<PAGE> 1
June 30, 1997
MACKENZIE
Mackenzie
California
Municipal
Fund
- ---------
Annual
Report
- ---------
This report and the
financial statements
contained herein are
submitted for the general
information of the
shareholders. This report
is not authorized for
distribution to prospective
investors unless preceded or
accompanied by an effective
prospectus.
Mackenzie Investment
Management Inc.
Via Mizner Financial
Plaza
700 South Federal Hwy.
Boca Raton, FL 33432
1-800-456-5111
THROUGHOUT THE
CENTURIES,
THE CASTLE KEEP HAS
BEEN A SOURCE
OF LONG-RANGE VISION
AND STRATEGIC
ADVANTAGE.
Market Commentary:
After the Federal Reserve Board raised interest rates 0.25% in March,
municipal bond investors became wary of future rate hikes, as the Federal
Reserve has historically continued to raise rates after an initial increase.
Additionally, after the first quarter surge of the US dollar versus the Japanese
yen, investors were concerned that a subsequent depreciation in the value of the
dollar could put upward pressure on US interest rates.
However, the second quarter of the year was reminiscent of the last half of
1996 -- economic expansion with few signs of inflation or wage pressures.
Foreign purchases of US Treasury securities were at record levels, up 181% from
1996 levels, which pushed bond prices even higher. This was primarily due to
higher yields in the US compared to yields in Europe, and in particular, Japan.
The foreign purchases led to increased demand for US dollars, which pushed the
dollar higher versus foreign currencies. For US consumers, a strong dollar
spurred demand for cheaper foreign goods, which may be attributed to the fact
that there has been little domestic price pressure.
By the end of the second quarter, consumer spending had dramatically slowed
- -- evidenced by a modest rise in retail sales of 0.3% in March, followed by a
decline of 0.1% in May. In addition, the unemployment rate increased to 5% in
June, up from 4.8%. As a result, anxiety over additional interest rate hikes
abated and, as we expected, there have been no further rate hikes.
During the second quarter of the year, the municipal bond market generally
tracked the government bond market, but saw increased yield compression due to
the scarcity of bonds. Within this environment, the Mackenzie California
Municipal Fund performed well, although it did slightly underperform its
relative benchmark. For the twelve months ended June 30, 1997 the Fund's total
return was 7.92% on a net asset value basis as compared to the average of all
California Municipal Debt Funds as tracked by Lipper Analytical Services, Inc.,
which was up 8.07% for the same period. (For the Fund's total return with sales
charge and performance commentary, please refer to the following page.)
We would like to take this opportunity to thank you for your support of the
Mackenzie California Municipal Fund and hope that you will consider the Ivy
Funds for your future equity needs.
Mackenzie Investment Management Inc.
BOARD OF TRUSTEES
John S. Anderegg, Jr.
Paul H. Broyhill
Keith J. Carlson
Stanley Channick
Frank W. DeFriece, Jr.
Roy J. Glauber
Michael G. Landry
Joseph G. Rosenthal
J. Brendan Swan
OFFICERS
Michael G. Landry, Chairman
Keith J. Carlson, President
C. William Ferris, Secretary/Treasurer
LEGAL COUNSEL
Dechert Price & Rhoads
Boston, MA
CUSTODIAN
Brown Brothers Harriman & Co.
Boston, MA
TRANSFER AGENT
Ivy Mackenzie
Services Corp.
P.O. Box 3022
Boca Raton, FL 33431-0922
1-800-777-6472
AUDITORS
Coopers & Lybrand L.L.P.
Fort Lauderdale, FL
INVESTMENT MANAGER
Mackenzie Investment
Management Inc.
700 South Federal Highway
Boca Raton, FL 33432
1-800-456-5111
DISTRIBUTOR
Ivy Mackenzie Distributors, Inc.
700 South Federal Highway
Boca Raton, FL 33432
1-800-456-5111
[IVY MACKENZIE LOGO]
<PAGE> 2
PERFORMANCE COMMENTARY
For the twelve months ended June 30, 1997, the Mackenzie California Municipal
Fund reported a total return of 7.92% without sales charges. This compares to
the average of all California Municipal Debt Funds tracked by Lipper Analytical
Services, Inc., which was up 8.07%. The Fund's slight underperformance relative
to its peer group is attributed to the overall composition of the Fund versus
the funds that comprise the Lipper average.
PERFORMANCE COMPARISON OF A $10,000
INVESTMENT SINCE INCEPTION OF THE FUND
[GRAPH]
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
MACKENZIE CALIFORNIA MUNICIPAL FUND
FOR PERIOD ENDED 6/30/97
Class A*-with sales charge
Average Annual Class B**
Total Return Average Annual Total Return
------------------------------------------------------
w/Reimb. w/o w/Reimb. w/o Reimb.
Reimb.
------------------------------------------------------
w/CDSC w/o CDSC w/CDSC w/o CDSC
------------------------------------
1 Yr. 2.79% 2.49% 2.21% 7.21% 1.89% 6.89%
------------------------------------------------------------------------
5 Yr. 5.11% 4.95% -- -- -- --
------------------------------------------------------------------------
Since Inception 6.79% 5.95% 5.44% 5.85% 5.23% 5.64%
------------------------------------------------------------------------
</TABLE>
*Class A performance figures include the maximum sales charge of 4.75%.
**Class B performance figures are calculated with and without the applicable
Contingent Deferred Sales Charge (CDSC) up to a maximum of 5%.
All figures mentioned in the Market Commentary and in the chart and table
reflect past results and assume reinvestment of dividends and distributions from
capital gains. Future results will, of course, be different. The principal value
of the Mackenzie California Municipal Fund will fluctuate and at redemption may
be worth more or less than the amount of the original investment.
The Lehman Bros. 5-Year Municipal Bond Index is an unmanaged index of municipal
bonds that assumes reinvestment of dividends and, unlike Fund returns, does not
reflect any fees or expenses.
Please note that Treasury Bills are short-term interest bearing instruments
which are guaranteed as to timely payment of principal and interest by the U.S.
Government.
Performance is calculated for Class A shares of the Fund unless otherwise noted.
Because Class B shares bear the expense of a higher distribution fee it is
expected that the level of performance of the Fund 's Class B shares will be
lower than that of the Fund 's Class A shares.
Total returns in some periods were higher due to reimbursement of the Fund 's
expenses. See Financial Highlights.
- --------------------------------------------------------------------------------
<PAGE> 3
PORTFOLIO OF INVESTMENTS
JUNE 30, 1997
<TABLE>
<CAPTION>
(UNAUDITED)
RATINGS
- -------------------
MOODY'S/S&P MUNICIPAL BONDS AND NOTES -- 96.8% PRINCIPAL VALUE
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NR BBB- Adelanto California Public Financing Authority, 6.30%,
09/01/28.................................................. $1,000,000 $ 995,000
A3 A- Bakersfield California Hospital Revenue, 6.50%, 01/01/22.... 2,000,000 2,052,500
Baa BBB+ Berkeley California Health Facilities Revenue, 6.55%,
12/01/22.................................................. 1,000,000 1,035,000
NR A- California Health Facilities Authority (Downey Community),
5.30%, 05/15/04........................................... 500,000 504,375
NR A+ California Health Facilities Authority (Pacific Presbyterian
Medical Center), 7.00%, 06/01/99
(Pre-refunded)............................................ 250,000 267,813
Aa AA- California Housing Finance Authority, 6.90%, 08/01/16....... 95,000 96,069
A2 A+ California Pollution Control Financing Authority, 6.85%,
12/01/08.................................................. 500,000 531,875
A2 A+ California Pollution Control Financing Authority, 7.20%,
09/01/15.................................................. 5,000 5,072
A1 A California State (GO)(NC), 6.75%, 05/01/02.................. 300,000 329,250
A1 A California State (GO)(NC), 9.50%, 05/01/03.................. 500,000 623,125
A1 A+ California State (GO)(NC), 9.50%, 02/01/10.................. 1,000,000 1,400,000
A1 A- California State Public Works Revenue, 7.375%, 04/01/06..... 5,000 5,513
A A- California State Public Works Revenue (NC), 8.35%,
12/01/99.................................................. 500,000 543,125
NR NR Costa Mesa City Hall, 7.50%, 10/01/97 (Pre-refunded)........ 50,000 50,456
Baa BBB Duarte California City of Hope National Medical Center
Certificate of Participation, 6.25%, 04/01/23............. 1,000,000 1,012,500
Aaa NR Fontana Redevelopment Agency, 8.00%, 09/01/98
(Pre-refunded)............................................ 20,000 21,300
Baa BBB- Foothill/Eastern Transportation Corridor Agency, California
Toll Road Revenue (NC), 0.00%, 01/01/18................... 750,000 214,687
Baa BBB- Foothill/Eastern Transportation Corridor Agency, California
Toll Road Revenue (NC), 0.00%, 01/01/24................... 1,000,000 196,250
Baa BBB- Foothill/Eastern Transportation Corridor Agency, California
Toll Road Revenue (NC), 6.00%, 01/01/34................... 500,000 503,125
NR BBB Guam Government (GO), 5.90%, 09/01/05....................... 200,000 202,750
NR BBB Guam Government (GO), 5.375%, 11/15/13...................... 500,000 468,750
NR BBB Guam Power Authority Revenue, 6.625%, 10/01/14.............. 450,000 473,063
NR BBB Hawaiian Gardens California Redevelopment Agency, 0.00%,
12/01/16.................................................. 1,000,000 278,750
NR BBB Inglewood California Redevelopment Agency, 6.125%,
7/01/23................................................... 500,000 503,125
NR A+ Irvine Ranch Water District Power Agency, 7.80%, 02/15/08... 25,000 25,525
Baa NR Irwindale California Community Redevelopment Agency, 6.60%,
08/01/18.................................................. 1,000,000 1,043,750
Aaa AAA Kern High School District (GO)(NC), 9.00%, 08/01/06......... 680,000 896,750
A NR Kern High School District (GO)(NC), 7.00%, 08/01/10......... 165,000 195,731
Aaa AAA Los Angeles Convention & Exhibition Center, 9.00%, 12/01/05
(Pre-refunded)............................................ 5,000 6,494
A A Los Angeles County Certificate of Participation
(Correctional Facility Improvements), 6.90%, 03/01/01..... 500,000 526,250
Baa1 A- Los Angeles County Certificate of Participation (Disney
Parking Project) (NC), 0.00%, 09/01/03.................... 250,000 179,375
Aa AA Los Angeles Department of Water & Power, 7.625%, 08/01/97... 20,000 20,658
Aa AA- Los Angeles Department of Water & Power, 9.00%, 09/01/04.... 500,000 615,625
NR AAA Los Angeles Harbor Department Revenue (ETM), 7.60%,
10/01/18.................................................. 205,000 255,737
NR AAA Los Angeles State Building Authority, 7.50%, 03/01/98
(Pre-refunded)............................................ 5,000 5,220
Aaa AAA Los Angeles Waste Water System Revenue (NC)(MBIA Insured),
8.80%, 06/01/00........................................... 500,000 560,625
NR AAA Morgan Hill California Redevelopment Agency (FHA Insured),
6.45%, 12/01/27........................................... 1,000,000 1,043,750
A A- Northern California Power Agency (NC), 5.65%, 07/01/07...... 700,000 721,875
Aaa AAA Oakland Redevelopment Agency (AMBAC Insured), 7.40%,
05/01/07.................................................. 100,000 104,433
Aaa AAA Palomar Pomerado California Health System (NC)(MBIA
Insured), 0.00%, 11/01/03................................. 500,000 368,750
Aa NR Piedmont Unified School District (GO), 0.00%, 08/01/13...... 1,000,000 392,500
Aaa AAA Pleasanton Unified School District (GO)(MBIA Insured),
0.00%, 08/01/16........................................... 1,000,000 336,250
Baa1 A Puerto Rico Commonwealth (GO)(NC), 0.00%, 07/01/04.......... 500,000 356,250
Baa1 A Puerto Rico Electric Power Authority Power Revenue, 6.80%,
07/01/00.................................................. 300,000 316,875
NR BBB- Puerto Rico Electric Power Authority Power Revenue, 5.00%,
07/01/12.................................................. 500,000 470,000
Aaa AAA Rancho Cucamonga Redevelopment Agency (FGIC Insured), 7.70%,
05/01/98 (Pre-refunded)................................... 35,000 36,125
NR A Richmond California Joint Powers Financing Authority
Revenue, 5.20%, 05/15/05.................................. 500,000 506,250
Aaa AAA Salinas California Redevelopment Agency (CGIC Insured),
0.00%, 11/01/22........................................... 2,000,000 455,000
Aa3 A+ San Diego Industrial Development Revenue (San Diego Gas &
Electric), 7.875%, 08/01/97
(Pre-refunded)............................................ 35,000 35,810
Aaa AAA Santa Clara Certificate of Participation (NC)(MBIA Insured),
7.75%, 02/01/02........................................... 500,000 566,250
NR AAA Santa Clara County Certificate of Participation (American
Baptist Homes), 8.00%, 03/01/98
(Pre-refunded)............................................ 20,000 20,944
NR A+ Santa Clara Electric Revenue, 7.80%, 07/01/10............... 35,000 36,091
A1 A+ Santa Cruz Hospital Revenue (Dominican), 7.00%, 12/01/13.... 100,000 102,636
NR A Santa Rosa Insured Revenue (Episcopal Homes) (CA Mortgage
Insurance), 7.125%, 06/01/14.............................. 250,000 255,947
NR BBB Snowline Joint Unified School District Certificate of
Participation, 7.25%, 04/01/18............................ 750,000 802,500
A A Southern California Public Power Authority, 6.75%,
07/01/01.................................................. 250,000 268,125
Aa A+ Southern California Public Power Authority (NC), 0.00%,
07/01/15.................................................. 2,000,000 700,000
NR BBB Tracy Certificates of Participation (I-205 Improvement),
7.00%, 10/01/27........................................... 1,000,000 1,046,250
Aaa AAA University of California Housing System Revenue (NC)(MBIA
Insured), 8.00%, 11/01/00................................. 500,000 556,875
Aaa AAA Walnut Valley Unified School District (AMBAC
Insured)(GO)(NC), 9.00%, 08/01/06......................... 800,000 1,042,000
</TABLE>
(See Notes to Financial Statements)
<PAGE> 4
PORTFOLIO OF INVESTMENTS (CONTINUED)
JUNE 30, 1997
<TABLE>
<CAPTION>
(UNAUDITED)
RATINGS
- -------------------
MOODY'S/S&P MUNICIPAL BONDS AND NOTES -- 96.8% PRINCIPAL VALUE
<S> <C> <C> <C> <C>
Aaa AAA Walnut Valley Unified School District (MBIA
Insured)(GO)(NC), 8.75%, 08/01/10......................... $1,000,000 $ 1,335,000
Baa1 NR Yuba City Unified School District Certificate of
Participation (Andros Karperos School), 6.70%, 02/01/13... 650,000 667,875
-----------
TOTAL INVESTMENTS -- 96.8%
(Cost -- $27,735,675)*...................................... 29,189,574
OTHER ASSETS, LESS LIABILITIES -- 3.2%...................... 963,468
-----------
NET ASSETS -- 100%.......................................... $30,153,042
===========
*Cost is approximately the same for Federal income tax
purposes.
OTHER INFORMATION:
At June 30, 1997, net unrealized appreciation based on cost
for financial statement and Federal income tax purposes is
as follows:
Gross unrealized appreciation........................................... $ 1,511,097
Gross unrealized depreciation........................................... (57,198)
-----------
Net unrealized appreciation............................................. $ 1,453,899
===========
Purchases and sales of municipal securities aggregated $5,176,959 and
$9,406,105, respectively, for the period ended June 30, 1997.
AMBAC - AMBAC Indemnity Corporation
CGIC - Capital Guaranty Insurance Company
ETM - Escrowed to Maturity
FGIC - Federal Guaranty Insurance Company
FHA - Federal Housing Authority
GO - General Obligation
MBIA - Municipal Bond Insurance Association
NC - Non Callable
</TABLE>
(See Notes to Financial Statements)
<PAGE> 5
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1997
<TABLE>
<S> <C>
ASSETS
Investments, at value (identified cost -- $27,735,675)...... $29,189,574
Cash........................................................ 823,229
Receivables
Interest.................................................. 510,188
Manager for expense reimbursement......................... 8,805
Other assets................................................ 7,151
-----------
Total assets.............................................. 30,538,947
-----------
LIABILITIES
Payables
Investments purchased..................................... 342,190
Management fee............................................ 13,748
12b-1 service and distribution fees....................... 7,190
Other payables to related parties......................... 6,832
Accrued expenses............................................ 15,945
-----------
Total liabilities......................................... 385,905
-----------
NET ASSETS.................................................. $30,153,042
===========
CLASS A
Net asset value and redemption price per share
($29,039,750/2,822,092 shares outstanding)................ $ 10.29
===========
Maximum offering price per share ($10.29 X 100/95.25)*...... $ 10.80
===========
CLASS B
Net asset value, offering price and redemption price** per
share ($1,113,292/108,232 shares outstanding)............. $ 10.29
===========
NET ASSETS CONSIST OF
Capital paid-in........................................... $28,491,772
Undistributed net realized gain........................... 101,906
Undistributed net investment income....................... 105,465
Net unrealized appreciation............................... 1,453,899
-----------
NET ASSETS.................................................. $30,153,042
===========
</TABLE>
* On sales of more than $100,000 the offering price is reduced.
** Subject to a maximum contingent deferred sales charge of 5%.
(See Notes to Financial Statements)
<PAGE> 6
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1997
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest.................................................. $1,965,796
----------
EXPENSES
Management fee............................................ $176,304
Transfer agent............................................ 27,592
Administrative services fee............................... 32,055
Custodian fees............................................ 3,073
Blue Sky fees............................................. 16,331
Auditing and accounting fees.............................. 40,873
Shareholder reports....................................... 2,395
Fund accounting........................................... 29,056
Trustees' fees............................................ 4,990
12b-1 service and distribution fees....................... 89,207
Legal..................................................... 18,247
Other..................................................... 8,243
----------
448,366
Expenses reimbursed by manager............................ (86,621)
----------
Net expenses............................................ 361,745
----------
NET INVESTMENT INCOME....................................... 1,604,051
----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain......................................... 263,287
Net unrealized appreciation during the period............. 596,963
----------
Net gain on investments................................. 860,250
----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $2,464,301
==========
</TABLE>
(See Notes to Financial Statements)
<PAGE> 7
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
DECREASE IN NET ASSETS
Operations
Net investment income..................................... $ 1,604,051 $ 1,928,681
Net realized gain on investments.......................... 263,287 935,504
Net unrealized appreciation (depreciation) during the
period on investments................................... 596,963 (778,289)
------------ ------------
Net increase resulting from operations.................. 2,464,301 2,085,896
------------ ------------
Class A distributions
From net investment income................................ (1,497,856) (1,815,075)
From net realized gain.................................... (253,927) --
In excess of net realized gain............................ (131,812) --
------------ ------------
Total distributions to Class A shareholders............. (1,883,595) (1,815,075)
------------ ------------
Class B distributions
From net investment income................................ (49,320) (46,329)
From net realized gain.................................... (9,360) --
In excess of net realized gain............................ (4,859) --
------------ ------------
Total distributions to Class B shareholders............. (63,539) (46,329)
------------ ------------
Fund share transactions (Note 6)
Class A................................................. (4,062,699) (6,579,399)
Class B................................................. (39,728) 136,933
------------ ------------
Net decrease resulting from Fund share transactions..... (4,102,427) (6,442,466)
------------ ------------
TOTAL DECREASE IN NET ASSETS................................ (3,585,260) (6,217,974)
NET ASSETS
Beginning of period....................................... 33,738,302 39,956,276
------------ ------------
END OF PERIOD............................................. $ 30,153,042 $ 33,738,302
============ ============
UNDISTRIBUTED NET INVESTMENT INCOME......................... $ 105,465 $ 48,590
============ ============
</TABLE>
(See Notes to Financial Statements)
<PAGE> 8
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A
FOR THE YEAR ENDED JUNE 30,
-----------------------------------------------------------
1997 1996 1995 1994 1993
SELECTED PER SHARE DATA ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period........................ $ 10.13 $ 10.08 $ 9.91 $ 10.44 $ 10.29
------- ------- ------- ------- -------
Income from investment operations
Net investment income(a).................................. .51 .52 .49 .59 .58
Net realized and unrealized gain (loss)
on investment transactions.............................. .26 .03 .19 (.48) .35
------- ------- ------- ------- -------
Total from investment operations........................ .77 .55 .68 .11 .93
------- ------- ------- ------- -------
Less distributions
From net investment income................................ .49 .50 .49 .59 .60
In excess of net investment income........................ -- -- .02 -- --
From net realized gain.................................... .08 -- -- .05 .18
In excess of net realized gain............................ .04 -- -- -- --
------- ------- ------- ------- -------
Total distributions..................................... .61 .50 .51 .64 .78
------- ------- ------- ------- -------
Net asset value, end of period.............................. $ 10.29 $ 10.13 $ 10.08 $ 9.91 $ 10.44
======= ======= ======= ======= =======
Total return(%)(b).......................................... 7.92 5.52 7.09 .82 9.55
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $29,040 $32,604 $38,963 $41,423 $47,493
Ratio of expenses to average net assets(c)
With expense reimbursement(%)............................. 1.10 1.10 1.10 1.10 1.10
Without expense reimbursement(%).......................... 1.37 1.29 1.22 1.18 1.20
Ratio of net investment income to average net
assets(%)(a).............................................. 5.03 5.08 4.94 5.65 5.80
Portfolio turnover rate(%).................................. 17 34 81 26 91
</TABLE>
(See Notes to Financial Statements)
<PAGE> 9
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
FOR THE PERIOD
APRIL 1, 1994
CLASS B (COMMENCEMENT)
FOR THE YEAR ENDED JUNE 30, TO JUNE 30,
------------------------------ --------------
1997 1996 1995 1994
SELECTED PER SHARE DATA ------ ------ ------ --------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period........................ $10.12 $10.08 $ 9.91 $9.97
------ ------ ------ -----
Income from investment operations
Net investment income(a).................................. .43 .45 .43 .11
Net realized and unrealized gain (loss)
on investment transactions.............................. .28 .02 .17 (.03)
------ ------ ------ -----
Total from investment operations........................ .71 .47 .60 .08
------ ------ ------ -----
Less distributions
From net investment income................................ .42 .43 .43 .11
From net realized gain.................................... .08 -- -- .03
In excess of net realized gain............................ .04 -- -- --
------ ------ ------ -----
Total distributions..................................... .54 .43 .43 .14
------ ------ ------ -----
Net asset value, end of period.............................. $10.29 $10.12 $10.08 $9.91
====== ====== ====== =====
Total return(%)............................................. 7.21(b) 4.70(b) 6.30(b) .82(e)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $1,113 $1,135 $ 993 $ 114
Ratio of expenses to average net assets(c)
With expense reimbursement(%)............................. 1.86 1.87 1.85 1.85(d)
Without expense reimbursement(%).......................... 2.13 2.04 1.97 1.93(d)
Ratio of net investment income to average net
assets(%)(a).............................................. 4.27 4.33 4.19 4.90(d)
Portfolio turnover rate(%).................................. 17 34 81 26
</TABLE>
(a) Net investment income is net of expenses reimbursed by
manager.
(b) Total return does not reflect a sales charge.
(c) Beginning in July 1995, total expenses include fees paid
indirectly through an expense offset arrangement, if any.
(d) Annualized.
Total return represents aggregate total return and does not
(e) reflect a sales charge.
(See Notes to Financial Statements)
<PAGE> 10
NOTES TO FINANCIAL STATEMENTS
Mackenzie California Municipal Fund (the Fund) is a diversified series of
shares of Mackenzie
Series Trust. The shares of beneficial interest are $.001 par value and an
unlimited number of shares of Class A and Class B are authorized. Mackenzie
Series Trust was organized as a Massachusetts business trust under a Declaration
of Trust dated April 22, 1985 and is registered under the Investment Company Act
of 1940, as amended, as an open-end management investment company.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
Preparation of the financial statements includes the use of management
estimates. Actual results could differ from those estimates.
SECURITY VALUATION -- Municipal securities are valued utilizing primarily
the latest bid prices or, if bid prices are not available, on the basis of a
matrix pricing system (which considers factors such as coupon interest rate,
maturity, credit rating and market indicies), both as furnished by an
independent pricing service approved by the Board of Trustees (the Board).
SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Security transactions are
accounted for on the trade date. Interest income is accrued on a daily basis.
Realized gains and losses from security transactions are calculated on an
identified cost basis.
FEDERAL INCOME TAXES -- The Fund intends to qualify for tax treatment
applicable to regulated investment companies under the Internal Revenue Code, as
amended, and distribute all of its investment income and net realized capital
gain to its shareholders. Therefore, no provision has been recorded for Federal
income or excise taxes.
DISTRIBUTIONS TO SHAREHOLDERS -- Normally, distributions from net
investment income are declared monthly, and net realized capital gains, if any,
are declared semi-annually.
For the Fund's taxable year ended June 30, 1997, 100% of distributions paid
from net investment income were exempt interest dividends for Federal income tax
purposes. Pursuant to Section 852 of the Internal Revenue Code, the Fund
designates $399,958 as capital gain dividends for its taxable year ended June
30, 1997.
RECLASSIFICATIONS -- The timing and characterization of certain income and
net capital gain distributions are determined annually in accordance with
Federal tax regulations which may differ from generally accepted accounting
principles. These differences primarily relate to certain securities sold at a
loss. As a result, Net realized gain (loss) on investments for a reporting
period may differ significantly in amount and character from distributions
during such period. Accordingly, the Fund may make reclassifications among
certain of its capital accounts without impacting the net asset value of the
Fund.
FEES PAID INDIRECTLY -- The Fund has an arrangement whereby a certain
percentage of quarterly cumulative credits resulting from cash balances on
deposit with the custodian are used to offset custody fees, including
transaction and out-of-pocket expenses. For the year ended June 30, 1997,
custody fees were not reduced under this arrangement.
2. RELATED PARTIES
Mackenzie Investment Management Inc. (MIMI) is the Manager and Investment
Adviser of the Fund. For its services, MIMI receives a fee monthly at the annual
rate of .55% of the Fund's average net assets.
Currently, MIMI voluntarily limits the Fund's total operating expenses
(excluding taxes, 12b-1 fees, brokerage commissions, interest, litigation and
indemnification expenses, and other extraordinary expenses) to an annual rate of
.85% of its average net assets. The voluntary expense limitation may be
terminated or revised at any time.
MIMI also provides certain administrative, accounting and pricing services
for the Fund. For those services, the Fund pays MIMI fees plus certain
out-of-pocket expenses. Such fees and expenses are reflected as Administrative
services fee and Fund accounting in the Statement of Operations.
Ivy Mackenzie Distributors, Inc. (IMDI), a wholly owned subsidiary of MIMI,
is the underwriter and distributor of the Fund's shares, and as such, purchases
shares from the Fund at net asset value to settle orders from investment
dealers. For the year ended June 30, 1997, the net amount of underwriting
discount retained by IMDI was $2,404.
Under Service and Distribution Plans, the Fund reimburses IMDI for service
fee payments made to brokers at an annual rate not to exceed .25% of its average
net asset value. Class B shares are also subject to an ongoing distribution fee
at an annual rate of .75% of the average net asset value attributable to Class B
shares. IMDI may use such distribution fee for purposes of advertising and
marketing shares of the Fund. Such fees of $77,143 and $12,064 for Class A and
Class B, respectively, are reflected as 12b-1 service and distribution fees in
the Statement of Operations.
<PAGE> 11
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Ivy Mackenzie Services Corp. (IMSC), a wholly owned subsidiary of MIMI, is
the transfer and shareholder servicing agent for the Fund. For those services,
the Fund pays a monthly fee plus certain out-of-pocket expenses. Such fees and
expenses of $26,443 and $1,149 for Class A and Class B, respectively, are
reflected as Transfer agent in the Statement of Operations.
3. BOARD'S COMPENSATION
Trustees who are not affiliated with MIMI receive compensation from the
Fund, which is reflected as Trustees' fees in the Statement of Operations.
4. CONCENTRATION OF CREDIT RISK
The Fund primarily invests in debt obligations issued by the State of
California and its political subdivisions, agencies and public authorities to
obtain funds for various public purposes. The Fund is more susceptible to
factors adversely affecting issuers of California securities than is a municipal
bond fund that is not concentrated in these issuers to the same extent.
5. PROPOSED REORGANIZATION
Pursuant to a plan of reorganization adopted by the Board and subject to
the approval of the Fund's shareholders, the net assets of the Fund are expected
to be acquired by Thornburg Limited Term Municipal Fund -- California Portfolio
(a series of shares of Thornburg Limited Term Municipal Fund, Inc.) in early
September, 1997.
6. FUND SHARE TRANSACTIONS
Fund share transactions for both Class A and Class B were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1997 JUNE 30, 1996
---------------------- ----------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
------- -------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Sold.......................... 78,375 $ 786,774 119,552 $ 1,214,729
Issued on reinvestment of
distributions................ 98,652 997,563 86,484 880,926
Repurchased................... (574,887) (5,847,036) (851,457) (8,675,054)
-------- ----------- -------- -----------
Net decrease.................. (397,860) $(4,062,699) (645,421) $(6,579,399)
======== =========== ======== ===========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1997 JUNE 30, 1996
---------------------- ----------------------
CLASS B* SHARES AMOUNT SHARES AMOUNT
-------- -------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Sold.......................... 15,727 $ 159,200 18,173 $ 185,487
Issued on reinvestment of
distributions................ 5,422 54,863 3,777 38,474
Repurchased................... (25,046) (253,791) (8,394) (87,028)
-------- ----------- -------- -----------
Net increase (decrease)....... (3,897) $ (39,728) 13,556 $ 136,933
======== =========== ======== ===========
</TABLE>
* Effective June 20, 1997, Class B shares are no longer offered for sale.
<PAGE> 12
REPORT OF INDEPENDENT ACCOUNTANTS
To The Shareholders and Board of Trustees of
Mackenzie California Municipal Fund (the Fund)
We have audited the accompanying statement of assets and liabilities of the
Fund, including the portfolio of investments, as of June 30, 1997, and the
related statement of operations for the year then ended, the statement of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the periods indicated. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of June
30, 1997, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of the
Fund as of June 30, 1997, the results of its operations for the year then ended,
the changes in its net assets for each of the two years in the period then
ended, and the financial highlights for each of the periods indicated, in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Fort Lauderdale, Florida
August 8, 1997
<PAGE> 13
June 30, 1997
MACKENZIE
MACKENZIE
LIMITED TERM
MUNICIPAL
FUND
- ---------
ANNUAL
REPORT
- ---------
This report and the
financial statements
contained herein are
submitted for the general
information of the
shareholders. This report
is not authorized for
distribution to prospective
investors unless preceded or
accompanied by an effective
prospectus.
Mackenzie Investment
Management Inc.
Via Mizner Financial
Plaza
700 South Federal Hwy.
Boca Raton, FL 33432
1-800-456-5111
[GRAPHIC]
THROUGHOUT THE
CENTURIES,
THE CASTLE KEEP HAS
BEEN A SOURCE
OF LONG-RANGE VISION
AND STRATEGIC
ADVANTAGE.
MARKET COMMENTARY:
After the Federal Reserve Board raised interest rates 0.25% in March,
municipal bond investors became wary of future rate hikes, as the Federal
Reserve has historically continued to raise rates after an initial increase.
Additionally, after the first quarter surge of the US dollar versus the
Japanese yen, investors were concerned that a subsequent depreciation in the
value of the dollar could put upward pressure on US interest rates.
However, the second quarter of the year was reminiscent of the last half
of 1996 -- economic expansion with few signs of inflation or wage pressures.
Foreign purchases of US Treasury securities were at record levels, up 181% from
1996 levels, which pushed bond prices even higher. This was primarily due to
higher yields in the US compared to yields in Europe, and in particular, Japan.
The foreign purchases led to increased demand for US dollars, which pushed the
dollar higher versus foreign currencies. For US consumers, a strong dollar
spurred demand for cheaper foreign goods, which may be attributed to the fact
that there has been little domestic price pressure.
By the end of the second quarter, consumer spending had dramatically
slowed -- evidenced by a modest rise in retail sales of 0.3% in March, followed
by a decline of 0.1% in May. In addition, the unemployment rate increased to 5%
in June, up from 4.8%. As a result, anxiety over additional interest rate hikes
abated and, as we expected, there have been no further rate hikes.
During the second quarter of the year, the municipal bond market generally
tracked the government bond market, but saw increased yield compression due to
the scarcity of bonds. Within this environment, the Mackenzie Limited Term
Municipal Fund performed well, although it did underperform its relative
benchmark. For the twelve months ended June 30, 1997 the Fund's total return
was 5.64% on a net asset value basis as compared to the average of all
Intermediate Municipal Debt Funds as tracked by Lipper Analytical Services,
Inc., which was up 6.55% for the same period. (For the Fund's total return with
sales charge and performance commentary, please refer to the following page.)
We would like to take this opportunity to thank you for your support of
the Mackenzie Limited Term Municipal Fund and hope that you will consider the
Ivy Funds for your future equity needs.
MACKENZIE INVESTMENT MANAGEMENT INC.
BOARD OF TRUSTEES
John S. Anderegg, Jr.
Paul H. Broyhill
Keith J. Carlson
Stanley Channick
Frank W. DeFriece, Jr.
Roy J. Glauber
Michael G. Landry
Joseph G. Rosenthal
J. Brendan Swan
OFFICERS
Michael G. Landry, Chairman
Keith J. Carlson, President
C. William Ferris,
Secretary/Treasurer
LEGAL COUNSEL
Dechert Price & Rhoads
Boston, MA
CUSTODIAN
Brown Brothers Harriman & Co.
Boston, MA
TRANSFER AGENT
Ivy Mackenzie
Services Corp.
P.O. Box 3022
Boca Raton, FL 33431-0922
1-800-777-6472
AUDITORS
Coopers & Lybrand L.L.P.
Fort Lauderdale, FL
INVESTMENT MANAGER
Mackenzie Investment Management Inc.
700 South Federal Highway
Boca Raton, FL 33432
1-800-456-5111
DISTRIBUTOR
Ivy Mackenzie Distributors, Inc.
700 South Federal Highway
Boca Raton, FL 33432
1-800-456-5111
[IVY MACKENZIE LOGO]
<PAGE> 14
PERFORMANCE COMMENTARY
For the twelve months ended June 30, 1997, the Mackenzie Limited Term Municipal
Fund reported a total return of 5.64% without sales charges. This compares to
the average of all Intermediate Municipal Debt Funds tracked by Lipper
Analytical Services, Inc., which was up 6.55%. The Fund's underperformance
relative to its peer group is attributed to the overall composition of the Fund
versus the funds that comprise the Lipper average.
PERFORMANCE COMPARISON OF A $10,000
INVESTMENT SINCE INCEPTION OF THE FUND+
[CHART]
+Previous periods during which the Fund was advised by Zweig/Glaser Advisors
are not shown.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
------------------------------------------------------------------
MACKENZIE LIMITED TERM MUNICIPAL FUND
FOR PERIOD ENDED 6/30/97
Class A*-with sales charge
Average Annual Class B**
Total Return Average Annual Total Return
------------------------------------------------------
w/Reimb. w/o w/Reimb. w/o Reimb.
Reimb.
------------------------------------------------------
w/CDSC w/o CDSC w/CDSC w/o CDSC
------------------------------------
1 Yr. 2.47% 2.07% 2.02% 5.02% 1.61% 4.61%
------------------------------------------------------------------------
5 Yr. 4.28% 3.96% -- -- -- --
------------------------------------------------------------------------
Since Inception 4.64% 4.32% 4.25% 4.67% 3.84% 4.26%
------------------------------------------------------------------------
</TABLE>
*Class A performance figures include the maximum sales charge of 3.00%.
**Class B performance figures are calculated with and without the applicable
Contingent Deferred Sales Charge (CDSC) up to a maximum of 3%.
All figures mentioned in the Market Commentary and in the chart and table
reflect past results and assume reinvestment of dividends and distributions from
capital gains. Future results will, of course, be different. The principal value
of the Mackenzie Limited Term Municipal Fund will fluctuate and at redemption
may be worth more or less than the amount of the original investment.
The Lehman Bros. 5-Year Municipal Bond Index is an unmanaged index of municipal
bonds that assumes reinvestment of dividends and, unlike Fund returns, does not
reflect any fees or expenses.
Please note that Treasury Bills are short-term interest bearing instruments
which are guaranteed as to timely payment of principal and interest by the U.S.
Government.
Performance is calculated for Class A shares of the Fund unless otherwise noted.
Because Class B shares bear the expense of a higher distribution fee it is
expected that the level of performance of the Fund 's Class B shares will be
lower than that of the Fund 's Class A shares.
Total returns in some periods were higher due to reimbursement of the Fund 's
expenses. See Financial Highlights.
- --------------------------------------------------------------------------------
<PAGE> 15
PORTFOLIO OF INVESTMENTS
JUNE 30, 1997
<TABLE>
<CAPTION>
(UNAUDITED)
RATINGS
- -------------------
MOODY'S/S&P MUNICIPAL BONDS AND NOTES -- 98.1% PRINCIPAL VALUE
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ALABAMA -- 1.8%
A2 NR Huntsville Alabama Ind. Rev. (TRW Inc. Project), 12.75%,
08/01/02.................................................... $1,000,000 $ 1,005,550
-----------
ALASKA -- 6.2%
Aaa AAA North Slope Boro Alaska (GO)(NC)(MBIA Insured), 0.00%,
01/01/01.................................................... 4,000,000 3,395,000
-----------
ARIZONA -- 5.0%
Baa1 A Maricopa County Arizona School District (GO)(NC), 0.00%,
07/01/00.................................................... 500,000 435,625
Baa1 A Maricopa County Arizona School District (GO)(NC), 0.00%,
01/01/01.................................................... 750,000 635,625
Baa1 A Maricopa County Arizona School District (GO)(NC), 5.60%,
07/01/03.................................................... 500,000 511,875
Aa AA- Maricopa County Arizona Unified School District (GO)(NC),
7.75%, 07/01/03............................................. 1,000,000 1,158,750
-----------
2,741,875
-----------
CALIFORNIA -- 16.1%
A1 A+ California State (GO)(NC), 6.75%, 05/01/02.................. 200,000 219,500
A1 A California State (GO)(NC), 9.25%, 03/01/05.................. 350,000 449,750
A1 AA- Clovis Unified School Series B (GO)(NC), 0.00%, 08/01/02.... 1,000,000 780,000
Aa AA- Los Angeles Dept. of Water & Power (NC), 9.00%, 02/01/02.... 500,000 585,000
Aa AA Los Angeles Dept. of Water & Power (NC), 9.00%, 09/01/04.... 500,000 615,625
Aaa AAA Palomar Pomerado Health System (NC)(MBIA Insured), 0.00%,
11/01/03.................................................... 500,000 368,750
NR A- Pomona California Public Financing Authority (NC), 5.625%,
10/01/03.................................................... 500,000 511,875
NR A- Redwood City California Public Financing Authority, 7.10%.
07/15/01.................................................... 750,000 813,750
A BBB+ San Francisco California Port Revenue (NC), 9.00%,
07/01/03.................................................... 1,000,000 1,202,500
Aaa AAA Santa Clara Certificate of Participation (NC)(MBIA Insured),
7.75%. 02/01/02............................................. 500,000 566,250
A A Southern California Public Power Authority, 6.75%,
07/01/01.................................................... 750,000 804,375
Aa NR University of California Certificate of Participation (NC),
10.00%, 11/01/03............................................ 1,500,000 1,931,250
-----------
8,848,625
-----------
COLORADO -- 1.1%
Baa1 NR El Paso County Colorado School District (GO)(NC), 8.25%,
12/15/04.................................................... 500,000 602,500
-----------
CONNECTICUT -- 1.1%
Baa BBB New Haven Connecticut (GO)(NC), 9.50%, 11/15/03............. 500,000 604,375
-----------
FLORIDA -- 9.3%
NR AA East Lee County Florida Water Control District (NC) (Asset
Guaranty Insured), 5.50%, 11/01/03.......................... 200,000 206,500
Aaa AAA Hillsborough County Florida Utility (MBIA Insured), 9.75%,
12/01/03.................................................... 150,000 180,563
Aaa AAA Jacksonville Port Authority Revenue (NC)(MBIA Insured),
7.625%, 11/01/02............................................ 550,000 628,375
Aaa AAA Jacksonville Port Authority Revenue (NC)(MBIA Insured),
7.625%, 11/01/03............................................ 1,000,000 1,160,000
Aaa AAA Pasco County Florida School Board Certificate of
Participation (NC)(FSA Insured), 6.10%, 08/01/01............ 250,000 265,625
Aaa AAA Volusia County School Board (NC)(FSA Insured), 10.00%,
08/01/00.................................................... 2,300,000 2,650,750
-----------
5,091,813
-----------
GEORGIA -- 1.0%
A1 A+ Savannah Georgia Resource Recovery Authority, 5.95%,
12/01/02.................................................... 500,000 526,875
-----------
GUAM -- 1.5%
NR BBB Guam Government (GO), 5.90%, 09/01/05....................... 800,000 811,000
-----------
HAWAII -- 1.0%
Aa AA Honolulu City & County (GO)(NC), 7.25%, 07/01/00............ 500,000 538,750
-----------
IDAHO -- 1.3%
NR BBB+ Boise Idaho Urban Renewal Agency Parking Revenue, 6.00%,
09/01/02.................................................... 700,000 724,500
-----------
ILLINOIS -- 3.3%
A A- Illinois Health Facilities Authority -- Illinois Masonic
Medical Center, 5.20%, 10/01/03............................. 500,000 497,500
Aaa AAA Metropolitan Pier & Exposition Authority Illinois (NC) (MBIA
Insured), 0.00%, 12/15/01................................... 500,000 406,875
Aaa AAA Will & Kendall Counties Illinois School District (GO)(AMBAC
Insured), 5.45%, 01/01/05................................... 900,000 920,250
-----------
1,824,625
-----------
IOWA -- 1.1%
Aaa AAA Muscatine Iowa Electric (ETM), 9.50%, 01/01/04.............. 500,000 593,750
-----------
LOUISIANA -- 1.9%
A3 A Louisiana State Offshore Terminal Authority (NC), 6.25%,
09/01/04.................................................... 1,000,000 1,072,500
-----------
MASSACHUSETTS -- 1.0%
A A+ Massachusetts (GO), 6.50%, 07/01/02......................... 500,000 541,875
-----------
MINNESOTA -- 1.0%
NR BBB+ Minneapolis Minnesota Community Development, 7.00%,
12/01/03.................................................... 500,000 530,000
-----------
MISSISSIPPI -- 1.9%
NR A- Mississippi Medical Center Educational Building Corporation,
University of Mississippi Medical Center Project (NC),
7.00%, 12/01/00............................................. 1,000,000 1,061,250
-----------
</TABLE>
(See Notes to Financial Statements)
<PAGE> 16
PORTFOLIO OF INVESTMENTS
JUNE 30, 1997
<TABLE>
<CAPTION>
(UNAUDITED)
RATINGS
- -------------------
MOODY'S/S&P MUNICIPAL BONDS AND NOTES -- 98.1% PRINCIPAL VALUE
<S> <C> <C> <C> <C>
NEW HAMPSHIRE -- 0.6%
Aa AA New Hampshire State (GO)(NC), 0.00%, 07/01/04............... $ 500,000 $ 359,375
-----------
NEW YORK -- 5.1%
Baa1 A- New York City (GO)(NC), Series A, 7.00%, 08/01/03........... 500,000 548,125
Baa1 A- New York City (GO)(NC), Series D, 5.70%, 08/01/02........... 750,000 773,438
Baa BBB- New York City Health & Hospital Corporation Revenue, 6.00%,
02/15/05.................................................... 250,000 255,000
Aa NR New York State Medical Care Facilities Financing Agency
(SONYMA Insured), 6.00%, 11/15/02........................... 995,000 1,059,675
NR BBB+ New York State Municipal Bond Bank Agency -- Buffalo Series
A, 6.875%, 03/15/06......................................... 150,000 160,688
-----------
2,796,926
-----------
NORTH CAROLINA -- 1.7%
NR A- Gastonia North Carolina Housing Corporation, 5.75%,
07/01/04.................................................... 870,000 915,675
-----------
OREGON -- 0.6%
Aa AA- Oregon State (GO)(NC), 9.00%, 10/01/00...................... 300,000 342,000
-----------
PENNSYLVANIA -- 3.8%
A NR New Castle PA Area Hospital Authority, 6.20, 11/15/02....... 450,000 473,625
Aaa AAA Pennsylvania Higher Ed. Series A (NC)(FGIC Insured), 6.80%,
12/01/00.................................................... 1,000,000 1,063,750
Aa3 AA- Southeastern Pennsylvania Transportation Authority (NC),
6.00%, 06/01/01............................................. 500,000 526,250
-----------
2,063,625
-----------
PUERTO RICO -- 2.3%
Baa1 A- Puerto Rico Electric Power Authority Power Revenue, 6.80%,
07/01/00.................................................... 200,000 211,250
Baa1 A- Puerto Rico Municipal Finance Agency (GO), 5.70%,
07/01/03.................................................... 1,000,000 1,043,750
-----------
1,255,000
-----------
RHODE ISLAND -- 9.0%
Aaa AAA Rhode Island Clean Water (NC)(MBIA Insured), 9.20%,
10/01/01.................................................... 1,385,000 1,629,106
Aaa AAA Rhode Island Clean Water (NC)(MBIA Insured), 9.20%,
10/01/02.................................................... 1,400,000 1,692,250
A NR Rhode Island State Student Loan Authority, 6.55%,
12/01/00.................................................... 1,500,000 1,593,750
-----------
4,915,106
-----------
SOUTH CAROLINA -- 0.6%
Aaa AAA Edgefield County Central School District (GO)(NC)(FSA
Insured), 8.50%, 02/01/02................................... 300,000 349,125
-----------
TEXAS -- 13.0%
A A- Austin Texas Water Sewer & Electric, 14.00%, 11/15/99....... 965,000 1,202,631
A A- Austin Texas Water Sewer & Electric, 14.00%, 11/15/99
(Pre-refunded).............................................. 20,000 24,075
A A- Austin Texas Water Sewer & Electric (NC)(ETM) 14.00%,
11/15/01.................................................... 15,000 17,381
Aaa AAA Denton County Texas (GO)(MBIA Insured), 7.75%, 07/15/02..... 1,000,000 1,141,250
Aa3 AA Harris County Texas Health Facs. Dev. (NC), 6.80%, 07/01/01
(Pre-refunded).............................................. 500,000 550,000
A A- Harris County Texas Health Facs. Dev. (NC), 6.90%,
06/01/02.................................................... 1,000,000 1,100,000
Aaa AAA Houston Texas Water Conveyance Cert. Series F (NC)(AMBAC
Insured), 7.20%, 12/15/02................................... 1,000,000 1,122,500
Aaa AAA Irving Texas Independent School District (GO)(NC)(PSFG
Insured), 0.00%, 02/15/02................................... 2,000,000 1,607,500
Aaa AAA Irving Texas Independent School District (GO)(NC)(PSFG
Insured), 0.00%, 02/15/04................................... 500,000 363,125
-----------
7,128,462
-----------
UTAH -- 1.8%
Baa BBB+ Davis County Utah Solid Waste Management and Recovery
Revenue, 5.90%, 06/15/03.................................... 1,000,000 1,010,000
-----------
WASHINGTON -- 4.0%
Aaa AAA Jefferson County Washington Public Hospital (GO)(NC)(FGIC
Insured), 7.50%, 12/01/02................................... 500,000 580,000
Aaa AAA Jefferson County Washington Public Hospital (GO)(NC)(FGIC
Insured), 7.50%, 12/01/03................................... 500,000 571,875
NR AA- Washington State Health Care Facilties Authority (NC),
6.20%, 02/15/01............................................. 500,000 525,625
Aaa AAA Washington State Public Power Supply, 7.50%, 07/01/99
(Pre-refunded).............................................. 485,000 524,406
-----------
2,201,906
-----------
TOTAL INVESTMENTS -- 98.1%
(Cost -- $53,347,711)*...................................... 53,852,063
OTHER ASSETS, LESS LIABILITIES -- 1.9%...................... 1,058,916
-----------
NET ASSETS -- 100%.......................................... $54,910,979
===========
*Cost for Federal income tax purposes is $53,111,876.
</TABLE>
(See Notes to Financial Statements)
<PAGE> 17
PORTFOLIO OF INVESTMENTS
JUNE 30, 1997
<TABLE>
<S> <C> <C>
OTHER INFORMATION:
At June 30, 1997, net unrealized appreciation based on cost
for Federal income tax purposes is as follows:
Gross unrealized appreciation........................................... $ 1,057,910
Gross unrealized depreciation........................................... (317,723)
-----------
Net unrealized appreciation............................................. $ 740,187
===========
Purchases and sales of municipal securities aggregated
$6,110,638 and $22,190,988, respectively, for the period
ended June 30, 1997.
AMBAC - AMBAC Indemnity Corporation
ETM - Escrowed to Maturity
FGIC - Financial Guaranty Insurance Company
FSA - Financial Security Association
GO - General Obligation
MBIA - Municipal Bond Insurance Association
NC - Non Callable
PSFG - Permanent School Fund Guaranty
SONYMA - State of New York Mortgage Agency
</TABLE>
(See Notes to Financial Statements)
<PAGE> 18
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1997
<TABLE>
<S> <C>
ASSETS
Investments, at value (identified cost -- $53,347,711)...... $53,852,063
Cash........................................................ 265,728
Receivables
Interest.................................................. 896,291
Manager for expense reimbursement......................... 20,471
Other assets................................................ 10,833
-----------
Total assets.............................................. 55,045,386
-----------
LIABILITIES
Payables
Fund shares repurchased................................... 66,190
Management fee............................................ 25,278
12b-1 service and distribution fees....................... 12,586
Other payables to related parties......................... 13,133
Accrued expenses............................................ 17,220
-----------
Total liabilities......................................... 134,407
-----------
NET ASSETS.................................................. $54,910,979
===========
CLASS A
Net asset value and redemption price per share
($53,241,616/5,195,752 shares outstanding)................ $ 10.25
===========
Maximum offering price per share ($10.25 x 100/97.00)*...... $ 10.57
===========
CLASS B
Net asset value, offering price and redemption price** per
share ($1,669,363/162,983 shares outstanding)............. $ 10.24
===========
NET ASSETS CONSIST OF
Capital paid-in........................................... $55,600,269
Undistributed net realized loss........................... (1,339,760)
Undistributed net investment income....................... 146,118
Net unrealized appreciation............................... 504,352
-----------
NET ASSETS.................................................. $54,910,979
===========
</TABLE>
* On sales of more than $25,000 the offering price is reduced.
** Subject to a maximum contingent deferred sales charge of 3%.
(See Notes to Financial Statements)
<PAGE> 19
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1997
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest.................................................. $3,384,224
----------
EXPENSES
Management fee............................................ $350,639
Transfer agent............................................ 91,718
Administrative services fee............................... 63,753
Custodian fees............................................ 5,851
Blue Sky fees............................................. 20,338
Auditing and accounting fees.............................. 41,373
Shareholder reports....................................... 4,143
Fund accounting........................................... 43,630
Trustees' fees............................................ 4,990
12b-1 service and distribution fees....................... 168,473
Legal..................................................... 18,393
Other..................................................... 15,564
----------
828,865
Expenses reimbursed by manager............................ (252,260)
----------
Net expenses............................................ 576,605
----------
NET INVESTMENT INCOME....................................... 2,807,619
----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain......................................... 136,325
Net unrealized appreciation during the period............. 546,119
----------
Net gain on investments................................. 682,444
----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $3,490,063
==========
</TABLE>
(See Notes to Financial Statements)
<PAGE> 20
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
DECREASE IN NET ASSETS
Operations
Net investment income..................................... $ 2,807,619 $ 4,110,801
Net realized gain on investments.......................... 136,325 535,769
Net unrealized appreciation (depreciation) during the
period on investments................................... 546,119 (112,650)
------------ ------------
Net increase resulting from operations.................. 3,490,063 4,533,920
------------ ------------
Distributions from net investment income
Class A................................................... (2,640,748) (3,954,375)
Class B................................................... (67,928) (83,982)
------------ ------------
Total distributions to shareholders..................... (2,708,676) (4,038,357)
------------ ------------
Fund share transactions (Note 5)
Class A................................................... (19,644,793) (36,365,347)
Class B................................................... (430,394) (283,443)
------------ ------------
Net decrease resulting from Fund share transactions..... (20,075,187) (36,648,790)
------------ ------------
TOTAL DECREASE IN NET ASSETS................................ (19,293,800) (36,153,227)
NET ASSETS
Beginning of period....................................... 74,204,779 110,358,006
------------ ------------
END OF PERIOD............................................. $ 54,910,979 $ 74,204,779
============ ============
UNDISTRIBUTED NET INVESTMENT INCOME......................... $ 146,118 $ 47,175
============ ============
</TABLE>
(See Notes to Financial Statements)
<PAGE> 21
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A
FOR THE YEAR ENDED JUNE 30,
-----------------------------------------------------
1997 1996 1995 1994 1993
SELECTED PER SHARE DATA ------- ------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period........................ $ 10.12 $ 10.11 $ 10.02 $ 10.47 $ 10.41
------- ------- -------- -------- -------
Income from investment operations
Net investment income(a).................................. .44 .44 .43 .62 .63
Net realized and unrealized gain (loss) on investment
transactions............................................ .12 .01 .16 (.45) .07
------- ------- -------- -------- -------
Total from investment operations........................ .56 .45 .59 .17 .70
------- ------- -------- -------- -------
Less distributions
From net investment income................................ .43 .44 .43 .62 .63
In excess of net investment income........................ -- -- .07 -- .01
------- ------- -------- -------- -------
Total distributions..................................... .43 .44 .50 .62 .64
------- ------- -------- -------- -------
Net asset value, end of period.............................. $ 10.25 $ 10.12 $ 10.11 $ 10.02 $ 10.47
======= ======= ======== ======== =======
Total return(%)(b).......................................... 5.64 4.46 6.07 1.56 6.97
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $53,242 $72,126 $108,000 $155,187 $94,460
Ratio of expenses to average net assets(c)
With expense reimbursement(%)............................. .89 .92 .89 .88 .85
Without expense reimbursement(%).......................... 1.29 1.32 1.18 1.11 1.20
Ratio of net investment income to average net
assets(%)(a).............................................. 4.44 4.41 4.38 6.06 6.13
Portfolio turnover rate(%).................................. 10 34 53 36 32
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIOD
APRIL 1, 1994
CLASS B FOR THE YEAR (COMMENCEMENT)
ENDED JUNE 30, TO JUNE 30,
---------------------------------- --------------
1997 1996 1995 1994
SELECTED PER SHARE DATA ------ ------ ------ --------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period........................ $10.12 $10.11 $10.02 $10.11
------ ------ ------ ------
Income from investment operations
Net investment income(a).................................. .40 .40 .38 .12
Net realized and unrealized gain (loss) on investment
transactions............................................ .10 .01 .16 (.06)
------ ------ ------ ------
Total from investment operations........................ .50 .41 .54 .06
------ ------ ------ ------
Less distributions
From net investment income................................ .38 .40 .38 .12
In excess of net investment income........................ -- -- .07 .03
------ ------ ------ ------
Total distributions..................................... .38 .40 .45 .15
------ ------ ------ ------
Net asset value, end of period.............................. $10.24 $10.12 $10.11 $10.02
====== ====== ====== ======
Total return(%)............................................. 5.02(b) 3.98(b) 5.54(b) .63(d)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $1,669 $2,079 $2,358 $1,030
Ratio of expenses to average net assets(c)
With expense reimbursement(%)............................. 1.41 1.42 1.39 1.38(e)
Without expense reimbursement(%).......................... 1.81 1.82 1.68 1.61(e)
Ratio of net investment income to average net
assets(%)(a).............................................. 3.92 3.91 3.88 5.56(e)
Portfolio turnover rate(%).................................. 10 34 53 36
Net investment income is net of expenses reimbursed by
(a) manager.
(b) Total return does not reflect a sales charge.
Beginning in July 1995, total expenses include fees paid
(c) directly through an expense offset arrangement, if any.
Total return represents aggregate total return and does not
(d) reflect a sales charge.
(e) Annualized.
</TABLE>
(See Notes to Financial Statements)
<PAGE> 22
NOTES TO FINANCIAL STATEMENTS
Mackenzie Limited Term Municipal Fund (the Fund) is a diversified series of
shares of Mackenzie Series Trust. The shares of beneficial interest are $.001
par value and an unlimited number of shares of Class A and Class B are
authorized. Mackenzie Series Trust was organized as a Massachusetts business
trust under a Declaration of Trust dated April 22, 1985 and is registered under
the Investment Company Act of 1940, as amended, as an open-end management
investment company.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
Preparation of the financial statements includes the use of management
estimates. Actual results could differ from those estimates.
SECURITY VALUATION -- Municipal securities are valued utilizing primarily
the latest bid prices or, if bid prices are not available, on the basis of a
matrix pricing system (which considers factors such as coupon interest rate,
maturity, credit rating and market indicies), both as furnished by an
independent pricing service approved by the Board of Trustees (the Board).
SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions are
accounted for on the trade date. Interest income is accrued on a daily basis.
Realized gains and losses from securities transactions are calculated on an
identified cost basis.
FEDERAL INCOME TAXES -- The Fund intends to qualify for tax treatment
applicable to regulated investment companies under the Internal Revenue Code, as
amended, and distribute all of its investment income and net realized gain to
its shareholders. Therefore, no provision has been recorded for Federal income
or excise taxes.
The Fund has a net tax-basis capital loss carryforward of approximately
$1,329,000 as of June 30, 1997, which may be applied against any realized net
taxable gains of each succeeding fiscal year until fully realized or until the
expiration date, whichever occurs first. The carryforward expires $10,000 in
2001, $21,000 in 2002, $560,000 in 2003 and $738,000 in 2004.
DISTRIBUTIONS TO SHAREHOLDERS -- Normally, distributions from net
investment income are declared monthly, and net realized capital gains, if any,
are declared semi-annually.
For the Fund's taxable year ended June 30, 1997, 100% of distributions paid
were exempt interest dividends for Federal income tax purposes.
RECLASSIFICATIONS -- The timing and characterization of certain income and
net capital gain distributions are determined annually in accordance with
Federal tax regulations which may differ from generally accepted accounting
principles. These differences primarily relate to certain securities sold at a
loss. As a result, Net realized gain (loss) on investments for a reporting
period may differ significantly in amount and character from distributions
during such period. Accordingly, the Fund may make reclassifications among
certain of its capital accounts without impacting the net asset value of the
Fund.
FEES PAID INDIRECTLY -- The Fund has an arrangement whereby a certain
percentage of quarterly cumulative credits resulting from cash balances on
deposit with the custodian are used to offset custody fees, including
transaction and out-of-pocket expenses. For the year ended June 30, 1997,
custody fees were not reduced under this arrangement.
2. RELATED PARTIES
Mackenzie Investment Management Inc. (MIMI) is the Manager and Investment
Adviser of the Fund. For its services, MIMI receives a fee monthly at the annual
rate of .55% of the Fund's average net assets.
Currently, MIMI voluntarily limits the Fund's total operating expenses
(excluding taxes, 12b-1 fees, brokerage commissions, interest, litigation and
indemnification expenses, and other extraordinary expenses) to an annual rate of
.64% of its average net assets. The voluntary expense limitation may be
terminated or revised at any time on 30 days notice to shareholders.
MIMI also provides certain administrative, accounting and pricing services
for the Fund. For those services, the Fund pays MIMI fees plus certain
out-of-pocket expenses. Such fees and expenses are reflected as Administrative
services fee and Fund accounting in the Statement of Operations.
Ivy Mackenzie Distributors, Inc. (IMDI), a wholly owned subsidiary of MIMI,
is the underwriter and distributor of the Fund's shares, and as such, purchases
shares from the Fund at net asset value to settle orders from investment
dealers. For the year ended June 30, 1997, the net amount of underwriting
discount retained by IMDI was $4,921.
Under Service and Distribution Plans, the Fund reimburses IMDI for service
fee payments made to brokers at an annual rate not to exceed .25% of its average
net asset value. Class B shares are also subject to an ongoing distribution fee
at an annual rate of .50% of the average net asset value attributable to Class B
shares. IMDI may use such distribution fee for purposes of advertising and
marketing shares of the Fund. Such fees
<PAGE> 23
of $154,903 and $13,570 for Class A and Class B, respectively, are reflected as
12b-1 service and distribution fees in the Statement of Operations.
Ivy Mackenzie Services Corp. (IMSC), a wholly owned subsidiary of MIMI, is
the transfer and shareholder servicing agent for the Fund. For those services,
the Fund pays a monthly fee plus certain out-of-pocket expenses. Such fees and
expenses of $88,754 and $2,964 for Class A and Class B, respectively, are
reflected as Transfer agent in the Statement of Operations.
3. BOARD'S COMPENSATION
Trustees who are not affiliated with MIMI receive compensation from the
Fund, which is reflected as Trustees' fees in the Statement of Operations.
4. PROPOSED REORGANIZATION
Pursuant to a plan of reorganization adopted by the Board and subject to
the approval of the Fund's shareholders, the net assets of the Fund are expected
to be acquired by Thornburg Limited Term Municipal Fund -- National Portfolio (a
series of shares of Thornburg Limited Term Municipal Fund, Inc.) in early
September, 1997.
5. FUND SHARE TRANSACTIONS
Fund share transactions for both Class A and Class B were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1997 JUNE 30, 1996
------------------------- -------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
------- ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Sold..................... 407,321 $ 4,121,768 670,451 $ 6,832,013
Issued on reinvestment of
distributions........... 160,468 1,627,200 241,989 2,465,947
Repurchased.............. (2,496,712) (25,393,761) (4,468,714) (45,663,307)
---------- ------------ ---------- ------------
Net decrease............. (1,928,923) $(19,644,793) (3,556,274) $(36,365,347)
========== ============ ========== ============
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1997 JUNE 30, 1996
------------------------- -------------------------
CLASS B SHARES AMOUNT SHARES AMOUNT
------- ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Sold..................... 6,730 $ 68,182 60,104 $ 617,543
Issued on reinvestment
of distributions........ 3,551 36,004 4,981 50,750
Repurchased.............. (52,688) (534,580) (92,882) (951,736)
---------- ------------ ---------- ------------
Net decrease............. (42,407) $ (430,394) (27,797) $ (283,443)
========== ============ ========== ============
</TABLE>
*Effective June 20, 1997, Class B shares are no longer offered for sale.
<PAGE> 24
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees of
Mackenzie Limited Term Municipal Fund (the Fund)
We have audited the accompanying statement of assets and liabilities of the
Fund, including the portfolio of investments, as of June 30, 1997, and the
related statement of operations for the year then ended, the statement of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the periods indicated. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of June
30, 1997, by correspondence with the custodian. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of the
Fund as of June 30, 1997, the results of its operations for the year then ended,
the changes in its net assets for each of the two years in the period then
ended, and the financial highlights for each of the periods indicated, in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Fort Lauderdale, Florida
August 8, 1997
<PAGE> 25
June 30, 1997 MACKENZIE
Mackenzie
National
Municipal
Fund
- ---------
Annual
Report
- ---------
This report and the
financial statements
contained herein are
submitted for the general
information of the
shareholders. This report is
not authorized for
distribution to prospective
investors unless preced
ed or accompanied by an
effective prospectus.
Mackenzie Investment
Management Inc.
Via Mizner Financial
Plaza
700 South Federal Hwy.
Boca Raton, FL 33432
1-800-456-5111
THROUGHOUT THE
CENTURIES,
THE CASTLE KEEP HAS
BEEN A SOURCE
OF LONG-RANGE VISION
AND STRATEGIC
ADVANTAGE.
MARKET COMMENTARY:
After the Federal Reserve Board raised interest rates 0.25% in March,
municipal bond investors became wary of future rate hikes, as the Federal
Reserve has historically continued to raise rates after an initial increase.
Additionally, after the first quarter surge of the US dollar versus the
Japanese yen, investors were concerned that a subsequent depreciation in the
value of the dollar could put upward pressure on US interest rates.
However, the second quarter of the year was reminiscent of the last half
of 1996 -- economic expansion with few signs of inflation or wage pressures.
Foreign purchases of US Treasury securities were at record levels, up 181% from
1996 levels, which pushed bond prices even higher. This was primarily due to
higher yields in the US compared to yields in Europe, and in particular, Japan.
The foreign purchases led to increased demand for US dollars, which pushed the
dollar higher versus foreign currencies. For US consumers, a strong dollar
spurred demand for cheaper foreign goods, which may be attributed to the fact
that there has been little domestic price pressure.
By the end of the second quarter, consumer spending had dramatically
slowed -- evidenced by a modest rise in retail sales of 0.3% in March, followed
by a decline of 0.1% in May. In addition, the unemployment rate increased to 5%
in June, up from 4.8%. As a result, anxiety over additional interest rate hikes
abated and, as we expected, there have been no further rate hikes.
During the second quarter of the year, the municipal bond market generally
tracked the government bond market, but saw increased yield compression due to
the scarcity of bonds. Within this environment, the Mackenzie National
Municipal Fund performed very well. For the twelve months ended June 30, 1997
the Fund's total return was 9.38% on a net asset value basis as compared to the
average of all General Municipal Debt Funds as tracked by Lipper Analytical
Services, Inc., which was up 7.81% for the same period. (For the Fund's total
return with sales charge and performance commentary, please refer to the
following page.)
We would like to take this opportunity to thank you for your support of
the Mackenzie National Municipal Fund and hope that you will consider the Ivy
Funds for your future equity needs.
MACKENZIE INVESTMENT MANAGEMENT INC.
BOARD OF TRUSTEES
John S. Anderegg, Jr.
Paul H. Broyhill
Keith J. Carlson
Stanley Channick
Frank W. DeFriece, Jr.
Roy J. Glauber
Michael G. Landry
Joseph G. Rosenthal
J. Brendan Swan
OFFICERS
Michael G. Landry, Chairman
Keith J. Carlson, President
C. William Ferris, Secretary/Treasurer
LEGAL COUNSEL
Dechert Price & Rhoads
Boston, MA
CUSTODIAN
Brown Brothers Harriman & Co.
Boston, MA
TRANSFER AGENT
Ivy Mackenzie
Services Corp.
P.O. Box 3022
Boca Raton, FL 33431-0922
1-800-777-6472
AUDITORS
Coopers & Lybrand L.L.P.
Fort Lauderdale, FL
INVESTMENT MANAGER
Mackenzie Investment Management Inc.
700 South Federal Highway
Boca Raton, FL 33432
1-800-456-5111
DISTRIBUTOR
Ivy Mackenzie Distributors, Inc.
700 South Federal Highway
Boca Raton, FL 33432
1-800-456-5111
IVY MCKENZIE
<PAGE> 26
PERFORMANCE COMMENTARY
For the twelve months ended June 30, 1997, the Mackenzie National Municipal Fund
reported a total return of 9.38% without sales charges. This compares to the
average of all General Municipal Debt Funds tracked by Lipper Analytical
Services, Inc., which was up 7.81%. The Fund's outperformance relative to its
peer group is attributed to its shortening of maturities and strengthening of
credit quality.
PERFORMANCE COMPARISON OF A $10,000
INVESTMENT SINCE INCEPTION OF THE FUND
COMPARISON CHART
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
------------------------------------------------------------------
MACKENZIE NATIONAL MUNICIPAL FUND
FOR PERIOD ENDED 6/30/97
Class A*-with sales charge
Average Annual Class B**
Total Return Average Annual Total Return
------------------------------------------------------
w/Reimb. w/o w/Reimb. w/o Reimb.
Reimb.
------------------------------------------------------
w/CDSC w/o CDSC w/CDSC w/o CDSC
------------------------------------
1 Yr. 4.18% 3.66% 3.52% 8.52% 2.97% 7.97%
------------------------------------------------------------------
5 Yr. 5.23% 4.91% -- -- -- --
------------------------------------------------------------------
Since Inception 6.54% 5.50% 5.53% 5.94% 5.14% 5.55%
------------------------------------------------------------------
</TABLE>
*Class A performance figures include the maximum sales charge of 4.75%.
**Class B performance figures are calculated with and without the applicable
Contingent Deferred Sales Charge (CDSC) up to a maximum of 5%.
All figures mentioned in the Market Commentary and in the chart and table
reflect past results and assume reinvestment of dividends and distributions from
capital gains. Future results will, of course, be different. The principal value
of the Mackenzie National Municipal Fund will fluctuate and at redemption may be
worth more or less than the amount of the original investment.
The Lehman Bros. 5-Year Municipal Bond Index is an unmanaged index of municipal
bonds that assumes reinvestment of dividends and, unlike Fund returns, does not
reflect any fees or expenses.
Please note that Treasury Bills are short-term interest bearing instruments
which are guaranteed as to timely payment of principal and interest by the U.S.
Government.
Performance is calculated for Class A shares of the Fund unless otherwise noted.
Because Class B shares bear the expense of a higher distribution fee it is
expected that the level of performance of the Fund 's Class B shares will be
lower than that of the Fund 's Class A shares.
Total returns in some periods were higher due to reimbursement of the Fund 's
expenses. See Financial Highlights.
- --------------------------------------------------------------------------------
<PAGE> 27
PORTFOLIO OF INVESTMENTS
JUNE 30, 1997
<TABLE>
<CAPTION>
(UNAUDITED)
RATINGS
- -------------------
MOODY'S/S&P MUNICIPAL BONDS AND NOTES -- 98.1% PRINCIPAL VALUE
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ARIZONA -- 6.2%
NR AA Tucson (ETM)(GO)(NC), 9.75%, 07/01/12....................... $ 400,000 $ 573,000
NR AA Tucson (ETM)(GO)(NC), 9.75%, 07/01/13....................... 500,000 732,500
-----------
1,305,500
-----------
CALIFORNIA -- 18.0%
NR A- California Health Facilities Authority (Downey Community),
5.625%, 05/15/08............................................ 500,000 505,000
Baa NR Irwindale California Community Redevelopment Agency, 6.60%,
08/01/18.................................................... 500,000 521,875
NR BBB Long Beach Aquarium of the Pacific, California, 6.125%,
07/01/23.................................................... 750,000 750,000
Aa AA- Los Angeles Department of Water & Power, 9.00%, 09/01/04.... 500,000 615,625
Aaa AAA MSR Public Power Agency Revenue (AMBAC Insured), 5.90%,
07/01/20.................................................... 1,000,000 1,000,940
Aa3 A Southern California Public Power Authority (NC), 0.00%,
07/01/14.................................................... 1,000,000 375,000
-----------
3,768,440
-----------
COLORADO -- 2.8%
NR AAA Colorado Health Facilities Authority (ETM), 0.00%,
07/15/20.................................................... 500,000 128,125
Aaa NR Dawson Ridge Colorado (ETM)(GO)(NC), 0.00%, 10/01/22........ 2,000,000 450,000
-----------
578,125
-----------
CONNECTICUT -- 2.3%
Baa2 NR Connecticut State Health & Educational Facilities Authority
(The Griffen Hospital), 5.75%, 07/01/23..................... 500,000 470,625
-----------
DISTRICT OF COLUMBIA -- 0.5%
A1 A+ Georgetown University, D.C. (MBIA Insured), 8.25%,
04/01/18.................................................... 100,000 104,737
-----------
FLORIDA -- 8.5%
Aa AA Florida State Board of Education (GO)(NC), 9.125%,
06/01/14.................................................... 110,000 154,963
Aa AA Florida State Board of Education (ETM)(GO), 9.125%,
06/01/14.................................................... 690,000 968,587
Aaa AAA Orlando & Orange County Expressway (NC)(FGIC Insured),
8.25%, 07/01/14............................................. 500,000 663,125
-----------
1,786,675
-----------
GEORGIA -- 3.3%
A3 A Municipal Electric Authority of Georgia (NC), 10.00%,
01/01/10.................................................... 250,000 344,688
Aaa NR Richmond County Georgia Development Authority Revenue,
0.00%, 12/01/21............................................. 1,500,000 354,375
-----------
699,063
-----------
ILLINOIS -- 19.0%
A1 A+ Illinois Educational Facility Authority, 7.125%, 07/01/11... 320,000 352,400
Aaa AAA Illinois Health Facility Authority (CGIC Insured), 7.60%,
08/15/10.................................................... 693,000 760,567
Aaa AAA Illinois Health Facility Authority (ETM)(CGIC Insured),
7.60%, 08/15/10............................................. 103,000 117,935
A A+ Metropolitan Fair & Exposition Authority, 6.00%, 06/01/14... 650,000 650,728
Aa NR Sangamon County Illinois (GO)(NC), 7.45%, 11/15/06.......... 800,000 945,000
Baa BBB Southwestern Illinois Medical Facilties Revenue, 7.00%,
08/15/12.................................................... 1,000,000 1,051,250
Aaa AAA Will & Kendall Counties Illinois School District #202,
5.45%, 01/01/05............................................. 100,000 102,250
-----------
3,980,130
-----------
KENTUCKY -- 3.6%
Aaa AAA Kentucky State Turnpike (MBIA Insured), 6.00%, 07/01/09..... 750,000 757,635
-----------
MAINE -- 0.4%
NR A Maine Municipal Bond Bank, 7.65%, 11/01/98 (Pre-refunded)... 85,000 90,844
-----------
MARYLAND -- 4.8%
Baa NR Prince George County Maryland Medical Hospital Revenue,
6.375%, 01/01/23............................................ 1,000,000 1,005,000
-----------
MASSACHUSETTS -- 7.4%
Baa BBB Massachusetts State Health & Educational Facilities
Authority, 6.625%, 11/15/22................................. 500,000 505,625
Baa1 NR Massachusetts State Health & Educational Facilities
Authority (Holyoke Hospital), 6.25%, 07/01/04............... 1,000,000 1,012,500
NR BBB+ Massachusetts State Housing -- Series B, 8.10%, 08/01/23.... 50,000 52,250
-----------
1,570,375
-----------
MICHIGAN -- 5.6%
Aaa AAA Kent Hospital Finance Authority (MBIA Insured), 7.25%,
01/15/13.................................................... 1,000,000 1,185,000
-----------
NEW YORK -- 3.0%
Baa1 BBB+ New York State Dormitory Authority -- State University,
6.25%, 05/15/14............................................. 500,000 518,750
NR A Onondaga County New York Industrial Development Agency,
7.90%, 01/01/17............................................. 100,000 110,000
-----------
628,750
-----------
OHIO -- 2.5%
A A Franklin County Ohio Hospital Revenue, 5.80%, 12/01/05...... 500,000 521,250
-----------
PENNSYLVANIA -- 2.7%
NR A- Allegheny County Hospital Revenue (Allegheny Valley
Hospital) (NC), 7.00%, 08/01/15............................. 500,000 559,375
</TABLE>
(See Notes to Financial Statements)
<PAGE> 28
PORTFOLIO OF INVESTMENTS (CONTINUED)
JUNE 30, 1997
<TABLE>
<CAPTION>
(UNAUDITED)
RATINGS
- -------------------
MOODY'S/S&P MUNICIPAL BONDS AND NOTES -- 98.1% PRINCIPAL VALUE
<S> <C> <C> <C> <C>
PUERTO RICO -- 0.3%
Baa1 A Puerto Rico Commonwealth Public Improvement (NC), 0.00%,
07/01/04.................................................... $ 100,000 $ 71,250
-----------
TENNESSEE -- 2.3%
Aaa NR Nashville & Davidson County Tennessee Health & Education
Board Revenue (ETM)(NC), 0.00%,
06/01/21.................................................... 2,000,000 487,500
-----------
UTAH -- 4.9%
A1 A+ Intermountain Power Agency Utah Power Supply (MBIA Insured),
7.20%, 07/01/97............................................. 1,000,000 1,020,000
-----------
TOTAL INVESTMENTS -- 98.1%
(Cost -- $19,592,709)*...................................... 20,590,274
OTHER ASSETS, LESS LIABILITIES -- 1.9%...................... 403,901
-----------
NET ASSETS -- 100%.......................................... $20,994,175
===========
*Cost is approximately the same for Federal income tax
purposes.
OTHER INFORMATION:
At June 30, 1997, net unrealized appreciation based on cost
for financial statement and Federal income tax purposes is
as follows:
Gross unrealized appreciation........................................... $ 1,042,644
Gross unrealized depreciation........................................... (45,079)
-----------
Net unrealized appreciation............................................. $ 997,565
===========
Purchases and sales of municipal securities aggregated
$8,107,479 and $12,145,765, respectively, for the period
ended June 30, 1997.
AMBAC - AMBAC Indemnity Corporation
CGIC - Capital Guaranty Insurance Company
ETM - Escrowed to Maturity
FGIC - Financial Guaranty Insurance Company
GO - General Obligation
MBIA - Municipal Bond Insurance Association
NC - Non Callable
</TABLE>
(See Notes to Financial Statements)
<PAGE> 29
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30 1997
<TABLE>
<S> <C>
ASSETS
Investments, at value (identified cost -- $19,592,709)...... $20,590,274
Cash........................................................ 112,306
Receivables
Interest.................................................. 436,697
Manager for expense reimbursement......................... 11,025
Other assets................................................ 6,733
-----------
Total assets.............................................. 21,157,035
-----------
LIABILITIES
Payables
Fund shares repurchased................................... 126,110
Management fee............................................ 9,485
12b-1 service and distribution fees....................... 5,237
Other payables to related parties......................... 5,500
Accrued expenses............................................ 16,528
-----------
Total liabilities......................................... 162,860
-----------
NET ASSETS.................................................. $20,994,175
===========
CLASS A
Net asset value and redemption price per share
($19,758,762/1,951,258 shares outstanding)................ $ 10.13
===========
Maximum offering price per share ($10.13 x 100/95.25)*...... $ 10.64
===========
CLASS B
Net asset value, offering price and redemption price** per
share ($1,235,413/122,166 shares outstanding)............... $ 10.11
===========
NET ASSETS CONSIST OF
Capital paid-in........................................... $20,174,032
Undistributed net realized loss........................... (237,739)
Undistributed net investment income....................... 60,317
Net unrealized appreciation............................... 997,565
-----------
NET ASSETS.................................................. $20,994,175
===========
</TABLE>
* On sales of more than $100,000 the offering price is reduced.
** Subject to a maximum contingent deferred sales charge of 5%.
(See Notes to Financial Statements)
<PAGE> 30
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1997
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest.................................................. $1,403,113
----------
EXPENSES
Management fee............................................ $124,040
Transfer agent fee........................................ 30,889
Administrative services fee............................... 22,553
Custodian fees............................................ 2,908
Blue Sky fees............................................. 17,479
Auditing and accounting fees.............................. 41,373
Shareholder reports....................................... 2,619
Fund accounting........................................... 25,969
Trustees' fees............................................ 4,990
12b-1 service and distribution fees....................... 65,365
Legal..................................................... 18,417
Other..................................................... 8,784
----------
365,386
Expenses reimbursed by manager............................ (108,272)
----------
Net expenses............................................ 257,114
----------
NET INVESTMENT INCOME....................................... 1,145,999
----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain......................................... 74,420
Net unrealized appreciation during the period............. 791,201
----------
Net gain on investments................................. 865,621
----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $2,011,620
==========
</TABLE>
(See Notes to Financial Statements)
<PAGE> 31
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------- ------------
<S> <C> <C>
DECREASE IN NET ASSETS
Operations
Net investment income..................................... $ 1,145,999 $ 1,345,523
Net realized gain on investments.......................... 74,420 580,623
Net unrealized appreciation (depreciation) during the
period on investments................................... 791,201 (653,884)
----------- ------------
Net increase resulting from operations.................. 2,011,620 1,272,262
----------- ------------
Distributions from net investment income
Class A................................................... (1,064,134) (1,264,186)
Class B................................................... (50,527) (39,157)
----------- ------------
Total distributions to shareholders..................... (1,114,661) (1,303,343)
----------- ------------
Fund share transactions (Note 5)
Class A................................................... (4,763,912) (4,659,340)
Class B................................................... 58,896 373,973
----------- ------------
Net decrease resulting from Fund share transactions..... (4,705,016) (4,285,367)
----------- ------------
TOTAL DECREASE IN NET ASSETS................................ (3,808,057) (4,316,448)
NET ASSETS
Beginning of period....................................... 24,802,232 29,118,680
----------- ------------
END OF PERIOD............................................. $20,994,175 $ 24,802,232
=========== ============
UNDISTRIBUTED NET INVESTMENT INCOME......................... $ 60,317 $ 28,979
=========== ============
</TABLE>
(See Notes to Financial Statements)
<PAGE> 32
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A
FOR THE YEAR ENDED JUNE 30,
-------------------------------------------------------------------
1997 1996 1995 1994 1993
SELECTED PER SHARE DATA ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period........................ $ 9.73 $ 9.76 $ 9.60 $ 10.17 $ 9.94
------- ------- ------- ------- -------
Income from investment operations
Net investment income(a).................................. .50 .50 .48 .57 .60
Net realized and unrealized gain (loss) on investment
transactions............................................ .39 (.05) .19 (.48) .31
------- ------- ------- ------- -------
Total from investment operations........................ .89 .45 .67 .09 .91
------- ------- ------- ------- -------
Less distributions
From net investment income................................ .49 .48 .48 .57 .60
In excess of net investment income........................ -- -- .03 -- --
From net realized gain.................................... -- -- -- .09 .08
------- ------- ------- ------- -------
Total distributions..................................... .49 .48 .51 .66 .68
------- ------- ------- ------- -------
Net asset value, end of period.............................. $ 10.13 $ 9.73 $ 9.76 $ 9.60 $ 10.17
======= ======= ======= ======= =======
Total return(%)(b).......................................... 9.38 4.69 7.21 .77 9.48
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $19,759 $23,673 $28,351 $38,406 $42,739
Ratio of expenses to average net assets
With expense reimbursement(%)(c).......................... 1.10 1.12 1.10 1.10 1.10
Without expense reimbursement(%).......................... 1.58 1.52 1.30 1.24 1.29
Ratio of net investment income to average net
assets(%)(a).............................................. 5.12 5.09 5.08 6.65 6.06
Portfolio turnover rate(%).................................. 37 58 65 68 57
</TABLE>
(See Notes to Financial Statements)
<PAGE> 33
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
FOR THE PERIOD
APRIL 1, 1994
CLASS B (COMMENCEMENT)
FOR THE YEAR ENDED JUNE 30, TO JUNE 30,
---------------------------------- --------------
1997 1996 1995 1994
SELECTED PER SHARE DATA ------ ------ ------ --------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period........................ $ 9.72 $ 9.76 $ 9.60 $ 9.69
------ ------ ------ ------
Income from investment operations
Net investment income(a).................................. .44 .43 .41 .11
Net realized and unrealized gain (loss) on investment
transactions............................................ .37 (.05) .19 (.06)
------ ------ ------ ------
Total from investment operations........................ .81 .38 .60 .05
------ ------ ------ ------
Less distributions
From net investment income................................ .42 .42 .41 .11
In excess of net investment income........................ -- -- .03 .03
------ ------ ------ ------
Total distributions..................................... .42 .42 .44 .14
------ ------ ------ ------
Net asset value, end of period.............................. $10.11 $ 9.72 $ 9.76 $ 9.60
====== ====== ====== ======
Total return(%)............................................. 8.52(b) 3.88(b) 6.42(b) .55(d)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $1,235 $1,129 $ 767 $ 492
Ratio of expenses to average net assets(c)
With expense reimbursement(%)............................. 1.80 1.87 1.85 1.85(e)
Without expense reimbursement(%).......................... 2.28 2.27 2.05 1.99(e)
Ratio of net investment income to average net
assets(%)(a).............................................. 4.42 4.34 4.33 5.90(e)
Portfolio turnover rate(%).................................. 37 58 65 68
</TABLE>
(a) Net investment income is net of expenses reimbursed by
manager.
(b) Total return does not reflect a sales charge.
(c) Beginning in July 1995, total expenses include fees paid
indirectly through an expense offset arrangement, if any.
(d) Total return represents aggregate total return and does not
reflect a sales charge.
(e) Annualized.
(See Notes to Financial Statements)
<PAGE> 34
NOTES TO FINANCIAL STATEMENTS
Mackenzie National Municipal Fund (the Fund) is a diversified series of
shares of Mackenzie Series Trust. The shares of beneficial interest are $.001
par value and an unlimited number of shares of Class A and Class B are
authorized. Mackenzie Series Trust was organized as a Massachusetts business
trust under a Declaration of Trust dated April 22, 1985 and is registered under
the Investment Company Act of 1940, as amended, as an open-end management
investment company.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
Preparation of the financial statements includes the use of management
estimates. Actual results could differ from those estimates.
SECURITY VALUATION -- Municipal securities are valued utilizing primarily
the latest bid prices or, if bid prices are not available, on the basis of a
matrix pricing system (which considers factors such as coupon interest rate,
maturity, credit rating and market indicies), both as furnished by an
independent pricing service approved by the Board of Trustees (the Board).
SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Security transactions are
accounted for on the trade date. Interest income is accrued on a daily basis.
Realized gains and losses from security transactions are calculated on an
identified cost basis.
FEDERAL INCOME TAXES -- The Fund intends to qualify for tax treatment
applicable to regulated investment companies under the Internal Revenue Code, as
amended, and distribute all of its investment income and net realized gain to
its shareholders. Therefore, no provision has been recorded for Federal income
or excise taxes.
The Fund has a net tax-basis capital loss carryforward of approximately
$182,000 as of June 30, 1997 which may be applied against any realized net
taxable gains of each succeeding fiscal year until fully realized or until the
expiration date, whichever occurs first. The carryforward expires $77,000 in
2003 and $105,000 in 2004.
DISTRIBUTIONS TO SHAREHOLDERS -- Normally, distributions from net
investment income are declared monthly, and net realized capital gains, if any,
are declared semi-annually.
For the Fund's taxable year ended June 30, 1997, 100% of distributions paid
were exempt interest dividends for Federal income tax purposes.
RECLASSIFICATIONS -- The timing and characterization of certain income and
net capital gain distributions are determined annually in accordance with
Federal tax regulations which may differ from generally accepted accounting
principles. These differences primarily relate to certain securities sold at a
loss. As a result, Net realized gain (loss) on investments for a reporting
period may differ significantly in amount and character from distributions
during such period. Accordingly, the Fund may make reclassifications among
certain of its capital accounts without impacting the net asset value of the
Fund.
FEES PAID INDIRECTLY -- The Fund has an arrangement whereby a certain
percentage of quarterly cumulative credits resulting from cash balances on
deposit with the custodian are used to offset custody fees, including
transaction and out-of-pocket expenses. For the year ended June 30, 1997,
custody fees were not reduced under this arrangement.
2. RELATED PARTIES
Mackenzie Investment Management Inc. (MIMI) is the Manager and Investment
Adviser of the Fund. For its services, MIMI receives a fee monthly at the annual
rate of .55% of the Fund's average net assets.
Currently, MIMI voluntarily limits the Fund's total operating expenses
(excluding taxes, 12b-1 fees, brokerage commissions, interest, litigation and
indemnification expenses, and other extraordinary expenses) to an annual rate of
.85% of its average net assets. The voluntary expense limitation may be
terminated or revised at any time on 30 days notice to shareholders.
MIMI also provides certain administrative, accounting and pricing services
for the Fund. For those services, the Fund pays MIMI fees plus certain
out-of-pocket expenses. Such fees and expenses are reflected as Administrative
services fee and Fund accounting in the Statement of Operations.
Ivy Mackenzie Distributors, Inc. (IMDI), a wholly owned subsidiary of MIMI,
is the underwriter and distributor of the Fund's shares, and as such, purchases
shares from the Fund at net asset value to settle orders from investment
dealers. For the year ended June 30, 1997, the net amount of underwriting
discount retained by IMDI was $798.
Under Service and Distribution Plans, the Fund reimburses IMDI for service
fee payments made to brokers at an annual rate not to exceed .25% of its average
net asset value. Class B shares are also subject to an ongoing distribution fee
at an annual rate of .75% of the average net asset value attributable to Class B
shares. IMDI may use such distribution fee for purposes of advertising and
marketing shares of the Fund. Such fees
<PAGE> 35
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
of $53,407 and $11,958 for Class A and Class B, respectively, are reflected as
12b-1 service and distribution fees in the Statement of Operations.
Ivy Mackenzie Services Corp. (IMSC), a wholly owned subsidiary of MIMI, is
the transfer and shareholder servicing agent for the Fund. For those services,
the Fund pays a monthly fee plus certain out-of-pocket expenses. Such fees and
expenses of $30,133 and $756 for Class A and Class B, respectively, are
reflected as Transfer agent in the Statement of Operations.
3. BOARD'S COMPENSATION
Trustees who are not affiliated with MIMI receive compensation from the
Fund, which is reflected as Trustees' fees in the Statement of Operations.
4. PROPOSED REORGANIZATION
Pursuant to a plan of reorganization adopted by the Board and subject to
the approval of the Fund's shareholders, the net assets of the Fund are expected
to be acquired by Thornburg Intermediate Municipal Fund (a series of shares of
Thornburg Investment Trust) in early September, 1997.
5. FUND SHARE TRANSACTIONS
Fund share transactions for both Class A and Class B were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1997 JUNE 30, 1996
---------------------- ----------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
------- -------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Sold.......................... 299,907 $ 2,957,910 235,088 $ 2,311,839
Issued on reinvestment of
distributions................ 57,131 561,902 64,174 632,427
Repurchased................... (840,061) (8,283,724) (770,220) (7,603,606)
-------- ----------- -------- -----------
Net decrease.................. (483,023) $(4,763,912) (470,958) $(4,659,340)
======== =========== ======== ===========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1997 JUNE 30, 1996
---------------------- ----------------------
CLASS B* SHARES AMOUNT SHARES AMOUNT
-------- -------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Sold.......................... 46,482 $ 462,105 48,696 $ 485,932
Issued on reinvestment of
distributions................ 1,712 16,848 1,298 12,781
Repurchased................... (42,192) (420,057) (12,487) (124,740)
-------- ----------- -------- -----------
Net increase.................. 6,002 $ 58,896 37,507 $ 373,973
======== =========== ======== ===========
</TABLE>
* Effective June 20, 1997, Class B shares are no longer offered for sale.
<PAGE> 36
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees of
Mackenzie National Municipal Fund (the Fund)
We have audited the accompanying statement of assets and liabilities of the
Fund, including the portfolio of investments, as of June 30, 1997, and the
related statement of operations for the year then ended, the statement of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the periods indicated. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of June
30, 1997, by correspondence with the custodian. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of the
Fund as of June 30, 1997, the results of its operations for the year then ended,
the changes in its net assets for each of the two years in the period then
ended, and the financial highlights for each of the periods indicated, in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Fort Lauderdale, Florida
August 8, 1997
<PAGE> 37
June 30, 1997
MACKENZIE
Mackenzie
New York
Municipal
Fund
- ---------
Annual
Report
- ---------
This report and the
financial statements
contained herein are
submitted for the general information of the
shareholders. This report is
not authorized for
distribution to prospective
investors unless preceded or
accompanied by an effective prospectus.
Mackenzie Investment
Management Inc.
Via Mizner Financial
Plaza
700 South Federal Hwy.
Boca Raton, FL 33432
1-800-456-5111
THROUGHOUT THE
CENTURIES,
THE CASTLE KEEP HAS
BEEN A SOURCE
OF LONG-RANGE VISION
AND STRATEGIC
ADVANTAGE.
Market Commentary:
After the Federal Reserve Board raised interest rates 0.25% in March,
municipal bond investors became wary of future rate hikes, as the Federal
Reserve has historically continued to raise rates after an initial increase.
Additionally, after the first quarter surge of the US dollar versus the Japanese
yen, investors were concerned that a subsequent depreciation in the value of the
dollar could put upward pressure on US interest rates.
However, the second quarter of the year was reminiscent of the last half of
1996 -- economic expansion with few signs of inflation or wage pressures.
Foreign purchases of US Treasury securities were at record levels, up 181% from
1996 levels, which pushed bond prices even higher. This was primarily due to
higher yields in the US compared to yields in Europe, and in particular, Japan.
The foreign purchases led to increased demand for US dollars, which pushed the
dollar higher versus foreign currencies. For US consumers, a strong dollar
spurred demand for cheaper foreign goods, which may be attributed to the fact
that there has been little domestic price pressure.
By the end of the second quarter, consumer spending had dramatically slowed
- -- evidenced by a modest rise in retail sales of 0.3% in March, followed by a
decline of 0.1% in May. In addition, the unemployment rate increased to 5% in
June, up from 4.8%. As a result, anxiety over additional interest rate hikes
abated and, as we expected, there have been no further rate hikes.
During the second quarter of the year, the municipal bond market generally
tracked the government bond market, but saw increased yield compression due to
the scarcity of bonds. Within this environment, the Mackenzie New York Municipal
Fund performed well, although it did slightly underperform its relative
benchmark. For the twelve months ended June 30, 1997 the Fund's total return was
7.46% on a net asset value basis as compared to the average of all New York
State Municipal Debt Funds as tracked by Lipper Analytical Services, Inc., which
was up 7.71% for the same period. (For the Fund's total return with sales charge
and performance commentary, please refer to the following page.)
We would like to take this opportunity to thank you for your support of the
Mackenzie New York Municipal Fund and hope that you will consider the Ivy Funds
for your future equity needs.
Mackenzie Investment Management Inc.
BOARD OF TRUSTEES
John S. Anderegg, Jr.
Paul H. Broyhill
Keith J. Carlson
Stanley Channick
Frank W. DeFriece, Jr.
Roy J. Glauber
Michael G. Landry
Joseph G. Rosenthal
J. Brendan Swan
OFFICERS
Michael G. Landry, Chairman
Keith J. Carlson, President
C. William Ferris, Secretary/Treasurer
LEGAL COUNSEL
Dechert Price & Rhoads
Boston, MA
CUSTODIAN
Brown Brothers Harriman & Co.
Boston, MA
TRANSFER AGENT
Ivy Mackenzie
Services Corp.
P.O. Box 3022
Boca Raton, FL 33431-0922
1-800-777-6472
AUDITORS
Coopers & Lybrand L.L.P.
Fort Lauderdale, FL
INVESTMENT MANAGER
Mackenzie Investment Management Inc.
700 South Federal Highway
Boca Raton, FL 33432
1-800-456-5111
DISTRIBUTOR
Ivy Mackenzie Distributors, Inc.
700 South Federal Highway
Boca Raton, FL 33432
1-800-456-5111
[IVY MACKENZIE LOGO]
<PAGE> 38
PERFORMANCE COMMENTARY
For the twelve months ended June 30, 1997, the Mackenzie New York Municipal Fund
reported a total return of 7.46% without sales charges. This compares to the
average of all New York State Municipal Debt Funds tracked by Lipper Analytical
Services, Inc., which was up 7.71%. The Fund's slight underperformances relative
to its peer group is attributed to the overall composition of the Fund versus
the funds that comprise the Lipper average.
PERFORMANCE COMPARISON OF A $10,000
INVESTMENT SINCE INCEPTION OF THE FUND
COMPARISON CHART
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
------------------------------------------------------------------
MACKENZIE NEW YORK MUNICIPAL FUND
FOR PERIOD ENDED 6/30/97
Class A*-with sales charge
Average Annual Class B**
Total Return Average Annual Total Return
------------------------------------------------------
w/Reimb. w/o w/Reimb. w/o Reimb.
Reimb.
------------------------------------------------------
w/CDSC w/o CDSC w/CDSC w/o CDSC
------------------------------------
1 Yr. 2.36% 2.05% 1.70% 6.70% 1.38% 6.38%
------------------------------------------------------------------------
5 Yr. 5.15% 4.94% -- -- -- --
------------------------------------------------------------------------
Since Inception 6.60% 5.76% 5.24% 5.65% 5.00% 5.41%
------------------------------------------------------------------------
</TABLE>
*Class A performance figures include the maximum sales charge of 4.75%.
**Class B performance figures are calculated with and without the applicable
Contingent Deferred Sales Charge (CDSC) up to a maximum of 5%.
All figures mentioned in the Market Commentary and in the chart and table
reflect past results and assume reinvestment of dividends and distributions from
capital gains. Future results will, of course, be different. The principal value
of the Mackenzie New York Municipal Fund will fluctuate and at redemption may be
worth more or less than the amount of the original investment.
The Lehman Bros. 5-Year Municipal Bond Index is an unmanaged index of municipal
bonds that assumes reinvestment of dividends and, unlike Fund returns, does not
reflect any fees or expenses.
Please note that Treasury Bills are short-term interest bearing instruments
which are guaranteed as to timely payment of principal and interest by the U.S.
Government.
Performance is calculated for Class A shares of the Fund unless otherwise noted.
Because Class B shares bear the expense of a higher distribution fee it is
expected that the level of performance of the Fund 's Class B shares will be
lower than that of the Fund 's Class A shares.
Total returns in some periods were higher due to reimbursement of the Fund 's
expenses. See Financial Highlights.
- --------------------------------------------------------------------------------
<PAGE> 39
PORTFOLIO OF INVESTMENTS
JUNE 30, 1997
<TABLE>
<CAPTION>
(UNAUDITED)
RATINGS
- -------------------
MOODY'S/S&P MUNICIPAL BONDS AND NOTES -- 99.3% PRINCIPAL VALUE
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
A2 A Battery Park City Authority New York Revenue Series A,
5.80%, 11/01/22............................................. $1,000,000 $ 996,250
Aaa AAA Bethlehem New York Central School District (GO)(NC) (AMBAC
Insured), 7.10%, 11/01/06................................... 700,000 821,625
Aaa AAA Brookhaven New York Series A (GO)(NC)(MBIA Insured), 7.00%,
11/01/04.................................................... 300,000 342,000
Baa2 NR Canastota New York Central School District (GO)(NC), 7.10%,
06/15/07.................................................... 215,000 245,906
Baa2 NR Canastota New York Central School District (GO)(NC), 7.10%,
06/15/08.................................................... 205,000 235,750
NR BBB Guam Government (GO), 5.375%, 11/15/13...................... 1,000,000 937,500
NR BBB Guam Power Authority Revenue, 6.625%, 10/01/14.............. 550,000 578,188
Baa1 BBB Metropolitan Transportation Authority Service Contract,
7.00%, 07/01/04............................................. 500,000 545,000
Baa1 BBB Metropolitan Transportation Authority Service Contract,
5.50%, 07/01/17............................................. 250,000 244,375
Aa NR Monroe County Industrial Development Agency, Depaul
Community Facility (SONYMA Insured),
6.45%, 02/01/14............................................. 880,000 947,100
Baa1 BBB+ New York City (GO), 7.20%, 08/15/08......................... 1,000,000 1,106,250
NR BBB+ New York City (GO), 7.30%, 08/15/04 (Pre-refunded).......... 240,000 279,000
Baa1 BBB+ New York City (GO), 7.30%, 08/15/10......................... 10,000 11,025
NR BBB+ New York City (GO) Series H, 7.10%, 02/01/02
(Pre-refunded).............................................. 90,000 100,238
Baa1 BBB+ New York City (GO) Series H, 7.10%, 02/01/09................ 410,000 446,900
Baa1 BBB+ New York City (GO) Series H, 7.00%, 02/01/19................ 500,000 541,250
Aa2 AA New York City Housing Development (FHA Insured), 5.85%,
05/01/26.................................................... 500,000 501,250
A2 A- New York City Municipal Water Finance Authority, 6.00%,
06/15/25.................................................... 500,000 507,500
A2 A- New York State (GO)(NC), 9.875%, 11/15/05................... 1,000,000 1,330,000
Baa1 BBB New York State Dormitory Authority -- City University Series
C, 6.00%, 07/01/16.......................................... 500,000 503,125
NR AAA New York State Dormitory Authority -- Jewish Geriatric (FHA
Insured), 7.35%, 08/01/29................................... 500,000 561,250
NR AAA New York State Dormitory Authority -- Parkridge, 7.85%,
02/01/29.................................................... 200,000 212,500
NR AA New York State Dormitory Authority -- St. Lukes Home (FHA
Insured), 6.375%, 08/01/35.................................. 1,000,000 1,042,500
Baa1 BBB+ New York State Dormitory Authority -- State University,
6.25%, 05/15/14............................................. 500,000 518,750
Aa2 AA- New York State Environmental Facilities Corporation
Pollution Control Series B, 7.50%, 03/15/11................. 400,000 427,500
Aa2 A- New York State Environmental Facilities Corporation
Pollution Control Series E, 6.875%, 06/15/14................ 1,000,000 1,105,000
Aaa AAA New York State Housing Finance Agency -- State University
Series A, 8.00%, 11/01/98
(Pre-refunded).............................................. 30,000 32,063
Baa1 BBB New York State Housing Finance Agency Service Contract,
6.375%, 09/15/15............................................ 1,000,000 1,043,750
Aaa AAA New York State Local Government Assistance Corp. (MBIA
Insured), 5.50%, 04/01/22................................... 1,500,000 1,479,375
Baa BBB New York State Medical Care Facilities Financing Agency,
7.35%, 08/15/11............................................. 1,000,000 1,075,000
Aaa AAA New York State Medical Care Facilities Financing Agency (FHA
Insured), 7.70%, 08/15/00
(Pre-refunded).............................................. 500,000 556,875
Aa2 NR New York State Medical Care Facilities Finance Agency
(SONYMA Insured), 6.00%, 11/15/03........................... 495,000 530,269
Aaa AAA New York State Medical Care Facilities Finance
Agency -- Aurelia Osborn Fox Memorial Hospital
(FSA Insured), 6.50%, 11/01/19.............................. 650,000 697,125
Baa BBB New York State Medical Care Facilities Finance
Agency -- Brookdale Hospital Medical Center, 6.85%,
02/15/17.................................................... 1,000,000 1,053,750
Aa2 AAA New York State Medical Care Facilities Finance
Agency -- Buffalo General Hospital (FHA Insured),
7.70%, 08/15/98 (Pre-refunded).............................. 85,000 89,994
A2 A New York State Medical Care Facilities Finance
Agency -- Good Samaritan Hospital, 7.875%,
11/01/06.................................................... 10,000 10,329
Baa BBB New York State Medical Care Facilities Finance Agency -- New
York Downtown Hospital, 6.80%,
02/15/20.................................................... 500,000 520,625
Aaa AAA New York State Medical Care Facilities Finance Agency -- St.
Lukes Hospital (FHA Insured), 7.45%,
02/15/00 (Pre-refunded)..................................... 600,000 657,000
Aa NR New York State Mortgage Agency Series B (Pool Insured),
6.45%, 04/01/15............................................. 1,000,000 1,032,500
Aa NR New York State Mortgage Agency Series BB (FHA Insured),
7.85%, 10/01/08............................................. 30,000 30,793
Aa NR New York State Mortgage Agency Series E (Pool Insured),
8.10%, 10/01/17............................................. 35,000 36,119
NR BBB+ New York State Municipal Bond Bank Agency -- Buffalo Series
A, 6.875%, 03/15/06......................................... 850,000 910,563
Baa1 BBB New York State Urban Development Corporation Correctional
Facilities (NC), 0.00%, 01/01/08............................ 2,000,000 1,125,000
Aaa AAA New York State Urban Development Series C (AMBAC Insured),
7.75%, 01/01/98 (Pre-refunded).............................. 30,000 31,162
Aaa AAA New York State Urban Development Series D (AMBAC Insured),
7.75%, 01/01/98 (Pre-refunded).............................. 70,000 72,712
NR A Onondaga County New York Industrial Revenue Agency, Crouse Irving Co. Series
A, 7.90%, 01/01/17.......................................... 2,400,000 2,640,000
Baa1 A- Puerto Rico Commonwealth (NC), 6.60%, 07/01/04.............. 300,000 326,250
Baa1 A Puerto Rico Commonwealth Capital Appreciation, 0.00%,
07/01/04.................................................... 400,000 285,000
NR BBB- Puerto Rico Educational, Medical & Environmental Control
Facilities, 5.70%, 08/01/13................................. 500,000 480,000
Baa1 A- Puerto Rico Electric Power Authority Power Revenue, 6.80%,
07/01/00.................................................... 400,000 422,500
Baa1 A- Puerto Rico Electric Power Authority Series N, 5.00%,
07/01/12.................................................... 250,000 235,000
Aa NR Schenectady NY Municipal Housing Authority -- Annie Schaffer
Senior Center (SONYMA Insured),
6.40%, 05/01/14............................................. 650,000 664,625
Aaa AAA South Hampton Village New York Series B (NC)(MBIA Insured),
7.60%, 09/01/03............................................. 100,000 116,375
A1 A- Triborough Bridge & Tunnel Authority New York Series B,
6.875%, 01/01/15............................................ 500,000 534,375
Baa BBB+ Ulster County New York Resource Recovery Agency, 6.00%,
03/01/14.................................................... 1,000,000 983,750
Aaa AAA Valley Central School District New York (GO)(NC)(AMBAC
Insured), 7.15%, 06/15/07................................... 625,000 735,937
</TABLE>
(See Notes to Financial Statements)
<PAGE> 40
PORTFOLIO OF INVESTMENTS (CONTINUED)
JUNE 30, 1997
<TABLE>
<CAPTION>
(UNAUDITED)
RATINGS
- -------------------
MOODY'S/S&P MUNICIPAL BONDS AND NOTES -- 99.3% PRINCIPAL VALUE
<S> <C> <C> <C> <C>
Aaa AAA Watkins Glen New York Central School District (NC) (MBIA
Insured), 7.25%, 06/15/04................................... $ 165,000 $ 189,956
Aaa AAA Waverly New York (GO)(NC)(MBIA Insured), 9.05%, 06/15/04.... 110,000 139,012
-----------
TOTAL INVESTMENTS -- 99.3%
(Cost -- $32,426,129)*...................................... 33,825,516
OTHER ASSETS, LESS LIABILITIES -- 0.7%...................... 249,728
-----------
NET ASSETS -- 100%.......................................... $34,075,244
===========
*Cost is approximately the same for Federal income tax
purposes.
OTHER INFORMATION:
At June 30, 1997, net unrealized appreciation based on cost
for financial statement and Federal income tax purposes is
as follows:
Gross unrealized appreciation........................................... $ 1,697,667
Gross unrealized depreciation........................................... (298,280)
-----------
Net unrealized appreciation............................................. $ 1,399,387
===========
</TABLE>
Purchases and sales of municipal securities aggregated
$7,092,439 and $10,884,440, respectively, for the period
ended June 30, 1997.
AMBAC - AMBAC Indemnity Corporation
FHA - Federal Housing Administration
FSA - Financial Security Association
GO - General Obligation
MBIA - Municipal Bond Insurance Association
NC - Non Callable
SONYMA - State of New York Mortgage Agency
(See Notes to Financial Statements)
<PAGE> 41
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1997
<TABLE>
<S> <C>
ASSETS
Investments, at value (identified cost -- $32,426,129)...... $33,825,516
Receivables
Interest.................................................. 603,401
Manager for expense reimbursement......................... 9,488
Other assets................................................ 7,513
-----------
Total assets.............................................. 34,445,918
-----------
LIABILITIES
Payables
Fund shares repurchased................................... 79,758
Management fee............................................ 15,827
12b-1 service and distribution fees....................... 8,911
Other payables to related parties......................... 8,414
Due to custodian............................................ 241,722
Accrued expenses............................................ 16,042
-----------
Total liabilities......................................... 370,674
-----------
NET ASSETS.................................................. $34,075,244
===========
CLASS A
Net asset value and redemption price per share
($31,757,137/3,190,125 shares outstanding)................ $ 9.95
===========
Maximum offering price per share ($9.95 x 100/95.25)*....... $ 10.45
===========
CLASS B
Net asset value, offering price and redemption price** per
share ($2,318,107/232,982 shares outstanding)............. $ 9.95
===========
NET ASSETS CONSIST OF
Capital paid-in........................................... $32,485,042
Undistributed net realized gain........................... 47,459
Undistributed net investment income....................... 143,356
Net unrealized appreciation............................... 1,399,387
-----------
NET ASSETS.................................................. $34,075,244
===========
</TABLE>
* On sales of more than $100,000 the offering price is reduced.
** Subject to a maximum contingent deferred sales charge of 5%.
(See Notes to Financial Statements)
<PAGE> 42
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1997
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest.................................................. 2,263,660
----------
EXPENSES
Management fee............................................ $200,418
Transfer agent............................................ 42,524
Administrative services fee............................... 36,440
Custodian fees............................................ 3,632
Blue Sky fees............................................. 17,858
Auditing and accounting fees.............................. 40,873
Shareholder reports....................................... 3,818
Fund accounting........................................... 30,933
Trustees' fees............................................ 4,990
12b-1 service and distribution fees....................... 108,627
Legal..................................................... 18,268
Other..................................................... 9,245
----------
517,626
Expenses reimbursed by manager............................ (99,183)
----------
Net expenses............................................ 418,443
----------
NET INVESTMENT INCOME....................................... 1,845,217
----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain......................................... 183,592
Net unrealized appreciation during the period............. 612,977
----------
Net gain on investments................................. 796,569
----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $2,641,786
==========
</TABLE>
(See Notes to Financial Statements)
<PAGE> 43
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
DECREASE IN NET ASSETS
Operations
Net investment income..................................... $ 1,845,217 $ 2,086,884
Net realized gain on investments.......................... 183,592 310,443
Net unrealized appreciation (depreciation) during the
period on investments................................... 612,977 (341,320)
----------- -----------
Net increase resulting from operations.................. 2,641,786 2,056,007
----------- -----------
Distributions from net investment income
Class A................................................... (1,663,625) (1,940,675)
Class B................................................... (96,919) (72,015)
----------- -----------
Total distributions to shareholders..................... (1,760,544) (2,012,690)
----------- -----------
Fund share transactions (Note 6)
Class A................................................... (4,601,762) (4,808,441)
Class B................................................... 85,459 749,118
----------- -----------
Net decrease resulting from Fund share transactions..... (4,516,303) (4,059,323)
----------- -----------
TOTAL DECREASE IN NET ASSETS................................ (3,635,061) (4,016,006)
NET ASSETS
Beginning of period....................................... 37,710,305 41,726,311
----------- -----------
END OF PERIOD............................................. $34,075,244 $37,710,305
=========== ===========
UNDISTRIBUTED NET INVESTMENT INCOME......................... $ 143,356 $ 58,683
=========== ===========
</TABLE>
(See Notes to Financial Statements)
<PAGE> 44
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A
FOR THE YEAR ENDED JUNE 30,
-------------------------------------------------------------------
1997 1996 1995 1994 1993
SELECTED PER SHARE DATA ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of the period.................... $ 9.72 $ 9.72 $ 9.50 $ 10.10 $ 9.96
------- ------- ------- ------- -------
Income from investment operations
Net investment income(a).................................. .50 .51 .48 .56 .58
Net realized and unrealized gain (loss) on investments.... .21 (.02) .24 (.49) .38
------- ------- ------- ------- -------
Total from investment operations........................ .71 .49 .72 .07 .96
------- ------- ------- ------- -------
Less distributions
From net investment income................................ .48 .49 .48 .56 .58
In excess of net investment income........................ -- -- .02 -- --
From net realized gain.................................... -- -- -- .11 .24
------- ------- ------- ------- -------
Total distributions..................................... .48 .49 .50 .67 .82
------- ------- ------- ------- -------
Net asset value, end of period.............................. $ 9.95 $ 9.72 $ 9.72 $ 9.50 $ 10.10
======= ======= ======= ======= =======
Total return(%)(b).......................................... 7.46 5.11 7.93 .58 10.07
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $31,757 $35,533 $40,290 $42,329 $42,187
Ratio of expenses to average net assets(c)
With expense reimbursement(%)............................. 1.10 1.12 1.10 1.10 1.10
Without expense reimbursement(%).......................... 1.37 1.33 1.24 1.21 1.29
Ratio of net investment income to average net
assets(%)(a).............................................. 5.11 5.19 5.12 5.59 5.81
Portfolio turnover rate(%).................................. 20 35 59 44 87
</TABLE>
(See Notes to Financial Statements)
<PAGE> 45
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
FOR THE PERIOD
APRIL 1, 1994
CLASS B (COMMENCEMENT)
FOR THE YEAR ENDED JUNE 30, TO JUNE 30,
---------------------------------- --------------
1997 1996 1995 1994
SELECTED PER SHARE DATA ------ ------ ------ --------------
<S> <C> <C> <C> <C>
Net asset value, beginning of the period.................... $ 9.72 $ 9.72 $ 9.50 $ 9.65
------ ------ ------ ------
Income from investment operations
Net investment income(a).................................. .43 .44 .41 .10
Net realized and unrealized gain (loss) on investments.... .21 (.02) .24 (.08)
------ ------ ------ ------
Total from investment operations........................ .64 .42 .65 .02
------ ------ ------ ------
Less distributions
From net investment income................................ .41 .42 .41 .14
In excess of net investment income........................ -- -- .02 --
From net realized gain.................................... -- -- -- .03
------ ------ ------ ------
Total distributions..................................... .41 .42 .43 .17
------ ------ ------ ------
Net asset value, end of period.............................. $ 9.95 $ 9.72 $ 9.72 $ 9.50
====== ====== ====== ======
Total return(%)............................................. 6.70(b) 4.37(b) 7.14(b) .20(d)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $2,318 $2,178 $1,436 $ 869
Ratio of expenses to average net assets(c)
With expense reimbursement(%)............................. 1.82 1.87 1.85 1.85(e)
Without expense reimbursement(%).......................... 2.09 2.08 1.99 1.96(e)
Ratio of net investment income to average net
assets(%)(a).............................................. 4.39 4.44 4.37 4.84(e)
Portfolio turnover rate(%).................................. 20 35 59 44
</TABLE>
(a) Net investment income is net of expenses reimbursed by
manager.
(b) Total return does not reflect a sales charge.
(c) Beginning in July 1995, total expenses include fees paid
indirectly through an expense offset arrangement, if any.
(d) Total return represents aggregate total return and does not
reflect a sales charge.
(e) Annualized.
(See Notes to Financial Statements)
<PAGE> 46
NOTES TO FINANCIAL STATEMENTS
Mackenzie New York Municipal Fund (the Fund) is a diversified series of
shares of Mackenzie Series Trust. The shares of beneficial interest are $.001
par value and an unlimited number of shares of Class A and Class B are
authorized. Mackenzie Series Trust was organized as a Massachusetts business
trust under a Declaration of Trust dated April 22, 1985 and is registered under
the Investment Company Act of 1940, as amended, as an open-end management
investment company.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
Preparation of the financial statements includes the use of management
estimates. Actual results could differ from those estimates.
SECURITY VALUATION -- Municipal securities are valued utilizing primarily
the latest bid prices or, if bid prices are not available, on the basis of a
matrix pricing system (which considers factors such as coupon interest rate,
maturity, credit rating and market indicies), both as furnished by an
independent pricing service approved by the Board of Trustees (the Board).
SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions are
accounted for on the trade date. Interest income is accrued on a daily basis.
Realized gains and losses from securities transactions are calculated on an
identified cost basis.
FEDERAL INCOME TAXES -- The Fund intends to qualify for tax treatment
applicable to regulated investment companies under the Internal Revenue Code, as
amended, and distribute all of its investment income and net realized gain to
its shareholders. Therefore, no provision has been recorded for Federal income
or excise taxes.
DISTRIBUTIONS TO SHAREHOLDERS -- Normally, distributions from net
investment income are declared monthly and net realized capital gains, if any,
are declared semi-annually.
For the Fund's taxable year ended June 30, 1997, 100% of distributions paid
were exempt interest dividends for Federal income tax purposes.
RECLASSIFICATIONS -- The timing and characterization of certain income and
net capital gain distributions are determined annually in accordance with
Federal tax regulations which may differ from generally accepted accounting
principles. These differences primarily relate to certain securities sold at a
loss. As a result, Net realized gain (loss) on investments for a reporting
period may differ significantly in amount and character from distributions
during such period. Accordingly, the Fund may make reclassifications among
certain of its capital accounts without impacting the net asset value of the
Fund.
FEES PAID INDIRECTLY -- The Fund has an arrangement whereby a certain
percentage of quarterly cumulative credits resulting from cash balances on
deposit with the custodian are used to offset custody fees, including
transaction and out-of-pocket expenses. For the year ended June 30, 1997,
custody fees were not reduced under this arrangement.
2. RELATED PARTIES
Mackenzie Investment Management Inc. (MIMI) is the Manager and Investment
Adviser of the Fund. For its services, MIMI receives a fee monthly at the annual
rate of .55% of the Fund's average net assets.
Currently, MIMI voluntarily limits the Fund's total operating expenses
(excluding taxes, 12b-1 fees, brokerage commissions, interest, litigation and
indemnification expenses, and other extraordinary expenses) to an annual rate of
.85% of its average net assets. The voluntary expense limitation may be
terminated or revised at any time.
MIMI also provides certain administrative, accounting and pricing services
for the Fund. For those services, the Fund pays MIMI fees plus certain
out-of-pocket expenses. Such fees and expenses are reflected as Administrative
services fee and Fund accounting in the Statement of Operations.
Ivy Mackenzie Distributors, Inc. (IMDI), a wholly owned subsidiary of MIMI,
is the underwriter and distributor of the Fund's shares, and as such, purchases
shares from the Fund at net asset value to settle orders from investment
dealers. For the year ended June 30, 1997, the net amount of underwriting
discount retained by IMDI was $5,859.
Under Service and Distribution Plans, the Fund reimburses IMDI for service
fee payments made to brokers at an annual rate not to exceed .25% of its average
net asset value. Class B shares are also subject to an ongoing distribution fee
at an annual rate of .75% of the average net asset value attributable to Class B
shares. IMDI may use such distribution fee for purposes of advertising and
marketing shares of the Fund. Such fees of $85,287 and $23,340 for Class A and
Class B, respectively, are reflected as 12b-1 service and distribution fees in
the Statement of Operations.
Ivy Mackenzie Services Corp. (IMSC), a wholly owned subsidiary of MIMI, is
the transfer and shareholder servicing agent for the Fund. For those services,
<PAGE> 47
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
the Fund pays a monthly fee plus certain out-of-pocket expenses. Such fees and
expenses of $40,982 and $1,542 for Class A and Class B, respectively, are
reflected as Transfer agent in the Statement of Operations.
3. BOARD'S COMPENSATION
Trustees who are not affiliated with MIMI receive compensation from the
Fund, which is reflected as Trustees' fees in the Statement of Operations.
4. CONCENTRATION OF CREDIT RISK
The Fund primarily invests in debt obligations issued by the State of New
York and its political subdivisions, agencies and public authorities to obtain
funds for various public purposes. The Fund is more susceptible to factors
adversely affecting issuers of New York securities than is a municipal bond fund
that is not concentrated in these issuers to the same extent.
5. PROPOSED REORGANIZATION
Pursuant to a plan of reorganization adopted by the Board and subject to
the approval of the Fund's shareholders, the net assets of the Fund are expected
to be acquired by Thornburg New York Intermediate Municipal Fund (a series of
shares of Thornburg Investment Trust) in early September, 1997.
6. FUND SHARE TRANSACTIONS
Fund share transactions for both Class A and Class B were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1997 JUNE 30, 1996
---------------------- ----------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
------- -------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Sold.......................... 189,115 $ 1,844,316 150,497 $ 1,481,105
Issued on reinvestment of
distributions................ 103,592 1,013,869 118,551 1,162,655
Repurchased................... (758,140) (7,459,947) (758,400) (7,452,201)
-------- ----------- -------- -----------
Net decrease.................. (465,433) $(4,601,762) (489,352) $(4,808,441)
======== =========== ======== ===========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1997 JUNE 30, 1996
---------------------- ----------------------
CLASS B* SHARES AMOUNT SHARES AMOUNT
-------- -------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Sold.......................... 38,441 $ 376,887 90,800 $ 891,763
Issued on reinvestment of
distributions................ 6,150 60,221 4,201 41,183
Repurchased................... (35,694) (351,649) (18,664) (183,828)
-------- ----------- -------- -----------
Net increase.................. 8,897 $ 85,459 76,337 $ 749,118
======== =========== ======== ===========
</TABLE>
* Effective June 20, 1997, Class B shares are no longer offered for sale.
<PAGE> 48
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees of
Mackenzie New York Municipal Fund (the Fund)
We have audited the accompanying statement of assets and liabilities of the
Fund, including the portfolio of investments, as of June 30, 1997, and the
related statement of operations for the year then ended, the statement of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the periods indicated. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of June
30, 1997, by correspondence with the custodian. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of the
Fund as of June 30, 1997, the results of its operations for the year then ended,
the changes in its net assets for each of the two years in the period then
ended, and the financial highlights for each of the periods indicated, in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Fort Lauderdale, Florida
August 8, 1997
