
interest
on indebtedness incurred or continued to purchase or
carry shares
of an investment company paying exempt-interest
dividends, which
bears the same ratio to the total of such interest as
the exempt-
interest dividends bear to the total dividends,
excluding capital
gain dividends received by the shareholder. Under
rules issued
by the IRS for determining when borrowed funds are
considered
used for the purposes of purchasing or carrying
particular
assets, the purchase of shares may be considered to
have been
with borrowed funds even though the borrowed funds are
not
directly traceable to the purchase of shares.
Opinions relating to the validity of municipal
securities
and the exemption of interest thereon from Federal
income tax are
rendered by bond counsel to the issuers. The Fund,
MIMI, MFC and
their affiliates, and the Fund's counsel make no review
of
proceedings relating to the issuance of state or
municipal
securities and the bases of such opinions.
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 will be long-term or
short-term,
generally 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
as a long-
term capital loss to the extent of any distributions of
net
capital gains received or treated as having been
received by the
shareholder with respect to such shares. Any loss
realized by
shareholder on the redemption, sale or exchange of
shares of the
Fund with respect to which exempt-interest dividends
have been
paid will, to the extent of such exempt-interest
dividends, be
disallowed if such shares have been held by the
shareholder for
six months or less.
In some cases, shareholders will not be permitted
to take
sales charges into account for purposes of determining
the amount
of gain or loss realized on the disposition of their
stock. This
prohibition generally applies where (1) the shareholder
incurs a
sales charge in acquiring the stock of the Fund, (2)
the stock is
disposed of before the 91st day after the date on which
it was
acquired, and (3) the shareholder subsequently acquires
the stock
of the same or another fund and the otherwise
applicable sales
charge is reduced under a "reinvestment right" received
upon the
initial purchase of regulated investment company
shares. The
term "reinvestment right" means any right to acquire
stock of one
or more Funds without the payment of a sales charge 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 stock acquired under the reinvestment right. This
provision
may be applied to successive acquisitions of Fund
shares.
BACKUP WITHHOLDING
The Fund will be required to report to the IRS all
distributions (other than exempt-interest dividends) as
well as
gross proceeds from the redemption of the Fund's
shares, except
in the case of certain exempt shareholders. All such
reportable
distributions and proceeds will be subject to
withholding of
Federal income tax at a rate of 31% ("backup
withholding") in the
case of non-exempt shareholders if (1) the shareholder
fails to
furnish the Fund with and to certify the shareholder's
correct
taxpayer identification number or social security
number; (2) the
IRS notifies the shareholder or the Fund that the
shareholder has
failed to report properly certain interest and dividend
income to
the IRS and to respond to notices to that effect; or
(3) when
required to do so, the shareholder fails to certify
that he or
she is not subject to backup withholding. If the
withholding
provisions are applicable, any such distributions or
proceeds,
whether reinvested in additional shares or taken in
cash, will be
reduced by the amounts required to be withheld.
OTHER TAXATION
The foregoing discussion relates only to U.S.
Federal income
tax law as applicable to U.S. persons (i.e., U.S.
citizens and
residents and U.S. corporations, partnerships, trusts
and
estates). Distributions by the Fund also may be
subject to state
and local taxes, and their treatment under state and
local income
tax laws may differ from the U.S. Federal income tax
treatment.
In certain states, Fund distributions that are derived
from
interest on obligations of that state or its
municipalities or
any political subdivisions thereof may be exempt from
state and
local taxes. Fund distributions that are derived from
interest
on obligations of the U.S. Government and certain of
its
agencies, authorities and instrumentalities also may be
exempt
from state and local taxes in certain states. Under
current
Florida law, shares of the Fund will be exempt from the
Florida
intangible personal property tax if, on an annual
valuation date,
the Fund's portfolio of assets contains only assets
that are
exempt from the tax, including debt obligations issued
by the
State of Florida or any of its political subdivisions
or
municipalities, debt obligations issued by the U.S.
Government or
its agencies, and money, including money market
accounts offered
by banks that are deposits of money. If, on the annual
valuation
date, the Fund's portfolio of assets does not contain
only exempt
assets, the net asset value of the shares on which the
tax is
based will be proportionately reduced by that portion
of the net
asset value that is comprised of debt obligations of
the U.S.
Government. Shareholders should consult their tax
advisers with
respect to particular questions of U.S. Federal, state
and local
taxation. Persons who may be "substantial users" (or
"related
persons" of substantial users) of facilities financed
by
industrial development bonds should consult their tax
advisers
before purchasing shares of the Fund. The term
"substantial
user" generally includes any "non-exempt person" who
regularly
uses in his or her trade or business a part of a
facility
financed by industrial development bonds. Generally,
an
individual will not be a "related person" of a
substantial user
under the Code unless the person or his or her
immediate family
owns directly or indirectly in the aggregate more than
a 50%
equity interest in the substantial user. Shareholders
who are
not U.S. persons should consult their tax advisers
regarding U.S.
and foreign tax consequences of ownership of shares of
the Fund,
including the likelihood that distributions to them
would be
subject to withholding of U.S. Federal income tax at a
rate of
30% (or at a lower rate under a tax treaty).
PERFORMANCE INFORMATION
Performance information for the separate Classes
of Fund
shares may be compared, in reports and promotional
literature,
to: (i) the S&P 500 Index, Dow Jones Industrial
Average
("DJIA"), or other unmanaged indices so that investors
may
compare the Fund's results with those of a group of
unmanaged
securities widely regarded by investors as
representative of the
securities markets in general; (ii) other groups of
mutual funds
tracked by Lipper Analytical Services, a widely used
independent
research firm that ranks mutual funds by overall
performance,
investment objectives and assets, or tracked by other
services,
companies, publications, or other criteria; and (iii)
the
Consumer Price Index (measure for inflation) to assess
the real
rate of return from an investment in the Fund.
Unmanaged indices
may assume the reinvestment of dividends but generally
do not
reflect deductions for administrative and management
costs and
expenses. Performance rankings are based on historical
information and are not intended to indicate future
performance.
In addition, the Trust may, from time to time,
include
various measures of the Fund's performance including
the current
yield, the tax-equivalent yield and the average annual
total
return of shares of the Fund in advertisements,
promotional
literature or reports to shareholders or prospective
investors.
Such materials may occasionally cite statistics to
reflect the
Fund's volatility or risk.
YIELD. Quotations of yield for a specific Class
of Shares
of the Fund will be based on all investment income
attributable
to that Class earned during a particular 30-day (or one
month)
period (including dividends and interest), less
expenses
attributable to that class accrued during the period
("net
Investment Income"), and will be computed by dividing
the net
Investment Income per share of that Class earned during
the
period by the maximum offering price per share (in the
case of
Class A shares) or the net asset value per share (in
the case of
Class B shares) on the last day of the period,
according to the
following formula:
YIELD = 2[({(a-b)/cd} + 1){superscript
6}-1]
Where: a = dividends and interest earned
during the
period attributable to a
specific Class
of shares,
b = expenses accrued for the
period
attributable to that Class
(net of
reimbursements),
c = the average daily number of
shares of
that Class outstanding during
the period
that were entitled to receive
dividends,
and
d = the maximum offering price per
share (in
the case of Class A shares) or
the net
asset value per share (in the
case of
Class B shares) on the last
day of the
period.
The yield for Class A and Class B shares of the
Fund for the
30-day period ended June 30, 1995 were 4.24% and 3.86%,
respectively. The yield figures reflect voluntary
expense
reimbursements by MIMI. Without the voluntary
reimbursements,
the yield for Class A and Class B shares of the Fund
for the same
30-day period would have been 3.04% and 2.66%,
respectively.
TAX-EQUIVALENT YIELD. Tax-equivalent yield for a
specific
Class of shares of the Fund is the net annualized
taxable yield
needed to produce a specified tax-exempt yield at a
given tax
rate based on a specified 30-day (or one month) period
assuming
semi-annual compounding of income. Tax-equivalent
yield is
calculated by dividing that portion of the Fund's yield
(as
computed in the yield description above) that is
tax-exempt by
one minus a stated income tax rate and adding the
product to that
portion, if any, of the yield of the Fund that is not
tax-exempt.
Thus, for example, for the thirty-day period ended
December 31,
1994, taxpayers with effective combined federal, state
and/or
city marginal income tax rates of 28% and 31% would
have had to
have earned a taxable yield of 5.89% and 6.14% (or
4.22% and
4.41% without the voluntary reimbursements),
respectively, to
receive after-tax income equal to the 4.24% (or 3.04%
without the
voluntary reimbursements) tax-free yield of Class A
shares of the
Fund for that period. For the thirty-day period ended
December 31, 1994, taxpayers with effective combined
federal,
state and/or city marginal income tax rates of 28% and
31% would
have had to have earned a taxable yield of 5.36% and
5.59% (or
3.69% and 3.86% without the voluntary reimbursements),
respectively, to receive after-tax income equal to the
3.85% (or
2.66% without the voluntary reimbursements) tax-free
yield of
Class B shares of the Fund for that period. For a more
detailed
explanation of tax-equivalent yields, see Appendix B of
this SAI.
AVERAGE ANNUAL TOTAL RETURN. Quotations of
standardized
average annual total return ("Standardized Return") for
a
specific Class of shares of the Fund will be expressed
in terms
of the average annual compounded rate of return that
would cause
a hypothetical investment in that Class of the Fund
made on the
first day of a designated period to equal the ending
redeemable
value ("ERV") of such hypothetical investment on the
last day of
the designated period, according to the following
formula:
P(1 + T){superscript n} = ERV
Where: P = a hypothetical initial payment of
$1,000 to
purchase shares of a specific Class
T = the average annual total return of
shares of
that Class
n = the number of years
ERV = the ending redeemable value of a
hypothetical
$1,000 payment made at the
beginning of the
period.
For purposes of the above computation for the
Fund, it is
assumed that all dividends and capital gains
distributions made
by the Fund are reinvested at net asset value in
additional
shares of the same Class during the designated period.
In
calculating the ending redeemable value for Class A
shares and
assuming complete redemption at the end of the
applicable period,
the maximum 3.00% sales charge for the Fund is deducted
from the
initial $1,000 payment and, for Class B shares, the
applicable
contingent deferred sales charge imposed upon
redemption of
Class B shares held for the period is deducted.
Standardized
Return quotations for the Fund do not take into account
any
required payments for federal or state income taxes.
Standardized Return quotations for Class B shares for
periods of
over eight years will reflect conversion of the Class B
shares to
Class A shares at the end of the eighth year.
Standardized
Return quotations are determined to the nearest 1/100
of 1%.
The Fund may, from time to time, include in
advertisements,
promotional literature or reports to shareholders or
prospective
investors total return data that are not calculated
according to
the formula set forth above ("Non-Standardized
Return"). Neither
initial nor contingent deferred sales charges 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 Class A
and Class B
shares of the Fund for the periods indicated. In
determining the
average annual total return for a specific Class of
Fund shares,
recurring fees, if any, that are charged to all
shareholder
accounts are taken into consideration. For any account
fees that
vary with the size of the account of the Fund, the
account fee
used for purposes of the following computations is
assumed to be
the fee that would be charged to the mean account size
of the
Fund.
NON-STANDARDIZED
STANDARDIZED RETURN[*]
RETURN[**]
CLASS A[1] CLASS B[2] CLASS A[3]
CLASS B[4]
One year ended
June 30, 1995: 2.96% 0.61% 6.14%
5.61%
Inception[#] to
June 30, 1995: 4.12% 3.00% 6.72%
6.20%
_________________________
[*] The Standardized Return figures for Class A shares
reflect
the deduction of the maximum initial sales charge
of 3.00%.
The Standardized Return figures for Class B shares
reflect
the deduction of the applicable contingent
deferred sales
charge imposed on a redemption of Class B shares
held for
the period.
[**] The Non-Standardized Return figures do not reflect
the
deduction of any initial or contingent deferred
sales
charge.
[#] The inception date for Class A and Class B shares
of the
Fund was April 1, 1994.
[1] The Standardized Return figures for Class A shares
reflect
expense reimbursement. Without expense
reimbursement, the
Standardized Return for Class A shares for the one
year
ended June 30, 1995 and the period from inception
through
June 30, 1995 would have been 1.70% and 2.68%,
respectively.
(Since the inception date for Class A shares of
the Fund was
April 1, 1994, there were no Class A shares
outstanding for
the duration of the five year period ending June
30, 1995.)
[2] The Standardized Return figures for Class B shares
reflect
expense reimbursement. Without expense
reimbursement, the
Standardized Return for Class B shares for the one
year
ended June 30, 1995 and the period from inception
through
June 30, 1995 would have been (0.62)% and 1.58%,
respectively. (Since the inception date for Class
B shares
of the Fund was April 1, 1994, there were no Class
B shares
outstanding for the duration of the five year
period ending
June 30, 1995.)
[3] 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 ended June 30, 1995 and
the period
from inception through June 30, 1995 would have
been 4.84%
and 5.24%, respectively. (Since the inception
date for
Class A shares of the Fund was April 1, 1994,
there were no
Class A shares outstanding for the duration of the
five year
period ending June 30, 1995.)
[4] 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 ended June 30, 1995 and
the period
from inception through June 30, 1995 would have
been 4.32%
and 4.73%, respectively. (Since the inception
date for
Class B shares of the Fund was April 1, 1994,
there were no
Class B shares outstanding for the duration of the
five year
period ending June 30, 1995.)
CUMULATIVE TOTAL RETURN. Cumulative total return
is the
cumulative rate of return on a hypothetical initial
investment of
$1,000 in a specific Class of shares of the Fund for a
specified
period. Cumulative total return quotations reflect
changes in
the price of the Fund's shares and assume that all
dividends and
capital gains distributions during the period were
reinvested in
Fund shares. Cumulative total return is calculated by
computing
the cumulative rates of return of a hypothetical
investment in a
specific Class of shares of the Fund over such periods,
according
to the following formula (cumulative total return is
then
expressed as a percentage):
C = (ERV/P) - 1
Where: C = cumulative total return
P = a hypothetical initial
investment of
$1,000 to purchase shares of a
specific
Class
ERV = ending redeemable value: ERV
is the
value, at the end of the
applicable
period, of a hypothetical
$1,000
investment made at the
beginning of the
applicable period.
The following table summarizes the calculation of
Cumulative
Total Return for the periods indicated through June 30,
1995,
assuming the maximum 3.00% sales charge has been
assessed.
SINCE
ONE YEAR FIVE YEARS[**]
INCEPTION[*]
CLASS A 2.96% N/A 5.13%
CLASS B 0.61% N/A 3.73%
The following table summarizes the calculation of
Cumulative
Total Return for the periods indicated through June 30,
1995,
assuming the maximum 3.00% sales charge has not been
assessed.
SINCE
ONE YEAR FIVE YEARS[**]
INCEPTION[*]
CLASS A 5.13% N/A 8.39%
CLASS B 3.73% N/A 7.73%
___________________________
[*] The inception date for Class A and Class B shares
of the
Fund was April 1, 1994.
[**] No Class A or Class B shares were outstanding for
the
duration of the time period indicated.
OTHER QUOTATIONS, COMPARISONS AND GENERAL
INFORMATION. The
foregoing computation methods are prescribed for
advertising and
other communications subject to SEC Rule 482.
Communications not
subject to this rule may contain a number of different
measures
of performance, computation methods and assumptions,
including
but not limited to: historical total returns; results
of actual
or hypothetical investments; changes in dividends,
distributions
or share values; or any graphic illustration of such
data. These
data may cover any period of the Trust's existence and
may or may
not include the impact of sales charges, taxes or other
factors.
Performance quotations for the Fund will vary from
time to
time depending on market conditions, the composition of
the
Fund's portfolio and operating expenses of the Fund.
These
factors and possible differences in the methods used in
calculating performance quotations should be considered
when
comparing performance information regarding the Fund's
shares
with information published for other investment
companies and
other investment vehicles. Performance quotations
should also be
considered relative to changes in the value of the
Fund's shares
and the risks associated with the Fund's investment
objectives
and policies. At any time in the future, performance
quotations
may be higher or lower than past performance quotations
and there
can be no assurance that any historical performance
quotation
will continue in the future.
The Fund may also cite endorsements or use for
comparison
their 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
Director
of Investment Managers, New York Times, Newsweek, No
Load Fund
Investor, No Load Fund* X, Oakland Tribune, Pension
World,
Pensions and Investment Age, Personal Investor, Rugg
and Steele,
Time, U.S. News and World Report, USA Today, The Wall
Street
Journal, and Washington Post.
FINANCIAL STATEMENTS
The Fund's Portfolio of Investments as of June 30,
1995,
Statement of Assets and Liabilities as of June 30,
1995,
Statement of Operations for the fiscal year ended June
30, 1995,
Statement of Changes in Net Assets for the fiscal year
ended June
30, 1995 and the period from April 1, 1994
(commencement) through
June 30, 1994, Financial Highlights, Notes to Financial
Statements, and Reports of Independent Accountants are
included
in the Fund's June 30, 1995 Annual Report to
Shareholders, which
is incorporated by reference into this SAI. Copies of
the Fund's
financial statements and this SAI may be obtained upon
request
and without charge from MIMI at the address and
telephone number
provided on the cover of this SAI.
APPENDIX A
DESCRIPTION OF STANDARD & POOR'S CORPORATION
("S&P") AND
MOODY'S INVESTORS SERVICE, INC. ("MOODY'S")
CORPORATE BOND,
COMMERCIAL PAPER AND MUNICIPAL OBLIGATIONS
RATINGS
[From "Moody's Bond Record," November 1994 Issue
(Moody's
Investor Service, New York, 1994), and "Standard &
Poor's
Municipal Ratings Handbook," October 1994 Issue (McGraw
Hill, New
York, 1994).]
(a) MOODY'S:
CORPORATE BONDS. Bonds rated Aaa by Moody's are
judged by
Moody's to be of the best quality, carrying the
smallest degree
of investment risk. Interest payments are protected by
a large
or exceptionally stable margin and principal is secure.
Bonds
rated Aa are judged by Moody's to be of high quality by
all
standards. Aa bonds are rated lower than Aaa bonds
because
margins of protection may not be as large as those of
Aaa bonds,
or fluctuations of protective elements may be of
greater
amplitude, or there may be other elements present which
make the
long-term risks appear somewhat larger than those
applicable to
Aaa securities. Bonds which are rated A by Moody's
possess many
favorable investment attributes and are considered as
upper
medium-grade obligations. Factors giving security to
principal
and interest are considered adequate, but elements may
be present
which suggest a susceptibility to impairment sometime
in the
future.
Bonds rated Baa by Moody's are considered
medium-grade
obligations, i.e., they are neither highly protected
nor poorly
secured. Interest payments and principal security
appear
adequate for the present, but certain protective
elements may be
lacking or may be characteristically unreliable over
any great
length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative
characteristics as
well. Bonds which are rated Ba are judged to have
speculative
elements; their future cannot be considered
well-assured. Often
the protection of interest and principal payments may
be very
moderate and thereby not well safeguarded during both
good and
bad times over the future. Uncertainty of position
characterizes
bonds in this class. Bonds which are rated B generally
lack
characteristics of the desirable investment. Assurance
of
interest and principal payments of or maintenance of
other terms
of the contract over any long period of time may be
small.
Bonds which are rated Caa are of poor standing.
Such
issues may be in default or there may be present
elements of
danger with respect to principal or interest. Bonds
which are
rated Ca represent obligations which are speculative in
a high
degree. Such issues are often in default or have other
marked
shortcomings. Bonds which are rated C are the lowest
rated class
of bonds and issues so rated can be regarded as having
extremely
poor prospects of ever attaining any real investment
standing.
COMMERCIAL PAPER. The Prime rating is the highest
commercial paper rating assigned by Moody's. Among the
factors
considered by Moody's in assigning ratings are the
following:
(1) evaluation of the management of the issuer; (2)
economic
evaluation of the issuer's industry or industries and
an
appraisal of speculative-type risks which may be
inherent in
certain areas; (3) evaluation of the issuer's products
in
relation to competition and customer acceptance; (4)
liquidity;
(5) amount and quality of long-term debt; (6) trend of
earnings
over a period of ten years; (7) financial strength of a
parent
company and the relationships which exist with the
issuer; and
(8) recognition by management of obligations which may
be present
or may arise as a result of public interest questions
and
preparations to meet such obligations. Issuers within
this Prime
category may be given ratings 1, 2 or 3, depending on
the
relative strengths of these factors. The designation
of Prime-1
indicates the highest quality repayment capacity of the
rated
issue.
(b) S&P:
CORPORATE BONDS. An S&P corporate debt rating is
a current
assessment of the creditworthiness of an obligor with
respect to
a specific obligation. The ratings are based on
current
information furnished by the issuer or obtained by S&P
from other
sources it considers reliable. The ratings described
below may
be modified by the addition of a plus or minus sign to
show
relative standing within the major rating categories.
Debt rated AAA by S&P is considered by S&P to be
the highest
grade obligation. Capacity to pay interest and repay
principal
is extremely strong. Debt rated AA is judged by S&P to
have a
very strong capacity to pay interest and repay
principal and
differs from the highest rated issues only in small
degree. Debt
rated A by S&P has a strong capacity to pay interest
and repay
principal, although it is somewhat more susceptible to
the
adverse effects of changes in circumstances and
economic
conditions than debt in higher rated categories.
Debt rated BBB by S&P is regarded by S&P as having
an
adequate capacity to pay interest and repay principal.
Although
such bonds normally exhibit adequate protection
parameters,
adverse economic conditions or changing circumstances
are more
likely to lead to a weakened capacity to pay interest
and repay
principal than debt in higher rated categories.
Debt rated BB, B, CCC, CC and C is regarded as
having
predominately speculative characteristics with respect
to
capacity to pay interest and repay principal. BB
indicates the
least degree of speculation and C the highest. While
such debt
will likely have some quality and protective
characteristics,
these are outweighed by large uncertainties or
exposures to
adverse conditions. Debt rated BB has less near-term
vulnerability to default than other speculative issues.
However,
it faces major ongoing uncertainties or exposure to
adverse
business, financial or economic conditions which could
lead to
inadequate capacity to meet timely interest and
principal
payments. The BB rating category is also used for debt
subordinated to senior debt that is assigned an actual
or implied
BBB- rating. Debt rated B has a greater vulnerability
to default
but currently has the capacity to meet interest
payments and
principal repayments. Adverse business, financial, or
economic
conditions will likely impair capacity or willingness
to pay
interest and repay principal. The B rating category is
also used
for debt subordinated to senior debt that is assigned
an actual
or implied BB or BB- rating. Debt rated CCC has a
currently
identifiable vulnerability to default, and is dependent
upon
favorable business, financial, and economic conditions
to meet
timely payment of interest and repayment of principal.
In the
event of adverse business, financial or economic
conditions, it
is not likely to have the capacity to pay interest and
repay
principal. The CCC rating category is also used for
debt
subordinated to senior debt that is assigned an actual
or implied
B or B- rating. The rating CC typically is applied to
debt
subordinated to senior debt which is assigned an actual
or
implied CCC debt rating. The rating C typically is
applied to
debt subordinated to senior debt which is assigned an
actual or
implied CCC- debt rating. The C rating may be used to
cover a
situation where a bankruptcy petition has been filed,
but debt
service payments are continued.
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.
Commercial paper rated A by S&P has the following
characteristics: (i) liquidity ratios are adequate to
meet cash
requirements; (ii) long-term senior debt rating should
be A or
better, although in some cases BBB credits may be
allowed if
other factors outweigh the BBB; (iii) the issuer should
have
access to at least one additional channel of borrowing;
(iv)
basic earnings and cash flow should have an upward
trend with
allowances made for unusual circumstances; and (v)
typically the
issuer's industry should be well established and the
issuer
should have a strong position within its industry and
the
reliability and quality of management should be
unquestioned.
Issues rated A are further referred to by use of
numbers 1, 2 and
3 to denote relative strength within this highest
classification.
For example, the A-1 designation indicates that the
degree of
safety regarding timely payment of debt is strong.
Issues rated B are regarded as having only
speculative
capacity for timely payment. The C rating is assigned
to short-
term debt obligations with a doubtful capacity for
payment.
II. MUNICIPAL OBLIGATIONS RATINGS
(a) MOODY'S:
Aaa
Bonds 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 edge." 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 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 risks appear somewhat larger than in
Aaa
securities.
A
Bonds 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
suscepti-
bility to impairment sometime in the future.
Baa
Bonds rated Baa are considered medium grade
obligations,
i.e., they are neither highly protected nor poorly
secured.
Interest payments and principal security appear
adequate for the
present, but certain protective elements may be lacking
or may be
characteristically unreliable over any great length of
time.
Such bonds lack outstanding investment characteristics
and in
fact have speculative characteristics as well.
Moody's letter ratings may be modified by the
addition of a
numerical modifier, which is used to show relative
standing
within the major rating categories, except in the Aaa
grade.
MIG Ratings: Moody's ratings for state and
municipal short-
term obligations will be designated Moody's Investment
Grade or
MIG. Such ratings recognize the differences between
short-term
credit risk and long-term risk. Factors affecting the
liquidity
of the borrower and short-term cyclical elements are
critical in
short-term ratings, while other factors of the major
importance
in bond risk, long-term secular trends for example, may
be less
important over the short run.
VMIG Ratings: A short-term rating may also be
assigned on
an issue having a demand feature. Such ratings will be
designated as VMIG or, if the demand feature is not
rated, as NR.
Short-term ratings on issues with demand features are
differentiated by the use of the VMIG symbol to reflect
such
characteristics as payment upon periodic demand rather
than fixed
maturity dates and payment relying on external
liquidity.
Additionally, investors should be alert to the fact
that the
source of payment may be limited to the external
liquidity with
no or limited legal recourse to the issuer in the event
the
demand is not met.
MIG 1/VMIG 1
This designation denotes best quality. There is
present
strong protection by established cash flows, superior
liquidity
support or demonstrated broad-based access to the
market for
refinancing.
MIG 2/VMIG 2
This designation denotes high quality. Margins of
protection are ample although not so large as in the
preceding
group.
MIG 3/VMIG 3
This designation denotes favorable quality. All
security
elements are accounted for but there is lacking the
undeniable
strength of the preceding grades. Liquidity and cash
flow
protection may be narrow and market access for
refinancing is
likely to be less well established.
MIG 4/VMIG 4
This designation denotes adequate quality.
Protection
commonly regarded as required of an investment security
is
present and although not distinctly or predominantly
speculative,
there is specific risk.
(b) S&P:
S&P's Municipal Bond Ratings cover obligations of
states and
political subdivisions. Ratings are assigned to
general
obligation and revenue bonds. General obligation bonds
are
usually secured by all resources available to the
municipality
and the factors outlined in the rating definitions
below are
weighted in determining the rating. Because revenue
bonds in
general are payable from specifically pledged revenues,
the
essential element in the security for a revenue bond is
the
quantity and quality of the pledged revenues available
to pay
debt service.
Although an appraisal of most of the same factors
that bear
on the quality of general obligation bond credit is
usually
appropriate in the rating analysis of a revenue bond,
other
factors are important, including particularly the
competitive
position of the municipal enterprise under review and
the basic
security covenants. Although a rating reflects S&P's
judgment as
to the issuer's capacity for the timely payment of debt
service,
in certain instances it may also reflect a mechanism or
procedure
for an assured and prompt cure of a default, should one
occur,
i.e., an insurance program, Federal or State guaranty,
or the
automatic withholding and use of State aid to pay the
defaulted
debt service.
AAA
Prime -- These are obligations of the highest
quality. They
have the strongest capacity for timely payment of debt
service.
General Obligation Bonds -- In a period of
economic stress,
the issuers will suffer the smallest declines in income
and will
be least susceptible to autonomous decline. Debt
burden is
moderate. A strong revenue structure appears more than
adequate
to meet future expenditure requirements. Quality of
management
appears superior.
Revenue Bonds -- Debt service coverage has been,
and is
expected to remain, substantial. Stability of the
pledged
revenues is also exceptionally strong, due to the
competitive
position of the municipal enterprise or to the nature
of the
revenues. Basic security provisions (including rate
covenant,
earnings test for issuance of additional bonds, and
debt service
reserve requirements) are rigorous. There is evidence
of
superior management.
AA
High Grade -- The investment characteristics of
general
obligation and revenue bonds in this group differ in
only small
degrees from those of the prime quality issues. Bonds
rated "AA"
have the second strongest capacity for payment of debt
service.
Good Grade -- Principal and interest payments on
bonds in
this category are regarded as safe. This rating
describes the
third strongest capacity for payment of debt service.
It differs
from the two higher ratings because:
General Obligation Bonds -- There is some
weakness, either
in the local economic base, in debt burden, in the
balance
between revenues and expenditures, or in quality of
management.
Under certain adverse circumstances, any one such
weakness might
impair the ability of the issuer to meet debt
obligations at some
future date.
Revenue Bonds -- Debt service coverage is good,
but not
exceptional. Stability of the pledged revenues could
show some
variations because of increased competition or economic
influences on revenues. Basic security provisions,
while
satisfactory, are less stringent. Management
performance appears
adequate.
BBB
Bonds rated BBB are regarded as having an adequate
capacity
to pay interest and repay principal. Whereas they
normally
exhibit adequate protection parameters, adverse
economic
conditions or changing circumstances are more likely to
lead to a
weakened capacity to pay interest and repay principal
for bonds
in this category than for bonds in higher rated
categories.
S&P's letter ratings may be modified by the
addition of a
plus or a minus sign, which is used to show relative
standing
within the major rating categories, except in the
AAA-Prime Grade
category.
SP-1
These notes show a very strong or strong capacity
to pay
principal and interest. Those issues with overwhelming
safety
characteristics will be given a plus (+) designation.
SP-2
These notes show a satisfactory capacity to pay
principal
and interest.
APPENDIX B
TAX-EXEMPT VS. TAXABLE INCOME
The following table illustrates the approximate taxable
yields
for individuals that are equivalent to various
tax-exempt yields,
based upon 1995 Federal income tax rates. The table
illustrates
the approximate yield you would have to earn on taxable
investments to equal a given tax-exempt yield in your
income tax
bracket. Locate your taxable income, then locate your
tax
bracket based on joint or single tax return filing.
Read across
to find the approximate equivalent taxable yield you
would need
to match a given tax-exempt yield. There is, of
course, no
assurance that an investment in the Fund will result in
the
realization of any particular return.
1995[*]
INCOME
TAX
TAXABLE INCOME BRACKET TAX-EXEMPT YIELD
OF:
Joint Single 5% 6%
7%
Return Return
$0-39,000 $0-23,350 15% 5.88% 7.06%
8.24%
$39,001- $23,351- 28 6.94 8.33
9.72
94,250 56,550
$94,251- $56,551- 31 7.25 8.70
10.14
143,600 117,950
$143,601- $117,951- 36 7.81 9.38
10.94
256,500 256,500
Over Over 39.6 8.28 9.93
11.59
$256,500 $256,500
INCOME
TAX
TAXABLE INCOME BRACKET TAX-EXEMPT YIELD
OF:
Joint Single 8% 9%
10%
Return Return
$0-39,000 $0-23,350 15% 9.41% 10.59%
11.76%
$39,001- $23,351- 28 11.11 12.50
13.89
94,250 56,550
$94,251- $56,551- 31 11.59 13.04
14.49
143,600 117,950
$143,601- $117,951- 36 12.50 14.06
15.63
256,500 256,500
Over Over 39.6 13.25 14.90
16.56
$256,500 $256,500
INCOME
TAXABLE INCOME TAX TAX-EXEMPT
BRACKET YIELD OF:
Joint Single 11% 12%
Return Return
$0-39,000 $0-23,350 15% 12.94% 14.12%
$39,001- $23,351- 28 15.28 16.67
94,250 56,550
$94,251- $56,551- 31 15.94 17.39
143,600 117,950
$143,601- $117,951- 36 17.19 18.75
256,500 256,500
Over Over 39.6 18.21 19.87
$256,500 $256,500
[*] This table does not purport to deal with a
shareholder's
particular situation. Shareholders are advised to
consult
their own tax advisor with respect to the
particular tax
consequences to them of an investment in the Fund.
This
table does not take into account any taxes other
than the
regular Federal income tax. This table reflects
certain
assumptions, including: (i) the Federal
alternative minimum
tax is not applicable, and (ii) a shareholder has
no net
capital gain for the taxable year. Depending upon
the
circumstances, a shareholder's effective marginal
tax rate
may differ from his or her tax bracket rate. This
can be
attributable to a variety of factors, including
the phase
out of personal exemptions and the reduction of
certain
itemized deductions for taxpayers whose adjusted
gross
incomes exceed specified thresholds.
MACKENZIE LIMITED TERM MUNICIPAL FUND
MACKENZIE NATIONAL MUNICIPAL FUND
MACKENZIE CALIFORNIA MUNICIPAL FUND
MACKENZIE NEW YORK MUNICIPAL FUND
series of
MACKENZIE SERIES TRUST
Via Mizner Financial Plaza
700 South Federal Highway, Suite 300
Boca Raton, Florida 33432
STATEMENT OF ADDITIONAL INFORMATION
October 27, 1995
(as supplemented on January 1, 1996)
_________________________________________________________________
Mackenzie Series Trust (the "Trust") is a
diversified open-
end management investment company that consists of five
fully
managed portfolios, four of which are offered hereby.
This
Statement of Additional Information ("SAI") describes
the four
portfolios listed above (each, a "Fund," and
collectively, the
"Funds").
This SAI is not a prospectus and should be read in
conjunction with the prospectus for the Funds dated
October 27,
1995 (as supplemented on January 1, 1996) (the
"Prospectus"),
which may be obtained without charge from the Trust at
the
Distributor's address and telephone number listed
below.
INVESTMENT MANAGER
Mackenzie Investment Management Inc. ("MIMI")
Via Mizner Financial Plaza
700 South Federal Highway
Suite 300
Boca Raton, Florida 33432
Telephone: (407) 393-8900
DISTRIBUTOR
Mackenzie Ivy Funds Distribution, Inc.
("MIFDI")
Via Mizner Financial Plaza
700 South Federal Highway
Suite 300
Boca Raton, Florida 33432
Telephone: (800) 456-5111
TABLE OF CONTENTS
PAGE
INVESTMENT OBJECTIVES AND POLICIES
Municipal Securities
Risk Factors and Special Considerations
Relating
to California Municipal Securities
Risk Factors and Special Considerations
Relating
to New York Municipal Securities
U.S. Government Securities
Banking Industry and Savings and Loan Obligations
Commercial Paper
Repurchase Agreements
Borrowing
Restricted and Illiquid Securities
Temporary Investments
Other Investment Techniques
INVESTMENT RESTRICTIONS
ADDITIONAL RESTRICTIONS
ADDITIONAL RIGHTS AND PRIVILEGES
Automatic Investment Method
Exchange of Shares
Letter of Intent
Reinvestment Privilege
Rights of Accumulation
Systematic Withdrawal Plan
BROKERAGE ALLOCATION
TRUSTEES AND OFFICERS
Personal Investments by Employees of the Adviser
COMPENSATION TABLE
INVESTMENT ADVISORY AND OTHER SERVICES
Business Management and Investment Advisory
Services
Distribution Services
Custodian
Fund Accounting
Transfer and Dividend Paying Agent
Administrator
Auditors
CAPITALIZATION AND VOTING RIGHTS
NET ASSET VALUE
PORTFOLIO TURNOVER
REDEMPTIONS
CONVERSION OF CLASS B SHARES
TAXATION
General
Discount
Distributions
Disposition of Shares
Backup Withholding
Other Taxation
Special Information Relating to Mackenzie
California
Municipal Fund
Special Information Relating to Mackenzie New York
Municipal Fund
PERFORMANCE INFORMATION
FINANCIAL STATEMENTS
APPENDIX A DESCRIPTION OF STANDARD & POOR'S
CORPORATION
("S&P") AND MOODY'S INVESTORS SERVICE,
INC.
("MOODY'S") CORPORATE BOND, COMMERCIAL
PAPER
AND MUNICIPAL OBLIGATIONS RATINGS
APPENDIX B TAX-EXEMPT VS. TAXABLE INCOME
INVESTMENT OBJECTIVES AND POLICIES
Mackenzie Series Trust (the "Trust") is a
diversified open-
end management investment company organized as a
Massachusetts
business trust on April 22, 1985 under the name
Industrial Series
Trust. The Funds' investment objectives and general
investment
policies are described in the Prospectus. Additional
information
concerning the characteristics of the Funds'
investments is set
forth below.
MUNICIPAL SECURITIES
Mackenzie Limited Term Municipal Fund, Mackenzie
National
Municipal Fund, Mackenzie California Municipal Fund and
Mackenzie
New York Municipal Fund may invest in "investment
grade"
municipal securities, (i.e., securities rated Aaa, Aa,
A and Baa
by Moody's Investors Service, Inc. ("Moody's) and AAA,
AA, A and
BBB by Standard & Poor's Corporation ("S&P")). A
description of
the ratings is contained in Appendix A to this SAI.
Securities
rated Baa by Moody's are considered "medium grade"
obligations,
and BBB is the lowest classification which is still
considered an
"investment grade" rating by S&P. Baa securities are
described
by Moody's as obligations on which "[i]nterest 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." According
to Moody's,
"[s]uch bonds lack outstanding investment
characteristics and in
fact have speculative characteristics as well." The
ratings of
Moody's and S&P represent their respective opinions of
the
qualities of the securities they undertake to rate and
such
ratings are general and are not absolute standards of
quality.
Each Fund may invest in both "general obligation
bonds" 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
from the revenues derived from a particular facility or
class of
facilities or, in some cases, from the proceeds of a
special
excise tax or other specific revenue source, but not
from the
general taxing power. Municipal bonds are issued for
various
public purposes, including construction of a wide range
of public
facilities such as bridges, highways, housing,
hospitals, mass
transportation, schools, streets, and water and sewer
works.
Other public purposes for which municipal bonds may be
issued
include the refunding of outstanding obligations,
obtaining funds
for general operating expenses and obtaining funds to
loan to
other public institutions and facilities. In addition,
certain
types of industrial development bonds and private
activity bonds
are issued by or on behalf of public authorities to
obtain funds
to provide for privately operated housing facilities
and certain
facilities for water supply, gas, electricity or sewage
or solid
waste disposal.
Industrial development bonds which pay tax-exempt
interest
are, in most cases, revenue bonds and do not generally
carry the
pledge of the full faith and credit of the issuer of
such bonds.
The payment of the principal and interest on such
industrial
development bonds depends solely on the ability of the
user of
the facilities financed by the bonds to meet its
financial
obligations and the pledge, if any, of real and
personal property
so financed as security for such payment. A Fund will
not invest
more than 5% of its assets in securities where the
principal and
interest are the responsibility of an industrial user
with less
than three years' operational history. In addition, a
Fund will
not invest in industrial development bonds for the use
of
privately-owned electric utilities.
There are, depending on numerous factors,
variations in the
risks involved in holding municipal securities, both
within a
particular rating classification and between
classifications.
The market values of outstanding municipal bonds will
vary as a
result of the rating of the issue and changing
evaluations of the
ability of the issuer to meet interest and principal
payments.
Such market values will also change in response to
changes in the
interest rates payable on new issues of municipal
bonds. Should
such interest rates rise, the values of outstanding
bonds,
including those held in a Fund's portfolio, would
decline; should
such interest rates decline, the values of outstanding
bonds
would increase.
As a result of litigation or other factors, the
power or
ability of issuers of municipal bonds to pay principal
and/or
interest might be adversely affected. Municipal
securities are
subject to the provisions of bankruptcy, insolvency and
other
laws affecting the rights and remedies of creditors,
such as the
Federal Bankruptcy Code, and laws, if any, which may be
enacted
by Congress, state legislatures extending the time for
payment of
principal or interest or both, or imposing other
constraints upon
enforcement of such obligations or upon the power of
municipalities to levy taxes.
A Fund may invest without limitation in issues of
municipal
securities that have similar characteristics, such as
municipal
securities issued by issuers located in the same
geographic
region, and municipal securities (other than those
issued by non-
governmental issuers) that derive interest payments
from revenues
of similar projects (for example, electric utility
systems,
hospitals, or housing finance agencies). Consequently,
a Fund's
portfolio of municipal securities may be more
susceptible to the
risks of adverse economic, political, or regulatory
developments
than would be the case with a portfolio of securities
required to
be more diversified as to geographic region and/or
source of
revenue.
For the purpose of certain requirements under the
Investment
Company Act of 1940, as amended (the "1940 Act"), and
various of
the Funds' investment restrictions, identification of
the
"issuer" of a municipal security depends on the terms
and
conditions of the security. When the assets and
revenues of a
political subdivision are separate from those of the
government
which created the subdivision and the security is
backed only by
the assets and revenues of the subdivision, the
subdivision would
be deemed to be the sole issuer. Similarly, in the
case of an
industrial development bond or private activity bond,
if that
bond is backed only by the assets and revenues of the
nongovernmental user, then the nongovernmental user
would be
deemed to be the sole issuer. If, however, in either
case, the
creating government or some other entity guarantees the
security,
the guarantee would be considered a separate security
and would
be treated as an issue of the government or other
agency.
Interest on certain types of industrial
development bonds
(or private activity bonds) (generally small issues,
and
obligations to finance certain exempt facilities which
may be
leased to or used by persons other than the issuer)
will not be
exempt from Federal income tax when received by
"substantial
users" or persons related to "substantial users" as
defined in
the Internal Revenue Code of 1986, as amended (the
"Code"). The
term "substantial user" generally includes any
"non-exempt
person" who regularly uses in his or her trade or
business a part
of a facility financed from the proceeds of industrial
development bonds. The Funds may invest periodically
in
industrial development bonds and private activity bonds
and,
therefore, may not be an appropriate investment for
entities
which are substantial users of facilities financed by
such bonds
or "related persons" of substantial users. Generally,
an
individual will not be a related person of a
substantial user
under the Code unless the person or his or her
immediate family
(spouse, brothers, sisters and lineal descendants) owns
directly
or indirectly in the aggregate more than 50% in value
of the
equity of the substantial user.
Legislative developments may affect the value of
the
securities in a Fund's portfolio, and therefore the
value of the
Fund's shares, as well as the tax-exempt status of
dividends.
The Board of Trustees of the Trust will monitor the
progress of
any such proposals to determine what, if any, defensive
action
may be taken. If any legislation which would have a
material
adverse effect on the ability of a Fund to pursue its
objective
were adopted, the investment objective and policies of
that Fund
would be reconsidered by the shareholders of that Fund.
RISK FACTORS AND SPECIAL CONSIDERATIONS RELATING
TO
CALIFORNIA MUNICIPAL SECURITIES: The following
information as to
certain California state (as used in this subsection,
the
"State") risk factors is given to investors in light of
Mackenzie
California Municipal Fund's policy of concentrating its
investments in California municipal issuers. Certain
California
constitutional amendments, legislative measures, and
voter
initiatives, as discussed below, could adversely affect
the
market values and marketability of, or result in
default of,
existing obligations, including obligations that may be
held by
the Fund. Obligations of the State or local
governments may also
be affected by budgetary pressures affecting the State
and
economic conditions in the State. The following
information
constitutes only a brief summary, does not purport to
be a
complete description and is based on information from
sources
believed by the Trust to be reliable, including
official
statements relating to securities offerings of
California issuers
and periodic publications by national ratings
organizations.
Such information, however, has not been independently
verified by
the Trust.
Certain California municipal securities held by
the Fund may
be obligations of issuers that rely in whole or in part
on State
revenues for payment of these obligations. Property
tax revenues
and a portion of the state's General Fund surplus are
distributed
to counties, cities and their various taxing entities
and the
State assumes certain obligations theretofore paid out
of local
funds. Whether and to what extent a portion of the
State's
General Fund will be distributed in the future to
counties,
cities and their various entities, is unclear.
Some of the California municipal securities held
by the Fund
may be obligations of issuers who rely in whole or in
part on
ad valorem real property taxes as a source of revenue.
On
June 6, 1978, "Proposition 13" added Article XIIIA to
the
California Constitution. Briefly, Article XIIIA limits
ad valorem taxes on real property and generally
restricts the
ability of taxing entities to increase real property
tax
revenues.
Legislation enacted by the California Legislature
to
implement Article XIIIA (Statutes of 1978, Chapter 292,
as
amended) provides that notwithstanding any other law,
local
agencies may not levy any ad valorem property tax
except to pay
debt service on indebtedness approved by the voters
prior to July
1, 1978, and any bonded indebtedness for the
acquisition or
improvement of real property approved on or after July
1, 1978
must be approved by two-thirds of the voters voting on
the
proposition. In addition, each county will levy the
maximum tax
permitted by Article XIIIA of $4.00 per $100 assessed
valuation.
The apportionment of property taxes in fiscal years
after 1978-79
was revised pursuant to Statutes of 1979, Chapter 282,
which
provided relief funds from state moneys beginning in
fiscal year
1979-80 and is designed to provide a permanent system
for sharing
state taxes and budget funds with local agencies.
Under Chapter
282, cities and counties receive more of the remaining
property
tax revenues collected under Proposition 13, instead of
direct
state aid. School districts receive a correspondingly
reduced
amount of property taxes, but receive compensation
directly from
the state and are given additional relief.
On November 6, 1979, California voters approved
Proposition 4, which added Article XIIIB to the
California
Constitution. Article XIIIB may have an adverse impact
on
California state and municipal issuers because it
subjects State
and local governments to an annual "appropriations
limit," which
prohibits them from spending certain moneys (called
"appropriations subject to limitation") in excess of
the imposed
appropriations limit. The State's appropriations limit
in each
year is based on the limit for the prior year, adjusted
annually
for changes in State per capita personal income and
changes in
population, and adjusted, where applicable, for any
transfer of
financial responsibility of providing services to or
from another
unit of government. As originally enacted, the
appropriations
limit was based on certain 1978-79 expenditures and
adjusted
annually to reflect changes in cost-of-living and
population.
Starting in the 1991-92 fiscal year, the appropriations
limit was
recalculated by taking the actual 1986-87 fiscal year
limit, and
applying the annual adjustments as if Proposition 111
(discussed
below) had been in effect. This recalculation resulted
in an
increase of $1 billion to the State's appropriations
limit in the
1990-91 fiscal year.
On November 4, 1986, California voters approved an
initiative statute known as "Proposition 62." This
statute
(i) requires that any tax for general governmental
purposes
imposed by local governments be approved by resolution
or
ordinance adopted by a two-thirds vote of the
governmental
entity's legislative body and by a majority vote of the
electorate of the governmental entity; (ii) requires
that any
special tax (defined as taxes levied for other than
general
governmental purposes) imposed by a local governmental
entity be
approved by a two-thirds vote of the voters within that
jurisdiction; (iii) restricts the use of revenues from
a special
tax to the purposes or for the service for which the
special tax
was imposed; (iv) prohibits the imposition of ad
valorem taxes on
real property by local governmental entities except as
permitted
by Article XIIIA of the California Constitution; (v)
prohibits
the imposition of transaction taxes and sales taxes on
the sale
of real property by local governments; (vi) requires
that any tax
imposed by a local government on or after August 1,
1985 be
ratified by a majority of the electorate within two
years of the
adoption of the initiative or be terminated by November
15, 1988;
(vii) requires that, in the event a local government
fails to
comply with the provisions of this measure, a reduction
in the
amount of tax revenue allocated to such local
government occur in
an amount equal to the revenues received by such entity
attributable to the tax levied in violation of the
initiative;
and (viii) permits these provisions to be amended
exclusively by
the voters of the State. In September 1988 the
California Court
of Appeals held that it was unconstitutional to require
that
local tax measures be submitted to the electorate, as
described
in (vi) above.
On November 8, 1988, voters approved "Proposition
98," which
has significantly altered the operation and effect of
the Article
XIIIB spending limit, the first changes since its
adoption in
1979. This combined initiative, constitutional
amendment and
statute, called the "Classroom Instructional
Improvement and
Accountability Act" (the "Act"), changes State funding
of public
education below the university level and the operation
of the
State's Appropriations Limit. Specifically,
Proposition 98
requires that (a) the California Legislature establish
a prudent
State reserve fund in an amount as it shall deem
reasonable and
necessary, and (b) revenues in excess of amounts
permitted to be
spent and which would otherwise be returned pursuant to
Article
XIIIB by revision of tax rates or fee schedules, be
transferred
and allocated (up to a maximum of 4%) to the State
School Fund
and be expended solely for purposes of instructional
improvement
and accountability. No such transfer or allocation of
funds will
be required if certain designated State officials
determine that
annual student expenditures and class size meet certain
criteria
as set forth in Proposition 98. Any funds allocated to
the State
School Fund shall cause the appropriation limits
established in
Article XIIIB to be annually increased for any such
allocation
made in the prior year.
The Act also amends Article XVI to require that
the State
provide a minimum level of funding for public schools
and
community colleges. Commencing with the 1988-89 fiscal
year,
State moneys to support school districts and community
college
districts shall equal or exceed the lesser of: (a) an
amount
equalling the percentage of State general revenue bonds
for
school districts and community college districts in
fiscal year
1986-87, or (b) an amount equal to the prior year's
State general
fund proceeds of taxes appropriated under Article XIIIB
plus
allocated proceeds of local taxes, after adjustment
under Article
XIIIB. The Act permits the enactment of legislation,
by a two-
thirds vote, to suspend the minimum funding requirement
for one
year.
"Proposition 111" was approved by the voters and
took effect
on July 1, 1990. Among a number of important
provisions,
Proposition 111 recalculates spending limits for the
State and
local governments, allows greater annual increases in
the limits,
allows the averaging of two years' tax revenues before
requiring
action regarding excess tax revenues, reduces the
amount of the
funding guarantee in recession years for school
districts and
community college districts (but with a floor of 40.9
percent of
State General Fund tax revenues), removes the provision
of
Proposition 98 which included excess moneys transferred
to school
districts and community college districts in the base
calculation
for the next year, limits the amount of State tax
revenue over
the limit which would be transferred to school
districts and
community college districts, and exempts increased
gasoline taxes
and truck weight fees from the State appropriations
limit.
Additionally, Proposition 111 exempts from the State
appropriations limit funding for capital outlays.
In the years immediately following enactment, very
few
California governmental entities operated near their
appropriations limit; in the mid-to-late 1980's,
however, many
entities were at or approaching their limit. Many
local entities
have successfully sought voter approval for 4-year
waivers of the
limit and, under Proposition 111, may elect among
different
measures of population in setting the limit. During
fiscal year
1986-87, State receipts from proceeds of taxes exceeded
its
appropriations limit by $1.138 billion, which was
returned to
taxpayers. Since that time, appropriations subject to
limitation
were under the State limit. State appropriations are
estimated
to be approximately $8.4 billion under the limit for
the 1993-94
fiscal year.
Article XIIIB, like Article XIIIA, may require
further
interpretation by both the California Legislature and
the courts
to determine its applicability to specific situations
involving
the State and local taxing authorities. Depending upon
such
interpretation, Article XIIIB may limit significantly a
governmental entity's ability to budget sufficient
funds to meet
debt service on bonds and other obligations.
Certain California municipal securities held by
the Fund may
be obligations that are secured in whole or in part by
a mortgage
or deed of trust on real property. Upon the default of
a
mortgage or deed of trust with respect to California
real
property, the creditor's nonjudicial foreclosure rights
under the
power of sale contained in the mortgage or deed of
trust are
subject to the constraints imposed by California law
upon
transfers of title to real property by private power of
sale.
During the three-month period beginning with the filing
of a
formal notice of default, the debtor is entitled to
reinstate the
home mortgage by making any overdue payments. Under
standard
loan servicing procedures, the filing of the formal
notice of
default does not occur unless at least three full
monthly
payments have become due and remain unpaid. The power
of sale is
exercised by posting and publishing a notice of sale
for a least
20 days after expiration of the three-month
reinstatement period.
Therefore, the effective minimum period for foreclosing
on a
mortgage could be in excess of seven months after the
initial
default. Such time delays in collections could disrupt
the flow
of revenues available to an issuer for the payment of
debt
service on the outstanding obligations if such defaults
occur
with respect to a substantial number of home mortgages
or deeds
of trust securing an issuer's obligations.
Certain California municipal securities held by
the Fund may
be obligations that finance the acquisition of single
family home
mortgages for low- and moderate-income mortgagors.
These
obligations may be payable solely from revenues derived
from the
home mortgages and are subject to the California
statutory
limitations on the transfer of title during foreclosure
proceedings as described above. Under California
antideficiency
legislation, there is no personal recourse against a
mortgagor of
a single family residence purchased with the loan
secured by the
mortgage.
Under California law, mortgage loans secured by
single
family owner-occupied dwellings may be prepaid at any
time.
Prepayment charges on such mortgage loans may be
imposed only
with respect to voluntary prepayments made during the
first five
years of the mortgage loan's term, and cannot in any
event exceed
six months' advance interest on the amount prepaid in
excess of
20% of the original principal amount of the mortgage
loan. This
limitation could affect the flow of revenues available
to an
issuer for debt service on the outstanding debt
obligations which
financed such home mortgages.
In December 1991, Standard and Poor's Corporation
("S&P")
downgraded its rating of the State's general obligation
bonds to
"AA" from "AAA". As the State's economy worsened and
its budget
deficit swelled, rating agency officials closely
monitored the
State's budget progress. In February 1992, Moody's
Investors
Service Inc. ("Moody's") downgraded its rating of the
State's
general obligation bonds to "Aa1" from "Aaa". In April
1992, S&P
placed the State's general obligation bonds on its
CreditWatch,
indicating the possibility of further downgrades should
the
State's budget and recessionary problems persist. In
July 1992,
Moody's and S&P downgraded their ratings of the State's
general
obligation bonds to "Aa" from "Aa1", and to "A+" from
"AA",
respectively. On July 15, 1993, Moody's confirmed its
"Aa"
rating of the State's general obligation bonds.
However, on July
15, 1994, Moody's, S & P and Fitch Investors Service
downgraded
their ratings of the State's general obligation bonds
from "Aa"
to "A1", "A+" to "A", and "AA" to "A", respectively.
From mid-1990 to late 1993, the State suffered a
recession
with the worst economic, fiscal and budget conditions
since the
1930's. Construction, manufacturing (especially
aerospace),
exports and financial services, among others, were
severely
affected. Job losses were the worst of any post-war
recession.
Employment levels stabilized by late 1994 and steady
growth
occurred in 1994 and is expected to continue in 1995,
but pre-
recession job levels are not expected to be reached
until late
1996. Economic indicators show a steady recovery
underway in the
State since the start of 1994.
The recession seriously affected State tax
revenues, which
basically mirror economic conditions. It also caused
increased
expenditures for health and welfare programs. The
State also
faced a structural imbalance in its budget with the
largest
programs supported by the General Fund - K-12 schools
and
community colleges, health and welfare, and corrections
- growing
at rates higher than the growth rates for the principal
revenue
sources of the General Fund. As a result, the State
experienced
recurring budget deficits in the late 1980s and early
1990s. The
State Controller reported that revenues and
expenditures were
equal in 1992-93, and the State had an operating
surplus of $1.1
billion in 1993-94. However, at June 30, 1994,
according to the
Department of Finance, the State's Special Fund for
Economic
Uncertainties ("SFEU") still had a deficit, on a budget
basis, of
approximately $1.5 billion.
The accumulated budget deficits over the past
several years,
together with expenditures for school funding, which
have not
been reflected in the budget, and reduction of
available internal
borrowable funds, have combined to significantly
deplete the
State's cash resources to pay its ongoing expenses. In
order to
meet its cash needs, the State has had to rely for
several years
on a series of external borrowings, including
borrowings past the
end of a fiscal year. Such borrowings are expected to
continue
in future fiscal years.
Administration reports during the course of the
1993-1994
Fiscal Year indicated that while economic recovery
appeared to
have started in the second half of the fiscal year,
recessionary
conditions continued longer than had been anticipated
when the
1993-1994 Budget Act was adopted. Overall, revenues
for the
1993-1994 Fiscal Year were approximately $800 million
lower than
original projections, and expenditures were
approximately $780
million higher, primarily because of higher health and
welfare
caseloads, lower property taxes which required greater
State
support for K-14 education to make up the shortfall,
and lower
than anticipated federal government payments for
immigration-
related costs. The reports in May and June, 1994,
indicated that
revenues in the second half of the 1993-94 Fiscal Year
were very
close to the projections made in the Governor's Budget
of January
10, 1994, which was consistent with a slow turnaround
in the
economy.
The Department of Finance's July 1994 Bulletin
including the
final June receipts, reported that June revenues were
$114
million, or 2.5%, above projections, with final
end-of-year
results at $377 million, or approximately 1.1%, above
the
projections in the May 1994 Revision to the 1994-95
Governor's
Budget ("May Revision"). Part of this result was due
to the end-
of-year adjustments and reconciliations. Personal
income tax and
sales tax continued to track projections. The largest
factor in
the higher than anticipated revenues was from bank and
corporation taxes, which were $140 million, or 18.4%,
above
projections in June.
During the 1993-1994 Fiscal Year, the State
implemented the
Deficit Retirement Plan, which was part of the 1993-94
Budget
Act, by issuing $1.2 billion of revenue anticipation
warrants in
February 1994 maturing December 21, 1994. This
borrowing reduced
the cash deficit at the end of the 1993-94 Fiscal Year.
Nevertheless, because of the $1.5 billion variance from
the
original 1993-1994 Budget Act assumptions, the General
Fund ended
the Fiscal Year at June 30, 1994 carrying forward an
accumulated
deficit of approximately $1.7 billion.
Because of the revenue shortfall and the State's
reduced
internal borrowable cash resources, in addition to the
$1.2
billion or revenue anticipation warrants issued as part
of the
Deficit Retirement and Reduction Plan, the State issued
an
additional $2.0 billion of revenue anticipation
warrants,
maturing July 26, 1994, which were needed to fund the
State's
obligations and expenses through the end of the 1993-94
Fiscal
Year.
On January 17, 1994, an earthquake of the
magnitude of an
estimated 6.8 on the Richter Scale struck Los Angeles
(the
"Northbridge Earthquake"). Significant property damage
to
private and public facilities occurred in a four-county
area
including northern Los Angeles County, Ventura County,
and parts
of Orange and San Bernardino Counties. Although some
individuals
and businesses suffered losses totaling in the billions
of
dollars, the overall effect on the earthquake on the
regional and
state economy is not expected to be serious.
The 1994-95 fiscal year represented the fourth
consecutive
year that the Governor and the Legislature were faced
with a
difficult budget environment. Many program cuts and
budgetary
adjustments had already been made in the last three
years.
The Governor's Budget Proposal, as updated in May
and June
1994, recognized that the accumulated deficit could not
be repaid
in one year, and proposed a two-year solution. The
budget
proposal sets forth revenue and expenditure forecasts
and revenue
and expenditure proposals which result in operating
surpluses for
the budget for both 1994-95 and 1995-96, and lead to
the
elimination of the accumulated budget deficit,
estimated at about
$1.7 billion at June 30, 1994, by June 30, 1996.
The 1994-95 Budget Act, signed by the Governor on
July 8,
1994, projected revenues and transfers of $41.9
billion, $2.1
billion higher than revenues in 1993-94. This
reflected the
Administration's forecast of an improving economy.
Also included
in this figure was the projected receipt of about $360
million
from the Federal Government to reimburse the State's
cost of
incarcerating undocumented immigrants, most of which
eventually
was not received. The Legislature took no action on a
proposal
in the January 1994-95 Governor's Budget to undertake
an
expansion of the transfer of certain programs to
counties, which
would also have transferred to counties 0.5% of the
State's
current sales tax.
The 1994-95 Budget Act projected Special Fund
revenues of
$12.1 billion, a decrease of 2.4% from 1993-94
estimated
revenues. The 1994-95 Budget Act projected General
Fund
expenditures of $40.9 billion, an increase of $1.6
billion over
1993-94. The 1994-95 Budget Act also projected Special
Fund
expenditures of $12.3 billion, a 4.7% increase over
1993-94
estimated expenditures.
Among other major features of the 1994-95 Budget
Act were
reductions in health and welfare costs, increases in
educational
funding, and increased funding for anticipated growth
in the
State's prison inmate population, including provisions
for
implementing recent legislation which requires
mandatory life
prison terms for certain third time felony offenders.
The 1994-95 Budget Act contained no tax increases.
Under
legislation enacted for the 1993-94 Budget Act, the
renters' tax
credit was suspended for two years (1993 and 1994). A
ballot
proposition to permanently restore the renters' tax
credit after
this year failed at the June, 1994 election. The
Legislature
enacted a further one-year suspension of the renters'
tax credit,
for 1995, saving approximately $390 million in the
1995-96 Fiscal
Year.
The 1994-95 Budget assumed that the State would
use a cash
flow borrowing program in 1994-95 which combined
one-year notes
and two-year warrants, which have now been issued.
Issuance of
the warrants allows the State to defer repayment of
approximately
$1.0 billion of its accumulated budget deficit into the
1995-96
Fiscal Year. The Budget Adjustment law enacted along
with the
1994-95 Budget Act is designed to ensure that the
warrants will
be repaid in the 1995-96 Fiscal Year.
The Department of Finance Bulletin for April 1995
reported
that General Fund revenues for March 1995 were $28
million, or
1.1%, below forecast, and that year-to-date General
Fund revenues
were $110 million, or 0.4%, below forecast.
Initial analysis of the Federal fiscal year 1995
budget by
the Department of Finance indicates that about $98
million was
appropriated for California to offset costs of
incarceration of
undocumented and refugee immigrants, less than the $356
million
which was assumed in the State's 1994-95 Budget Act.
For the first time in four years, the State enters
the
upcoming 1995-96 fiscal year with strengthening
revenues based on
an improving economy. On January 10, 1995, the Governor
presented
his 1995-96 Fiscal Year Budget Proposal (the "Proposed
Budget").
The Proposed Budget estimates General Fund revenues and
transfers
of $42.5 billion (an increase of 0.2% over 1994-95).
This
nominal increase from 1994-95 fiscal year reflects the
Governor's
realignment proposal and the first year of his tax cut
proposal.
Without these two proposals, General Fund revenues
would be
projected at approximately $43.8 billion, or an
increase of 3.3%
over 1994-95. Expenditures are estimated at $41.7
billion
(essentially unchanged from 1994-95). Special Fund
revenues are
estimated at $13.5 billion (10.7% higher than 1994-95)
and
Special Fund expenditures are estimated at $13.8
billion (12.2%
higher than 1994-95). The Proposed Budget projects
that the
General Fund will end the fiscal year at June 30, 1996
with a
budget surplus in SFEU of about $92 million, or less
than 1% of
General Fund expenditures, and will have repaid all of
the
accumulated budget deficits.
Revised employment data indicate that California's
recession
ended in 1993, and following a period of stability, a
solid
recovery is now underway. The State's unemployment
rate fell
sharply in 1994, from 10.1% in January to 7.7% in
October and
November. The gap between the national and California
jobless
rates narrowed from 3.4 percentage points at the
beginning of
1994 to an average of 2 percentage points in October
and November
1994. The number of unemployed Californians fell by
nearly
400,000 during the year, while civilian employment
increased more
than 300,000 in 1994. Other indicators, including
retail sales,
homebuilding activity, existing home sales and bank
lending
volume all confirm the State's recovery. The
Department of
Finance Bulletin for February 1995 reported that the
State's
unemployment rate rose slightly to 8.2% in January from
7.7% in
December. Despite this slight rise in January
unemployment, the
pattern of economic recovery in the State appears to be
continuing.
Personal income was severely affected by the
Northbridge
Earthquake, which reduced the first quarter 1994 figure
by $22
billion at an annual rate, reflecting the uninsured
damage to
residences and unincorporated businesses. As a result,
personal
income growth for all of 1994 was about 4.2%. However,
excluding
the Northbridge effects, growth would have been in
excess of 5%.
The State's tax revenue experience clearly
reflects sharp
declines in employment, income and retail sales on a
scale not
seen in over 50 years. The 1995-96 Governor's Budget,
released
January 10, 1995 (the "Governor's Budget"), indicates
the State
has embarked on a steady economic recovery since lat
1993,
somewhat sooner than predicted in the May Revision.
ORANGE COUNTY BANKRUPTCY PROCEEDINGS. On December
6, 1994,
Orange County, California (the "County"), together with
its
pooled investment funds (the "Pooled Funds") filed for
protection
under Chapter 9 of the Federal Bankruptcy Code, after
reports
that the Pooled Funds had suffered significant market
losses in
their investments, causing a liquidity crisis for the
Pooled
Funds and the County. More than 180 other public
entities, most
of which, but not all, are located in the County, were
also
depositors in the Pooled Funds. As of mid-January
1995,
following a restructuring of most of the Pooled Funds'
assets to
increase their liquidity and reduce their exposure to
interest
rate increases, the County estimated the Pooled Funds'
loss at
about $1.69 billion, or about 22% of their initial
deposits of
approximately $7.5 billion. Many of the entities which
deposited
monies in the Pooled Funds, including the County, are
facing cash
flow difficulties because of the bankruptcy filing and
may be
required to reduce programs or capital projects. This
also may
effect their ability to meet their outstanding
obligations.
The State has no existing obligation with respect
to any
outstanding obligations or securities of the County or
any of the
other participating entities. However, in the event
the County
is unable to maintain county administered State
programs because
of insufficient resources, it may be necessary for the
State to
intervene, but the State cannot presently predict what,
if any,
action may occur.
LITIGATION. The State is a party to numerous
legal
proceedings, many of which normally recur in
governmental
operations. The portion of the General Fund liability
for legal
proceedings that were decided against the State before
June 30,
1994, that is expected to be paid within the next 12
months is
recorded as a liability. In addition, the State is
involved in
certain other legal proceedings that, if decided
against the
State, may require the State to make significant future
expenditures or may impair future revenue sources.
Among the more significant lawsuits pending
against the
State are the following: (i) lawsuits involving the
exclusion of
small business stock gains from taxation; (ii) cases
relating to
the State's method of determining the tax on gross
insurance
premiums; (iii) a lawsuit seeking reimbursement for
alleged
state-mandated costs; (iv) lawsuits related to
contamination at
the Stringfellow toxic waste site; (v) an action
involving 3,000
plaintiffs seeking recovery for damages caused by the
Yuba River
flood of February, 1986; (vi) a lawsuit involving the
constitutionality of the 1993-94 Budget Act-related
legislation
which shifts property tax revenues from localities to
schools;
(vii) an action seeking to prohibit the State from
further
supporting its good faith defense to liquidated
damages; and
(viii) actions challenging the transfer of moneys from
special
fund accounts within the State Treasury to the State's
General
Fund.
RISK FACTORS AND SPECIAL CONSIDERATIONS RELATING
TO NEW YORK
MUNICIPAL SECURITIES: Because Mackenzie New York
Municipal Fund
intends to concentrate its investments in issuers
located in New
York (as used in this subsection, the "State"), the
Fund will be
significantly affected by any economic, political or
regulatory
developments which affect the ability of New York
issuers to pay
interest or repay principal on their obligations. The
following
information constitutes only a brief summary, does not
purport to
be a complete description and is based on information
from
sources believed by the Trust to be reliable, including
official
statements relating to securities offerings of New York
issuers
and periodic publications by national rating
organizations. Such
information, however, has not been independently
verified by the
Trust.
NEW YORK STATE. The financial condition of the
State may be
affected by various financial, social, economic and
political
factors. Those factors can be very complex, may vary
from fiscal
year to fiscal year, and are frequently the result of
actions
taken not only by the State and its agencies and
instrumentalities but also by entities that are not
under the
control of the State. Adverse developments affecting
the State's
financing activities, its authorities, the City of New
York (the
"City") or other localities could adversely affect the
State's
financial condition.
There are a number of methods by which the State
may incur
debt. Under the State Constitution, the State may not,
with
limited exceptions for emergencies, undertake long-term
borrowing
(i.e., borrowing for more than one year) unless the
borrowing is
authorized in a specific amount for a single work or
purpose by
the Legislature and approved by the voters. There is
no
limitation on the amount of long-term debt that may be
so
authorized and subsequently incurred by the State. The
total
amount of long-term State general obligation debt
authorized but
not issued as of March 31, 1995 was approximately
$1.789 billion.
The State may undertake short-term borrowings
without voter
approval (i) in anticipation of the receipt of taxes
and
revenues, by issuing tax and revenue anticipation
notes, and
(ii) in anticipation of the receipt of proceeds from
the sale of
duly authorized but unissued bonds, by issuing bond
anticipation
notes. The State may also, pursuant to specific
constitutional
authorization, directly guarantee certain obligations
of the
State of New York's authorities and public benefit
corporations
("Authorities"). Payments of debt service on New York
State
general obligation and New York State-guaranteed bonds
and notes
are legally enforceable obligations of the State of New
York.
The State also employs two other types of
long-term
financing mechanisms that are State-supported but do
not result
in general obligations of the State: moral obligation
and lease-
purchase or contractual-obligation financing.
Payments for principal and interest due on general
obligation bonds, interest due on bond anticipation
notes and on
tax and revenue anticipation notes were $2.253 and
$2.471 billion
in the aggregate for the State's 1993-94 and 1994-95
fiscal
years, respectively, and were estimated to be $2.817
billion for
the State's 1995-96 fiscal year. These figures do not
include
the interest payable on either State General Obligation
Refunding
Bonds issued in July 1992 ("Refunding Bonds") to the
extent that
such interest is to be paid from an escrow fund
established with
the proceeds of such Refunding Bonds or the State's
installment
payments relating to the issuance of certificates of
participation.
The State has never defaulted on any of its
general
obligation indebtedness or its obligations under
lease-purchase
or contractual-obligation financing arrangements and
has never
been called upon to make any direct payments pursuant
to its
guarantees. There has never been a default on any
moral
obligation debt of any Authority.
In 1990, as part of a State fiscal reform program,
legislation was enacted creating the New York Local
Government
Assistance Corporation ("LGAC"), a public benefit
corporation
empowered to issue long-term obligations to fund
certain payments
to local governments traditionally funded through New
York
State's annual seasonal borrowing. The legislation
empowered
LGAC to issue its bonds and notes in an amount not in
excess of
$4.7 billion (exclusive of certain refunding bonds)
plus certain
other amounts. As of June 1995, LGAC had issued its
bonds to
provide net proceeds of $4.7 billion completing the
program. The
impact of LGAC's borrowing is that the State is able to
meet its
cash flow needs in the first quarter of the fiscal year
without
relying on short-term seasonal borrowings. The 1995-96
State
Financial Plan includes no spring borrowing nor did the
1994-95
State Financial Plan, which was the first time in 35
years there
was no short-term seasonal borrowing. This reflects
success of
the LGAC program in permitting the State to accelerate
local aid
payments from the first quarter of the current fiscal
year to the
fourth quarter of the previous fiscal year.
In June 1994, the Legislature passed a proposed
constitutional amendment that would significantly
change the
long-term financing practices of the State and the
Authorities.
The proposed constitutional amendment would permit the
State,
without a voter referendum but within a formula-based
cap, to
issue revenue bonds, which would be debt of the State
secured
solely by a pledge of certain State tax receipts
(including those
allocated to State funds dedicated for transportation
purposes),
and not by the full faith and credit of the State. In
addition,
the proposed amendment would require that State debt be
incurred
only for capital projects included in a multi-year
capital
financing plan and would prohibit lease-purchase and
contractual-
obligation financing mechanisms for State facilities.
Before
becoming effective, the proposed constitutional
amendment must
first be passed again by the next separately elected
Legislature
and then approved by the voters at a general election
in November
1995. The amendment was passed by the Senate in June
1995, and
the Assembly is expected to pass the amendment shortly.
If
approved by the voters, the amendment would become
effective
January 1, 1996.
On January 6, 1992, Moody's lowered from "A" to
"Baa1" its
rating of those New York State bonds that are backed by
annual
legislative appropriations. Moody's also placed its
"A" rating
of the State's general obligation bonds under review
for possible
downgrading. On January 13, 1992, S&P lowered its
rating of the
State's general obligation bonds from "A" to "A-."
Moody's and
S&P variously cited the State's continued economic
deterioration,
chronic operating deficits, and the legislative
stalemate in
closing the budget gap, as factors contributing to the
downgrades. On February 14, 1994, S&P raised its
outlook to
positive and, on July 13, 1995, confirmed its "A-"
rating on the
State's general obligation bonds. On July 3, 1995,
Moody's
reconfirmed its "A" rating on the State's general
obligation
bonds.
The State Constitution requires the Governor to
submit to
the Legislature a balanced Executive Budget which
contains a
complete plan of expenditures for the ensuing fiscal
year and all
moneys and revenues estimated to be available therefor,
accompanied by bills containing all proposed
appropriations or
reappropriation and any new or modified revenue
measures to be
enacted in connection with the Executive Budget. The
entire plan
constitutes the proposed State financial plan for that
fiscal
year. The Governor submits to the Legislature, on at
least a
quarterly basis, reports of actual receipts, revenues,
disbursements, expenditures, tax refunds and
reimbursements, and
repayment of advances in form suitable for comparison
with the
State financial plan, together with explanations of
deviations
from the State financial plan. At such time, the
Governor is
required to submit any amendments to the State
financial plan
necessitated by such deviations.
The State's budget for the 1995-96 fiscal year
was
enacted by the Legislature on June 7, 1995, more than
two months
after the start of the fiscal year. Prior to adoption
of the
budget, the Legislature enacted appropriations for
disbursements
considered to be necessary for State operations and
other
purposes, including all necessary appropriations for
debt
service. The State Financial Plan for 1995-96 fiscal
year was
formulated on June 20, 1995 and is based on the State's
budget as
enacted by the Legislature and signed into law by the
Governor.
The 1995-96 budget is the first to be enacted in
the
administration of the Governor, who assumed office on
January 1.
It is the first budget in over half a century which
proposed and,
as enacted, projects an absolute year-over-decline in
General
Fund disbursements. Spending for State operations is
projected
to drop even more sharply, by 4.6%. Nominal spending
from all
State funding sources (i.e., excluding Federal aid) is
proposed
to increase by only 2.5% from the prior fiscal year, in
contrast
to the prior decade when such spending growth averaged
more than
6.0% annually.
In his Executive Budget, the Governor
indicated that in
the 1995-96 fiscal year, the State Financial Plan,
based on
then-current law governing spending and revenues, would
be out of
balance by almost $4.7 billion, as a result of the
projected
structural deficit resulting from the ongoing disparity
between
sluggish growth in receipts, the effect of prior-year
tax
changes, and the rapid acceleration of spending growth;
the
impact of unfunded 1994-95 initiatives, primarily for
local aid
programs; and the use of one-time solutions, primarily
surplus
funds from the prior year, to fund recurring spending
in the
1994-95 budget. The Governor proposed additional tax
cuts, to
spur economic growth and provide relief for low and
middle-income
tax payers, which were larger than those ultimately
adopted, and
which added $240 million to the then projected
imbalance or
budget gap, bringing their total to approximately $5
billion.
This gap is projected to be closed in the 1995-96 State
Financial
Plan based on the enacted budget, through a series of
actions,
mainly spending reductions and cost containment
measures.
The State Financial Plan is based upon forecasts
of national
and State economic activity. Economic forecasts have
frequently
failed to predict accurately the timing and magnitude
of changes
in the national and State economies. Many
uncertainties exist in
forecasts of both the national and State economies,
including
consumer attitudes toward spending, federal financial
and
monetary policies, the availability of credit and the
condition
of the world economy, which could have an adverse
effect on the
State. There can be no assurance that the State
economy will not
experience worse-than-predicted results in the 1994-95
fiscal
year, with corresponding material and adverse effects
on the
State's projections of receipts and disbursements.
The General Fund is projected to be balanced
on a cash
basis for the 1995-96 fiscal year. Total receipts and
transfers
from other funds are projected to be $33.11 billion, a
decrease
of $48 million from total receipts in the prior fiscal
year.
Total General fund disbursements and transfers to other
funds are
projected to be $33.055 billion, a decrease of $344
million from
the total amount disbursed in the prior fiscal year.
There can be no assurance that the State will not
face
substantial potential budget gaps in future years
resulting from
a significant disparity between tax revenues projected
from a
lower recurring receipts base and the spending required
to
maintain State programs at current levels. To address
any
potential budgetary imbalance, the State may need to
take
significant actions to align recurring receipts and
disbursements
in future fiscal years.
The State anticipates that its borrowings for
capital
purposes in its 1995-96 fiscal year will consist of
approximately
$248 million in general obligation bonds and $186
million in new
commercial paper issuances. In addition, it is
anticipated that
the State will issue $70 million in general obligation
bonds for
the purpose of redeeming outstanding bond anticipation
notes.
The Legislature has also authorized the issuance of up
to $33
million in certificates of participation for equipment
purchases
during the State's 1995-96 fiscal year. The projection
of the
State regarding its borrowings for the 1995-96 fiscal
year may
change if actual receipts fall short of State
projections or if
other circumstances require.
AUTHORITIES. The fiscal stability of the State is
related
to the fiscal stability of its Authorities, which
generally have
responsibility for financing, constructing and
operating revenue-
producing public benefit facilities. Authorities are
not subject
to the constitutional restrictions on the incurrence of
debt that
apply to the State itself and may issue bonds and notes
within
the amounts of, and as otherwise restricted by, their
legislative
authorization. As of September 30, 1994, the latest
data
available, 18 Authorities had outstanding debt of $100
million or
more. The aggregate outstanding debt, including
refunding bonds,
of these 18 Authorities was $70.3 billion as of
September 30,
1994. As of March 31, 1995, aggregate public authority
debt
outstanding as State-supported debt was $27.9 billion
and as
State-related debt was $36.1 billion.
Several Agencies have experienced financial
difficulties in
the past. Certain Agencies continue to experience
financial
difficulties requiring financial assistance from the
State. The
Metropolitan Transportation Authority (the "MTA")
receives the
bulk of this financial assistance in order to carry out
mass
transit and commuter services. For the 1995-96 State
fiscal
year, total State assistance to the MTA is estimated at
approximately $1.1 billion. Failure of the State to
appropriate
necessary amounts or to take other action to permit
certain
Agencies to meet their obligations could result in a
default by
one or more of such Agencies. If a default were to
occur, it
would likely have a significant effect on the
marketability of
obligations of the State and the Agencies.
In 1993, State legislation authorized the funding
of a five-
year $9.56 billion MTA capital plan for the five-year
period,
1992 through 1996 (the "1992-96 Capital Program"). The
MTA has
received approval of the 1992-96 Capital Program based
on this
legislation from the MTA Capital Program Review Board,
as State
law requires. The 1992-96 Capital Program was expected
to be
financed in significant part through dedication of the
State
petroleum business tax receipts. However, in December
1994 the
proposed bond resolution based on such tax receipts was
not
approved by the MTA Capital Program Review Board.
Further
consideration of the resolution was deferred until
1995.
There can be no assurance that all the necessary
governmental actions for the 1992-96 Capital Program or
future
capital programs will be taken, that funding sources
currently
identified will not be decreased or eliminated, or that
the 1992-
96 Capital Program, or parts thereof, will not be
delayed or
reduced. If the 1992-96 Capital Program is delayed or
reduced,
ridership and fare revenues may decline, which could,
among other
things, impair the MTA's ability to meet its operating
expenses
without additional State assistance.
NEW YORK CITY AND MUNICIPAL ASSISTANCE
CORPORATION. The
fiscal health of the State is closely related to the
fiscal
health of its localities, particularly the City of New
York,
which has required and continues to require significant
financial
assistance from the State. The City's independently
audited
operating results for each of its 1981 through 1994
fiscal years,
which end on June 30, show a General Fund surplus
reported in
accordance with GAAP. The City has eliminated the
cumulative
deficit in its net General Fund position.
In 1975, New York City suffered a fiscal crisis
that
impaired the borrowing ability of both the City and the
State.
In that year the City lost access to public credit
markets and
was not able to sell debt to the public again until
1979. In
response to the City's fiscal crisis, the State created
the
Municipal Assistance Corporation ("MAC") to provide
financing
assistance for the City, and the New York State
Financial Control
Board (the "Control Board") to exercise certain
oversight and
review functions with respect to the City's financing.
Prior to
1985, MAC had the authority to issue bonds and notes
and to pay
or lend the proceeds to the City. Since 1985 MAC has
been
authorized to issue bonds and notes only to refund its
outstanding bonds and notes. MAC also has the
authority to
exchange its obligations for City obligations. MAC
bonds are
payable from appropriations of certain State sales and
use taxes
imposed by the City, the State stock transfer tax and
per capita
State aid to the City. The State is not, however,
obligated to
continue these taxes, continue to appropriate revenue
from these
taxes or continue the appropriation of per capita State
aid to
pay MAC obligations. MAC does not have taxing powers
and its
bonds are not obligations enforceable against either
the City or
the State.
On February 11, 1991, Moody's lowered its rating
on the
City's general obligation bonds to "Baa1" from "A". On
July 6,
1993, S&P reaffirmed the City's "A-" rating on $20.4
billion of
general obligation bonds stating that "[t]he City has
identified
additional gap-closing measures that have recurring
value and
will reduce next year's budget gap . . . by
approximately $400
million." Officials at Moody's also indicated that
there were no
plans to alter its "Baa1" rating on the City's general
obligation
bonds.
On July 10, 1995, S&P revised its rating on the
City's
general obligation bonds downward to "BBB+." S&P
stated that
"structural budgetary balance remains elusive because
of
persistent softness in the City's economy, highlighted
by weak
job growth and a growing dependence on the historically
volatile
financial services sector." Other factors identified
by S&P in
lowering its rating on City general obligation bonds,
included a
trend of using one-time measures, including debt
refinancings, to
close projected budget gaps, dependence on unratified
labor
savings to help balance the City's financial plan,
optimistic
projections of additional federal and State aid or
mandate
relief, a history of cash flow difficulties caused by
State
budget delays and continued high debt levels. Since
July 15,
1993, Fitch Investors Service ("Fitch") has maintained
an "A"
rating on the City's general obligation bonds. On July
12, 1995,
Fitch stated that the City's credit trend remains
"declining."
The Mayor is responsible for preparing the City's
four-year
financial plan. On February 10, 1994 the City released
a
financial plan for the 1996 through 1999 fiscal years
(the "1996-
1999 Financial Plan" or "Financial Plan"). The City's
projections set forth in the Financial Plan are based
on various
assumptions and contingencies which are uncertain and
which may
not materialize. Changes in major assumptions could
significantly affect the City's ability to balance its
budget as
required by State law and to meet its annual cash flow
and
financing requirements. Such assumptions and
contingencies
include the condition of the regional and local
economies, the
impact on real estate tax revenues of the real estate
market,
wage increases for City employees consistent with those
assumed
in the Financial Plan, employment growth, the ability
to
implement proposed reductions in City personnel and
other cost
reduction initiatives which may require in certain
cases the
cooperation of the City's municipal unions, the ability
of the
New York City Health and Hospitals Corporation ("HHC")
and the
Board of Education ("BOE") to take actions to offset
reduced
revenues, the ability to complete revenue generating
transactions, provision of State and federal aid and
mandate
relief and the impact on City revenues of proposals for
federal
and State welfare reform.
The 1996-1999 Financial Plan projects revenues and
expenditures for the 1996 fiscal year balanced in
accordance with
GAAP. The projections for the 1996 fiscal year reflect
proposed
actions to close a previously projected gap of
approximately $3.1
billion for the 1996 fiscal year. The proposed actions
in the
Financial Plan for the 1996 fiscal year include (i) a
reduction
in spending of $400 million, primarily affecting public
assistance and Medicaid payments by the City; (ii)
expenditure
reductions in agencies, totaling $1.2 billion; (iii)
transitional
labor savings, totalling $600 million; and (iv) the
phase-in of
the increased annual pension funding cost due to
revisions
resulting from an actuarial audit of the City pension
systems,
which would reduce such costs in the 1996 fiscal year.
The Financial Plan also sets forth projections for
the 1997
through 1999 fiscal years and outlines a proposed
gap-closing
program to close projected budget gaps of $888 million,
$1.5
billion and $1.4 billion for the 1997 through 1999
fiscal years,
respectively, after successful implementation of the
$3.1 billion
gap closing program for the 1996 fiscal year. The
proposed gap-
closing actions, a substantial number of which are not
specified
in detail, include additional agency expenditure
reductions,
primarily resulting from a partial hiring freeze,
totalling
between $388 million and $684 million in each of the
1997 through
1999 fiscal years; reductions in expenditures resulting
from
proposed procurement initiatives totalling between $50
million
and $100 million in each of the 1997 through 1999
fiscal years;
the availability in each of the 1997, 1998 and 1999
fiscal years
of $100 million of the general reserve appropriated in
the prior
year; and additional reduced expenditures resulting
from further
revisions in entitlement programs to reduce City
expenditures by
$250 million in the 1997 fiscal year, and by $400
million in each
of the 1998 and 1999 fiscal years, which may be subject
to State
or Federal approval.
On July 24, 1995, the City Comptroller issued a
report on
the Financial Plan. The report concluded that the
Financial Plan
includes total risks of $749 million to $1.034 billion
for the
1996 fiscal year.
With respect to the 1997 through 1999 fiscal
years, the
report noted that the gap-closing program in the
Financial Plan
does not include information about how the City will
implement
the various gap-closing programs, and that the
entitlement cost
containment and revenue initiatives will require
approval of the
State legislature. Taking into account the same
categories of
risks for the 1997 through 1999 fiscal years as the
report
identified for the 1996 fiscal year and the uncertainty
concerning the gap-closing program, the report
estimated that the
Financial Plan includes total risks of $2.0 billion to
$2.5
billion in the 1997 fiscal year, $2.8 billion to $3.3
billion in
the 1998 fiscal year and $2.9 billion to $3.4 billion
in the 1999
fiscal year.
In early December, 1994, the City Comptroller
issued a
report which noted that the City is currently seeking
to develop
and implement plans which will satisfy the Federal
Environmental
Protection Agency that the water supplied by the City
watershed
areas does not need to be filtered. The City
Comptroller noted
that, if the City is ordered to build filtration
plants, they
could cost as much as $4.57 billion to construct, with
annual
debt service and operating costs of more than $500
million,
leading to a water rate increase of 45%.
On December 16, 1994, the City Comptroller issued
a report
noting that the capacity of the City to issue general
obligation
debt could be greatly reduced in future years due to
the decline
in value of taxable real property. The report noted
that, under
the State constitution, the City is permitted to issue
debt in an
amount not greater than 10% of the average full value
of taxable
real estate for the current year and preceding four
years, that
the latest estimates produced by the State Board of
Equalization
and Assessment relating to the full value of real
property, using
data from a 1992 survey, indicate a 19% decline in the
market
value of taxable real property from the previous survey
in 1990,
and that the State Board has decided to use a projected
annual
growth rate of 8.94%, as compared to its previous
projection of
14% for estimating full value after 1992. The report
concludes
that the City will be within the projected legal debt
incurring
limit in the 1996 fiscal year. However, the report
concluded
that, based on the most likely forecast of full value
of real
property, the debt incurring power of the City would be
curtailed
in the 1997 and 1998 fiscal years substantially. The
City
Comptroller recommended, among other things,
prioritization of
capital projects to determine which can be delayed or
cancelled,
and better maintenance of the City's physical plant and
infrastructure, which would result in less capital
spending for
repair and replacement of capital structures.
On July 21, 1995, the staff of the Control Board
issued a
report on the Financial Plan which identified risks of
$873
million, $2.1 billion, $2.8 billion and $2.8 billion
for the 1996
through 1999 fiscal years, respectively. The report
noted that
substantially more information is needed concerning the
proposed
gap-closing actions for the 1997-1999 fiscal years.
On June 14, 1995, the staff of the Office of the
State
Deputy Comptroller for the City of New York ("OSDC")
issued a
report on the Financial Plan with respect to the 1995
fiscal
year. The report noted that, during the 1995 fiscal
year, the
City faced adverse financial developments totaling over
$2
billion resulting from the inability to initiate
approximately
35% of the City's gap-closing program, as well as
newly-
identified spending needs and revenue shortfalls
resulting from
the adverse impact on the City's personal income,
general
corporation and other tax revenues of the policy of the
Federal
Reserve of increasing short-term interest rates and the
related
downturn in the bond market and profits and bonus
income on Wall
Street. The report noted that the City relied heavily
on one-
time actions to offset these adverse developments,
using $2
billion in one-time resources in the 1995 fiscal year,
or nearly
double the 1994 amount.
On July 24, 1995, the staff of the OSDC issued a
report on
the Financial Plan. The report concluded that there
remains a
budget gap for the 1996 fiscal year of $392 million,
largely
because the City and its unions have yet to reach an
agreement on
how to achieve $160 million in unspecified labor
savings and the
remaining $100 million in recurring health insurance
savings from
last year's agreement. The report also identified a
number of
issues that present a net potential risk of $409
million to the
City's revenue and expenditure forecasts for the 1996
fiscal
year. The report further noted that growth in City
revenues is
being constrained by the weak economy in the City,
which is
likely to be compounded by the slowing national
economy, and that
there is a likelihood of a national recession during
the course
of the Financial Plan. Moreover, the report noted that
State and
Federal budgets are undergoing tumultuous changes, and
that the
potential for far-reaching reductions in
intergovernmental
assistance is clearly on the horizon, with greater
uncertainty
about the impact on City finances and services.
Estimates of the City's revenues and expenditures
are based
on numerous assumptions and are subject to various
uncertainties.
If expected federal or State aid is not forthcoming, if
unforeseen developments in the economy significantly
reduce
revenues derived from economically sensitive taxes or
necessitate
increased expenditures for public assistance, if the
City should
negotiate wage increases for its employees greater than
the
amounts provided for in the City's financial plan or if
other
uncertainties materialize that reduce expected revenues
or
increase projected expenditures, then, to avoid
operating
deficits, the City may be required to implement
additional
actions, including increases in taxes and reductions in
essential
City services. The City might also seek additional
assistance
from New York State.
OTHER LOCALITIES. Certain localities, in addition
to the
City, could have financial problems leading to requests
for
additional State assistance during the State's 1995-96
fiscal
year and thereafter. The potential impact on the State
of such
requests by localities is not included in the
projections of the
State receipts and disbursements in the State's 1995-96
fiscal
year.
Fiscal difficulties experienced by the City of
Yonkers
("Yonkers") resulted in the re-establishment of the
Financial
Control Board for the City of Yonkers (the "Yonkers'
Board") by
the State in 1984. The Yonkers' Board is charged with
oversight
of the fiscal affairs of Yonkers. Future actions taken
by the
Governor or the Legislature to assist Yonkers could
result in
allocation of State resources in amounts that cannot
yet be
determined.
Municipalities and school districts have engaged
in
substantial short-term and long-term borrowings. In
1993, the
total indebtedness of all localities in the State other
than the
City was approximately $17.7 billion, a small portion
(approximately $105 million) of that indebtedness
represented
borrowing to finance budgetary deficits and was issued
pursuant
to enabling State legislation. State law requires the
Comptroller to review and make recommendations
concerning the
budgets of those local government units other than the
City
authorized by State law to issue debt to finance
deficits during
the period that such deficit financing is outstanding.
Seventeen
localities had outstanding indebtedness for deficit
financing at
the close of their fiscal year ending in 1993.
From time to time, Federal expenditure reductions
could
reduce, or in some cases eliminate, Federal funding of
some local
programs and accordingly might impose substantial
increased
expenditure requirements on affected localities. If
the State,
the City or any of the Authorities were to suffer
serious
financial difficulties jeopardizing their respective
access to
the public credit markets, the marketability of notes
and bonds
issued by localities within the State could be
adversely
affected. Localities also face anticipated and
potential
problems resulting from certain pending litigation,
judicial
decisions and long-range economic trends. The
longer-range
problems of declining urban population, increasing
expenditures
and other economic trends could adversely affect
localities and
require increasing State assistance in the future.
LITIGATION. Certain litigation pending against
the State,
its subdivisions and their officers and employees could
have a
substantial and long-term adverse effect on State
finances. The
State is a party to numerous legal proceedings, many of
which
normally recur in governmental operations. Because of
the
prospective nature of these proceedings, no estimate of
the
potential loss can be made.
Among the more significant of these cases are
those that
involve: (i) claims to land in upstate New York by
several Indian
tribes; (ii) certain aspects of the State's Medicaid
policies and
its rates and regulations, including reimbursements to
providers
of mandatory and optional Medicaid services; (iii) a
challenge to
the practice of reimbursing certain Office of Mental
Health
patient care expenses from the client's Social Security
benefits;
(iv) an action against the State and City officials
alleging
inadequate shelter allowances to maintain proper
housing; (v) a
claim that the assessment of the petroleum business tax
pursuant
to Tax Law 301 to such fuel violates the Commerce
Clause of the
United States Constitution; and (vi) claims against
Yonkers, its
public schools, the State, the State Education
Department and the
New York State Urban Development Corporation that the
defendants
have not fulfilled their responsibility to alleviate
segregation
in public schools in Yonkers.
The legal proceedings noted above involve State
finances,
State programs and miscellaneous tort, real property
and contract
claims in which the State is a defendant and the
monetary damages
sought are substantial. These proceedings could affect
adversely
the financial condition of the State in the 1995-96
fiscal year
or thereafter. Adverse developments in these
proceedings or the
initiation of new proceedings could affect the ability
of the
State to maintain a balanced 1995-96 State Financial
Plan. An
adverse decision in any of these proceedings could
exceed the
amount of the 1995-96 State Financial Plan reserve for
the
payment of judgments and, therefore, could affect the
ability of
the State to maintain a balanced 1995-96 State
Financial Plan.
In its audited financial statements for the 1993-94
fiscal year,
the State reported its estimated liability for awarded
and
anticipated unfavorable judgments to be $676 million.
The State
has stated its belief that the 1995-96 State Financial
Plan
includes sufficient reserves for the payment of
judgments that
may be required during the 1995-96 fiscal year.
U.S. GOVERNMENT SECURITIES
The Funds may invest in 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). In these securities,
the
payment of principal and interest is unconditionally
guaranteed
by the U.S. Government, and thus they are of the
highest possible
credit quality. Such securities are subject to
variations in
market value due to fluctuations in interest rates,
but, if held
to maturity, will be paid in full.
Mortgage-backed securities are securities
representing part
ownership of a pool of mortgage loans. For example,
GNMA
certificates are such securities in which the timely
payment of
principal and interest is guaranteed by the full faith
and credit
of the U.S. Government. Although the mortgage loans in
the pool
will have maturities of up to 30 years, the actual
average life
of the GNMA certificates typically will be
substantially less
because the mortgages will be subject to normal
principal
amortization and may be prepaid prior to maturity.
Prepayment
rates vary widely and may be affected by changes in
market
interest rates. In periods of falling interest rates,
the rate
of prepayment tends to increase, thereby shortening the
actual
average life of the GNMA certificates. Conversely,
when interest
rates are rising, the rate of prepayments tends to
decrease,
thereby lengthening the actual average life of the GNMA
certificates. Accordingly, it is not possible to
predict
accurately the average life of a particular pool.
Reinvestment
of prepayments 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, GNMA certificates can be less effective
than
typical bonds of similar maturities at "locking in"
yields during
periods of declining interest rates. GNMA certificates
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, Bank for
Cooperatives
(including Central Bank for Cooperatives), Federal
Intermediate
Credit Banks, Federal Home Loan Banks, Federal National
Mortgage
Association, Student Loan Marketing Association,
Tennessee Valley
Authority, Export-Import Bank of the United States,
Commodity
Credit Corporation, Federal Financing Bank, Federal
Home Loan
Mortgage Corporation, Small Business Administration and
National
Credit Union Administration.
BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS
The Funds may invest in bank obligations, which
may include
certificates of deposit, bankers' acceptances, and
other short-
term debt 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 on maturity. Investments in certificates of
deposit
and bankers' acceptances are limited to obligations of
(i) banks
having total assets in excess of $1 billion, and (ii)
other banks
if the principal amount of such obligation (currently
$100,000)
is fully insured by the Federal Deposit Insurance
Corporation
("FDIC"). Investments in certificates of deposit of
savings
associations are limited to obligations of federally or
state
chartered institutions that have total assets in excess
of $1
billion and whose deposits are insured by the FDIC.
COMMERCIAL PAPER
The Funds may invest in commercial paper.
Commercial paper
represents short-term unsecured promissory notes issued
in bearer
form by bank holding companies, corporations and
finance
companies. Investments in commercial paper are limited
to
obligations rated Prime-1 by Moody's Investors Service,
Inc.
("Moody's") or A-1 by Standard and Poor's Corporation
("S&P") or,
if not rated by Moody's or S&P, issued by companies
having an
outstanding debt issue currently rated Aaa or Aa by
Moody's or
AAA or AA by S&P.
REPURCHASE AGREEMENTS
The Funds may enter into repurchase agreements.
Repurchase
agreements are agreements 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. A Fund will not enter into a
repurchase
agreement with more than seven days to maturity if, as
a result,
more than 10% of the Fund's net assets would be
invested in
illiquid securities including such repurchase
agreements. The
Funds may enter into repurchase agreements with banks
or broker-
dealers deemed to be creditworthy by MIMI under
guidelines
approved by the Board of Trustees. In the event of
failure of
the executing bank or broker-dealer, a Fund could
experience some
delay in obtaining direct ownership of the underlying
collateral
and might incur a loss if the value of the security
should
decline, as well as costs in disposing of the security.
BORROWING
As a fundamental policy, the Funds may borrow from
banks as
a temporary measure for extraordinary or emergency
purposes. A
Fund may borrow in amounts up to 10% of its total
assets taken at
cost or market value, whichever is lower. All
borrowings will be
repaid before any additional investments are made. A
Fund may
not mortgage, pledge or in any other manner transfer
any of its
assets as security for any indebtedness. Borrowing may
exaggerate the effect on a Fund's net asset value of
any increase
or decrease in the value of the Fund's portfolio
securities.
Money borrowed will be subject to interest costs (which
may
include commitment fees and/or the cost of maintaining
minimum
average balances).
RESTRICTED AND ILLIQUID SECURITIES
It is each Fund's policy that restricted
securities,
including restricted securities offered and sold to
"qualified
institutional buyers" under Rule 144A under the
Securities Act of
1933, as amended (the "1933 Act"), and any other
illiquid
securities (including certain repurchase agreements and
other
securities which are not readily marketable) may not
constitute,
at the time of purchase, more than 10% of the value of
the Fund's
net assets. 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.
Restricted securities may be sold only in privately
negotiated
transactions or in a public offering with respect to
which a
registration statement is in effect under the 1933 Act.
Where a
registration statement is required, a Fund may be
required to
bear all or part of the registration expenses. There
may be a
lapse of time between the Fund's decision to sell a
restricted or
illiquid security and the point at which the Fund is
permitted or
able to sell such security. If, during such a period,
adverse
market conditions were to develop, the Fund might
obtain a price
less favorable than the price that prevailed when it
decided to
sell. 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, each Fund will carefully
monitor each
of its investments in these securities, focussing on
such
important factors, among others, as valuation,
liquidity and
availability of information. This investment practice
could have
the effect of increasing the level of illiquidity in a
Fund to
the extent that qualified institutional buyers become
for a time
uninterested in purchasing these restricted securities.
TEMPORARY INVESTMENTS
From time to time on a temporary basis, a Fund may
invest in
fixed-income obligations the interest on which is
subject to
Federal income tax. Except when a Fund is in a
"defensive"
investment position, it will not purchase a taxable
security if,
as a result, more than 20% of its total net assets
would be
invested in taxable securities.
This limitation is a fundamental policy of each
Fund, i.e.,
it may not be changed without a majority vote of a
Fund's
outstanding securities. Temporary taxable investments
of a Fund
may consist of obligations issued or guaranteed by the
U.S.
Government or its agencies or instrumentalities,
commercial paper
rated A-l by S&P or Prime-1 by Moody's, corporate
obligations
rated AAA or AA by S&P or Aaa or Aa by Moody's,
certificates of
deposit or bankers' acceptances of domestic banks or
thrifts with
at least $1 billion in assets, or repurchase agreements
with such
banks or with broker-dealers. Repurchase agreements
may be
entered into with respect to any securities eligible
for
investment by a Fund, including municipal securities.
The income
from a repurchase agreement with respect to a municipal
security
would not be tax-exempt. See "Repurchase Agreements,"
"Restricted and Illiquid Securities" and Appendix A for
a further
description of repurchase agreements, illiquid
securities and of
the Moody's and S&P ratings relating to taxable
securities.
MACKENZIE NATIONAL MUNICIPAL FUND, MACKENZIE
CALIFORNIA
MUNICIPAL FUND AND MACKENZIE NEW YORK MUNICIPAL FUND
ONLY: Each
of these three Funds may invest in short-term municipal
securities for temporary defensive purposes.
Short-term
municipal securities consist of notes and short-term
municipal
loans and obligations, including municipal paper,
master demand
notes and variable rate demand notes. Short-term
municipal notes
include Tax Anticipation Notes (i.e, notes issued in
anticipation
of the receipt of tax funds), Bond Anticipation Notes
(i.e, notes
issued in anticipation of receipt of the proceeds of
bond
placements), Revenue Anticipation Notes (i.e, notes
issued in
anticipation of the receipt of revenues other than
taxes or bond
placements), and Project Notes (i.e, obligations of
municipal
housing agencies on which the payment of principal and
interest
ordinarily is backed by the full faith and credit of
the U.S.
Government) when a market for such securities exists.
Municipal
paper typically consists of the very short-term
unsecured
negotiable promissory notes of municipal issuers.
A municipal master demand note is an arrangement
under which
a Fund participates in a note agreement between a bank
acting on
behalf of its clients and a municipal borrower, whereby
amounts
maintained by the Fund in an account with the bank are
provided
to the municipal borrower and payments of interest and
principal
on the note are credited to the Fund's account.
Interest rates
on master demand notes typically are tied to market
interest
rates, and therefore may fluctuate daily. The amounts
borrowed
under these notes may be repaid at any time by the
borrower
without penalty, and must be repaid upon the demand of
the Fund.
Variable rate demand notes are tax-exempt obligations
that are
payable by the municipal issuer at par value plus
accrued
interest on demand by the Fund (generally with three to
ten days'
notice). If no demand is made, the note will mature on
a
specified date from one to thirty years from its
issuance.
Payment on the note may be backed by a stand-by letter
of credit.
As with a master demand note, the yield on a variable
rate demand
note is adjusted automatically to reflect a particular
market
rate. Variable rate demand notes typically are
callable by the
issuer prior to maturity.
Where short-term municipal securities are rated, a
Fund will
limit its investments to "high quality" short-term
securities.
For short-term municipal notes this includes ratings of
AA or
better by Standard & Poor's Corporation ("S&P") or MIG
2 or
better by Moody's Investors Service, Inc. ("Moody's");
for
municipal paper this includes A-2 or better by S&P or
Prime-2 or
better by Moody's. Unrated short-term municipal
securities will
be included within the Fund's overall limitation on
investments
in unrated securities. This limitation provides that
not more
than 20% of a Fund's total assets may be invested in
unrated
municipal securities, exclusive of unrated securities
that are
guaranteed as to principal and interest by the full
faith and
credit of the U.S. Government or are issued by an
issuer having
outstanding an issue of municipal bonds within one of
the four
highest ratings classifications.
OTHER INVESTMENT TECHNIQUES
Although none of the Funds have done so in the
last year and
have no current intention of doing so in the
foreseeable future,
each Fund may (i) lend its portfolio securities, (ii)
purchase
securities on a "when-issued" or firm commitment basis,
(iii)
acquire puts or standby commitments, (iv) engage in
transactions
in certain types of financial futures (such as interest
rate
futures) and related options, and options on individual
securities and bond indices, (v) engage in "conversion"
and
spread transactions, and (vi) write straddles.
INVESTMENT RESTRICTIONS
The Funds' investment objectives as set forth in
the
Prospectus under "Investment Objectives and Policies,"
together
with the investment restrictions set forth below, are
fundamental
policies of the Funds and may not be changed with
respect to a
particular Fund without the approval of a majority of
the Fund's
outstanding voting shares. Under these restrictions, a
Fund may
not:
(i) purchase securities of any one issuer
(except U.S.
government securities) if as a result more
than 5%
of the Fund's total assets would be
invested in such
issuer or the Fund would own or hold more
than 10%
of the outstanding voting securities of
that issuer
(provided, however, that up to 25% of the
value of
the Fund's total assets may be invested
without
regard to these limitations);
(ii) invest in real estate, real estate
mortgage loans,
commodities, commodity futures contracts
or
interests in oil, gas and/or mineral
exploration or
development programs, although a Fund may
purchase
and sell (a) securities that are secured
by real
estate, (b) securities of issuers that
invest or
deal in real estate, and (c) futures
contracts as
described in the Prospectus;
(iii) make investments in securities for the
purpose of
exercising control over or management of
the issuer;
(iv) participate on a joint or a joint and
several basis
in any trading account in securities,
although the
"bunching" of orders of the Funds--or of
the Funds
and of other accounts under the investment
management of the persons rendering
investment
advice to the Funds--for the sale or
purchase of
portfolio securities shall not be
considered
participation in a joint securities
trading account;
(v) purchase securities on margin, except such
short-
term credits as are necessary for the
clearance of
transactions, although the deposit or
payment by a
Fund of initial or variation margin in
connection
with futures contracts or related options
transactions is not considered the
purchase of a
security on margin;
(vi) make loans, except that this restriction
shall not
prohibit (a) the purchase and holding of a
portion
of an issue of publicly distributed debt
securities,
(b) the lending of portfolio securities
(provided
that the loan is secured continuously by
collateral
consisting of U.S. Government securities
or cash or
cash equivalents maintained on daily
marked-to-
market basis in an amount at least equal
to the
current market value of the securities
loaned), or
(c) entry into repurchase agreements with
banks or
broker-dealers;
(vii) borrow amounts in excess of 10% of its
total assets,
taken at lower of cost or market value,
and then
only from banks as a temporary measure for
extraordinary or emergency purposes;
(viii) 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, that this does
not
prohibit escrow, collateral or margin
arrangements
in connection with the Fund's use of
options, short
sales, futures contracts and options on
futures
contracts;
(ix) purchase the securities of issuers
conducting their
principal business activities in the same
industry
if immediately after such purchase the
value of the
Fund's investments in such industry would
exceed 25%
of the value of the total assets of the
Fund;
(x) act as an underwriter of securities;
(xi) make short sales of securities or maintain
a short
position; or
(xii) issue senior securities, except insofar as
the Fund
may be deemed to have issued a senior
security in
connection with any repurchase agreement
or any
permitted borrowing.
ADDITIONAL RESTRICTIONS
Each 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, a
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) purchase or retain securities of any
company if, to
the knowledge of the Trust, officers and
Trustees of
the Trust and officers and directors of
MIMI or
Mackenzie Financial Corporation who
individually own
more than 1/2 of 1% of the securities of
that
company together own beneficially more
than 5% of
such securities;
(iv) purchase any security if as a result a
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;
(v) invest more than 10% 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 that
legally or in the Investment Manager'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; or
(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, or by
any state
in which shares of the Fund are
registered.
In addition, so long as it remains a restriction
of the Ohio
Division of Securities, the Fund will treat securities
eligible
for resale under Rule 144A of the Securities Act of
1933 and
securities of unseasoned issuers as described in
non-fundamental
restriction (iv) above, as subject to the Fund's
restriction on
investing in restricted securities (see "Restricted and
Illiquid
Securities" under "Investment Objectives and Policies,"
above).
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 each Fund on an individual basis, and only at the
time a
transaction is entered into. Accordingly, if a
percentage
limitation is adhered to at the time of investment by a
Fund, a
later increase or decrease in the percentage that
results from
circumstances not involving any affirmative action by
the Fund,
such as a change in market conditions or a change in
the Fund's
asset level or other circumstances beyond the Fund's
control,
will not be considered a violation.
ADDITIONAL RIGHTS AND PRIVILEGES
The Trust offers to investors (and except as noted
below,
bears the cost of providing) the rights and privileges
described
below. The Trust reserves the right to amend or
terminate any
one or more of such 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 other funds distributed by MIFDI, which funds are
not
described in this SAI. These funds are: Mackenzie
Florida
Limited Term Municipal Fund, the fifth series of the
Trust, and
Ivy Bond Fund, Ivy Canada Fund, Ivy China Region Fund,
Ivy
Emerging Growth Fund, Ivy Global Fund, Ivy Growth Fund,
Ivy
Growth with Income Fund, Ivy International Fund, Ivy
International Bond Fund, Ivy Latin America Strategy
Fund, Ivy
Money Market Fund, Ivy New Century Fund and Ivy
Short-Term Bond
Fund, the thirteen series of Ivy Fund (collectively,
with the
Funds, the "Ivy and Mackenzie Funds"). Investors
should obtain a
current prospectus before exercising any right or
privilege that
may relate to these funds.
AUTOMATIC INVESTMENT METHOD
The Automatic Investment Method is available for
Class A and
Class B shareholders of the Funds. The minimum initial
and
subsequent investment pursuant to this plan is $50 per
month.
The Automatic Investment Method may be discontinued at
any time
upon receipt by Mackenzie Ivy Investor Services Corp.
("MIISC")
of telephone instructions or written notice of such
discontinuation from the investor. See "Automatic
Investment
Method" in the Account Application.
EXCHANGE OF SHARES
As described in the Prospectus, shareholders of a
Fund have
an exchange privilege with certain other Ivy and
Mackenzie Funds.
Before effecting an exchange, shareholders of a Fund
should
obtain and read the currently effective prospectus for
the Ivy or
Mackenzie Fund into which the exchange is to be made.
INITIAL SALES CHARGE SHARES. Class A shareholders
may
exchange their Class A shares ("outstanding Class A
shares") for
Class A shares of another Ivy or Mackenzie Fund (or for
shares of
another Ivy or Mackenzie Fund that currently offers
only a single
class of shares) ("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
outstanding
Class A shares that have been invested for a period of
12 months
or longer.) Class A shareholders may also exchange
their Class A
shares for Class A shares of Ivy Money Market Fund (no
initial
sales charge will be assessed at the time of such an
exchange).
CONTINGENT DEFERRED SALES CHARGE SHARES.
CLASS A: Class A shareholders may exchange their
Class A
shares subject to a contingent deferred sales charge,
as
described in the Prospectus ("outstanding Class A
shares"), for
Class A shares of another Ivy or Mackenzie Fund (or for
shares of
another Ivy or Mackenzie Fund that currently offers
only a single
class of shares) ("new Class A shares") on the basis of
the
relative net asset value per Class A share, without the
payment
of any contingent deferred sales charge that would
otherwise be
due upon the redemption of the outstanding Class A
shares.
Class A shareholders of a Fund exercising the exchange
privilege
will continue to be subject to the Fund's contingent
deferred
sales charge schedule (or period) following an
exchange, unless
the contingent deferred sales charge schedule that
applies to the
new Class A shares is higher (or such period is longer)
than the
contingent deferred sales charge schedule (or period),
if any,
applicable to the outstanding Class A shares, in which
case the
schedule (or period) of the Fund into which the
exchange is made
shall apply.
For purposes of the exchange feature and computing
the
contingent deferred sales charge 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 or Mackenzie Fund ("new Class B shares") on
the basis
of the relative net asset value per Class B share,
without the
payment of any contingent deferred sales charge that
would
otherwise be due upon the redemption of the outstanding
Class B
shares. Class B shareholders of a Fund exercising the
exchange
privilege will continue to be subject to the Fund's
contingent
deferred sales charge schedule (or period) following an
exchange,
unless the contingent deferred sales charge schedule
that applies
to the new Class B shares is higher (or such period is
longer)
than the contingent deferred sales charge schedule (or
period)
applicable to the outstanding Class B shares, in which
case the
schedule (or period) of the Fund into which the
exchange is made
shall apply.
For purposes of both the exchange feature and
computing the
contingent deferred sales charge 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 contingent deferred sales charge
table ("Table
1") applies to Class B shares of Mackenzie National
Municipal
Fund, Mackenzie California Municipal Fund, Mackenzie
New York
Municipal Fund, Ivy Bond Fund, Ivy Canada Fund, Ivy
Global Fund,
Ivy Growth Fund, Ivy Growth with Income Fund, Ivy
Emerging Growth
Fund, Ivy International Fund, Ivy International Bond
Fund, Ivy
New Century Fund, Ivy Latin America Fund and Ivy China
Region
Fund ("Table 1 Funds"):
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%
The following contingent deferred sales charge
table ("Table
2") applies to Class B shares of Mackenzie Limited Term
Municipal
Fund, Mackenzie Florida Limited Term Municipal Fund and
Ivy
Short-Term Bond Fund ("Table 2 Funds"):
CONTINGENT DEFERRED
SALES
CHARGE AS A
PERCENTAGE OF
DOLLAR AMOUNT
SUBJECT TO
YEAR SINCE PURCHASE CHARGE
First 3%
Second 2 1/2%
Third 2%
Fourth 1 1/2%
Fifth 1%
Sixth and thereafter 0%
The contingent deferred sales charge schedule for
Table 1
Funds is higher (and the period is longer) than the
contingent
deferred sales charge schedule (and period) for Table 2
Funds.
Accordingly, the contingent deferred sales charge
schedule that
applies to the redemption of Table 1 Fund shares would
apply to
all Class B shares that are acquired as a result of an
exchange
between a Table 1 and a Table 2 Fund (taking into
account the
"tacking" of the holding period, if any, of the shares
held
before the exchange).
EXAMPLE: An investor may decide to exchange Class
B shares
of a Table 1 Fund that have been held for two
years
("outstanding Class B shares") for Class B shares
of a Table
2 Fund ("new Class B shares"). The exchange
itself would
not trigger payment of the 4% contingent deferred
sales
charge that would have been due in accordance with
Table 1
upon the redemption of the outstanding Class B
shares. If,
three years later, the investor redeems the new
Class B
shares, a 2% contingent deferred sales charge
would be
assessed in accordance with Table 1, since Table
1's
contingent deferred sales charge schedule is
higher than
that of Table 2, and because by "tacking" the two
year
holding period of the outstanding Class B shares
onto the
three year holding period of the new Class B
shares, the
investor will be deemed to have held the new Class
B shares
for five years.
The minimum amount that a shareholder may exchange
into an
Ivy or Mackenzie Fund in which shares are not already
held is
$1,000. No exchange out of any of the Funds (other
than by a
complete exchange of all shares of that Fund) may be
made if it
would reduce the shareholder's interest in that Fund to
less than
$1,000. Exchanges are available only in states where
the
exchange can be legally made.
Each exchange will be made on the basis of the
relative net
asset values per share of each fund of the Ivy
Mackenzie Funds
next computed following receipt of telephone
instructions by
MIISC or a properly executed request by the MIISC.
Exchanges,
whether written or telephonic, must be received by
MIISC by the
close of regular trading on the New York Stock Exchange
(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. This exchange privilege may be
modified
or terminated at any time, upon at least 60 days'
notice when
such notice is required by Rules adopted by the
Securities and
Exchange Commission ("SEC"). See "Redemptions."
An exchange of shares between any of the Ivy or
Mackenzie
Funds will result in a taxable gain or loss.
Generally, any such
taxable gain or loss 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 would not be taxable to the plan and
will not be
taxed to the participant until distribution. Each
investor
should consult his or her tax adviser regarding the tax
consequences of an exchange transaction.
LETTER OF INTENT
Reduced sales charges apply to initial investments
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 $100,000 in Class A shares of a Fund.
A Letter
of Intent may be submitted at the time of an initial
purchase of
Class A shares of a Fund or within 90 days of the
initial
purchase, in which case the Letter of Intent will be
backdated.
A shareholder may include the value (at the applicable
offering
price) of all Class A shares of the Funds, Mackenzie
Florida
Limited Term Municipal Fund, Ivy Short-Term Bond Fund,
Ivy Bond
Fund, Ivy Canada Fund, Ivy Global Fund, Ivy Growth
Fund, Ivy
Growth with Income Fund, Ivy Emerging Growth Fund, Ivy
International Fund, Ivy New Century Fund, Ivy Latin
America
Strategy Fund and Ivy China Region Fund (and shares
that have
been exchanged into Ivy Money Market Fund from any of
the other
funds in the Ivy Mackenzie Funds), held of record by
him or her
as of the date of his or her Letter of Intent as an
accumulation
credit toward the completion of such Letter. During
the term of
the Letter of Intent, the Funds' transfer agent will
hold in
escrow Class A shares representing 5% of the indicated
amount
(less any accumulation credit value). 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
MIFDI 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 thereof before signing.
REINVESTMENT PRIVILEGE
Investors 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 that 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 the
Funds' transfer agent of the reinvestment order
accompanied by
the funds to be reinvested. No compensation will be
paid to any
sales personnel or dealer in connection with the
transaction.
Any redemption is a taxable event. A loss
realized on a
redemption generally may be disallowed for tax purposes
if the
reinvestment privilege is exercised within 30 days
after the
redemption. In certain circumstances, shareholders
will be
ineligible to take sales charges into account in
computing
taxable gain or loss on a redemption if the
reinvestment
privilege is exercised. See "Taxation."
RIGHTS OF ACCUMULATION
A scale of reduced sales charges applies to
certain invest-
ments in Class A shares of the Funds 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. An investment qualifies for a reduced sales
charge if
the sum of: (a) the combined value, determined at the
higher of
current offering price or amount invested, of Class A
shares held
by the persons identified above in (i) any of the Funds
and
Mackenzie Florida Limited Term Municipal Fund, (ii) any
of the
series of Ivy Fund (except for shares of Ivy Money
Market Fund,
but including shares that have been exchanged from any
of the Ivy
or Mackenzie Funds into Ivy Money Market Fund), and
(iii) any
other investment company distributed by MIFDI currently
owned;
and (b) the value of the Class A shares being
purchased, exceeds:
(i) $25,000, with respect to an investment in Mackenzie
Limited
Term Municipal Fund or Mackenzie Florida Limited Term
Municipal
Fund; (ii) $50,000, with respect to an investment in
Ivy Canada
Fund, Ivy Global Fund, Ivy Growth Fund, Ivy Growth with
Income
Fund, Ivy Emerging Growth Fund, Ivy International Fund,
Ivy
International Bond Fund, Ivy New Century Fund, Ivy
Latin America
Strategy Fund or Ivy China Region Fund; or (iii)
$100,000, with
respect to an investment in Mackenzie National
Municipal Fund,
Mackenzie California Municipal Fund, Mackenzie New
York
Municipal Fund, Ivy Short-Term Bond Fund or Ivy Bond
Fund.
At the time an investment takes place, MIMI, in
the case of
a wire order, or Mackenzie Ivy Investor Services Corp.
("MIISC,"
or the "Transfer Agent"), in the case of a direct mail
remittance, must be notified by the investor or his or
her dealer
that the investment qualifies for the reduced charge on
the basis
of previous investments. The reduced charge is subject
to
confirmation of the investor's holdings through a check
of the
Funds' records.
SYSTEMATIC WITHDRAWAL PLAN
A shareholder may establish a Systematic
Withdrawal Plan
(the "Withdrawal Plan") by telephone instructions to
MIISC (i.e.,
the Transfer Agent) or delivery to the Transfer Agent
of a
written election to so redeem, accompanied by a
surrender to the
Transfer Agent of all share certificates then
outstanding in the
name of such shareholder, properly endorsed by him or
her. A
Withdrawal Plan may not be established if the investor
is
currently participating in the Automatic Investment
Method. The
Withdrawal Plan may involve the use of principal and,
to the
extent that it does, depending on the amount withdrawn,
the
investor's principal may be depleted.
A redemption under the Withdrawal Plan is a
taxable event.
Investors contemplating participation in the Withdrawal
Plan
should consult their tax advisers.
Additional investments made by investors
participating in
the Withdrawal Plan must equal at least $1,000 each
while the
Withdrawal Plan is in effect. Making additional
purchases while
the Withdrawal Plan is in effect may be disadvantageous
to the
investor because of applicable initial or contingent
deferred
sales changes.
An investor may terminate his or her participation
in the
Withdrawal Plan at any time by delivering written
notice to the
Transfer Agent. If all shares held by the investor are
liquidated at any time, the Withdrawal Plan will
terminate
automatically. The Trust or MIMI may terminate the
Withdrawal
Plan at any time after reasonable notice to
shareholders.
BROKERAGE ALLOCATION
Subject to the overall supervision of the
President and the
Board of Trustees of the Trust, MIMI places orders for
the
purchase and sale of the Funds' portfolio securities.
All
portfolio transactions are effected at the best price
and
execution obtainable. Purchases and sales of debt
securities are
usually principal transactions and, therefore,
brokerage
commissions are usually not required to be paid by a
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
over-the-counter transactions, MIMI attempts to deal
directly
with the principal market makers, except in those
circumstances
where it believes that better prices and execution are
available
elsewhere. Subject to the requirement of best price
and
execution, MIMI may select broker-dealers that provide
it with
research services and may consider sales of Fund shares
as a
factor in the selection of broker-dealers.
MIMI selects broker-dealers to execute
transactions and
evaluates the reasonableness of commissions on the
basis of
quality, quantity, and the nature of each firm's
professional
services. Commissions charged and investment services
rendered,
including statistical, research, and counseling
services by
brokerage firms, are among the factors that are
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 MIMI in
servicing
all of its accounts. In addition, not all of these
services may
be used by MIMI in connection with the services it
provides to
the Fund or the Trust. MIMI may consider sales of Fund
shares as
a factor in the selection of broker-dealers and may
select
broker-dealers who provide it with research services.
MIMI will
not, however, execute brokerage transactions other than
at the
best price and execution.
A Fund may, under some circumstances, accept
securities in
lieu of cash as payment for Fund shares. A Fund will
consider
accepting securities only to increase its holdings in a
portfolio
security or to take a new portfolio position in a
security that
MIMI deems to be a desirable investment for the Fund.
While no
minimum has been established, it is expected that a
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 a Fund, and Fund shares will be sold for
net asset
value determined at the same time the accepted
securities are
valued. The Trust will accept only securities that are
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 applicable laws of certain
states.
During the fiscal years ended June 30, 1993, 1994
and 1995,
none of the Funds paid brokerage commissions.
TRUSTEES AND OFFICERS
The Trustees and Executive Officers of the Trust,
their
business addresses and principal occupations during the
past five
years are:
POSITION
WITH THE BUSINESS
AFFILIATIONS
NAME, ADDRESS, AGE TRUST AND PRINCIPAL
OCCUPATIONS
Michael G. Landry, Trustee President,
Chairman and
(49) and Director of
Mackenzie
700 South Federal Hwy. President Investment
Management Inc.
Suite 300 (1987-present);
President
Boca Raton, FL 33432 and Director of
Ivy
[Deemed to be an Management, Inc.
(1992-
"interested person" of present);
Chairman and
the Trust, as defined Director of
Mackenzie Ivy
under the 1940 Act.] Investor Services
Corp.
(1993-present);
Director
and President of
Mackenzie
Ivy Funds
Distribution,
Inc. (1993-1994);
Chairman
and Director of
Mackenzie
Ivy Funds
Distribution,
Inc.
(1994-present);
President and
Trustee of
Ivy Fund
(1992-present);
President of
Mackenzie
Series Trust
(1987-
present);
Director and
President of The
Mackenzie
Funds Inc.
(1987-1995).
John S. Anderegg, Jr. Trustee Chairman,
Dynamics Research
(71) Corp.
(instruments and
60 Concord Street controls);
Director, Burr-
Wilmington, MA 01887 Brown Corp.
(operational
amplifiers);
Director,
Metritage
Incorporated
(level measuring
instruments);
Trustee of
Ivy Fund
(1967-present).
Paul H. Broyhill (71) Trustee Chairman, BMC
Fund, Inc.
800 Hickory Blvd. (1983-present);
Chairman,
Golfview Park Broyhill Family
Foundation,
Lenoir, NC 28645 Inc.
(1983-present);
Chairman and
President,
Broyhill
Investments, Inc.
(1983-present);
Chairman,
Broyhill Timber
Resources
(1983-present);
Director of
The Mackenzie
Funds Inc.
(1988-1995);
Trustee of Ivy
Fund
(1992-present);
Management of a
personal
portfolio of
fixed income
and equity
investments
(1983-present).
Stanley Channick (71) Trustee President, The
Whitestone
11 Bala Avenue Corporation
(insurance
Bala Cynwyd, PA 19004 agency);
President, Scott
Management
Company
(administrative
services
for insurance
companies);
President, The
Channick
Group
(consultants to
insurance
companies and
national trade
associations);
Trustee of
Ivy Fund
(1984-1993);
Director of The
Mackenzie
Funds Inc.
(1994-1995).
Frank W. DeFriece, Jr. Trustee Director of The
Mackenzie
(74) Funds Inc.
(1987-1995);
322 Seventh Street Trustee and
Second Vice
Bristol, TN 37620- Chairman, East
Tennessee
2218 Public
Communications Corp.
(WSJK-TV)
(1984-present);
Director, Manager
and Vice
President,
Massengill-
DeFriece
Foundation
(charitable
organization)
(1950-present);
Trustee of
Ivy Fund
(1992-present).
Roy J. Glauber (70) Trustee Mallinckrodt
Professor of
Physics, Harvard
University
(since 1974);
Trustee of
Ivy Fund
(1961-1991);
Trustee of
Mackenzie Series
Trust
(1994-present).
Joseph G. Rosenthal Trustee Chartered
Accountant (1958-
(61) present);
Director of The
110 Jardin Drive Mackenzie Funds
Inc. (1987-
Unit #12 1995); Trustee of
Ivy Fund
Concord, Ontario (1992-present).
Canada L4K 2T7
J. Brendan Swan (65) Trustee President,
Airspray
4701 North Federal International,
Inc.; Joint
Hwy. #465 Managing
Director, Airspray
Pompano Beach, FL International
B.V. (an
33064 environmentally
sensitive
packaging
company); Trustee
of Ivy Fund
(1992-present);
Director, The
Mackenzie
Funds Inc.
(1992-1995).
Keith J. Carlson (39) Vice Senior Vice
President and
700 South Federal Hwy. President Director of
Mackenzie
Suite 300 Investment
Management, Inc.
Boca Raton, FL 33432 (1994-present);
Senior Vice
President,
Secretary and
Treasurer of
Mackenzie
Investment
Management Inc.
(1985-1994);
Senior Vice
President and
Director of
Ivy Management,
Inc. (1994-
present); Senior
Vice
President,
Treasurer and
Director of Ivy
Management,
Inc. (1992-1994);
Vice
President of The
Mackenzie
Funds Inc.
(1987-1995);
President and
Director of
Mackenzie Ivy
Investor
Services Corp.
(1993-
present); Vice
President of
Mackenzie Series
Trust
(1994-present);
Treasurer
of Mackenzie
Series Trust
(1985-1994);
President and
Director of
Mackenzie Ivy
Funds
Distribution, Inc.
(1994-present);
Executive
Vice President
and Director
of Mackenzie Ivy
Funds
Distribution,
Inc. (1993-
1994); Treasurer
of Ivy
Fund (1992-1994);
Vice
President of Ivy
Fund
(1994-present).
C. William Ferris (51) Secretary/ Senior Vice
President,
700 South Federal Hwy. Treasurer
Secretary/Treasurer and
Suite 300 Director of
Mackenzie
Boca Raton, FL 33432 Investment
Management Inc.
(1994-present);
Senior Vice
President,
Finance and
Administration/Compliance
Officer of
Mackenzie
Investment
Management Inc.
(1989-1994);
Senior Vice
President,
Secretary/Treasurer and
Clerk of Ivy
Management,
Inc. (1989-1994);
Senior
Vice President,
Secretary/Treasurer of
Mackenzie Ivy
Funds
Distribution,
Inc. (1993-
1994);
Secretary/Treasurer
and Director of
Mackenzie
Ivy Investor
Services Corp.
(1993-1994);
Secretary of
Mackenzie Series
Trust
(1993-1994);
Secretary/Treasurer and
Director of
Mackenzie Ivy
Investor Services
Corp.
(1993-present);
Secretary/Treasurer of The
Mackenzie Funds
Inc. (1993-
1995);
Secretary/Treasurer
of Mackenzie
Series Trust
(1994-present);
Secretary
of Ivy Fund
(1993-1994);
Secretary/Treasurer of Ivy
Fund
(1994-present).
As of October 16, 1995, all Trustees and executive
officers
of the Trust as a group owned beneficially or of record
none of
the outstanding Class A and Class B shares of any of
the Funds.
PERSONAL INVESTMENTS BY EMPLOYEES OF THE ADVISER
Employees of MIMI are permitted to make personal
securities
transactions, subject to requirements and restrictions
set forth
in MIMI's Code of Ethics. The Code of Ethics contains
provisions
and requirements designed to identify and address
certain
conflicts of interest between personal investment
activities and
the interests of investment advisory clients such as
the Funds.
Among other things, the Code of Ethics, which generally
complies
with standards recommended by the Investment Company
Institute's
Advisory Group on Personal Investing, prohibits certain
types of
transactions absent prior approval, imposes time
periods during
which personal transactions may not be made in certain
securities, and requires the submission of duplicate
broker
confirmations and monthly reporting of securities
transactions.
Additional restrictions apply to portfolio managers,
traders,
research analysts and others involved in the investment
advisory
process. Exceptions to these and other provisions of
the Code of
Ethics may be granted in particular circumstances after
review by
appropriate personnel.
COMPENSATION TABLE
(FOR THE CALENDAR YEAR ENDING DECEMBER 31,
1995)
PENSION OR
RETIREMENT
TOTAL
BENEFITS ESTIMATED
COMPEN-
AGGREGATE ACCRUED AS ANNUAL
SATION
COMPEN- PART OF BENEFITS
FROM TRUST
NAME, SATION FUND UPON
PAID TO
POSITION FROM TRUST EXPENSES RETIREMENT
TRUSTEE
John S. 888 N/A N/A
888
Anderegg, Jr.
(Trustee)
Paul H. 888 N/A N/A
888
Broyhill
(Trustee)
Stanley 8,000 N/A N/A
8,000
Channick
(Trustee)
Frank W.
DeFriece, Jr. 888 N/A N/A
888
(Trustee)
Roy J. Glauber 8,000 N/A N/A
8,000
(Trustee)
Michael G. -0-
Landry N/A N/A
-0-
(Trustee and
President)
Joseph G. 888 N/A N/A
888
Rosenthal
(Trustee)
J. Brendan 888 N/A N/A
888
Swan
(Trustee)
Keith J. -0- N/A N/A
-0-
Carlson
(Vice
President)
C. William
Ferris -0- N/A N/A
-0-
(Secretary/
Treasurer)
INVESTMENT ADVISORY AND OTHER SERVICES
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES
Mackenzie Investment Management Inc. ("MIMI")
provides
business management and investment advisory services to
the Funds
pursuant to a Business Management and Investment
Advisory
Agreement (the "Agreement"). The Agreement was
approved by
shareholders of Mackenzie National Municipal Fund,
Mackenzie
California Municipal Fund and Mackenzie New York
Municipal Fund
on October 24, 1990, after having first been approved
on
September 5, 1990 by the Board of Trustees, including a
majority
of the Trustees who neither are "interested persons"
(as defined
in the 1940 Act) of the Trust nor have any direct or
indirect
financial interest in the operation of the distribution
plans
described below (see "Distribution Services") or in any
related
agreement (the "Independent Trustees"). The Agreement
was
approved by the Board of Trustees for Mackenzie Limited
Term
Municipal Fund on May 16, 1991, and by the initial
shareholder of
the Fund on June 20, 1991. The continuation of the
Agreement
with respect to all of the Funds was last approved on
August 26,
1995 by the Board of Trustees, including the
Independent
Trustees. MIMI is a subsidiary of Mackenzie Financial
Corporation ("MFC"), 150 Bloor Street West, Toronto,
Ontario,
Canada, a public corporation organized under the laws
of Ontario
whose shares are listed for trading on The Toronto
Stock
Exchange. MFC is registered in Ontario as a mutual
fund dealer.
Under the Agreement, MIMI makes 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 Trust's Board of Trustees. MIMI also
provides an
investment program, determines the securities to be
purchased or
sold by a Fund and places orders with brokers or
dealers who deal
in such securities.
MIMI also provides certain business management
services
pursuant to the Agreement. MIMI is obligated to (1)
coordinate
with the Funds' custodian and transfer agent and
monitor the
services they provide to the Funds; (2) coordinate with
and
monitor any other third parties furnishing services to
the Funds;
(3) provide the Funds with any necessary office space,
telephones
and other communications facilities; (4) provide the
services of
individuals competent to perform administrative and
clerical
functions that are not performed by employees or other
agents
engaged by the Funds or by MIMI acting in some other
capacity
pursuant to a separate agreement or arrangement with
the Funds;
(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 MIMI'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.
For MIMI's services under the Agreement, each Fund
pays MIMI
a monthly fee at an annual rate of 0.55% of the Fund's
average
daily net assets. For the fiscal years ended June 30,
1995, 1994
and 1993, MIMI received fees of $761,172, $727,421 and
$326,357,
respectively, from Mackenzie Limited Term Municipal
Fund;
$187,610, $223,155 and $219,909, respectively, from
Mackenzie
National Municipal Fund; $221,717 $253,535 and
$254,934,
respectively, from Mackenzie California Municipal Fund;
and
$235,164, $243,239 and $326,357, respectively, from
Mackenzie New
York Municipal Fund.
The Trust pays the following expenses under the
Agreement:
(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 MIMI; (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.
MIMI voluntarily limits the total Fund expenses
(excluding
interest, 12b-1 fees, taxes, brokerage commissions,
litigation
and indemnification expenses, and other extraordinary
expenses)
to an annual rate of (i) 0.64% of the average daily net
assets of
Mackenzie Limited Term Municipal Fund, and (ii) 0.85%
of the
average daily net assets of Mackenzie National
Municipal Fund,
Mackenzie California Municipal Fund and Mackenzie New
York
Municipal Fund. As long as a Fund's expense limitation
continues, it may lower the Fund's expenses and
increase its
yield. A Fund's expense limitation may be terminated
or revised
at any time, at which time the Fund's expenses may
increase and
its yield may be reduced, depending on the total assets
of the
Fund. Shareholders of Mackenzie Limited Term Municipal
Fund and
Mackenzie National Municipal Fund will receive 30 days'
notice of
any termination of the Fund's expense limitation. If a
Fund's
expense limitation is terminated, MIMI will comply with
any
applicable state
regulations, which may require MIMI to make
reimbursements to a
Fund in the event that the Fund's aggregate operating
expenses,
including the management and advisory fee and
shareholder and
administrative services fee, but generally excluding
interest,
taxes, brokerage commissions and extraordinary expense,
are in
excess of specific applicable limitations. At the
present time,
the most restrictive state expense limitation provision
limits a
Fund's annual expenses (excluding interest, taxes,
distribution
expenses, brokerage commissions and extraordinary
expenses, and
other expenses subject to approval by state securities
administrators) to 2.5% of the first $30 million of its
average
daily net assets, 2.0% of the next $70 million and 1.5%
of its
average daily net assets over $100 million. For the
fiscal year
ended June 30, 1995, voluntary expense reimbursements
for
Mackenzie Limited Term Municipal Fund, Mackenzie
National
Municipal Fund, Mackenzie California Municipal Fund and
Mackenzie
New York Municipal Fund and were $394,699, $68,780,
$47,540 and
$61,090, respectively.
The Agreement will continue in effect with respect
to each
Fund for more than its initial two-year period only so
long as
the continuance is specifically approved at least
annually (i) by
the vote of a majority of the Independent Trustees, and
(ii)
either (a) by the vote of a majority of the Fund's
outstanding
voting securities (as defined in the 1940 Act), or (b)
by the
vote of a majority of the entire Board of Trustees. If
the
question of continuance of the Agreement (or adoption
of any new
agreement) is presented to a Fund's shareholders,
continuance (or
adoption) shall be effected only if approved by the
affirmative
vote of a majority of the Fund's outstanding voting
securities.
See "Capitalization and Voting Rights." The Agreement
may be
terminated with respect to a Fund at any time, without
payment of
any penalty, by the vote of a majority of the Board of
Trustees,
or by the vote of a majority of the Fund's outstanding
voting
securities, on 60 days' written notice to MIMI, or by
MIMI on 60
days' written notice to the Trust. The Agreement shall
terminate
automatically in the event of its assignment. MIMI and
MFC
reserve all rights in the name "Mackenzie" and permit
the use of
the name "Mackenzie" or any name derived from the name
"Mackenzie" by a Fund and the Trust only so long as the
Agreement
or any extension, renewal or amendment thereof remains
in effect.
DISTRIBUTION SERVICES
Mackenzie Ivy Funds Distribution, Inc. ("MIFDI"),
a wholly
owned subsidiary of MIMI, serves as the exclusive
distributor of
the Class A and Class B shares of the Funds pursuant to
an
Amended and Restated Distribution Agreement with the
Trust dated
April 1, 1994 (the "Distribution
Agreement").1[Effective
October 1, 1993, MIFDI succeeded to and is continuing
MIMI's
broker-dealer activities. The provisions of the Funds'
previous
Distribution Agreements with MIMI remain unchanged by
the
succession.] The Distribution Agreement does not
obligate MIFDI
to sell any specific amount of Fund shares. 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 of
Trustees
or a majority of the outstanding voting securities of a
Fund.
The Distribution Agreement may be terminated with
respect to a
Fund at any time, without payment of any penalty, by
MIFDI 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 MIFDI. The Distribution Agreement shall terminate
automatically in the event of its assignment.
Under the terms of the Distribution Agreement,
MIFDI is
entitled to deduct a contingent deferred sales charge
on the
redemption of Class B shares of the Funds in the manner
set forth
in the Prospectus. MIFDI may reallow all or a portion
of the
contingent deferred sales charge to dealers as MIFDI
may
determine from time to time. During the fiscal year
ended June
30, 1995, MIFDI received $8,876, $6,798, $4,231 and
$583 in
contingent deferred sales charges on redemptions of
Class B
shares of Mackenzie Limited Term Municipal Fund,
Mackenzie
National Municipal Fund, Mackenzie California Municipal
Fund and
Mackenzie New York Municipal Fund, respectively.
During the
period from April 1, 1994 (commencement of sales of
Class B
shares) to June 30, 1994, MIFDI received no contingent
deferred
sales charges on redemptions of Class B shares of
Mackenzie
Limited Term Municipal Fund, Mackenzie National
Municipal Fund
and Mackenzie California Municipal Fund. During the
same period,
MIFDI received $485 in contingent deferred sales
charges on
redemptions of Mackenzie New York Municipal Fund.
MIFDI is also entitled under the Distribution
Agreement to
deduct a commission on all Class A Fund shares sold
equal to the
difference, if any, between the public offering price,
as set
forth in the Funds' then-current Prospectus, and the
net asset
value on which such price is based. Out of such
commission,
MIFDI may allow to dealers such concession as MIFDI may
determine
from time to time. During the last three fiscal years,
the sales
commissions paid by each of the Funds to MIFDI pursuant
to the
Distribution Agreement for sales of Class A shares, and
the
amounts reallowed to dealers, were as follows:
MACKENZIE LIMITED TERM MUNICIPAL FUND. During the
fiscal
year ended June 30, 1995 and the nine months ended June
30, 1994,
MIFDI received $155,685 and $816,793, respectively, in
commissions from sales of Class A shares of the Fund,
of which
$33,813 and $193,175, respectively, was retained after
dealers'
reallowances. During the three months ended September
30, 1993
and the fiscal year ended June 30, 1993, MIMI received
$382,984
and $999,591, respectively, in commissions from sales
of Class A
shares of the Fund, of which $86,956 and $276,486,
respectively,
was retained after dealers' reallowances. Zweig
Securities Corp.
previously served as the principal distributor of the
shares of
Zweig Limited Term Portfolio, the predecessor to
Mackenzie
Limited Term Municipal Fund. For the six-month period
ended
June 30, 1991, Zweig Securities Corp. received from
sales of
shares of Zweig Limited Term Portfolio $413 in sales
commissions,
of which $80 was retained after dealers' reallowances.
For the
fiscal year ended December 31, 1990, Zweig Securities
Corp.
received from sales of shares of Zweig Limited Term
Portfolio
$800 of which $543 was retained after dealers'
reallowances. For
the period from April 1, 1994 (commencement) to June
30, 1994,
MIFDI received commissions of $55,101 from sales of
Class A
shares of Mackenzie Limited Term Municipal Fund, of
which $6,924
was retained after dealers' reallowances.
MACKENZIE NATIONAL MUNICIPAL FUND. During the
fiscal year
ended June 30, 1995 and the nine months ended June 30,
1994,
MIFDI received $52,035 and $79,937, respectively, in
commissions
from sales of Class A shares 2[Shares of the Funds
outstanding as
of March 31, 1994 were designated Class A shares. The
Funds
commenced selling Class B shares on April 1, 1994.] of
the Fund,
of which $11,118 and $15,708, respectively, was
retained after
dealers' reallowances. During the three months ended
September
30, 1993 and the fiscal year ended June 30, 1993, MIMI
received
$34,716 and $310,199, respectively, in commissions from
sales of
Class A shares of the Fund, of which $5,694 and
$75,368,
respectively, was retained after dealers' reallowances.
MACKENZIE CALIFORNIA MUNICIPAL FUND. During the
fiscal year
ended June 30, 1995 and the nine months ended June 30,
1994,
MIFDI received $49,841 and $66,168, respectively, in
commissions
from sales of Class A shares of the Fund, of which
$10,201 and
$7,932, respectively, was retained after dealers'
reallowances.
During the three months ended September 30, 1993 and
the fiscal
year ended June 30, 1993, MIMI received $38,820 and
$224,963,
respectively, in commissions from sales of Class A
shares of the
Fund, of which $13,267 and $51,373, respectively, was
retained
after dealers' reallowances.
MACKENZIE NEW YORK MUNICIPAL FUND. During the
fiscal year
ended June 30, 1995 and the nine months ended June 30,
1994,
MIFDI received $65,484 and $164,893, respectively, in
commissions
from sales of Class A shares of the Fund, of which
$13,595 and
$33,248, respectively, was retained after dealers'
reallowances.
During the three months ended September 30, 1993 and
the fiscal
year ended June 30, 1993, MIMI received $85,283 and
$313,702,
respectively, in commissions from sales of Class A
shares of the
Fund, of which $16,359 and $69,720, respectively, was
retained
after dealers' reallowances.
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 whose shares are registered on Form
N-1A 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. At a
meeting held on
December 1-2, 1995, the Board of Trustees of the Trust
adopted a
multi-class plan (the "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 each
Fund's
Prospectus, shares of a particular class of the Fund
may be
exchanged for shares of the same class of another Ivy
or
Mackenzie fund; and (iii) each Fund's Class B shares
will
convert automatically into Class A shares of the Fund
after a
period of eight years, based on the relative net asset
value of
such shares at the time of conversion.
RULE 12b-1 DISTRIBUTION PLANS. As described in
the
Prospectus, each Fund has adopted pursuant to Rule
12b-1 under
the 1940 Act separate distribution plans pertaining to
its
Class A and Class B shares (the "Class A Plan" and the
"Class B
Plan," collectively, the "Plans"). In adopting each
Plan, a
majority of the Independent Trustees have concluded in
conformity
with the requirements of the 1940 Act that there is a
reasonable
likelihood that the Plan will benefit a Fund and its
shareholders. The Trustees of the Trust believe that
the Plans
should result in greater sales and/or fewer redemptions
of Fund
shares, although it is impossible to know for certain
the level
of sales and redemptions of Fund shares in the absence
of a Plan
or under an alternative distribution arrangement.
Under each Fund's Class A and Class B Plan, each
Fund pays
MIFDI 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 shares or Class B shares,
as the case
may be. The services for which service fees may be
paid include,
among other services, advising clients or customers
regarding the
purchase, sale or retention of shares of a Fund,
answering
routine inquiries concerning a Fund and assisting
shareholders in
changing options or enrolling in specific plans.
Pursuant to
each Fund's Plans, service fee payments made out of or
charged
against the assets attributable to that Fund's Class A
or Class B
shares must be in reimbursement for services rendered
for or on
behalf of that class of the Fund. The expenses not
reimbursed in
any one given month may be reimbursed in a subsequent
month. No
Class A Plan provides for the payment of interest or
carrying
charges as distribution expenses.
Each Fund also pays MIFDI a distribution fee based
on the
average daily net assets attributable to its Class B
shares,
accrued daily and paid monthly at the following annual
rates:
0.50%, for Mackenzie Limited Term Municipal Fund; and
0.75%, for
Mackenzie National Municipal Fund, Mackenzie California
Municipal
Fund and Mackenzie New York Municipal Fund. MIFDI may
reallow
all or a portion of the service and distribution fees
to dealers
as MIMI may determine from time to time. The
distribution fee
compensates MIFDI for expenses incurred in connection
with
activities primarily intended to result in the sale of
Class B
shares of a Fund, including the printing of
prospectuses for
persons other than shareholders and the preparation,
printing and
distribution of sales literature and advertising
materials.
Pursuant to each Fund's Class B Plan, MIFDI may include
interest,
carrying or other finance charges in its calculation of
Class B
distribution expenses, if not prohibited from doing so
pursuant
to an order of or a regulation adopted by the SEC. The
SEC order
permitting the imposition of a contingent deferred
sales charge
on Class B shares does not currently permit MIFDI to
recover such
charges.
Among other things, each Plan provides that (1)
MIFDI will
submit to the Board of Trustees of the Trust 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) the 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 Trust's Board of Trustees, including
the
Independent Trustees, cast in person at a meeting
called for that
purpose; (3) payments by a Fund under the 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 the Plan is in effect, the selection and
nomination
of Trustees who are not "interested persons" (as
defined in the
1940 Act) of the Trust shall be committed to the
discretion of
the Trustees who are not "interested persons" of the
Trust.
MIFDI may make payments for distribution
assistance and for
administrative and accounting services from resources
that may
include the management fees paid to MIMI by the Funds.
MIFDI
also may make payments (such as the service fee
payments
described above) to unaffiliated broker-dealers for
services
rendered in the distribution of the Funds' 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, 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
MIFDI.
Each Plan may be amended at any time with respect
to the
class of shares of a 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 with
respect to the
class of shares of a Fund to which the Plan relates at
any time,
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.
RULE 12B-1 PAYMENTS BY THE FUNDS FOR
DISTRIBUTION-RELATED
SERVICES:
MACKENZIE LIMITED TERM MUNICIPAL FUND. During the
fiscal
year ended June 30, 1993 and the period from July 1,
1993 to
September 30, 1993, the Fund paid MIMI $148,344 and
$65,146,
respectively, pursuant to the Class A Plan. During the
period
from October 1, 1993 to June 30, 1994 and the fiscal
year ended
June 30, 1995, the Fund paid MIFDI $265,119 and
$340,929,
respectively, pursuant to the Class A plan. For the
period from
April 1, 1994 (the date on which Class B shares of the
Fund were
first offered for sale to the public) to June 30, 1994
and the
fiscal year ended June 30, 1995,the Fund paid MIFDI
$1,115 and
$15,139, respectively, pursuant to the Class B Plan.
MACKENZIE NATIONAL MUNICIPAL FUND. During the
fiscal year
ended June 30, 1993 and the period from July 1, 1993 to
September
30, 1993, the Fund paid MIMI $99,959 and $26,593,
respectively,
pursuant to the Class A Plan. During the period from
October 1,
1993 to June 30, 1994 and the fiscal year ended June
30, 1995,
the Fund paid MIFDI $74,712 and $83,272, respectively,
pursuant
to the Class A plan. For the period from April 1, 1994
(the date
on which Class B shares of the Fund were first offered
for sale
to the public) to June 30, 1994 and the fiscal year
ended June
30, 1995,the Fund paid MIFDI $771 and $8,042,
respectively,
pursuant to the Class B Plan. For
MACKENZIE CALIFORNIA MUNICIPAL FUND. During the
fiscal year
ended June 30, 1993 and the period from July 1, 1993 to
September
30, 1993, the Fund paid MIMI $115,879 and $30,288,
respectively,
pursuant to the Class A Plan. During the period from
October 1,
1993 to June 30, 1994 and the fiscal year ended June
30, 1995,
the Fund paid MIFDI $84,893 and $100,518, respectively,
pursuant
to the Class A plan. For the period from April 1, 1994
(the date
on which Class B shares of the Fund were first offered
for sale
to the public) to June 30, 1994 and the fiscal year
ended June
30, 1995,the Fund paid MIFDI $168 and $5,868,
respectively,
pursuant to the Class B Plan.
MACKENZIE NEW YORK MUNICIPAL FUND. During the
fiscal year
ended June 30, 1993 and the period from July 1, 1993 to
September
30, 1993, the Fund paid MIMI $94,840 and $27,182,
respectively,
pursuant to the Class A Plan. During the period from
October 1,
1993 to June 30, 1994 and the fiscal year ended June
30, 1995,
the Fund paid MIFDI $83,038 and $103,901, respectively,
pursuant
to the Class A plan. For the period from April 1, 1994
(the date
on which Class B shares of the Fund were first offered
for sale
to the public) to June 30, 1994 and the fiscal year
ended June
30, 1995,the Fund paid MIFDI $1,374 and $11,975,
respectively,
pursuant to the Class B Plan.
DISTRIBUTION-RELATED EXPENSES BORNE BY MIFDI:
MACKENZIE LIMITED TERM MUNICIPAL FUND: During the
fiscal
year ended June 30, 1995, MIFDI expended the following
amounts in
marketing Class A and Class B shares of the Fund:
advertising,
$16,037 and $350, respectively; printing and mailing of
prospectuses to persons other than current
shareholders, $52,312
and $1,143, respectively; compensation to dealers,
$38,036 and
$2,142, respectively; compensation to sales personnel,
$199,157
and $4,351, respectively; seminars and meetings,
$24,509 and
$536, respectively; travel and entertainment, $55,932
and $1,222,
respectively; general and administrative, $89,615 and
$1,958,
respectively; telephone, $6,830 and $149, respectively;
and
occupancy and equipment rental, $17,050 and $373,
respectively.
MACKENZIE NATIONAL MUNICIPAL FUND: During the
fiscal year
ended June 30, 1995, MIFDI expended the following
amounts in
marketing Class A and Class B shares of the Fund:
advertising,
$4,065 and $110, respectively; printing and mailing of
prospectuses to persons other than current
shareholders, $6,686
and $181, respectively; compensation to dealers,
$25,662 and
$694, respectively; compensation to sales personnel,
$49,838 and
$1,347, respectively; seminars and meetings, $6,416 and
$173,
respectively; travel and entertainment, $13,986 and
$378,
respectively; general and administrative, $22,436 and
$607,
respectively; telephone, $1,709 and $46, respectively;
and
occupancy and equipment rental, $4,265 and $115,
respectively.
MACKENZIE CALIFORNIA MUNICIPAL FUND: During the
fiscal year
ended June 30, 1995, MIFDI expended the following
amounts in
marketing Class A and Class B shares of the Fund:
advertising,
$4,917 and $125, respectively; printing and mailing of
prospectuses to persons other than current
shareholders, $6,286
and $160, respectively; compensation to dealers,
$30,413 and
$774, respectively; compensation to sales personnel,
$58,502 and
$1,489, respectively; seminars and meetings, $7,603 and
$194,
respectively; travel and entertainment, $16,384 and
$417,
respectively; general and administrative, $26,364 and
$671,
respectively; telephone, $2,005 and $51, respectively;
and
occupancy and equipment rental, $4,999 and $127,
respectively.
MACKENZIE NEW YORK MUNICIPAL FUND: During the
fiscal year
ended June 30, 1995, MIFDI expended the following
amounts in
marketing Class A and Class B shares of the Fund:
advertising,
$5,163 and $184, respectively; printing and mailing of
prospectuses to persons other than current
shareholders, $7,998
and $284, respectively; compensation to dealers,
$32,679 and
$1,162, respectively; compensation to sales personnel,
$61,432
and $2,185, respectively; seminars and meetings, $8,170
and $291,
respectively; travel and entertainment, $17,193 and
$611,
respectively; general and administrative, $27,648 and
$983,
respectively; telephone, $2,107 and $75, respectively;
and
occupancy and equipment rental, $5,248 and $187,
respectively.
CUSTODIAN
Brown Brothers Harriman & Co., a private bank and
member of
the principal securities exchanges, located at 40 Water
Street,
Boston, Massachusetts 02109 (the "Custodian"), has been
retained
to act as Custodian of the Trust's investments. Its
primary
responsibility is to maintain custody of the cash and
securities
in each Fund's portfolio. Brown Brothers may receive,
as partial
payment for its services, a portion of the Trust's
brokerage
business, subject to its ability to provide best price
and
execution. The First National Bank of Boston, One
Financial
Center, Boston, Massachusetts 02111, served as the
Trust's
custodian until May 31, 1993.
FUND ACCOUNTING
Pursuant to a Fund Accounting Services Agreement
dated
July 1, 1991 (effective July 16, 1991), MIMI provides
certain
accounting and pricing services for the Funds. As
compensation
for such services, each Fund pays MIMI a monthly fee
plus out-of-
pocket expenses as incurred. The monthly fee is based
on the net
assets of the Fund at the preceding month end at the
following
rates: $1,000 when the net assets are less than $20
million;
$1,500 when the net assets are $20 to $75 million;
$4,000 when
the net assets are $75 to $100 million; and $6,000 when
the net
assets are over $100 million. For the fiscal years
ended June
30, 1995, 1994 and 1993, the Funds paid the following
amounts to
MIMI pursuant to the agreement: Mackenzie Limited Term
Municipal
Fund, $104,676, $93,126 and $39,372, respectively;
Mackenzie
National Municipal Fund, $27,467, $26,935 and $32,564,
respectively; Mackenzie California Municipal Fund,
$24,790,
$24,062 and $28,372, respectively; and Mackenzie New
York
Municipal Fund, $29,126, $27,625 and $31,389,
respectively.
TRANSFER AND DIVIDEND PAYING AGENT
Mackenzie Ivy Investor Services Corp. ("MIISC," or
the
"Transfer Agent") acts as the Trust's transfer agent
and dividend
paying agent pursuant to a Transfer Agency and
Shareholder
Services Agreement. For transfer agency and
shareholder
services, each Fund pays MIISC an annual fee of $20.75
per open
account and $4.36 for each account that is closed. In
addition,
each Fund reimburses MIISC monthly for out-of-pocket
expenses.
ADMINISTRATOR
MIMI provides various administrative services to
the Trust
pursuant to an Administrative Services Agreement.
AUDITORS
Coopers & Lybrand L.L.P., independent certified
public
accountants, 200 East Las Olas Boulevard, Suite 1700,
Ft.
Lauderdale, Florida 33301, has been selected as
auditors for the
Trust. The audit services performed by Coopers &
Lybrand L.L.P.
include audits of the annual financial statements of
each of the
funds of the Trust. Other services provided primarily
relate to
filings with the SEC and the review of the Trust's tax
returns.
CAPITALIZATION AND VOTING RIGHTS
The capitalization of the Trust consists of an
unlimited
number of shares of beneficial interest with a par
value of
$0.001 per share. When issued, shares of each class of
a Fund
are fully paid, non-assessable, redeemable and fully
transferable. No class of shares of a 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
five series, each of which represents a fund. The
Trustees have
further authorized the issuance of Classes A and B
shares for the
Funds.
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. Shares of each class of a Fund
entitle their
holders to one vote per share (with proportionate
voting for
fractional shares). On matters affecting only one
Fund, only the
shareholders of that Fund are entitled to vote. All
classes of
shares of a Fund will vote together, except with
respect to the
distribution plan applicable to its Class A or Class B
shares or
when a class vote is required by the 1940 Act. On
matters
relating to all of the Funds, but affecting each Fund
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. If
the Trustees determine that a matter does not affect
the
interests of a Fund, then the shareholders of that Fund
will not
be entitled to vote on that matter. Matters that
affect the
Trust in general, such as ratification of the selection
of
independent public accountants, will be voted upon
collectively
by the shareholders of all of the Funds and Mackenzie
Florida
Limited Term Municipal Fund.
As used in this SAI and the Prospectus, the phrase
"majority
vote of the outstanding shares" of a Fund means the
vote of the
lesser of: (1) 67% of the shares of the Fund (or of
the Trust)
present at a meeting if the holders of more than 50% of
the
outstanding shares are present in person or by proxy;
or (2) more
than 50% of the outstanding shares of the Fund (or of
the Trust).
With respect to the submission to shareholder vote of a
matter
requiring separate voting by a Fund, the matter shall
have been
effectively acted upon with respect to any Fund if a
majority of
the outstanding voting securities of that 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 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 of
Trustees, in which case the holders of the remaining
shares would
not be able to elect any Trustees.
Under Massachusetts law, the Trust's shareholders
could,
under certain circumstances, be held personally liable
for the
obligations of the Trust. However, the Amended and
Restated
Declaration of Trust disclaims liability of the
shareholders,
Trustees or officers of the Trust for acts or
obligations of the
Trust, which are binding only on the assets and
property of the
Trust, and requires that notice of the disclaimer be
given in
each contract or obligation entered into or executed by
the Trust
or its Trustees. The Amended and Restated Declaration
of Trust
provides for indemnification out of Fund property for
all loss
and expense of any shareholder of a Fund held
personally liable
for the obligations of 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.
PRINCIPAL HOLDERS OF SECURITIES:
MACKENZIE LIMITED TERM MUNICIPAL FUND. To the
knowledge of
the Trust, as of September 29, 1995, no shareholder
owned
beneficially or of record 5% or more of the Fund's
outstanding
shares, except that of the outstanding Class A shares
of the
Fund, JJ Investments, 1200 Gulf Life Drive,
Jacksonville, Florida
32207, owned of record 779,644.581 shares (7.79%); and
except
that of the outstanding Class B shares of the Fund, E.
and B.
Perry, 1744 Pebble Creek Drive, Prattville, Alabama,
36066, owned
of record 23,099.261 shares (10.61%), Y. Acinapura, 330
Cherry
Lane, Haverton, Pennsylvania 19083 owned of record
20,255.940
shares (9.30%), Smith Barney Shearson, 388 Greenwich
Street, New
York, New York 10013 owned of record 16,085.740 shares
(7.39%).
MACKENZIE NATIONAL MUNICIPAL FUND. To the
knowledge of the
Trust, as of September 29, 1995, no shareholder owned
beneficially or of record 5% or more of the Fund's
outstanding
shares, except that of the outstanding Class B shares
of the
Fund, B. Van Der Zee, 907 Maple Branch, Pearland, Texas
77584,
owned of record 32,108.408 shares (38.52%); R. Swartz,
1161
Cayuga Drive, Grand Blanc, Michigan 48439, owned of
record
14,432.507 shares (17.31%); the Armstrong Family Trust,
233
Prospect Street, La Jolla, California 92037, owned of
record
7,476.459 shares (8.96%); Prudential Securities
(custodian), 4503
Homeland Blvd., Erie, Pennsylvania 16509, owned of
record
5,193.000 shares (6.23%) for the benefit of A. and B.
Baumann;
and J. M. Harrison, 3422 Southern Cay Drive, Jupiter,
Florida
33477, owned of record 5,184.071 shares (6.21%) and G.
and V.
Ellis, Pleasant Valley Road, Alfred Station, New York,
14803,
owned of record 5,149.331 shares (6.17%). B. Van Der
Zee, 907
Maple Branch, Pearland, Texas 77584, may be deemed to
hold a
controlling interest, as defined in the 1940 Act, in
Class B of
the Fund. Accordingly, as long as B. Van Der Zee holds
such an
interest, he or she may have the ability to influence a
vote on
any matter that is submitted for approval only to Class
B
shareholders of the Fund.
MACKENZIE CALIFORNIA MUNICIPAL FUND. To the
knowledge of
the Trust, as of September 29, 1995, no shareholder
owned
beneficially or of record more than 5% of the Fund's
outstanding
shares, except that of the outstanding Class B shares
of the
Fund, Painwebber (custodian), 353 Euclid Avenue,
Oakland,
California 94610, owned of record 14,109.083 shares
(12.93%);
Ross-George Enterprises, 9 Coralwind Avenue, Laguna
Hills,
California 92653, owned of record 10,949.200 shares
(10.03%);
the Feldman Family Trust, 9 Coralwind Avenue, Laguna
Hills,
California 92653, owned of record 10,844.081 shares
(9.94%); the
E.K. Finnigan Trust, 1512 Granite Hills Drive, El
Cajon,
California 92019, owned of record 10,011.385 shares
(9.17%); the
Bell Trust, 27031 Vista Pointe, San Juan Capistrano,
California
92675, owned of record 7,031.799 shares (6.44%); and
the R. and
D. Kishi Revocable Trust, 1301 West 184th Street,
Gardena,
California 90248, owned of record 5,788.415 shares
(5.30%).
MACKENZIE NEW YORK MUNICIPAL FUND. To the
knowledge of the
Trust, as of September 29, 1995, no shareholder owned
beneficially or of record 5% or more of the Fund's
outstanding
shares, except that of the outstanding Class A shares
of the
Fund, John Hancock Clearing Corp., One World Financial
Center,
200 Liberty Street - Tower A, New York, New York 10281,
owned of
record 327,710.295 shares (8.08%); and except that of
the
outstanding Class B shares of the Fund, S. Madigan, 455
Village
Lane, Orient, New York 11957, owned of record
48,836.499 shares
(31.17%); H. Mendelson, 146-01 45th Avenue, Flushing,
New York
11355, owned of record 22,576.802 shares (14.41%); The
Pabst
Trust, 711 Hanover Street, Liverpool, New York 13088,
owned of
record 10,905.219 shares (6.96%); and R. and R.
Signorello, 3239
Far Reach Drive, Baldwinsville, New York 13027, owned
of record
8,479.069 shares (5.41%). S. Madigan, 455 Village
Lane, Orient,
New York 11957, may be deemed to hold a controlling
interest, as
defined in the 1940 Act, in Class B of the Fund.
Accordingly,
as long as S. Madigan holds such an interest, he or she
may have
the ability to influence a vote on any matter that is
submitted
for approval only to Class B shareholders Fund.
NET ASSET VALUE
The market price of a Fund share is its net asset
value.
The net asset value per share is calculated separately
for each
Fund, and is computed by dividing the value of the
assets of the
Fund, less its liabilities, by the number of shares of
the Fund
outstanding. A Fund's liabilities are allocated
between its
Classes. The total of such liabilities allocated to a
Class plus
that Class' distribution fee and any other expenses
specially
allocated to that Class are then deducted from the
proportionate
interest of the Class in the Fund's assets, and the
resulting
amount for each Class is divided by the number of
shares of that
Class outstanding to produce the net asset value per
share.
Portfolio securities are valued and net asset
value per
share is determined as of the close of regular trading
on the New
York Stock Exchange (the "Exchange") (normally 4:00
p.m., eastern
time) on each day the Exchange is open for trading.
The Trust's
offices will be closed, and net asset value will not be
calculated on the following national business holidays:
New
Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Veterans Day, Thanksgiving
Day and
Christmas Day. On any day on which either or both of
the Funds'
Custodian or the Exchange close early as a result of
such day
being a partial holiday or otherwise, the Funds reserve
the right
to advance the time on that day by which purchase and
redemption
requests must be received.
Municipal securities held by the Funds are valued
through a
pricing service and/or in accordance with procedures
approved by
the Board of Trustees. Valuations furnished by a
pricing service
are based on a computerized matrix system and/or
appraisals based
in each case upon information concerning market
transactions and
quotations from recognized municipal securities
dealers. In
valuing the Funds' municipal securities, the pricing
service
considers factors such as yields or prices of municipal
bonds of
comparable quality, type of issue, coupon, maturity and
rating,
indications as to value from dealers, and general
market
conditions. The Trust's officers, under the general
supervision
of the Board of Trustees, will regularly review
procedures used
and valuations provided by the pricing service.
Taxable securities held by a Fund for which market
quotations are readily available will be valued at
market value,
which is the last reported sale price or, at the mean
between the
latest available bid and asked prices. The Board of
Trustees has
determined that securities having 60 days or less
remaining to
maturity will be valued at their amortized cost, which
approximates market value when such amortized cost is
believed to
reflect the fair market value of such securities.
The sale of a 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 of Trustees whenever in its judgment it is in
the best
interest of the Fund to do so.
PORTFOLIO TURNOVER
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. A Fund's portfolio
turnover rate
is calculated by dividing the lesser of purchases or
sales of
portfolio securities for the most recently completed
fiscal year
by the monthly average of the value of the portfolio
securities
owned by the Fund during that year. For purposes of
determining
a Fund's portfolio turnover rate, all securities whose
maturities
at the time of acquisition were one year or less are
excluded.
The annual portfolio turnover rates for the Funds are
provided in
the Prospectus.
REDEMPTIONS
Shares of a Fund are redeemed at their net asset
value next
determined after a redemption request in proper form
has been
received by MIISC, less any applicable contingent
deferred sales
charge.
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, to the extent permitted by
Federal
securities laws, (i) for any period during which the
New York
Stock Exchange is closed (other than customary weekend
and
holiday closing) or during which trading on the
Exchange is
restricted, (ii) for any period during which an
emergency exists
as determined by the SEC as a result of which disposal
of
securities owned by a Fund is not reasonably
practicable or it is
not reasonably practicable for a Fund fairly to
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 of
Trustees
deems it in the best interest of a Fund's shareholders,
that Fund
may make payment for shares repurchased or redeemed, in
whole or
in part, in securities of the Fund taken at current
value. If
any such redemption in kind is to be made, the Fund
intends to
make an election pursuant to Rule 18f-1 under the 1940
Act. This
will require the Fund to redeem with cash at a
shareholder's
election in any case where the redemption involves less
than
$250,000 (or 1% of the Fund's net asset value at the
beginning of
each 90-day period during which such redemptions are in
effect,
if that amount is less than $250,000). If payment is
made in the
form of Fund securities, the redeeming shareholder may
incur
brokerage costs in converting such securities to cash.
Subject to state law restrictions, the Trust may
redeem
those accounts of shareholders who have maintained an
investment,
including sales charges paid, of less than $1,000 in a
Fund for a
period of more than 12 months. All accounts below that
minimum
will be redeemed simultaneously when MIMI deems it
advisable.
The $1,000 balance will be determined by actual dollar
amounts
invested by the shareholder, unaffected by market
fluctuations.
The Trust will notify any such shareholder by certified
mail of
its intention to redeem such account, and the
shareholder shall
have 60 days from the date of such letter to invest
such
additional sum as shall raise the value of such account
above
that minimum. Should the shareholder fail to forward
such sum
within 60 days of the date of the Trust's letter of
notification,
the Trust will redeem the shares held in such account
and
transmit the redemption in value thereof to the
shareholder.
However, those shareholders who are investing pursuant
to the
Automatic Investment Method will not be redeemed
automatically
unless they have ceased making payments pursuant to the
plan for
a period of at least six consecutive months, and these
shareholders will be given six months' notice by the
Trust before
such redemption. Shareholders in a qualified
retirement, pension
or profit sharing plan who wish to avoid tax
consequences would
have to "rollover" any sum so redeemed into another
qualified
plan within 60 days. The Trustees of the Trust may
change the
minimum account size.
If a shareholder has given authorization for
telephonic
redemption privilege, shares can be redeemed and
proceeds sent by
Federal wire to a single previously designated bank
account.
Delivery of the proceeds of a wire redemption request
of $250,000
or more may be delayed by the Fund for up to seven days
if deemed
appropriate under then current market conditions. The
Trust
reserves the right to change this minimum or to
terminate the
telephonic redemption privilege without prior notice.
The Trust
cannot be responsible for the efficiency of the Federal
wire
system of the shareholder's dealer of record or bank.
The
shareholder is responsible for any charges by the
shareholder's
bank.
The Funds employ 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
procedures, a
Fund may be liable for any losses due to unauthorized
or
fraudulent telephone instructions.
CONVERSION OF CLASS B SHARES
As described in the Prospectus, Class B shares of
a Fund
will convert automatically to Class A shares of that
Fund, based
on the relative net asset values per share of the two
Classes, as
of the close of business on the first business day
after the last
day of the calendar quarter in which 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: (i) 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.
TAXATION
The following is a general discussion of certain
tax rules
thought to be applicable with respect to the Funds. 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.
GENERAL
Each Fund intends to continue to qualify and elect
to be
treated as a regulated investment company under
Subchapter M of
the Code. In order to qualify, 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
securities loans, gains from the sale or other
disposition of
stock, securities, or foreign currencies, or other
income
(including but not limited to gains from options,
futures, and
forward contracts) derived with respect to its business
of
investing in such stock, securities or currencies; (b)
derive in
each taxable year less than 30% of its gross income
from the sale
or other disposition of certain assets (namely (i)
stock or
securities, (ii) options, futures, and forward
contracts (other
than those on foreign currencies), and (iii) foreign
currencies
(including options, futures, and forward contracts on
such
currencies) not directly related to the Fund's
principal business
of investing in stocks or securities (or options and
futures with
respect to stocks and securities)) held less than three
months
(the "30% Limitation"); and (c) 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 of any one issuer limited for purposes of
this
calculation to an amount not greater than 5% of the
Fund's 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 securities of any other issuer (other than
U.S.
Government securities and the securities of other
regulated
investment companies).
As a regulated investment company, a Fund
generally will not
be subject to U.S. Federal income tax on its investment
company
taxable income (which includes, among other items,
dividends,
interest and net short-term capital gains in excess of
net long-
term capital losses) and net capital gains (net
long-term capital
gains in excess of net short-term capital losses) that
it
distributes to shareholders, if at least 90% of both
its
investment company taxable income and its net
tax-exempt interest
income for the taxable year is distributed. Each Fund
intends to
distribute such income.
Amounts, other than tax-exempt interest, not
distributed on
a timely basis in accordance with a calendar year
distribution
requirement are subject to a nondeductible 4% excise
tax. To
avoid that tax, each Fund must distribute during each
calendar
year an amount equal to (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 the
twelve-month period 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. A
distribution,
including an "exempt-interest dividend," 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 that year to
shareholders of record at some date in such a month and
paid by
the Fund during January of the following calendar year.
Such
distributions will be taken into account by
shareholders in the
calendar year the distributions are declared, rather
than the
calendar year in which the distributions are received.
Certain of the Funds may enter into put
transactions with
respect to municipal obligations they hold. The IRS
has issued
published and private rulings concerning the treatment
of such
put transactions for Federal income tax purposes. The
Fund's
situation is distinguishable from those addressed in
these
rulings; thus, there can be no assurance that a Fund
will be
treated as the owner of the municipal obligations
subject to the
puts or that the interest on such obligations received
by the
Fund will be exempt from Federal income tax. If the
Fund is not
treated as the owner of the municipal obligations
subject to the
puts, distributions of income derived from such
obligations would
be taxed as ordinary income.
DISCOUNT
Certain of the bonds purchased by a Fund may be
treated as
bonds that were originally issued at a discount.
Original issue
discount represents interest for Federal income tax
purposes and
can generally be defined as the difference between the
price at
which a security was issued and its stated redemption
price at
maturity. Original issue discount is treated for
Federal income
tax purposes as income earned by a Fund, although no
cash is
actually received by a Fund, and therefore is subject
to the
distribution requirements of the Code. The amount of
income
earned by a Fund generally is determined on the basis
of a
constant yield to maturity that takes into account the
semi-
annual compounding of accrued interest.
In addition, some of the bonds may be purchased by
a Fund at
a discount that exceeds the original issue discount on
such
bonds, if any. This additional discount represents
market
discount for Federal income tax purposes. The gain
realized on
the disposition of any bond, including a tax-exempt
bond, having
market discount will be treated as ordinary income to
the extent
it does not exceed the accrued market discount on such
bond
(unless a Fund elects for all its debt securities
acquired after
the first day of the first taxable year to which the
election
applies having a fixed maturity date of more than one
year from
the date of issue to include market discount in income
in tax
years to which it is attributable). Generally, market
discount
accrues on a daily basis for each day the bond is held
by a Fund
at a constant rate over the time remaining to the
bond's
maturity.
DISTRIBUTIONS
Each Fund intends to qualify to pay
"exempt-interest
dividends" to its shareholders but there is no
guarantee that any
particular Fund will so qualify. A Fund will be so
qualified if,
at the close of each quarter of its taxable year, at
least 50% of
the value of its total assets consist of state and
municipal
securities on which interest payments are exempt from
Federal
income tax and such interest payments when distributed
are
designated as exempt-interest dividends by the Fund.
Exempt-
interest dividends are excludable from a shareholder's
gross
income for Federal income tax purposes.
Exempt-interest
dividends, however, must be taken into account by
shareholders in
determining whether their total incomes are large
enough to
result in taxation of up to 85% of their social
security benefits
or certain railroad retirement benefits.
Exempt-interest
dividends that are attributable to certain private
activity bonds
may constitute an item of tax preference for purposes
of the
alternative minimum tax. For corporate shareholders,
exempt-
interest dividends may comprise all or part of an
adjustment to
alternative minimum taxable income, which may result in
the
imposition or increase in such tax. Each Fund will
inform
shareholders annually as to the portion of the
distributions from
the Fund that constituted exempt-interest dividends.
Distributions of investment company taxable income
are
taxable to a U.S. shareholder as ordinary income,
whether paid in
cash or shares. Because no portion of a Fund's income
is
expected to consist of dividends paid by U.S.
corporations, no
portion of the dividends paid by a Fund is expected to
be
eligible for the corporate dividends-received
deduction.
Distributions of net capital gains, if any, that are
designated
as capital gain dividends are taxable as long-term
capital gains,
whether paid in cash or in shares, regardless of how
long the
shareholder has held a Fund's shares, and are not
eligible for
the dividends received deduction. The tax treatment of
distributions from a Fund is the same whether the
dividends are
received in cash or in additional shares. Shareholders
receiving
distributions in the form of newly issued shares will
have a cost
basis in each share received equal to the net asset
value of a
share of the Fund on the reinvestment 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
that 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 will be taxable (unless it is an
exempt-interest
dividend) even though it represents a return of
invested capital.
Investors 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 that will nevertheless be
taxable to them
(unless it is an exempt-interest dividend).
Deductions for interest expense incurred to
acquire or carry
shares of a Fund may be subject to limitations that
reduce,
defer, or eliminate such deductions. This includes
limitations
on deducting interest on indebtedness properly
allocable to
investment property (which may include shares of a
Fund). In
addition, a shareholder may not deduct that portion of
interest
on indebtedness incurred or continued to purchase or
carry shares
of an investment company paying exempt-interest
dividends, which
bears the same ratio to the total of such interest as
the exempt-
interest dividends bear to the total dividends,
excluding capital
gain dividends received by the shareholder. Under
rules issued
by the IRS for determining when borrowed funds are
considered
used for the purposes of purchasing or carrying
particular
assets, the purchase of shares may be considered to
have been
with borrowed funds even though the borrowed funds are
not
directly traceable to the purchase of shares.
Opinions relating to the validity of municipal
securities
and the exemption of interest thereon from Federal
income tax are
rendered by bond counsel to the issuers. The Funds,
MIMI, MFC
and their affiliates, and the Funds' counsel make no
review of
proceedings relating to the issuance of state or
municipal
securities and the bases of such opinions.
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 will be long-term or
short-term,
generally 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
as a long-
term capital loss to the extent of any distributions of
net
capital gains received or treated as having been
received by the
shareholder with respect to such shares. Any loss
realized by
shareholder on the redemption, sale or exchange of
shares of a
Fund with respect to which exempt-interest dividends
have been
paid will, to the extent of such exempt-interest
dividends, be
disallowed if such shares have been held by the
shareholder for
six months or less.
In some cases, shareholders will not be permitted
to take
sales charges into account for purposes of determining
the amount
of gain or loss realized on the disposition of their
stock. This
prohibition generally applies where (1) the shareholder
incurs a
sales charge in acquiring the stock of a Fund, (2) the
stock is
disposed of before the 91st day after the date on which
it was
acquired, and (3) the shareholder subsequently acquires
the stock
of the same or another Fund and the otherwise
applicable sales
charge is reduced under a "reinvestment right" received
upon the
initial purchase of regulated investment company
shares. The
term "reinvestment right" means any right to acquire
stock of one
or more Funds without the payment of a sales charge 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 stock acquired under the reinvestment right. This
provision
may be applied to successive acquisitions of Fund
shares.
BACKUP WITHHOLDING
Each Fund will be required to report to the IRS
all
distributions (other than exempt-interest dividends) as
well as
gross proceeds from the redemption of that Fund's
shares, except
in the case of certain exempt shareholders. All such
reportable
distributions and proceeds will be subject to
withholding of
Federal income tax at a rate of 31% ("backup
withholding") in the
case of non-exempt shareholders if (1) the shareholder
fails to
furnish the Fund with and to certify the shareholder's
correct
taxpayer identification number or social security
number; (2) the
IRS notifies the shareholder or the Fund that the
shareholder has
failed to report properly certain interest and dividend
income to
the IRS and to respond to notices to that effect; or
(3) when
required to do so, the shareholder fails to certify
that he or
she is not subject to backup withholding. If the
withholding
provisions are applicable, any such distributions or
proceeds,
whether reinvested in additional shares or taken in
cash, will be
reduced by the amounts required to be withheld.
OTHER TAXATION
The foregoing discussion relates only to U.S.
Federal income
tax law as applicable to U.S. persons (i.e., U.S.
citizens and
residents and U.S. corporations, partnerships, trusts
and
estates). Distributions by a Fund also may be subject
to state
and local taxes, and their treatment under state and
local income
tax laws may differ from the U.S. Federal income tax
treatment.
In certain states, Fund distributions that are derived
from
interest on obligations of that state or its
municipalities or
any political subdivisions thereof may be exempt from
state and
local taxes. Fund distributions that are derived from
interest
on obligations of the U.S. Government and certain of
its
agencies, authorities and instrumentalities also may be
exempt
from state and local taxes in certain states.
Shareholders
should consult their tax advisers with respect to
particular
questions of U.S. Federal, state and local taxation.
Persons who
may be "substantial users" (or "related persons" of
substantial
users) of facilities financed by industrial development
bonds
should consult their tax advisers before purchasing
shares of a
Fund. The term "substantial user" generally includes
any "non-
exempt person" who regularly uses in his or her trade
or business
a part of a facility financed by industrial development
bonds.
Generally, an individual will not be a "related person"
of a
substantial user under the Code unless the person or
his or her
immediate family owns directly or indirectly in the
aggregate
more than a 50% equity interest in the substantial
user.
Shareholders who are not U.S. persons should consult
their tax
advisers regarding U.S. and foreign tax consequences of
ownership
of shares of a Fund, including the likelihood that
distributions
to them would be subject to withholding of U.S. Federal
income
tax at a rate of 30% (or at a lower rate under a tax
treaty).
SPECIAL INFORMATION RELATING TO MACKENZIE CALIFORNIA
MUNICIPAL
FUND
Under California law, a mutual fund that qualifies
as a
regulated investment company generally must have at
least 50% of
its total assets in California state and local issues
or certain
U.S. Government obligations or a combination thereof at
the end
of each quarter of its taxable year in order to be
eligible to
pay dividends that will be exempt from California
personal income
tax. Generally, shareholders who are California
residents will
not incur California personal income tax on the amount
of
dividends received by them from Mackenzie California
Municipal
Fund that the Fund designates as California
exempt-interest
dividends derived from California state and local
issues or
certain U.S. Government obligations, whether taken in
cash or
reinvested in additional shares. Gain on the sale or
redemption
of Fund shares is subject to California personal income
tax.
Shareholders will normally be subject to California
personal
income tax on dividends paid from interest income
derived from
taxable securities and from securities issued by states
other
than California and its subsidiaries and on
distribution of net
capital gains.
SPECIAL INFORMATION RELATING TO MACKENZIE NEW YORK
MUNICIPAL FUND
Exempt-interest dividends, whether received by
shareholders
in cash or in additional shares, derived by New York
residents
from interest on qualifying New York bonds generally
are exempt
from New York State and New York City personal income
taxes, but
not corporate franchise taxes. Dividends and
distributions
derived from taxable income and capital gains are not
exempt from
New York State and New York City taxes. Interest on
indebtedness
incurred or continued by a shareholder to purchase or
carry
shares of the Fund is not deductible for New York State
or New
York City personal income tax purposes. Gain on the
sale or
redemption of Fund shares generally is subject to New
York State
and New York City personal income tax.
PERFORMANCE INFORMATION
Performance information for the separate classes
of shares
of a Fund may be compared, in reports and promotional
literature,
to: (i) the S&P 500 Index, Dow Jones Industrial
Average
("DJIA"), or other unmanaged indices so that investors
may
compare a 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 for administrative and management
costs and
expenses. Performance rankings are based on historical
information and are not intended to indicate future
performance.
In addition, the Trust may, from time to time,
include
various measures of a Fund's performance including the
current
yield, the tax-equivalent yield and the average annual
total
return of shares of the Funds in advertisements,
promotional
literature or reports to shareholders or prospective
investors.
Such materials may occasionally cite statistics to
reflect a
Fund's volatility or risk.
YIELD. Quotations of yield for a specific Class
of shares
of a Fund will be based on all investment income
attributable to
that Class earned during a particular 30-day (or one
month)
period (including dividends and interest), less
expenses
attributable to that Class accrued during the period
("net
investment income"), and will be computed by dividing
the net
investment income per share of that Class earned during
the
period by the maximum offering price per share (in the
case of
Class A shares) or the net asset value per share (in
the case of
Class B shares) on the last day of the period,
according to the
following formula:
YIELD = 2[({(a-b)/cd} + 1){superscript
6}-1]
Where: a = dividends and interest earned
during the
period attributable to a
specific Class
of shares,
b = expenses accrued for the
period
attributable to that Class
(net of
reimbursements),
c = the average daily number of
shares of
that Class outstanding during
the period
that were entitled to receive
dividends,
and
d = the maximum offering price per
share (in
the case of Class A shares) or
the net
asset value per share (in the
case of
Class B shares) on the last
day of the
period.
The yield for Class A and Class B shares of the
Funds for
the 30-day period ended June 30, 1995 were: Mackenzie
Limited
Term Municipal Fund -- 4.63% and 3.93%, respectively;
Mackenzie
California Municipal Fund -- 4.57% and 4.17%,
respectively;
Mackenzie National Municipal Fund -- 5.68% and 4.41%,
respectively; and Mackenzie New York Municipal Fund --
4.58% and
4.04%, respectively. The yield figures reflect
voluntary expense
reimbursements by MIMI. Without the voluntary
reimbursements,
the yield for Class A and Class B shares of each Fund
for the
same 30-day period would have been: Mackenzie Limited
Term
Municipal Fund -- 4.34% and 3.64%, respectively;
Mackenzie
California Municipal Fund -- 4.45% and 4.05%,
respectively;
Mackenzie National Municipal Fund -- 5.48% and 4.21%,
respectively; and Mackenzie New York Municipal Fund --
4.44% and
3.90%, respectively.
TAX-EQUIVALENT YIELD. Tax-equivalent yield for a
specific
Class of shares of a Fund is the net annualized taxable
yield
needed to produce a specified tax-exempt yield at a
given tax
rate based on a specified 30-day (or one month) period
assuming
semi-annual compounding of income. Tax-equivalent
yield is
calculated by dividing that portion of a Fund's yield
(as
computed in the yield description above) that is
tax-exempt by
one minus a stated income tax rate and adding the
product to that
portion, if any, of the yield of the Fund that is not
tax-exempt.
Thus, for example, for the thirty-day period ended
December 31,
1994, taxpayers with effective combined federal, state
and/or
city marginal income tax rates of 28% and 31% would
have had to
have earned (i) a taxable yield of 6.43 and 6.71% (or
6.03% and
6.29% without the voluntary reimbursements),
respectively, to
receive after-tax income equal to the 4.63% (or 4.34%
without the
voluntary reimbursements) tax-free yield of Class A
shares of
Mackenzie Limited Term Municipal Fund for that period;
(ii) a
taxable yield of 7.89% and 8.23% (or 7.61% and 7.94%
without the
voluntary reimbursements), respectively, to receive
after-tax
income equal to the 5.68% (or 5.48% without the
voluntary
reimbursements) tax-free yield of Class A shares of
Mackenzie
National Municipal Fund for that period; (iii) a
taxable yield of
6.35% and 6.62% (or 6.18% and 6.45% without the
voluntary
reimbursements), respectively, to receive after-tax
income equal
to the 4.57% (or 4.45% without the voluntary
reimbursements) tax-
free yield of Class A shares of Mackenzie California
Municipal
Fund for that period; and (iv) a taxable yield of 6.36%
and 6.64%
(or 6.17% and 6.43% without the voluntary
reimbursements),
respectively, to receive after-tax income equal to the
4.58% (or
4.44% without the voluntary reimbursements) tax-free
yield of
Class A shares of Mackenzie New York Municipal Fund for
that
period. For the thirty-day period ended December 31,
1994,
taxpayers with effective combined federal, state and/or
city
marginal income tax rates of 28% and 31% would have had
to have
earned (i) a taxable yield of 5.46 and 5.70% (or 5.06%
and 5.28%
without the voluntary reimbursements), respectively, to
receive
after-tax income equal to the 3.93% (or 3.64% without
the
voluntary reimbursements) tax-free yield of Class B
shares of
Mackenzie Limited Term Municipal Fund for that period;
(ii) a
taxable yield of 6.13% and 6.39% (or 5.85% and 6.10%
without the
voluntary reimbursements), respectively, to receive
after-tax
income equal to the 4.41% (or 4.21% without the
voluntary
reimbursements) tax-free yield of Class B shares of
Mackenzie
National Municipal Fund for that period; (iii) a
taxable yield of
5.79% and 6.04% (or 5.63% and 5.87% without the
voluntary
reimbursements), respectively, to receive after-tax
income equal
to the 4.17% (or 4.05% without the voluntary
reimbursements) tax-
free yield of Class B shares of Mackenzie California
Municipal
Fund for that period; and (iv) a taxable yield of 5.61%
and 5.86%
(or 5.42% and 5.65% without the voluntary
reimbursements),
respectively, to receive after-tax income equal to the
4.04% (or
3.90% without the voluntary reimbursements) tax-free
yield of
Class B shares of Mackenzie New York Municipal Fund for
that
period. For a more detailed explanation of
tax-equivalent
yields, see Appendix B of this SAI.
AVERAGE ANNUAL TOTAL RETURN. Quotations of
standardized
average annual total return ("Standardized Return") for
a
specific Class of shares of a Fund will be expressed in
terms of
the average annual compounded rate of return that would
cause a
hypothetical investment in that Class of a Fund made on
the first
day of a designated period to equal the ending
redeemable value
("ERV") of such hypothetical investment on the last day
of the
designated period, according to the following formula:
P (1 + T){superscript n} = ERV
Where: P = a hypothetical initial payment of
$1,000 to
purchase shares of a specific Class
T = the average annual total return of
shares of
that Class
n = the number of years
ERV = the ending redeemable value of a
hypothetical
$1,000 payment made at the
beginning of the
period.
For purposes of the above computation for a Fund,
it is
assumed that all dividends and capital gains
distributions made
by a Fund are reinvested at net asset value in
additional shares
of the same Class during the designated period. In
calculating
the ending redeemable value for Class A shares and
assuming
complete redemption at the end of the applicable
period, the
maximum 3.00% sales charge for Mackenzie Limited Term
Municipal
Fund, and the maximum 4.75% sales charge for Mackenzie
National
Municipal Fund, Mackenzie California Municipal Fund and
Mackenzie
New York Municipal Fund, is deducted from the initial
$1,000
payment and, for Class B shares, the applicable
contingent
deferred sales charge imposed upon redemption of Class
B shares
held for the period is deducted. Standardized Return
quotations
for the Funds do not take into account any required
payments for
federal or state income taxes. Standardized Return
quotations
for Class B shares for periods of over eight years will
reflect
conversion of the Class B shares to Class A shares at
the end of
the eighth year. Standardized Return quotations are
determined
to the nearest 1/100 of 1%.
A 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 contingent deferred sales charges are taken
into
account in calculating Non-Standardized Return; a sales
charge,
if deducted, would reduce the return.
The following tables summarize the calculation of
Standardized and Non-Standardized Return for the Class
A and
Class B shares of the Funds for the periods indicated.
In
determining the average annual total return for a
specific Class
of shares of a Fund, recurring fees, if any, that are
charged to
all shareholder accounts are taken into consideration.
For any
account fees that vary with the size of the account of
a Fund,
the account fee used for purposes of the following
computations
is assumed to be the fee that would be charged to the
mean
account size of the Fund. Shares of the Funds
outstanding as of
March 31, 1994 were designated Class A shares.
MACKENZIE LIMITED TERM MUNICIPAL FUND:
NON-STANDARDIZED
STANDARDIZED RETURN[*]
RETURN[**]
CLASS A[1] CLASS B[2] CLASS A[3]
CLASS B[4]
One year ended
June 30, 1995: 2.89% 0.54% 6.07%
5.54%
Inception to
June 30,
1995:[#] 4.44% 0.97% 5.26%
4.95%
_________________________
[*] The Standardized Return figures for Class A
shares
reflect the deduction of the maximum initial sales
charge of
3.00%. The Standardized Return figures for Class B
shares
reflect the deduction of the applicable contingent
deferred sales
charge imposed on a redemption of Class B shares held
for the
period.
[**] The Non-Standardized Return figures do not
reflect the
deduction of any initial or contingent deferred sales
charge.
[#] The commencement of operations for Mackenzie
Limited
Term Municipal Fund (formerly Limited Term Portfolio of
the Zweig
Tax-Free Fund, Inc.), and the Class A shares of that
Fund, was
April 22, 1985. From that date until August 2, 1991,
the fund
was managed by Zweig/Glaser Advisors. Effective August
2, 1991,
the Fund is being managed (with the same investment
objectives)
by MIMI, which date is the "inception" date for Class A
shares in
the above table. The inception date for Class B shares
of the
Fund was April 1, 1994.
[1] The Standardized Return figures for Class A
shares
reflect expense reimbursement. Without expense
reimbursement,
the Standardized Return for Class A shares for the one
year ended
June 30, 1995 and the period from inception through
June 30, 1995
would have been 2.60% and 4.15%, respectively.
[2] The Standardized Return figures for Class B
shares
reflect expense reimbursement. Without expense
reimbursement,
the Standardized Return for Class B shares for the one
year ended
June 30, 1995 and the period from inception through
June 30, 1995
would have been 0.26% and 0.66%, respectively.
[3] 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
ended June 30, 1995 and the period from inception
through June
30, 1995 would have been 5.77% and 4.96%, respectively.
[4] 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
ended June 30, 1995 and the period from inception
through June
30, 1995 would have been 5.25% and 4.62%, respectively.
MACKENZIE NATIONAL MUNICIPAL FUND:
NON-STANDARDIZED
STANDARDIZED RETURN[*]
RETURN[**]
CLASS A[1] CLASS B[2] CLASS A[3]
CLASS B[4]
One year ended
June 30, 1995: 2.12% 1.42% 7.21%
6.42%
Five years ended
June 30, 1995: 6.05% N/A 7.09%
N/A
Inception[#] to
June 30, 1995: 6.41% 2.40% 7.14%
5.57%
_________________________
[*] 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
shares
reflect the deduction of the applicable contingent
deferred sales
charge imposed on a redemption of Class B shares held
for the
period.
[**] The Non-Standardized Return figures do not
reflect the
deduction of any initial or contingent deferred sales
charge.
[#] The inception date for Mackenzie National
Municipal
Fund (and the Class A shares of the Fund) was April 15,
1988; the
inception date for the Class B shares of the Fund was
April 1,
1994.
[1] The Standardized Return figures for Class A
shares
reflect expense reimbursement. Without expense
reimbursement,
the Standardized Return for Class A shares for the one
year ended
June 30, 1995, the five years ended June 30, 1995 and
the period
from inception through June 30, 1995 would have been
1.92%, 5.77%
and 5.21%, respectively.
[2] The Standardized Return figures for Class B
shares
reflect expense reimbursement. Without expense
reimbursement,
the Standardized Return for Class B shares for the one
year ended
June 30, 1995 and the period from inception through
June 30, 1995
would have been 1.22% and 2.24%, respectively. (Since
the
inception date for Class B shares of the Fund was April
1, 1994,
there were no Class B shares outstanding for the
duration of the
five year period ending June 30, 1995.)
[3] 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
ended June 30, 1995, the five years ended June 30, 1995
and the
period from inception through June 30, 1995 would have
been
7.00%, 6.81% and 5.93%, respectively.
[4] 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
ended June 30, 1995 and the period from inception
through June
30, 1995 would have been 6.21% and 5.40%, respectively.
(Since
the inception date for Class B shares of the Fund was
April 1,
1994, there were no Class B shares outstanding for the
duration
of the five year period ending June 30, 1995.)
MACKENZIE CALIFORNIA MUNICIPAL FUND:
NON-STANDARDIZED
STANDARDIZED RETURN[*]
RETURN[**]
CLASS A[1] CLASS B[2] CLASS A[3]
CLASS B[4]
One year ended
June 30, 1995: 2.01% 1.30% 7.09%
6.30%
Five years ended
June 30, 1995: 6.08% N/A 7.11%
N/A
Inception[#] to
June 30, 1995: 6.81% 2.54% 7.54%
5.72%
_________________________
[*] 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
shares
reflect the deduction of the applicable contingent
deferred sales
charge imposed on a redemption of Class B shares held
for the
period.
[**] The Non-Standardized Return figures do not
reflect the
deduction of any initial or contingent deferred sales
charge.
[#] The inception date for Mackenzie National
Municipal
Fund (and the Class A shares of the Fund) was April 15,
1988; the
inception date for the Class B shares of the Fund was
April 1,
1994.
[1] The Standardized Return figures for Class A
shares
reflect expense reimbursement. Without expense
reimbursement,
the Standardized Return for Class A shares for the one
year ended
June 30, 1995, the five years ended June 30, 1995 and
the period
from inception through June 30, 1995 would have been
1.90%, 5.95%
and 5.81%, respectively.
[2] The Standardized Return figures for Class B
shares
reflect expense reimbursement. Without expense
reimbursement,
the Standardized Return for Class B shares for the one
year ended
June 30, 1995 and the period from inception through
June 30, 1995
would have been 1.20% and 2.45%, respectively. (Since
the
inception date for Class B shares of the Fund was April
1, 1994,
there were no Class B shares outstanding for the
duration of the
five year period ending June 30, 1995.)
[3] 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
ended June 30, 1995, the five years ended June 30, 1995
and the
period from inception through June 30, 1995 would have
been
6.99%,6.99% and 6.53%, respectively.
[4] 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
ended June 30, 1995 and the period from inception
through June
30, 1995 would have been 6.20% and 5.61%, respectively.
(Since
the inception date for Class B shares of the Fund was
April 1,
1994, there were no Class B shares outstanding for the
duration
of the five year period ending June 30, 1995.)
MACKENZIE NEW YORK MUNICIPAL FUND:
NON-STANDARDIZED
STANDARDIZED RETURN[*]
RETURN[**]
CLASS A[1] CLASS B[2] CLASS A[3]
CLASS B[4]
One year ended
June 30, 1995: 2.81% 2.14% 7.93%
7.14%
Five years ended
June 30, 1995: 6.54% N/A 7.58%
N/A
Inception[#] to
June 30, 1995: 6.69% 2.67% 7.42%
5.86%
_________________________
[*] 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
shares
reflect the deduction of the applicable contingent
deferred sales
charge imposed on a redemption of Class B shares held
for the
period.
[**] The Non-Standardized Return figures do not
reflect the
deduction of any initial or contingent deferred sales
charge.
[#] The inception date for Mackenzie National
Municipal
Fund (and the Class A shares of the Fund) was April 15,
1988; the
inception date for the Class B shares of the Fund was
April 1,
1994.
[1] The Standardized Return figures for Class A
shares
reflect expense reimbursement. Without expense
reimbursement,
the Standardized Return for Class A shares for the one
year ended
June 30, 1995, the five years ended June 30, 1995 and
the period
from inception through June 30, 1995 would have been
2.65%, 6.34%
and 5.70%, respectively.
[2] The Standardized Return figures for Class B
shares
reflect expense reimbursement. Without expense
reimbursement,
the Standardized Return for Class B shares for the one
year ended
June 30, 1995 and the period from inception through
June 30, 1995
would have been 2.00% and 2.54%, respectively. (Since
the
inception date for Class B shares of the Fund was April
1, 1994,
there were no Class B shares outstanding for the
duration of the
five year period ending June 30, 1995.)
[3] 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
ended June 30, 1995, the five years ended June 30, 1995
and the
period from inception through June 30, 1995 would have
been
7.77%, 7.38% and 6.42%, respectively.
[4] 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
ended June 30, 1995 and the period from inception
through June
30, 1995 would have been 7.00% and 5.71%, respectively.
(Since
the inception date for Class B shares of the Fund was
April 1,
1994, there were no Class B shares outstanding for the
duration
of the five year period ending June 30, 1995.)
CUMULATIVE TOTAL RETURN. Cumulative total return
is the
cumulative rate of return on a hypothetical initial
investment of
$1,000 in a specific Class of shares of the Fund for a
specified
period. Cumulative total return quotations reflect
changes in
the price of the Fund's shares and assume that all
dividends and
capital gains distributions during the period were
reinvested in
Fund shares. Cumulative total return is calculated by
computing
the cumulative rates of return of a hypothetical
investment in a
specific Class of shares of the Fund over such periods,
according
to the following formula (cumulative total return is
then
expressed as a percentage):
C = (ERV/P) - 1
Where: C = cumulative total return
P = a hypothetical initial investment
of $1,000
to purchase shares of a specific
Class
ERV = ending redeemable value: ERV is
the value,
at the end of the applicable
period, of a
hypothetical $1,000 investment made
at the
beginning of the applicable period.
MACKENZIE LIMITED TERM MUNICIPAL FUND. The
following table
summarizes the calculation of Cumulative Total Return
for the
periods indicated through June 30, 1995, assuming the
maximum
3.00% sales charge has been assessed.
SINCE
ONE YEAR INCEPTION[*]
Class A 2.89% 18.56%
Class B 0.54% 1.21%
The following table summarizes the calculation of
Cumulative
Total Return for the periods indicated through June 30,
1995,
assuming the maximum 3.00% sales charge has not been
assessed.
SINCE
ONE YEAR INCEPTION[*]
Class A 6.07% 22.23%
Class B 5.54% 6.21%
___________________________
[*] The inception date for Mackenzie Limited Term
Municipal Fund
(and the Class A shares of the Fund) was April 22,
1985; the
inception date for Class B shares of the Fund was
April 1,
1994. From commencement until August 2, 1991,
this fund
(formerly Limited Term Portfolio of the Zweig
Tax-Free Fund,
Inc.) was managed by Zweig/Glaser Advisors.
Effective
August 2, 1991, the Fund is being managed by MIMI
with the
same investment objectives.
MACKENZIE NATIONAL MUNICIPAL FUND. The following
table
summarizes the calculation of Cumulative Total Return
for the
periods indicated through June 30, 1995, assuming the
maximum
4.75% sales charge has been assessed.
SINCE
ONE YEAR FIVE YEARS
INCEPTION[*]
Class A 2.12% 34.17%
56.16%
Class B 1.42% N/A[**]
3.01%
The following table summarizes the calculation of
Cumulative
Total Return for the periods indicated through June 30,
1995,
assuming the maximum 4.75% sales charge has not been
assessed.
SINCE
ONE YEAR FIVE YEARS
INCEPTION[*]
Class A 7.21% 40.86%
63.95%
Class B 6.42% N/A[**]
7.01%
___________________________
[*] The inception date for Mackenzie National
Municipal Fund
(and the Class A shares of the Fund) was April 15,
1988; the
inception date for Class B shares of the Fund was
April 1,
1994.
[**] No Class B shares were outstanding for the
duration of the
time period indicated.
MACKENZIE CALIFORNIA MUNICIPAL FUND. The
following table
summarizes the calculation of Cumulative Total Return
for the
periods indicated through June 30, 1995, assuming the
maximum
4.75% sales charge has been assessed.
SINCE
ONE YEAR FIVE YEARS
INCEPTION[*]
Class A 2.01% 34.30%
60.36%
Class B 1.30% N/A[**]
3.18%
The following table summarizes the calculation of
Cumulative
Total Return for the periods indicated through June 30,
1995,
assuming the maximum 4.75% sales charge has not been
assessed.
SINCE
ONE YEAR FIVE YEARS
INCEPTION[*]
Class A 7.09% 41.00%
68.35%
Class B 6.30% N/A[**]
7.18%
___________________________
[*] The inception date for Mackenzie California
Municipal Fund
(and the Class A shares of the Fund) was April 15,
1988; the
inception date for Class B shares of the Fund was
April 1,
1994.
[**] No Class B shares were outstanding for the
duration of the
time period indicated.
MACKENZIE NEW YORK MUNICIPAL FUND. The following
table
summarizes the calculation of Cumulative Total Return
for the
periods indicated through June 30, 1995, assuming the
maximum
4.75% sales charge has been assessed.
SINCE
ONE YEAR FIVE YEARS
INCEPTION[*]
Class A 2.81% 37.28%
59.05%
Class B 2.14% N/A[**]
3.35%
The following table summarizes the calculation of
Cumulative
Total Return for the periods indicated through June 30,
1995,
assuming the maximum 4.75% sales charge has not been
assessed.
SINCE
ONE YEAR FIVE YEARS
INCEPTION[*]
Class A 7.93% 44.13%
66.99%
Class B 7.14% N/A[**]
7.35%
___________________________
[*] The inception date for Mackenzie New York
Municipal Fund
(and the Class A shares of the Fund) was April 15,
1988; the
inception date for Class B shares of the Fund was
April 1,
1994.
[**] No Class B shares were outstanding for the
duration of the
time period indicated.
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 a 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 a Fund's
shares with
information published for other investment companies
and other
investment vehicles. Performance quotations should
also be
considered relative to changes in the value of a Fund's
shares
and the risks associated with a 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.
0
The Funds may also cite endorsements or use for
comparison
their 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
Director
of Investment Managers, New York Times, Newsweek, No
Load Fund
Investor, No Load Fund* X, Oakland Tribune, Pension
World,
Pensions and Investment Age, Personal Investor, Rugg
and Steele,
Time, U.S. News and World Report, USA Today, The Wall
Street
Journal, and Washington Post.
FINANCIAL STATEMENTS
The Funds' Portfolios of Investments as of June
30, 1995,
Statements of Assets and Liabilities as of June 30,
1995,
Statements of Operations for the fiscal year ended June
30, 1995,
Statements of Changes in Net Assets for the fiscal year
ended
June 30, 1995 and the fiscal year ended June 30, 1994,
Financial
Highlights, Notes to Financial Statements, and Reports
of
Independent Accountants are included in each Fund's
June 30, 1995
Annual Report to Shareholders, which is incorporated by
reference
into this SAI. Copies of the Funds' financial
statements may be
obtained upon request and without charge from MIMI at
the address
and telephone number provided on the cover of this SAI.
APPENDIX A
DESCRIPTION OF STANDARD & POOR'S CORPORATION
("S&P") AND
MOODY'S INVESTORS SERVICE, INC. ("MOODY'S")
CORPORATE BOND,
COMMERCIAL PAPER AND MUNICIPAL OBLIGATIONS
RATINGS
[From "Moody's Bond Record," November 1994 Issue
(Moody's
Investor Service, New York, 1994), and "Standard &
Poor's
Municipal Ratings Handbook," October 1994 Issue (McGraw
Hill, New
York, 1994).]
(a) MOODY'S:
CORPORATE BONDS. Bonds rated Aaa by Moody's are
judged by
Moody's to be of the best quality, carrying the
smallest degree
of investment risk. Interest payments are protected by
a large
or exceptionally stable margin and principal is secure.
Bonds
rated Aa are judged by Moody's to be of high quality by
all
standards. Aa bonds are rated lower than Aaa bonds
because
margins of protection may not be as large as those of
Aaa bonds,
or fluctuations of protective elements may be of
greater
amplitude, or there may be other elements present which
make the
long-term risks appear somewhat larger than those
applicable to
Aaa securities. Bonds which are rated A by Moody's
possess many
favorable investment attributes and are considered as
upper
medium-grade obligations. Factors giving security to
principal
and interest are considered adequate, but elements may
be present
which suggest a susceptibility to impairment sometime
in the
future.
Bonds rated Baa by Moody's are considered
medium-grade
obligations, i.e., they are neither highly protected
nor poorly
secured. Interest payments and principal security
appear
adequate for the present, but certain protective
elements may be
lacking or may be characteristically unreliable over
any great
length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative
characteristics as
well. Bonds which are rated Ba are judged to have
speculative
elements; their future cannot be considered
well-assured. Often
the protection of interest and principal payments may
be very
moderate and thereby not well safeguarded during both
good and
bad times over the future. Uncertainty of position
characterizes
bonds in this class. Bonds which are rated B generally
lack
characteristics of the desirable investment. Assurance
of
interest and principal payments of or maintenance of
other terms
of the contract over any long period of time may be
small.
Bonds which are rated Caa are of poor standing.
Such
issues may be in default or there may be present
elements of
danger with respect to principal or interest. Bonds
which are
rated Ca represent obligations which are speculative in
a high
degree. Such issues are often in default or have other
marked
shortcomings. Bonds which are rated C are the lowest
rated class
of bonds and issues so rated can be regarded as having
extremely
poor prospects of ever attaining any real investment
standing.
COMMERCIAL PAPER. The Prime rating is the highest
commercial paper rating assigned by Moody's. Among the
factors
considered by Moody's in assigning ratings are the
following:
(1) evaluation of the management of the issuer; (2)
economic
evaluation of the issuer's industry or industries and
an
appraisal of speculative-type risks which may be
inherent in
certain areas; (3) evaluation of the issuer's products
in
relation to competition and customer acceptance; (4)
liquidity;
(5) amount and quality of long-term debt; (6) trend of
earnings
over a period of ten years; (7) financial strength of a
parent
company and the relationships which exist with the
issuer; and
(8) recognition by management of obligations which may
be present
or may arise as a result of public interest questions
and
preparations to meet such obligations. Issuers within
this Prime
category may be given ratings 1, 2 or 3, depending on
the
relative strengths of these factors. The designation
of Prime-1
indicates the highest quality repayment capacity of the
rated
issue.
(b) S&P:
CORPORATE BONDS. An S&P corporate debt rating is
a current
assessment of the creditworthiness of an obligor with
respect to
a specific obligation. The ratings are based on
current
information furnished by the issuer or obtained by S&P
from other
sources it considers reliable. The ratings described
below may
be modified by the addition of a plus or minus sign to
show
relative standing within the major rating categories.
Debt rated AAA by S&P is considered by S&P to be
the highest
grade obligation. Capacity to pay interest and repay
principal
is extremely strong. Debt rated AA is judged by S&P to
have a
very strong capacity to pay interest and repay
principal and
differs from the highest rated issues only in small
degree. Debt
rated A by S&P has a strong capacity to pay interest
and repay
principal, although it is somewhat more susceptible to
the
adverse effects of changes in circumstances and
economic
conditions than debt in higher rated categories.
Debt rated BBB by S&P is regarded by S&P as having
an
adequate capacity to pay interest and repay principal.
Although
such bonds normally exhibit adequate protection
parameters,
adverse economic conditions or changing circumstances
are more
likely to lead to a weakened capacity to pay interest
and repay
principal than debt in higher rated categories.
Debt rated BB, B, CCC, CC and C is regarded as
having
predominately speculative characteristics with respect
to
capacity to pay interest and repay principal. BB
indicates the
least degree of speculation and C the highest. While
such debt
will likely have some quality and protective
characteristics,
these are outweighed by large uncertainties or
exposures to
adverse conditions. Debt rated BB has less near-term
vulnerability to default than other speculative issues.
However,
it faces major ongoing uncertainties or exposure to
adverse
business, financial or economic conditions which could
lead to
inadequate capacity to meet timely interest and
principal
payments. The BB rating category is also used for debt
subordinated to senior debt that is assigned an actual
or implied
BBB- rating. Debt rated B has a greater vulnerability
to default
but currently has the capacity to meet interest
payments and
principal repayments. Adverse business, financial, or
economic
conditions will likely impair capacity or willingness
to pay
interest and repay principal. The B rating category is
also used
for debt subordinated to senior debt that is assigned
an actual
or implied BB or BB- rating. Debt rated CCC has a
currently
identifiable vulnerability to default, and is dependent
upon
favorable business, financial, and economic conditions
to meet
timely payment of interest and repayment of principal.
In the
event of adverse business, financial or economic
conditions, it
is not likely to have the capacity to pay interest and
repay
principal. The CCC rating category is also used for
debt
subordinated to senior debt that is assigned an actual
or implied
B or B- rating. The rating CC typically is applied to
debt
subordinated to senior debt which is assigned an actual
or
implied CCC debt rating. The rating C typically is
applied to
debt subordinated to senior debt which is assigned an
actual or
implied CCC- debt rating. The C rating may be used to
cover a
situation where a bankruptcy petition has been filed,
but debt
service payments are continued.
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.
Commercial paper rated A by S&P has the following
characteristics: (i) liquidity ratios are adequate to
meet cash
requirements; (ii) long-term senior debt rating should
be A or
better, although in some cases BBB credits may be
allowed if
other factors outweigh the BBB; (iii) the issuer should
have
access to at least one additional channel of borrowing;
(iv)
basic earnings and cash flow should have an upward
trend with
allowances made for unusual circumstances; and (v)
typically the
issuer's industry should be well established and the
issuer
should have a strong position within its industry and
the
reliability and quality of management should be
unquestioned.
Issues rated A are further referred to by use of
numbers 1, 2 and
3 to denote relative strength within this highest
classification.
For example, the A-1 designation indicates that the
degree of
safety regarding timely payment of debt is strong.
Issues rated B are regarded as having only
speculative
capacity for timely payment. The C rating is assigned
to short-
term debt obligations with a doubtful capacity for
payment.
II. MUNICIPAL OBLIGATIONS RATINGS
(a) MOODY'S:
Aaa
Bonds 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 edge." 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 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 risks appear somewhat larger than in
Aaa
securities.
A
Bonds 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
suscepti-
bility to impairment sometime in the future.
Baa
Bonds rated Baa are considered medium grade
obligations,
i.e., they are neither highly protected nor poorly
secured.
Interest payments and principal security appear
adequate for the
present, but certain protective elements may be lacking
or may be
characteristically unreliable over any great length of
time.
Such bonds lack outstanding investment characteristics
and in
fact have speculative characteristics as well.
Moody's letter ratings may be modified by the
addition of a
numerical modifier, which is used to show relative
standing
within the major rating categories, except in the Aaa
grade.
MIG Ratings: Moody's ratings for state and
municipal short-
term obligations will be designated Moody's Investment
Grade or
MIG. Such ratings recognize the differences between
short-term
credit risk and long-term risk. Factors affecting the
liquidity
of the borrower and short-term cyclical elements are
critical in
short-term ratings, while other factors of the major
importance
in bond risk, long-term secular trends for example, may
be less
important over the short run.
VMIG Ratings: A short-term rating may also be
assigned on
an issue having a demand feature. Such ratings will be
designated as VMIG or, if the demand feature is not
rated, as NR.
Short-term ratings on issues with demand features are
differentiated by the use of the VMIG symbol to reflect
such
characteristics as payment upon periodic demand rather
than fixed
maturity dates and payment relying on external
liquidity.
Additionally, investors should be alert to the fact
that the
source of payment may be limited to the external
liquidity with
no or limited legal recourse to the issuer in the event
the
demand is not met.
MIG 1/VMIG 1
This designation denotes best quality. There is
present
strong protection by established cash flows, superior
liquidity
support or demonstrated broad-based access to the
market for
refinancing.
MIG 2/VMIG 2
This designation denotes high quality. Margins of
protection are ample although not so large as in the
preceding
group.
MIG 3/VMIG 3
This designation denotes favorable quality. All
security
elements are accounted for but there is lacking the
undeniable
strength of the preceding grades. Liquidity and cash
flow
protection may be narrow and market access for
refinancing is
likely to be less well established.
MIG 4/VMIG 4
This designation denotes adequate quality.
Protection
commonly regarded as required of an investment security
is
present and although not distinctly or predominantly
speculative,
there is specific risk.
(b) S&P:
S&P's Municipal Bond Ratings cover obligations of
states and
political subdivisions. Ratings are assigned to
general
obligation and revenue bonds. General obligation bonds
are
usually secured by all resources available to the
municipality
and the factors outlined in the rating definitions
below are
weighted in determining the rating. Because revenue
bonds in
general are payable from specifically pledged revenues,
the
essential element in the security for a revenue bond is
the
quantity and quality of the pledged revenues available
to pay
debt service.
Although an appraisal of most of the same factors
that bear
on the quality of general obligation bond credit is
usually
appropriate in the rating analysis of a revenue bond,
other
factors are important, including particularly the
competitive
position of the municipal enterprise under review and
the basic
security covenants. Although a rating reflects S&P's
judgment as
to the issuer's capacity for the timely payment of debt
service,
in certain instances it may also reflect a mechanism or
procedure
for an assured and prompt cure of a default, should one
occur,
i.e., an insurance program, Federal or State guaranty,
or the
automatic withholding and use of State aid to pay the
defaulted
debt service.
AAA
PRIME -- These are obligations of the highest
quality. They
have the strongest capacity for timely payment of debt
service.
GENERAL OBLIGATION BONDS -- In a period of
economic stress,
the issuers will suffer the smallest declines in income
and will
be least susceptible to autonomous decline. Debt
burden is
moderate. A strong revenue structure appears more than
adequate
to meet future expenditure requirements. Quality of
management
appears superior.
REVENUE BONDS -- Debt service coverage has been,
and is
expected to remain, substantial. Stability of the
pledged
revenues is also exceptionally strong, due to the
competitive
position of the municipal enterprise or to the nature
of the
revenues. Basic security provisions (including rate
covenant,
earnings test for issuance of additional bonds, and
debt service
reserve requirements) are rigorous. There is evidence
of
superior management.
AA
HIGH GRADE -- The investment characteristics of
general
obligation and revenue bonds in this group differ in
only small
degrees from those of the prime quality issues. Bonds
rated "AA"
have the second strongest capacity for payment of debt
service.
GOOD GRADE -- Principal and interest payments on
bonds in
this category are regarded as safe. This rating
describes the
third strongest capacity for payment of debt service.
It differs
from the two higher ratings because:
GENERAL OBLIGATION BONDS -- There is some
weakness, either
in the local economic base, in debt burden, in the
balance
between revenues and expenditures, or in quality of
management.
Under certain adverse circumstances, any one such
weakness might
impair the ability of the issuer to meet debt
obligations at some
future date.
REVENUE BONDS -- Debt service coverage is good,
but not
exceptional. Stability of the pledged revenues could
show some
variations because of increased competition or economic
influences on revenues. Basic security provisions,
while
satisfactory, are less stringent. Management
performance appears
adequate.
BBB
Bonds rated BBB are regarded as having an adequate
capacity
to pay interest and repay principal. Whereas they
normally
exhibit adequate protection parameters, adverse
economic
conditions or changing circumstances are more likely to
lead to a
weakened capacity to pay interest and repay principal
for bonds
in this category than for bonds in higher rated
categories.
S&P's letter ratings may be modified by the
addition of a
plus or a minus sign, which is used to show relative
standing
within the major rating categories, except in the
AAA-Prime Grade
category.
SP-1
These notes show a very strong or strong capacity
to pay
principal and interest. Those issues with overwhelming
safety
characteristics will be given a plus (+) designation.
SP-2
These notes show a satisfactory capacity to pay
principal
and interest.
APPENDIX B
TAX-EXEMPT VS. TAXABLE INCOME
MACKENZIE NATIONAL MUNICIPAL FUND, MACKENZIE LIMITED
TERM
MUNICIPAL FUND
The following table illustrates the approximate taxable
yields
for individuals that are equivalent to various
tax-exempt yields,
based upon 1995 Federal income tax rates. The table
illustrates
the approximate yield you would have to earn on taxable
investments to equal a given tax-exempt yield in your
income tax
bracket. Locate your taxable income, then locate your
tax
bracket based on joint or single tax return filing.
Read across
to find the approximate equivalent taxable yield you
would need
to match a given tax-exempt yield. There is, of
course, no
assurance that an investment in a Fund will result in
the
realization of any particular return.
1995[*]
INCOME
TAXABLE INCOME TAX TAX-EXEMPT YIELD
OF:
BRACKET
Joint Single 5% 6%
7%
Return Return
$0-39,000 $0-23,350 15% 5.88% 7.06%
8.24%
$39,001- $23,351- 28 6.94 8.33
9.72
94,250 56,550
$94,251- $56,551- 31 7.25 8.70
10.14
143,600 117,950
$143,601- $117,951- 36 7.81 9.38
10.94
256,500 256,500
Over Over 39.6 8.28 9.93
11.59
$256,500 $256,500
INCOME
TAX
TAXABLE INCOME BRACKET TAX-EXEMPT YIELD
OF:
Joint Single 8% 9%
10%
Return Return
$0-39,000 $0-23,350 15% 9.41% 10.59%
11.76%
$39,001- $23,351- 28 11.11 12.50
13.89
94,250 56,550
$94,251- $56,551- 31 11.59 13.04
14.49
143,600 117,950
$143,601- $117,951- 36 12.50 14.06
15.63
256,500 256,500
Over Over 39.6 13.25 14.90
16.56
$256,500 $256,500
INCOME
TAXABLE INCOME TAX TAX-EXEMPT
BRACKET YIELD OF:
Joint Single 11% 12%
Return Return
$0-39,000 $0-23,350 15% 12.94% 14.12%
$39,001- $23,351- 28 15.28 16.67
94,250 56,550
$94,251- $56,551- 31 15.94 17.39
143,600 117,950
$143,601- $117,951- 36 17.19 18.75
256,500 256,500
Over Over 39.6 18.21 19.87
$256,500 $256,500
[*] This table does not purport to deal with a
shareholder's
particular situation. Shareholders are advised to
consult
their own tax advisor with respect to the
particular tax
consequences to them of an investment in a Fund.
This table
does not take into account any taxes other than
the regular
Federal income tax. This table reflects certain
assumptions, including: (i) the Federal
alternative minimum
tax is not applicable, and (ii) a shareholder has
no net
capital gain for the taxable year. Depending upon
the
circumstances, a shareholder's effective marginal
tax rate
may differ from his or her tax bracket rate. This
can be
attributable to a variety of factors, including
the phase
out of personal exemptions and the reduction of
certain
itemized deductions for taxpayers whose adjusted
gross
incomes exceed specified thresholds.
MACKENZIE CALIFORNIA MUNICIPAL FUND
The following table illustrates the approximate taxable
yields
for individuals that are equivalent to various
tax-exempt yields,
based upon combined 1995 Federal and 1994 California
income tax
rates. For cases in which two or more state or Federal
brackets
fall within a bracket shown, the highest state bracket
is
combined with the highest Federal bracket. The
combined Federal
and California income tax brackets shown reflect the
fact that
state income taxes are currently deductible as an
itemized
deduction for Federal tax purposes (however, a
taxpayer's
itemized deductions may be subject to an overall
limitation, the
effect of which has not been taken into account in
preparing this
table). The table illustrates the approximate yield
you would
have to earn on taxable investments to equal a given
tax-exempt
yield in your income tax bracket. Locate your taxable
income,
then locate your tax bracket based on joint or single
tax return
filing. Read across to find the approximate equivalent
taxable
yield you would need to match a given tax-exempt yield.
There
is, of course, no assurance that an investment in a
Fund will
result in the realization of any particular return.
1995[*]
INCOME
TAX
TAXABLE INCOME BRACKET TAX-EXEMPT YIELD
OF:
Joint Single 5% 6%
7%
Return Return
$0-39,000 $0-23,350 20.10% 6.26% 7.51%
8.76%
$39,001- $23,351- 34.70 7.66 9.19
10.72
94,250 56,550
$94,251- $56,551- 37.42 7.99 9.59
11.19
143,600 107,464
$143,601- $107,465- 42.40 8.68 10.42
12.15
256,500 214,929
Over Over 46.24 9.30 11.16
13.02
$256,500 $214,929
INCOME
TAXABLE INCOME TAX TAX-EXEMPT YIELD
OF:
BRACKET
Joint Single 8% 9%
10%
Return Return
$0-39,000 $0-23,350 20.10% 10.01% 11.26%
12.52%
$39,001- $23,351- 34.70 12.25 13.78
15.31
94,250 56,550
$94,251- $56,551- 37.42 12.78 14.38
15.98
143,600 107,464
$143,601- $107,465- 42.40 13.89 15.63
17.36
256,500 214,929
Over Over 46.24 14.88 16.74
18.60
$256,500 $214,929
INCOME
TAXABLE INCOME TAX TAX-EXEMPT
BRACKET YIELD OF:
Joint Single 11% 12%
Return Return
$0-39,000 $0-23,350 20.10% 13.77% 15.02%
$39,001- $23,351- 34.70 16.85 18.38
94,250 56,550
$94,251- $56,551- 37.42 17.58 19.18
143,600 107,464
$143,601- $107,465- 42.40 19.31 21.07
256,500 214,929
Over Over 46.24 20.46 22.32
$256,500 $214,929
[*] This table does not purport to deal with a
shareholder's
particular situation. Shareholders are advised to
consult
their own tax advisor with respect to the
particular tax
consequences to them of an investment in a Fund.
This table
does not take into account any taxes other than
the regular
Federal income tax and the regular California
personal
income tax. This table reflects certain
assumptions,
including: (i) there are no Federal or California
minimum
taxes applicable, and (ii) a shareholder has no
net capital
gain for the taxable year. In addition, this
table does not
reflect the fact that a shareholder's taxable
income for
Federal income tax purposes may not be the same as
the
shareholder's taxable income for California
personal income
tax purposes. Depending upon the circumstances, a
shareholder's effective marginal tax rate may
differ from
his or her tax bracket rate. This can be
attributable to a
variety of factors, including the Federal phase
out of
personal exemptions and reduction of certain
itemized
deductions for taxpayers whose adjusted gross
incomes exceed
specified thresholds.
MACKENZIE NEW YORK MUNICIPAL FUND
The following tables illustrate the approximate taxable
yields
for individuals that are equivalent to various
tax-exempt yields,
based upon, in the case of the first table, 1995
combined Federal
and New York State income tax rates and, in the case of
the
second table, 1995 combined Federal, New York State and
New York
City income tax rates. For cases in which two or more
state (or
city) brackets fall within a Federal bracket, the
highest state
(or city) bracket is combined with the Federal bracket.
The
combined income tax brackets shown reflect the fact
that city and
state income taxes are currently deductible as an
itemized
deduction for Federal tax purposes (however, a
taxpayer's
itemized deductions may be subject to an overall
limitation, the
effect of which has not been taken into account in
preparing
these tables). The tables illustrate the approximate
yield you
would have to earn on taxable investments to equal a
given tax-
exempt yield in your income tax bracket. Locate your
taxable
income, then locate your tax bracket based on joint or
single tax
return filing. Read across to find the approximate
equivalent
taxable yield you would need to match a given
tax-exempt yield.
There is, of course, no assurance that an investment in
a Fund
will result in the realization of any particular
return.
NEW YORK STATE
1995[*]
INCOME
TAX
TAXABLE INCOME BRACKET TAX-EXEMPT YIELD
OF:
Joint Single 5% 6%
7%
Return Return
$0-39,000 $0-23,350 21.45% 6.37% 7.64%
8.91%
$39,001- $23,351- 33.47 7.52 9.02
10.52
94,250 56,550
$94,251- $56,551- 36.24 7.84 9.41
10.98
143,600 117,950
$143,601- $117,951- 40.86 8.45 10.15
11.84
256,500 256,500
Over Over 44.19 8.96 10.75
12.54
$256,500 $256,500
INCOME
TAX
TAXABLE INCOME BRACKET TAX-EXEMPT YIELD
OF:
Joint Single 8% 9%
10%
Return Return
$0-39,000 $0-23,350 21.45% 10.18% 11.46%
12.73%
$39,001- $23,351- 33.47 12.02 13.53
15.03
94,250 56,550
$94,251- $56,551- 36.24 12.55 14.12
15.68
143,600 117,950
$143,601- $117,951- 40.86 13.53 15.22
16.91
256,500 256,500
Over Over 44.19 14.33 16.13
17.92
$256,500 $256,500
INCOME
TAXABLE INCOME TAX TAX-EXEMPT
BRACKET YIELD OF:
Joint Single 11% 12%
Return Return
$0-39,000 $0-23,350 21.45% 14.00% 15.28%
$39,001- $23,351- 33.47 16.53 18.04
94,250 56,550
$94,251- $56,551- 36.24 17.25 18.82
143,600 117,950
$143,601- $117,951- 40.86 18.60 20.29
256,500 256,500
Over Over 44.19 19.71 21.50
$256,500 $256,500
[*] This table does not purport to deal with a
shareholder's
particular situation. Shareholders are advised to
consult
their own tax advisor with respect to the
particular tax
consequences to them of an investment in a Fund.
This table
does not take into account: (i) any taxes other
than the
regular Federal income tax and the regular New
York State
personal income tax, or (ii) the New York State
tax table
benefit recapture tax. This table reflects
certain
assumptions, including: (i) there are no Federal
or New
York State minimum taxes applicable, and (ii) a
shareholder
has no net capital gain for the taxable year. In
addition,
this table does not reflect the fact that a
shareholder's
taxable income for Federal income tax purposes may
not be
the same as the shareholder's taxable income for
New York
State income tax purposes. Depending upon the
circumstances, a shareholder's effective marginal
tax rate
may differ from his or her tax bracket rate. This
can be
attributable to a variety of factors, including
the Federal
phase out of personal exemptions and reduction of
certain
itemized deductions for taxpayers whose adjusted
gross
incomes exceed specified thresholds.
NEW YORK STATE AND CITY
1995[*]
INCOME
TAX
TAXABLE INCOME BRACKET TAX-EXEMPT YIELD
OF:
Joint Single 5% 6%
7%
Return Return
$0-39,000 $0-23,350 25.19% 6.68% 8.02%
9.36%
$39,001- $23,351- 36.64 7.89 9.47
11.05
94,250 56,550
$94,251- $56,551- 39.32 8.24 9.89
11.54
143,600 117,950
$143,601- $117,951- 43.71 8.88 10.66
12.44
256,500 256,500
Over Over 46.88 9.41 11.30
13.18
$256,500 $256,500
INCOME
TAX
TAXABLE INCOME BRACKET TAX-EXEMPT YIELD
OF:
Joint Single 8% 9%
10%
Return Return
$0-39,000 $0-23,350 25.19% 10.69% 12.03%
13.37%
$39,001- $23,351- 36.64 12.63 14.20
15.78
94,250 56,550
94,251- 56,551- 39.32 13.18 14.83
16.48
143,600 117,950
$143,601- $117,951- 43.71 14.21 15.99
17.77
256,500 256,500
Over Over 46.88 15.06 16.94
18.83
$256,500 $256,500
INCOME
TAX TAX-EXEMPT
TAXABLE INCOME BRACKET YIELD OF:
Joint Single 11% 12%
Return Return
$0-39,000 $0-23,350 25.19% 14.70% 16.04%
$39,001- $23,351- 36.64 17.36 18.94
94,250 56,550
$94,251- $56,551- 39.32 18.13 19.78
143,600 117,950
$143,601- $117,951- 43.71 19.54 21.32
256,500 256,500
Over Over 46.88 20.71 22.59
$256,500 $256,500
[*] This table does not purport to deal with a
shareholder's
particular situation. Shareholders are advised to
consult
their own tax advisor with respect to the
particular tax
consequences to them of an investment in a Fund.
This table
does not take into account: (i) any taxes other
than the
regular Federal income tax, the regular New York
State
personal income tax, and the regular New York City
personal
income tax (including the temporary tax surcharge
and the
additional tax), or (ii) the New York State tax
table
benefit recapture tax. This table reflects
certain
assumptions, including: (i) there are no Federal,
state, or
city minimum taxes applicable, and (ii) a
shareholder has no
net capital gain for the taxable year. In
addition, this
table does not reflect the fact that a
shareholder's taxable
income for Federal income tax purposes may not be
the same
as the shareholder's taxable income for state and
city tax
purposes. Depending upon the circumstances, a
shareholder's
effective marginal tax rate may differ from his or
her tax
bracket rate. This can be attributable to a
variety of
factors, including the Federal phase out of
personal
exemptions and reduction of certain itemized
deductions for
taxpayers whose adjusted gross incomes exceed
specified
thresholds.
