<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(B) OR 12(G) OF THE
SECURITIES EXCHANGE ACT OF 1934
MACKENZIE INVESTMENT MANAGEMENT INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<CAPTION>
<S> <C>
DELAWARE 59-2522153
(STATE OR OTHER JURISDICTION OF INCORPORATION OR (I.R.S. EMPLOYER IDENTIFICATION NO.)
ORGANIZATION)
700 SOUTH FEDERAL HIGHWAY, SUITE 300
BOCA RATON, FL 33432
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (561) 393-8900
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<CAPTION>
<S> <C>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH
TO BE SO REGISTERED EACH CLASS IS TO BE REGISTERED
- --------------------------------------------------------- ------------------------------------------------------
NONE N/A
</TABLE>
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, PAR VALUE $.01 PER SHARE
--------------------------------------
(TITLE OF CLASS)
<PAGE> 2
ITEM 1. DESCRIPTION OF BUSINESS
General Development of Business
Mackenzie Investment Management Inc. ("MIMI") was incorporated under
the laws of the State of Delaware by certificate of incorporation dated April
17, 1985. MIMI is a majority owned subsidiary of Mackenzie Financial Corporation
("MFC"), a Toronto-based investment counsel and mutual fund management company.
MIMI provides, through various subsidiaries, investment management,
marketing, distribution, transfer agency and other administrative services to
the Ivy Fund ("Ivy Fund") and beginning in July 1999, to the Mackenzie Solutions
Trust ("Mackenzie Solutions"), both of which are U.S. open-end investment
companies, registered under the Investment Company Act of 1940, as amended (the
"40 Act"), consisting of nineteen and six separate portfolios, respectively, as
of July 1999. Since its inception, MIMI has also provided portfolio management
and related services to various separate portfolios of Mackenzie Series Trust
(September 1985 through September 1997), and The Mackenzie Funds Inc. (November
1987 through April 1995), each an open-end investment company.
Ivy Management, Inc. ("IMI"), a Securities and Exchange Commission
("SEC") registered investment advisor and a wholly owned subsidiary of MIMI,
provides sub-advisory services to nine Universal mutual funds sold only in
Canada and managed by MFC (the "Canadian Funds"). In addition, IMI separately
manages accounts which consist of international equity accounts for an
investment partnership and a private foundation formed under Internal Revenue
Code Section 501(c).
In December 1996, MIMI completed an underwritten public offering of
1,000,000 shares of its common stock, on the Toronto Stock Exchange ("TSE"), at
a public offering price of $6.25 ($Cdn. 8.50) per share, pre-stock split, as
described below (the "Offering"). The net proceeds from the offering of
approximately $5.3 million were used to finance MIMI's growth, which included
the funding of deferred selling commissions paid to broker-dealers on the sale
of Class B and Class C shares of the Ivy Funds. See "Introduction of Multi-Class
Share Structure" under "Narrative Description of Business."
In July 1997, the Board of Directors of MIMI approved a 2-for-1 stock
split of the common shares of MIMI. This stock split was effected by declaring a
stock dividend of one additional common share for each common share of MIMI
issued and outstanding on the dividend record date of August 25, 1997. All
references in this document referring to shares and per share amounts have been
adjusted retroactively to reflect the 2-for-1 stock split.
In June 1998, MIMI entered into a normal course issuer bid, which was
approved by the TSE, to purchase up to 945,000 shares of its common stock. The
bid commenced on June 10, 1998 and terminated on June 9, 1999. During this
period, MIMI purchased 400,800 shares of its common stock at the prevailing
market price at the time of acquisition. MIMI has filed notice of intention to
make a normal course issuer bid with the TSE for another year, whereby it will
be permitted to purchase up to 941,610 shares of its common stock through July
2000. MIMI believes that its common stock is undervalued at current market
prices based on its earnings and that the repurchase of the common stock is an
appropriate use of corporate funds and should benefit shareholders.
In September 1998, the shareholders of MIMI approved, at its annual
meeting, an amendment to its Certificate of Incorporation to increase the number
of authorized common shares from 30 million to 100 million. The additional
authorized common shares will benefit MIMI by providing the Board of Directors
the flexibility to respond to business needs and opportunities as they arise,
and for other corporate purposes.
In the last five years, MIMI has positioned itself as a niche company
offering mutual funds with an emphasis on international and emerging growth
investing. MIMI intends to concentrate its marketing efforts on the sale of
mutual funds which specialize in the international and emerging growth areas.
2
<PAGE> 3
When used in this document, the following terms generally apply unless otherwise
noted:
<TABLE>
<CAPTION>
<S> <C>
the "Canadian Funds" the Canadian Funds sold only in Canada and
sub-advised by IMI.
the "Company" MIMI and its consolidated subsidiaries
the "Funds" the separate portfolios of Ivy Fund and the
separate portfolios of Mackenzie Solutions,
collectively
the "Ivy Funds" the separate portfolios of Ivy Fund, collectively
the "Mackenzie Solutions Funds" the separate portfolios of Mackenzie Solutions,
collectively
the "Solutions Funds" the five separate portfolios of Mackenzie Solutions
that participate in the International Solutions
asset allocation program, collectively
</TABLE>
MIMI is an SEC-registered investment advisor and conducts business through three
Boca Raton, Florida based, wholly-owned subsidiaries as follows:
Ivy Management, Inc. was incorporated under the laws of the
Commonwealth of Massachusetts and is registered with the SEC
under the Investment Advisers Act of 1940. IMI has exclusive
management agreements entitling it to manage Ivy Fund and
Mackenzie Solutions.
Ivy Mackenzie Distributors, Inc. ("IMDI") was incorporated
under the laws of the State of Florida and is registered as a
broker-dealer under the Securities Exchange Act of 1934 (the
"34 Act"). IMDI is a member of the National Association of
Securities Dealers ("NASD"). Under terms of exclusive
underwriting agreements with Ivy Fund and Mackenzie Solutions,
IMDI is entitled to sell the shares of the Funds. In this
capacity, IMDI distributes shares of the Funds though
broker-dealers, financial planners and registered investment
advisers and to institutional investors, such as retirement
plans.
Ivy Mackenzie Services Corporation ("IMSC") was incorporated
under the laws of the State of Florida and is registered as a
transfer agent with the SEC under the 34 Act. IMSC, under
transfer agency and shareholder services agreements with Ivy
Fund and Mackenzie Solutions, serves as transfer agent and
dividend paying agent for the Funds and provides certain
shareholder and shareholder-related services as requested by
the Funds.
The following table provides a summary of assets under management and
associated revenues. The U.S. mutual funds consist of international equity
funds, domestic equity funds, taxable fixed income funds and the Ivy Money
Market Fund. The Canadian Funds consist of the Universal Funds sold only in
Canada.
3
<PAGE> 4
<TABLE>
<CAPTION>
For the year ended March 31,
Assets under management 1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
U.S. mutual funds(1) $3,330,892 $3,917,952 $2,844,544 $1,576,687 $1,125,631
Canadian Funds 1,437,379 1,328,136 962,269 599,920 296,978
---------- ---------- ---------- ---------- ----------
Total assets under management $4,768,271 $5,246,088 $3,806,813 $2,176,607 $1,422,609
---------- ---------- ---------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
For the year ended March 31,
Revenues 1999 1998 1997 1996 1995
------- ------- ------- ------- -------
(in thousands)
<S> <C> <C> <C> <C> <C>
Management fees $33,813 $33,223 $18,326 $11,125 $ 8,643
Sub-advisory fees from Canadian Funds 5,994 5,556 3,954 2,114 1,077
Administrative and Other Fee Income 25,013 24,246 14,117 7,902 6,430
Other income 1,436 2,071 746 696 97
------- ------- ------- ------- -------
Total revenues $66,256 $65,096 $37,143 $21,837 $16,247
------- ------- ------- ------- -------
</TABLE>
(1) Includes separately managed accounts which represented less than 1% of
assets under management.
The Company's revenues are generated principally from on-going
management fees and sub-advisory fees calculated as a percentage of average
daily net assets under management, and from fees related to services performed
for Ivy Fund and Mackenzie Solutions under various contracts for administrative,
transfer agent and fund accounting services. The level of assets under
management is affected by gross sales, redemptions and changes in the market
value of the Funds' portfolios of investments. Gross sales and redemptions are a
function of a number of factors including relative performance and prevailing
market conditions. As the level of assets under management fluctuates so does
management fee revenue. Mutual fund managers generally experience higher levels
of sales during and after a period of above-average fund and market performance
and higher levels of redemptions during and after a period of below-average fund
and market performance. While an increase in assets under management will most
likely increase transfer agent fees, these fees are more directly related to the
number of shareholder accounts in the Funds.
IMI seeks to achieve a variety of investment objectives on behalf of
the Funds, including capital appreciation, income, and growth and income. In
seeking to achieve such objectives, each Fund's portfolio emphasizes different
investment strategies. Funds that seek capital appreciation invest primarily in
equity securities in a wide variety of international and U.S. markets; some seek
broad national market exposure, while others focus on narrower sectors such as
precious metals, emerging economies and technologies. Funds seeking income focus
on taxable money market instruments, fixed-income debt securities of
corporations and of the U.S. government and its agencies and instrumentalities
such as the Government National Mortgage Association, the Federal National
Mortgage Association and the Federal Home Loan Mortgage Corporation. Still
others focus on investments in particular countries and regions.
A majority of the assets managed are equity-oriented.
4
<PAGE> 5
The Advisor's investment style generally favors minimizing risk rather
than attempting to achieve a top performance ranking over a given period.
Management believes that, over the long term, consistent performance that is
average to above average best serves Fund shareholders and is most conducive to
developing loyal investors and repeat business from Fund distributors. The chart
below shows assets under management and revenues by broad investment objective.
<TABLE>
<CAPTION>
As of March 31,
Assets under management
(in thousands) 1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Fixed Income $ 612,655 $ 528,710 $ 385,545 $ 248,814 $ 139,441
International Equity 3,416,113 3,863,332 2,592,820 1,080,365 549,244
Money Market 28,435 23,529 22,345 19,396 26,373
Tax Exempt Municipal 0 0 144,860 186,468 250,143
U.S. Equity 711,068 830,517 661,243 641,564 457,408
---------- ---------- ---------- ---------- ----------
Total assets under management $4,768,271 $5,246,088 $3,806,813 $2,176,607 $1,422,609
---------- ---------- ---------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
For the year ended March 31,
Revenues (in thousands) 1999 1998 1997 1996 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Fixed Income $ 4,377 $ 3,332 $ 2,556 $ 2,014 $ 1,125
International Equity 51,444 49,816 23,775 9,863 5,542
Money Market 243 197 201 248 917
Tax Exempt Municipal 0 600 1,774 2,396 2,931
U.S. Equity 8,757 9,080 8,091 6,620 5,635
Other 1,435 2,071 746 696 97
------- ------- ------- ------- -------
Total revenues $66,256 $65,096 $37,143 $21,837 $16,247
------- ------- ------- ------- -------
</TABLE>
Shares of the Funds are generally sold at their respective net asset
value per share plus a sales charge, which varies depending on the type of Fund
and the amount purchased. Exceptions from sales charges are made for purchases
of the Ivy Money Market Fund. The Company has implemented a multi-class
structure in response to increasing competition from mutual fund managers
offering funds without a front-end sales charge. All Funds offer Class A, Class
B and Class C shares and all Funds other than Ivy Money Market Fund and Ivy
International Fund offer Advisor Class shares. Eight of the nineteen Ivy Funds
and the six Mackenzie Solutions Funds also offer Class I shares. Some classes
are specifically designed for institutional investors. See "Introduction of
Multi-Class Share Structure" under "Narrative Description of Business." In
accordance with certain terms and conditions described in the prospectus for
such Funds, certain investors are allowed to purchase shares at net asset value
or at a reduced sales charge. Investors may generally exchange their shares of a
Fund, other than the Cundill Value Fund, at net asset value for shares within
the same class of another Fund within the same trust without the payment of
additional sales charges.
Financial Information about Industry Segments
5
<PAGE> 6
All of the operations of the Company are carried on within a single operating
segment.
Narrative Description of Business
Investment Management and Advisory Services
The Company, through its various subsidiaries described above, provides
investment management, marketing, distribution, transfer agency and other
administrative services to Ivy Fund and Mackenzie Solutions, as well as
sub-advisory services to the Canadian Funds. Such services are provided pursuant
to various written agreements.
The investment management agreements for the Funds continue in effect,
after an initial two year period, for successive annual periods, providing such
continuance is specifically approved at least annually by a majority of votes
cast in person at a meeting of such Funds' Boards of Trustees called for that
purpose, or by a vote of the holders of a majority of the Funds' outstanding
voting securities. In either event, the continuance must be approved by a
majority of such Funds' trustees who are not parties to such agreement or
interested persons of the Funds or the Company, within the meaning of the 40
Act. The investment management agreements may be terminated upon 60 days'
written notice by a vote of the majority of the outstanding voting securities of
the affected Fund, by a vote of a majority of the Board of Trustees, or by IMI.
If there were to be a termination of a significant number of the investment
management agreements between Ivy Fund and/or Mackenzie Solutions and the
Company's subsidiaries such termination would have a material adverse impact
upon the Company. To date, no agreements of the Company with the Funds have been
involuntarily terminated.
As the manager of the Funds, IMI is responsible for monitoring the
services provided by third parties, supplying the Funds with office space and
administrative and clerical personnel, supervising the maintenance of books and
records, assisting in the preparation of tax and other governmental returns and
reports and responding to appropriate inquiries from persons such as transfer
agents and fund accounting personnel. The Company pays the salaries of personnel
who serve as officers of the Company, including the President and such other
administrative personnel as are necessary to conduct the Funds' day-to-day
business operations. The Funds generally pay their own expenses such as legal
and auditing fees, shareholder reporting and board and shareholder meeting
costs, SEC and state registration and similar expenses. Generally, the Funds pay
IMI a management fee based upon a Fund's net assets.
IMI acts as advisor to all Funds other than Ivy Global Natural
Resources Fund and also acts as sub-advisor to the nine Canadian Funds. IMI has
retained Northern Cross Investments Limited (Northern Cross) to act as
sub-advisor to Ivy International Fund ("IIF") and Henderson Investment
Management Limited ("Henderson") to act as sub-advisor to 50% of the portfolio
of Ivy International Small Companies Fund. IMI has also retained Henderson to
act as sub-advisor to Ivy European Opportunities Fund. IMI has retained Peter
Cundill & Associates (Bermuda) Ltd. ("Cundill"), to act as sub-advisor to the
Cundill Value Fund, which is expected to commence operations on or about October
1999. Cundill has managed MFC's Cundill Value Fund since 1975. MFC acts as
advisor to Ivy Global Natural Resources Fund.
IMI (i) determines, with respect to the Funds it advises, which
investments the Funds may make and which investments may be sold; (ii) prepares
investment performance reports for the appropriate Trustees of the Funds; and
(iii) complies with information requirements from the Trustees of the Funds with
regard to such matters and filings made with the SEC and state securities
commissions. In its capacity as investment advisor, IMI performs fundamental
research and valuation analysis, industry and company research, company visits
and inspections, and utilizes such sources as company public records and
activities, management interviews, company prepared information, and other
publicly available information, as well as analyses of suppliers, customers and
competitors. Fixed-income research includes economic analysis, credit analysis
and value analysis. The economic analysis includes an evaluation of
6
<PAGE> 7
certain macro economic variables such as inflation, employment levels, and
industrial production and capacity utilization. Credit analysis researches the
creditworthiness of debt issuers and their individual short-term and long-term
debt issues. Yield spread differential analysis reviews the relative value of
market sectors that represent buying and selling opportunities.
The Funds pay management fees to IMI ranging from 0.25% to 1.00% per
annum of a Fund's average daily net assets. IMI receives a sub-advisory fee from
MFC equal to 0.50% per annum of the first $50 million of the average daily net
assets of each of the Canadian Funds, calculated daily on each day the TSE is
open for trading, except for the Universal World Science and Technology Fund and
Universal Select Managers Fund, from which IMI receives a sub-advisory fee of
0.50% per annum of 40% of each respective fund's average daily net assets.
Assets of the Canadian Funds in excess of $50 million per fund are added to a
pool of funds with the following rates: 0.50% of the first $1.3 billion of
consolidated assets in excess of the 0.50% paid on the first $50 million in each
fund; 0.35% on the excess of the consolidated assets of $1.3 billion up to $3.0
billion; 0.25% on consolidated assets from $3.1 billion up to $5.0 billion;
0.20% on consolidated assets from $5.1 billion up to $10.0 billion; and 0.15% on
consolidated assets above $10.0 billion.
Under the Funds' management agreements, IMI pays all expenses incurred
by them in rendering management and advisory services to the Funds. See the
table of funds and investment objectives, which contains information on
management and sub-advisory fees paid to IMI in the "The Products" section.
The Funds bear their own operating expenses. However, IMI limits
certain Ivy Funds' total operating expenses (excluding 12b-1 Service and
Distribution Fees and taxes) to annual rates ranging from 0.85% to 1.95% of each
Ivy Fund's average daily net assets, depending upon the size of the Ivy Fund.
These contractual expense limitations are determined annually and are disclosed
in the affected Funds' Prospectuses.
Five of the six separate portfolios of Mackenzie Solutions participate
in an asset allocation program known as "International Solutions". The Solutions
Funds enable investors to tailor their exposure to different investment
techniques in the international securities markets and related risk by investing
primarily in the shares of other mutual funds that in turn invest in a broad
range of foreign securities. Each Solutions Fund invests in eight to fifteen
underlying funds whose combined investment strategies and techniques are
consistent with the Solutions Fund's investment objective. These underlying
funds will be Ivy Funds and other non-affiliated funds. Each underlying fund in
turn invests in a wide range of foreign securities. As a result, an investment
in a Solutions Fund is effectively diversified over a large number of different
foreign issuers. The sixth fund is a separate portfolio of Mackenzie Solutions
known as the Cundill Value Fund which is expected to commence operations on or
about October 1999. This Fund does not participate in the asset allocation
program, but rather it is managed under the same type of management agreement as
is used by the Ivy Funds.
MIMI has retained Garmaise Investment Technologies ("GIT") to provide
asset allocation consulting services to the Solutions Funds. GIT uses a
proprietary computer-based method of portfolio selection known as
"Optimization." GIT's responsibilities include selecting the underlying funds
that comprise each Solutions Fund portfolio and determining when changing the
relative mix of underlying funds within a Solutions Fund portfolio may be
appropriate in light of prevailing market conditions. The underlying fund
selection process includes evaluation of a long-term return forecasts; a risk
estimation; a measure of the relative diversification potential; and a
cross-checking analysis to ensure all resulting portfolios conform to
professional standards of asset class and geographic diversification. For these
services, MIMI pays GIT an annual fee of $50,000.
Each manager of an underlying fund, other than the Ivy Funds,
participating in the International Solutions asset allocation program pays IMI a
fee of up to 0.25% of the average daily value of the shares of the underlying
fund held by a Solutions Fund. Such payments are used by IMI on behalf of and at
the direction of the underlying funds to reduce the expenses of the Solutions
Funds. In addition, IMI voluntarily limits the Solutions Funds' total operating
expenses (excluding 12b-1 Service and Distribution Fees and taxes) to annual
rates ranging from 0.08% to 0.39% of each Solutions Fund's average daily net
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<PAGE> 8
assets. The voluntary expense limitations are designed to limit the combined
operating expenses of the underlying funds and Solutions Funds collectively to
an overall expense ratio of 1.99% for Class A shares. These voluntary expense
limitations may be terminated at any time.
The Products
The Company's groups of Funds currently consist of nineteen separate
portfolios of Ivy Fund and six separate portfolios of Mackenzie Solutions. The
business affairs of Ivy Fund and Mackenzie Solutions are managed by separate
Boards of Trustees, and the day to day administration of each is carried out by
the Company. Management of a Fund's portfolio is the responsibility of the
portfolio manager. Some Funds may be managed under a team approach. The table
below outlines information related to each Fund's portfolio management, net
asset value and management fees.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Net Assets as
of March 31, Management Fee
Name of Fund Investment Objective 1999 (% of Fund Year Introduced
(Portfolio Manager) (In Millions of Average Daily
Dollars) Net Assets)
- ---------------------------------------------------------------------------------------------------------------------------
INTERNATIONAL EQUITY FUNDS
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cundill Value Fund Long-term capital growth. * 1.00 1999
(Cundill)
- ---------------------------------------------------------------------------------------------------------------------------
Long-term capital growth by
Ivy European Opportunities Fund investing in the securities * 1.00(1) 1999
(Henderson) markets of Europe.
- ---------------------------------------------------------------------------------------------------------------------------
Ivy Global Fund (IMI's Long-term capital growth. 1.00 1991
International Equity Team) 20.5
- ---------------------------------------------------------------------------------------------------------------------------
Ivy Global Natural
Resources Fund Long-term growth. 3.1(2) 1.00(3) 1997
(Frederick Sturm, MFC)
- ---------------------------------------------------------------------------------------------------------------------------
Ivy Global Science & Technology
Fund Long-term capital growth. 37.1 1.00 1996
(IMI's Global Technology Team)
- ---------------------------------------------------------------------------------------------------------------------------
Ivy International Fund
(Northern Cross - Long-term capital growth. 2,377.3 1.00(4) 1986
Hakan Castegren)
- ---------------------------------------------------------------------------------------------------------------------------
Ivy International Fund II Long-term capital growth. 141.3 1.00 1997
(Barbara Trebbi)
- ---------------------------------------------------------------------------------------------------------------------------
Ivy International Small
Companies Fund
(Co-managed by Henderson and Long-term growth. 2.7 1.00(5) 1997
IMI's International Equity Team)
- ---------------------------------------------------------------------------------------------------------------------------
Ivy Pan Europe Fund
(IMI's International Equity Long-term capital growth. 6.0 1.00 1997
Team)
- ---------------------------------------------------------------------------------------------------------------------------
U.S. EQUITY FUNDS
- ---------------------------------------------------------------------------------------------------------------------------
Ivy Growth Fund
(Co-managed by James W. Long-term growth. 309.6 0.85(6) 1960
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
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<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Net Assets as
of March 31, Management Fee
Name of Fund Investment Objective 1999 (% of Fund Year Introduced
(Portfolio Manager) (In Millions of Average Daily
Dollars) Net Assets)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Broadfoot, Barbara Trebbi, and
Paul P. Baran)
- ---------------------------------------------------------------------------------------------------------------------------
Ivy Growth with
Income Fund Long-term growth. 88.8 0.75 1984
(Paul P. Baran)
- ---------------------------------------------------------------------------------------------------------------------------
Ivy US Blue Chip Fund Long-term growth. 7.6 0.75 1998
(Paul P. Baran)
- ---------------------------------------------------------------------------------------------------------------------------
Ivy US Emerging
Growth Fund(7) Long-term growth. 110.7 0.85 1996
(James W. Broadfoot)
- ---------------------------------------------------------------------------------------------------------------------------
EMERGING MARKETS FUNDS
- ---------------------------------------------------------------------------------------------------------------------------
Ivy Asia Pacific Fund
(IMI's International Equity Long-term growth. 5.5 1.00 1997
Team)
- ---------------------------------------------------------------------------------------------------------------------------
Ivy China Region Fund
(IMI's International Equity Long-term capital growth. 16.7 1.00 1993
Team)
- ---------------------------------------------------------------------------------------------------------------------------
Ivy Developing
Nations Fund(8)
IMI's International Equity Long-term growth. 12.8 1.00 1994
Team)
- ---------------------------------------------------------------------------------------------------------------------------
Ivy South America Fund(9)
(IMI's International Equity Long-term growth. 2.5 1.00 1996
Team)
- ---------------------------------------------------------------------------------------------------------------------------
FIXED INCOME FUNDS
- ---------------------------------------------------------------------------------------------------------------------------
Ivy Bond Fund High level of current income. 148.5 0.75(10) 1985
(IMI's Fixed Income Team)
- ---------------------------------------------------------------------------------------------------------------------------
Ivy International Total return, and consistent with
Strategic Bond Fund that objective, to maximize current * 0.75 1999
(Richard A. Gluck) income.
- ---------------------------------------------------------------------------------------------------------------------------
To obtain as high a level of
Ivy Money Market Fund current income as is consistent
(IMI's Fixed Income Team) with the preservation of capital 28.4 0.40 1987
and liquidity.
- ---------------------------------------------------------------------------------------------------------------------------
CANADIAN FUNDS
IMI acts as sub-adviser to the following Canadian Funds which are offered for sale only in Canada.
- ---------------------------------------------------------------------------------------------------------------------------
Long-term capital growth by
Universal World Balanced RRSP pursuing both current income and
Fund capital gains, generally through 280.6 0.50(11) 1994
(Co-managed by Richard A. international fixed income and
Gluck and Barbara Trebbi) equity derivative securities.
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
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<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Net Assets as
of March 31, Management Fee
Name of Fund Investment Objective 1999 (% of Fund Year Introduced
(Portfolio Manager) (In Millions of Average Daily
Dollars) Net Assets)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Universal World Income RRSP
Fund Long-term capital growth. 461.4 0.50(11) 1975
(Richard Gluck)
- ---------------------------------------------------------------------------------------------------------------------------
Universal World Growth RRSP
Fund Long-term capital growth. 303.4 0.50(11) 1994
(Barbara Trebbi)
- -------------------------------- ------------------------------------- ----------------- ----------------- ----------------
Universal Americas Fund
(Co-managed by James W.
Broadfoot, Michael Borowsky Long-term capital growth. 52.7 0.50(11) 1978
and Barbara Trebbi)
- ---------------------------------------------------------------------------------------------------------------------------
Universal U.S. Emerging Growth
Fund Long-term capital growth. 194.4 0.50(11) 1991
(James W. Broadfoot)
- ---------------------------------------------------------------------------------------------------------------------------
Universal World Science and
Technology Fund
(Co-managed by three portfolio Capital growth. 100.8 0.50(11) 1996
advisors from MFC, IMI and
Henderson)
- ---------------------------------------------------------------------------------------------------------------------------
Universal World High Yield Above-average income with the 2.7 0.50(11) 1997
Fund potential for capital growth
(Michael Borowsky)
- ---------------------------------------------------------------------------------------------------------------------------
Universal Select Managers Fund
(Co-managed by five portfolio
managers from MFC, MIMI, Long-term growth. 34.1 0.50(11) 1998
Henderson and Cundill)
- ---------------------------------------------------------------------------------------------------------------------------
Universal World Value Fund Long-term capital appreciation. 7.4 0.50(11) 1997
(Barbara Trebbi)
- ---------------------------------------------------------------------------------------------------------------------------
SOLUTIONS FUNDS
The following funds participate in the asset allocation program known as International Solutions.
- ---------------------------------------------------------------------------------------------------------------------------
International Solutions I: Capital preservation with moderate
Conservative Growth current income and secondarily, ** 0.25 1999
(IMI) capital appreciation.
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
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<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Net Assets as
of March 31, Management Fee
Name of Fund Investment Objective 1999 (% of Fund Year Introduced
(Portfolio Manager) (In Millions of Average Daily
Dollars) Net Assets)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
International Solutions II: A balance of capital appreciation
Balanced Growth and capital preservation, with ** 0.25 1999
(IMI) moderate current income.
- ---------------------------------------------------------------------------------------------------------------------------
International Solutions III: Capital appreciation and
Moderate Growth secondarily, preservation of ** 0.25 1999
(IMI) capital.
- ---------------------------------------------------------------------------------------------------------------------------
International Solutions IV:
Long-term Growth Capital appreciation without ** 0.25 1999
(IMI) regard to current income.
- ---------------------------------------------------------------------------------------------------------------------------
International Solutions V:
Aggressive Growth Aggressive capital appreciation ** 0.25 1999
(IMI) without regard to current income.
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Ivy European Opportunities Fund and Ivy International Strategic Bond Fund
began sales on May 3, 1999.
The Cundill Value Fund is expected to begin operations on or about October 1999.
Effective June 21, 1999, new orders for purchases of Ivy European Opportunities
Fund are no longer accepted.
** The Solutions Funds began sales on July 2, 1999.
(1) IMI retains 0.50%, Henderson, as sub-adviser, is paid 0.50%.
(2) The net assets of Ivy Canada Fund were acquired by Ivy Global Natural
Resources Fund on April 7, 1999.
(3) IMI is paid 0.50%, MFC is paid 0.50%.
(4) IMI retains 0.40%, reduced to 0.30% for average daily net assets over $2.5
billion; Northern Cross, as sub-adviser, is paid 0.60% of the first $1.5 billion
in average daily net assets, reduced to 0.55% of the next $1.0 billion in
average daily net assets and 0.50% of the Fund's average daily net assets over
$2.5 billion.
(5) IMI retains 0.75%; Henderson, as sub-adviser, is paid 0.25%. Each fee is
based on 50% of the average daily net assets of the Fund.
(6) Reduced to 0.75% for average daily net assets over $350 million.
(7) Effective January 20, 1998, the Fund changed its name from Ivy Emerging
Growth Fund.
(8) Effective January 20, 1998, the Fund changed its name from Ivy New Century
Fund.
(9) Effective January 20, 1998, the Fund changed its name from Ivy Latin America
Strategy Fund.
(10) IMI receives a management fee at the annual rate of 0.75% of the first $100
million in average daily net assets, and 0.50% of average daily net assets in
excess of $100 million.
(11) These fees are paid according to a graduated scale. For details see the
"Investment Management and Advisory Services" section under "Narrative
Description of Business."
Closing of Ivy International Fund
In April 1997, Ivy International Fund ("IIF") exceeded $2 billion in
assets. The sub-adviser, Northern Cross, believed strongly in preserving the
integrity of IIF and that the ability to manage the Fund would be impeded if it
continued to grow at its historical pace. Effective April 18, 1997, IIF closed
to new shareholders; existing shareholders may continue to invest in IIF.
Sale of the Tax-Exempt Municipal Bond Funds
On September 5, 1997, MIMI entered into a plan of reorganization with
an unrelated third party, providing for the transfer of certain assets relating
to the four municipal funds which had been distributed under the Mackenzie
Series Trust name. This transaction resulted in gross proceeds of approximately
11
<PAGE> 12
$1.755 million, which after recording related expenses resulted in a gain of
approximately $1.049 million. The transfer of the assets of these municipals
funds did not have a material effect on MIMI's financial results.
Fund Mergers and Introductions
In April 1999, Ivy Canada Fund merged into Ivy Global Natural Resources
Fund. In May 1999, Ivy European Opportunities Fund and Ivy Strategic Bond Fund
commenced operations. In July 1999, sales commenced for the five Solutions
Funds: International Solutions I - Conservative Growth; International Solutions
II - Balanced Growth; International Solutions III - Moderate Growth;
International Solutions IV - Long-term Growth; and International Solutions V
Aggressive Growth. These five Funds each have their own investment objectives,
strategies and risks and invest in shares of other mutual funds (referred to as
"underlying funds"). The underlying funds are both affiliated Ivy Funds and
funds from non-affiliated mutual funds companies. Sales of the Cundill Value
Fund, the sixth portfolio of Mackenzie Solutions, are expected to begin on or
about October 1999.
Introduction of a Multi-Class Share Structure
In October 1993, the Ivy Funds began offering a multi-class structure
which allows investors to choose an appropriate purchase option based on the
amount purchased and the anticipated duration of the investments. MIMI
implemented this multi-class structure in response to increasing competition
from mutual fund managers offering funds without a front-end sales charge. The
multi-class share structure allows investors to choose between paying a
front-end sales charge at the time of purchase, or not paying a front-end sales
charge at the time of purchase but instead paying a Contingent Deferred Sales
Charge ("CDSC") on redemption. Prior to this date, the Ivy Funds offered Class A
shares only, which normally bear a front-end sales charge payable by the
investor at time of purchase and are subject to a 12b-1 Service Fee at an annual
rate of up to 0.25% of a Fund's average daily net assets attributable to its
Class A shares.
A 12b-1 Fee is a fee permitted by Rule 12b-1 under the 40 Act, which a
mutual fund may pay in connection with the distribution of its shares, for costs
such as advertising and commissions paid to broker-dealers. The portion of the
12b-1 Fee payable to a broker-dealer as a distribution fee in connection with
the distribution of a mutual fund's shares is referred to as a 12b-1
Distribution Fee. This fee is limited annually to 0.75% of the mutual fund's
average daily net assets. An additional portion of the 12b-1 Fee, referred to as
a 12b-1 Service Fee, is limited to 0.25% of the mutual fund's average daily net
assets. It is paid to broker-dealers and other sales professionals for their
services in providing ongoing information and assistance to investors.
Class B shares became available for sale starting in October 1993. No
front-end sales charge is payable by the investor at the date of purchase, but
there is a deferred selling commission of 4% of the sale price paid by MIMI to
the selling broker-dealer when the shares are purchased and a declining CDSC
payable by the investor if the shares are redeemed within six years from the
date of purchase. In addition, Class B shares are subject to 12b-1 Service and
Distribution Fees at a combined annual rate of up to 1.00% of a Fund's average
daily net assets attributable to its Class B shares.
In March 1999, MIMI sold the Class B deferred selling commission asset.
See the sub-section titled "Distribution Services" below for more information.
Class C shares became available for sale starting in May 1996. There
is no front-end sales charge payable by the investor at the date of purchase,
but there is a deferred selling commission of 1% of the sale price paid by MIMI
to the selling broker-dealer when the shares are purchased. A CDSC of 1% is
payable by the investor if the shares are redeemed within one year from the date
of purchase. Class C shares are subject to 12b-1 Service and Distribution Fees
at a combined annual rate of up to 1.00% of the mutual fund's average daily net
assets attributable to its Class C shares. The 12b-1 Service and Distribution
Fees are retained by IMDI in year one; for all subsequent years the fees are
paid to the broker-dealer.
12
<PAGE> 13
Advisor Class shares became available for sale starting in January
1998. The shares are offered at net asset value without the imposition of a
front-end sales charge or CDSC. In addition, Advisor Class shares are not
subject to Rule 12b-1 Fees. Advisor Class shares are offered only to certain
investors, such as those with an account over which a financial planner, trust
company or registered investment adviser has investment discretion, and where
the investor pays such person as compensation for its advice and other services
an annual fee on the assets in the account.
Class I shares became available for sale starting in October 1994.
Class I shares are offered only to institutions and certain individuals, and are
not subject to an initial sales charge or CDSC, nor to ongoing 12b-1 Service or
Distribution Fees. Class I shares also bear lower fees than Class A, Class B and
Class C shares. Currently, Class I shares are sold by eight of the Ivy Funds and
the Mackenzie Solutions Funds.
Administrative, Transfer Agent and Fund Accounting Services
Under administrative services agreements, MIMI provides administrative
services to the Funds including, but not limited to, maintenance of registration
and qualification of Fund shares under Blue Sky Laws, preparation of U.S.
Federal, state and local income tax returns and preparation of financial and
other information for prospectuses, securities regulatory documents and returns
and periodic reports to shareholders. The administrative service agreements for
the Funds continue in effect, after an initial two year period, for successive
annual periods, providing such continuance is specifically approved at least
annually by a majority of votes cast in person at a meeting such Funds' Boards
of Trustees called for that purpose, or by a vote of the holders of a majority
of the Funds' outstanding voting securities. In either event, the continuance
must be approved by a majority of such Funds' trustees who are not parties to
such agreement or interested persons of the Funds or the Company within the
meaning of the 40 Act. The administrative service agreements may be terminated
upon 60 days' written notice by a vote or written consent of a majority of the
Funds' Board of Trustees, or by MIMI. To date, no administrative service
agreements of the Company with the Funds have been involuntarily terminated.
Under fund accounting services agreements, MIMI also provides certain
accounting and pricing services to the Funds. The fund accounting services
agreements for the Funds continue in effect for successive annual periods,
providing such continuance is specifically approved at least annually by a
majority of votes cast in person at a meeting such Funds' Boards of Trustees
called for that purpose, or by a vote of the holders of a majority of the Funds'
outstanding voting securities. In either event, the continuance must be approved
by a majority of such Funds' trustees who are not parties to such agreement or
interested persons of the Funds or the Company within the meaning of the 40 Act.
The fund accounting services agreements may be terminated upon 90 days' written
notice by a vote or written consent of a majority of the Board of Trustees, or
by MIMI. To date, no fund accounting services agreements of the Company with the
Funds have been involuntarily terminated.
For the administrative services provided to the Funds as described
above, all Ivy Funds and Cundill Value Fund pay a monthly fee at an annual rate
of 0.10% of the average daily net assets of the applicable Fund (except with
respect to Class I shares). All Ivy Funds and Cundill Value Fund pay a monthly
fee at an annual rate of .01% of the average daily net assets for Class I
shares. MIMI does not receive any compensation for administrative services
provided to the Solutions Funds. For accounting and pricing services, MIMI
receives a fee ranging from $1,000 to $6,500 per month based on the net asset
value of each of the Ivy Funds and each of the Mackenzie Solutions Funds at the
preceding month end. MIMI is also reimbursed by the Funds for certain
out-of-pocket expenses.
IMSC serves as transfer agent and dividend paying agent for the Funds
and provides certain shareholder and shareholder-related services as required by
the Funds. For transfer agent services, IMSC receives a per shareholder account
fee ranging from $20 to $22 per year. The shareholder account fee
13
<PAGE> 14
received by IMSC for Class I shares is $10.25. IMSC is also reimbursed by the
Funds for certain out-of-pocket expenses.
Distribution Services
IMDI serves as principal underwriter and exclusive distributor of the
Funds and distributes them on a continuous basis in every state in the U.S. IMDI
is not required to sell any specific amount of Fund shares. The Funds' shares
are sold primarily through a large network of independent participating
securities dealers. The Funds' shares are offered to individual investors,
qualified groups, trustees, IRA and profit sharing or money purchase plans,
employee benefit plans, trust companies, bank trust departments and
institutional investors.
IMDI is assisted in its distribution efforts by a national team of
eighteen regional representatives who market the Funds to the broker-dealer,
financial planner and registered investment adviser sales channels, supported by
a national sales manager and a team of internal sales personnel, all of whom are
employed by the Company. The broker-dealer and financial planner sales channels
are the traditional channels through which load mutual funds are sold to
investors. IMDI has dealer agreements with over 275 U.S. broker-dealer firms,
such as Merrill Lynch & Co., Inc., Prudential, and PaineWebber Inc., who
distribute the Funds through their regional offices. Merrill Lynch & Co., Inc.
was responsible for approximately 53% of mutual fund sales for the year ended
March 31, 1999. Merrill Lynch & Co., Inc. is not under any obligation to sell a
specific amount of shares of the Ivy Funds or Mackenzie Solutions Funds and also
sells shares of mutual funds that it sponsors and which are sponsored by
unaffiliated organizations.
Upon receipt of a purchase order from a broker-dealer, IMDI purchases
shares from the Funds at net asset value per share and re-sells them to the
broker-dealer who in turn sells them to the investor at the public offering
price. As an underwriting fee, IMDI receives a portion of the difference between
the purchase price it paid to the Funds and the public offering price paid by
the investor. The underwriting fee retained by IMDI is typically 15 - 20% of the
front-end sales charge paid by the investor, with the remaining portion being
retained by the selling broker-dealer.
Over the years, MIMI has gained access to the mutual fund sales network
created by the emergence of registered investment advisers and financial
planners. This network consists of independent registered investment advisers
and financial planners who work with the traditional broker-dealer distribution
network in selling funds to their clients. Firms such as Charles Schwab & Co.,
Inc. and Fidelity Investment Advisor Group act as clearing houses for thousands
of U.S. mutual funds enabling smaller, independent registered investment
advisers and financial planners to have access to mutual fund groups previously
sold only by broker-dealers. Management of MIMI believes that MIMI was one of
the first U.S. mutual fund managers whose funds impose front-end sales charges
or CDSCs to actively participate in this expanding network and has established
selling arrangements with many U.S. registered investment advisers and financial
planner groups.
For the year ended March 31, 1999, the percentages of Fund sales from
the various distribution channels used by the Company were as follows:
<TABLE>
<CAPTION>
Distribution Channel Percent of Total Fund Sales
-------------------- ---------------------------
<S> <C>
Broker-dealers 56%
Financial Planners 10%
House Accounts / Insurers / Other 9%
Regional Representatives 3%
Registered Investment Advisers 22%
---
100%
---
</TABLE>
14
<PAGE> 15
Under the terms of the distribution plans between IMDI and the Funds,
IMDI is entitled to receive 12b-1 Distribution Fees from the Funds for
distribution services in respect of certain of the classes of shares offered by
the Funds. The plans are established for an initial term of one year and
thereafter, must be approved annually by the Funds' Board of Trustees and by a
majority of disinterested directors. All such plans are subject to termination
at any time by a majority vote of the disinterested directors or by the Funds'
shareholders. The plans permit the Funds to bear certain expenses relating to
the distribution of their shares.
IMDI is entitled to be reimbursed by the Funds for 12b-1 Service Fees
paid by it to broker-dealers up to an amount equal to 0.25% of the average daily
net assets of Class A shares. This fee is accrued daily and IMDI is reimbursed
monthly.
The Funds pay IMDI a 12b-1 Fee at an annual rate of 1.00% of the
average daily net assets of the Class B and Class C shares of the Funds, which
is comprised of a 12b-1 Distribution Fee of 0.75% of the average daily net
assets paid to IMDI as reimbursement for various promotional and sales-related
expenses incurred, and a 12b-1 Service Fee of 0.25% of the average daily net
assets which IMDI pays to the broker-dealer for account maintenance and
shareholder services. This fee is accrued daily and IMDI receives the fee
monthly.
IMDI is entitled to receive a CDSC on the redemption of Class B and
Class C shares depending on when such shares are redeemed. For Class B shares,
the fee ranges from 5% of the amount subject to charge in the first year of
purchase to 1% in the sixth year after purchase. For Class C shares, there is a
1% fee for redemptions during the first year after the purchase of such shares.
MIMI pays the up-front selling commission to broker-dealers on sales of
Class B and Class C shares. The up-front selling commission is 4% and 1% for
Class B and Class C shares, respectively. MIMI funds these up-front selling
commissions from its cash flows from operation, including CDSC and 12b-1
Distribution Fees.
In March 1999, the Company sold a portion of the deferred selling
commissions related to Class B shares to an unrelated third party (the
"Purchaser"). The sale resulted in the Company receiving cash proceeds of
$21,115,000 and recording a net gain of approximately $41,000 after recording
expenses incurred in connection with the transaction. The Purchaser will receive
12b-1 Distribution Fees and any CDSC upon redemption of the asset sold. The sale
of the deferred selling commissions provided cash to the Company for general
corporate purposes.
As of March 31, 1999, there were approximately 111,000 shareholder accounts in
the Funds.
Custody and Brokerage
Custody of individual securities is maintained by banks, trust
companies, brokerage firms or other custodians as appointed by the Company. The
Company generally has the discretion to select brokers or dealers to be utilized
to execute transactions for the Funds' accounts.
Risk Factors and Cautionary Statements
Competition
The financial services industry is highly competitive and has
increasingly become a global industry. There are over 7,000 open-end investment
companies of varying sizes, investment policies and objectives whose shares are
being offered to the public in the United States. Given the large number of
competitors in the U.S., the Company has focused its efforts on becoming a niche
market mutual fund manager. With this focus, the Company considers that it has
narrowed the competitive field to a certain extent as it competes primarily with
mutual fund managers that provide specialty mutual funds, such as international
and emerging market funds, to investors. As of March 31, 1999, the Company's
market share
15
<PAGE> 16
of monthly average assets under management was .03%. However, the Company's
market share of international and emerging market fund monthly average assets
under management was 1.66%.
The Company is in competition with the financial services and other
investment alternatives offered by stock brokerage and investment banking firms,
insurance companies, banks, savings and loan associations and other financial
institutions. Many of the Company's competitors have substantially greater
resources than the Company. In addition, there has been a trend of consolidation
in the mutual fund industry which has resulted in stronger competitors. Such
competition could negatively impact the Company's market share, revenues and net
income.
Distribution
Securities dealers, whose large retail distribution systems play an
important role in the sale of shares of the Funds, also sponsor competing
proprietary mutual funds. To the extent that these firms limit or restrict the
sale of Ivy Funds or Mackenzie Solutions Funds through their brokerage systems
in favor of their proprietary mutual funds, future sales may be negatively
impacted and the Company's revenues might be adversely affected. In addition, as
the number of competitors in the investment management industry increases,
greater demands are placed on existing distribution channels, which has caused
distribution costs to increase.
As investor interest in the mutual fund industry has increased,
competitive pressures have increased on sales charges of broker-dealer
distributed funds. The Company believes that, although this trend will continue,
a significant portion of the investing public still relies on the services of
the broker-dealer community, particularly during weaker market conditions.
However, in response to competitive pressures or for other similar reasons, the
Company might be forced to lower or further adjust sales charges, substantially
all of which are paid by the Company to broker-dealers and other financial
intermediaries. The reduction in such sales charges paid to broker-dealers could
make the sale of shares of the Funds somewhat less attractive to the
broker-dealer community, which could in turn have a material adverse effect on
the Company's revenues.
Asset Mix
As discussed above, the Company's revenues are derived primarily from
investment management activities. Broadly speaking, the direction and amount of
change in the net assets of the Funds depend upon two factors: (1) the level of
sales of shares of the Funds as compared to redemptions of the shares of the
Funds; and (2) the increase or decrease in the market value of the securities
owned by the Funds. The Company is subject to an increased risk of volatility
from changes in the global equity markets. Despite this volatility, management
believes that in the long run the Company is more competitive as a result of
greater diversity of global investments available to its customers.
Market values are affected by many things, including the general
condition of national and world economics and the direction and volume of
changes in interest rates and/or inflation rates. Fluctuations in interest rates
and in the yield curve will have an effect on fixed-income assets under
management as well as on the flow of monies to and from fixed-income funds and,
as a result, will effect the Company's revenues from such funds. The effects of
the foregoing factors on equity funds and fixed-income funds often operate
inversely and it is, therefore, difficult to predict the net effect of any
particular set of conditions on the level of assets under management.
Certain portions of the Company's managed portfolios are invested in
various securities of corporations located or doing business in developing
regions of the world commonly known as emerging markets. These portfolios and
the Company's revenues derived from the management of such portfolios are
subject to significant risks of loss from unfavorable political and diplomatic
developments, currency fluctuations, social instability, changes in governmental
policies, expropriation, nationalization, confiscation of assets and changes in
legislation relating to foreign ownership. Foreign trading markets,
16
<PAGE> 17
particularly in some emerging market countries are often smaller, less liquid,
less regulated and significantly more volatile.
Investor Sentiment for International Investing
Given the risk associated with investing in foreign and emerging
markets, investors may from time to time be less supportive of investing in
international funds than in U.S. equity or fixed income funds and sales of those
Funds which invest in these areas may decrease.
Ivy International Fund
As of March 31, 1999, 50% of the assets under management was
represented by IIF. In April 1997, this fund was closed to new shareholders. A
decline in the performance of IIF could have an effect on further redemptions of
its shares. In addition, any change in the sub-advisory arrangements between IMI
and Northern Cross may have an adverse effect on IIF's net redemptions. Net
redemptions in IIF for the year ended March 31, 1999 were $448 million, compared
to average net sales of $499 million over the past four years.
Sales for fiscal year 1999 in IIF were $325 million as compared to $893
million in fiscal year 1998, a 64% decrease, and assets under management in IIF
at March 31, 1999 were $2,377 million as compared to $2,881 million at March 31,
1998.
Absence of Public Trading Market
MFC owns 85% of the issued and outstanding common shares of MIMI as
of July 1999. The shares have been thinly traded. There is no assurance that
an active market will develop or be sustained after this filing. Further, the
number of common shares of MIMI held by persons other than MFC will be very
small by market standards and this may have an adverse impact on liquidity and
trading of the common shares.
Relationship with MFC
For the year ended March 31, 1999, 9% of MIMI's consolidated revenues
were derived from fees received from MFC for sub-advisory services provided to
the Canadian Funds. Any change in these sub-advisory arrangements between MFC
and MIMI could have an adverse effect on MIMI's revenues. Management of MIMI
understands that MFC intends to continue MIMI's role as a sub-adviser, subject
to MIMI's level of performance and MFC's obligations as manager of the Canadian
Funds.
Sales Trends of Certain MIMI Funds
Sales of Ivy Funds were $518 million for the year ended March 31, 1999,
as compared to $1,202 million for the same period last year. The closing of IIF
to new shareholders in April 1997 and the global economic turbulence, in
general, has significantly impacted the Company's sales and the growth of its
assets under management. MIMI's future growth, given the closing of IIF, is
dependent upon broadening the sales base to its other specialty funds and
maintaining existing contracts to provide sub-advisory services to mutual funds
managed by MFC.
Reliance on Key Employees
Although MIMI takes a team approach to the management of several of the
Funds' portfolios whereby all members work together in developing and carrying
out investment strategies, it is possible that levels of investment in a Fund
may not grow at the same rate should the principal portfolio manager cease
managing that Fund.
Number of Employees
17
<PAGE> 18
As of March 31, 1999, the Company had 123 employees, including thirteen
investment professionals, of whom seven are portfolio managers, four are
research analysts and two are traders. The average period of employment of these
professionals with the Company is approximately five years and their average
investment experience is approximately nineteen years. The Company considers its
employee relations to be good.
Regulatory Environment
Virtually all aspects of the Company's business are subject to various
federal and state laws and regulations. As discussed above, the Company and its
subsidiaries are registered with federal and state governmental agencies. These
supervisory agencies have broad administrative powers, including the power to
limit or restrict the Company from carrying on its business if it fails to
comply with applicable laws and regulations. In the event of non-compliance, the
possible sanctions which may be imposed include suspending individual employees,
limiting the Company's ability to engage in business for specified periods of
time, revoking the investment advisor or broker-dealer registrations and
censures and fines.
The Company's officers, directors and employees may from time to time
own securities which are also held by the Funds. The Company's internal policies
with respect to individual investments by certain employees, including officers
and directors who are employed by the Company, require prior clearance and
reporting of some transactions and restrict certain transactions so as to reduce
the possibility of conflicts of interest. The Company's compliance procedures
meet the standards outlined in the most recent Investment Company Institute's
guidelines related to securities transactions by employees, officers and
directors of investment companies.
To the extent that existing or future regulations cause or continue to
reduce sales of Fund shares or investment products or impair the investment
performance of the Funds or such other investment products, the Company's
aggregate assets under management and its revenues might be adversely affected.
Changes in regulations affecting free movement of international currencies might
also adversely affect the Company.
The Company is subject to increased scrutiny and a
substantially-increased volume of compliance reporting related to its plan,
activities and the associated costs related to the year 2000, as discussed in
more detail in "Item 2. FINANCIAL INFORMATION" under the heading "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Since 1993, the NASD Conduct Rules have limited the amount of aggregate
sales charges which may be paid in connection with the purchase and holding of
investment company shares sold through brokers. The effect of the rule might be
to limit the amount of fees that could be paid pursuant to a Fund's 12b-1 Plan
to IMDI. Such limitations would apply in a situation where a Fund has no or
limited, new sales for a prolonged period of time.
Under the 40 Act, each of the Funds must file annually a current
prospectus and Statement of Additional Information with and pay registration
fees to the SEC. The public may read and copy any material filed with the SEC at
the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.
20549. Information on the operation of the Public Reference Room may be obtained
by calling the SEC at 1-800-SEC-0330. Additionally, each of the Funds must pay
registration fees in some or all of the states.
Under the 40 Act and rules thereunder, each of the Funds are required
to obtain shareholder approval for certain changes in its operations including
changes to its investment advisory contracts, a change in control of its adviser
or IMDI, its principal underwriter, or a change in its fundamental investment
objective or other fundamental policies. The 40 Act also requires that each of
the Funds' investment advisory contract be annually approved by the Funds' Board
of Trustees.
18
<PAGE> 19
As a registered broker-dealer, IMDI is subject to net worth and capital
requirements, bonding requirements and detailed rules of practice as well as
general anti-fraud provisions.
Reports to Securities Holders
Security holders will receive an annual report containing financial
statements on which there will be an opinion expressed by an independent public
accountant. Security holders will also receive unaudited quarterly condensed
financial statements.
ITEM 2. FINANCIAL INFORMATION
Selected Consolidated Financial Data
The tables below indicate selected consolidated financial information
for MIMI as of and for each of the five years in the period ended March
31, 1999. The selected consolidated financial data have been derived
from the Company's consolidated financial statements, which have been
audited by PricewaterhouseCoopers LLP, independent certified public
accountants. The following data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the Company's Consolidated Financial
Statements and notes thereto included elsewhere in this document.
(Note: all figures are in US dollars except where otherwise stated).
<TABLE>
<CAPTION>
For the year ended March 31,
1999 1998 1997 1996 1995
-------------- ------------ -------------- ------------ -------------
(in thousands of dollars, except per share amounts)
<S> <C> <C> <C> <C> <C>
Revenues $66,256 $65,096 $37,143 $21,837 $16,247
Net Income 8,549 9,526 7,291 2,053 12
Per common share:
Net income - basic 0.45 0.51 0.44 0.13 0.00
Net income - diluted 0.44 0.49 0.43 0.13 0.00
</TABLE>
<TABLE>
<CAPTION>
As of March 31,
1999 1998 1997 1996 1995
-------------- ------------ -------------- ------------ -------------
(In thousands of dollars, except per share amounts)
<S> <C> <C> <C> <C> <C>
Total Assets Under
Management $4,768,271 $5,246,088 $3,806,813 $2,176,607 $1,422,609
Total Assets 68,169 61,925 64,405 25,951 22,350
Total Liabilities 15,865 18,475 32,836 6,976 5,428
Stockholders' equity 52,304 43,450 31,569 18,975 16,922
</TABLE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
19
<PAGE> 20
YEAR ENDED MARCH 31, 1999 COMPARED WITH YEAR ENDED MARCH 31, 1998
Net assets under management, exclusive of assets of the Canadian Funds
for which MIMI provided sub-advisory services to MFC, decreased 15% to $3,331
million at March 31, 1999 from $3,918 million at March 31, 1998. Of the $587
million decrease, $523 million was attributable to net redemptions (sales less
redemptions) and the balance of $64 million was attributable to market
depreciation and cash distributions. Net sales decreased by $1,133 million
compared to the year ended March 31, 1998 due to (i) a $449 million increase in
redemptions over the prior year primarily resulting from investors' apprehension
of the world financial markets and (ii) a $684 million decrease in sales
primarily due to the closing of IIF to new shareholders in April 1997.
At the end of fiscal year 1999, the net assets of the Canadian Funds
for which MIMI provides sub-advisory services to MFC totaled approximately
$1,437 million as compared to $1,328 million at the previous fiscal year-end,
representing an 8% increase.
Revenues
Total revenues increased 2% to $66.3 million for the fiscal year 1999
from $65.1 million for the fiscal year 1998. The increase is primarily due to
the increase in average assets under management and the fees derived therefrom.
The following is an explanation of the increase or decrease in each major
category.
Management fees increased 2%, or $590,000, to $33.8 million for the
year ended March 31, 1999 from $33.2 million for the year ended March 31, 1998
solely attributable to the increase in average assets under management.
Sub-advisory fees from the Canadian Funds increased 8%, or $438,000 to
$6.0 million in fiscal year 1999 from $5.6 million in fiscal year 1998. This
increase can be attributed to (i) the growth in assets of the Canadian Funds as
discussed above and (ii) the addition of one fund for which sub-advisory
services were rendered in fiscal year 1999 as compared to fiscal year 1998.
12b-1 Service and Distribution Fees received from the Funds increased
1% to $14.7 million for the year ended March 31, 1999 from $14.6 million for the
year ended March 31, 1998, as average assets for the year ended March 31, 1999
were above the year ended March 31, 1998.
Administrative, fund accounting and transfer agent fees during fiscal
year 1999 of $7.1 million were comparable with fiscal year 1998 amounts.
Underwriting fees decreased 73% to $141,000 for the fiscal year 1999
from $516,000 for the fiscal year 1998, due to the overall decrease in sales
volume.
Redemption fees increased $1.2 million to $3.1 million for fiscal year
1999 from $1.9 for fiscal year 1998. This increase can be attributed to the $125
million increase in Class B and C share redemptions over the last fiscal year.
Interest, dividends, and other revenue decreased 31% to $1,435,000 in
the fiscal year 1999 from $2,070,000 in the fiscal year 1998. Other revenue
during fiscal year 1998 included a gain of $1 million from MIMI's transfer of
its four municipal funds comprising the Mackenzie Series Trust. Interest and
dividend income for fiscal year 1999 increased $559,000 over fiscal year 1998
primarily due to MIMI's higher cash balances. MIMI's cash and cash equivalents
increased to $51.0 million at March 31, 1999 from $20.9 million at March 31,
1998.
Expenses
Total operating expenses increased by 6% to $52.6 million for fiscal
year 1999 from $49.6 million for fiscal year 1998 due to (i) 12b-1 Service Fees
paid to broker/dealers and sub-advisory fees paid to an
20
<PAGE> 21
unrelated third party resulting from a higher level of average assets under
management as discussed above; (ii) an increase in staffing levels and office
space; and (iii) an increase in reimbursement to the Funds for expenses due to a
decrease in assets under management in certain of the Funds.
Sales literature, advertising and promotion expenses decreased 37%, or
$1.5 million due to a more tightly focused advertising and marketing program.
12b-1 Service Fees paid to broker/dealers increased $1,954,000, or 28%, due to
the increase in average assets under management.
Employee compensation and benefits increased by $732,000, or 8%, due to
(i) an increase in the number of employees to 123 at March 31, 1999 from 117 at
March 31, 1998; (ii) salary and cost-of-living adjustments; and (iii) an
increase in 401(k) company contributions due to an increase in the Company's
matching contributions.
Sub-advisory fees paid to Northern Cross, the sub-advisor of IIF,
increased $153,000, or 1%, due to an increase in average assets under management
in the fund.
Amortization of deferred selling commissions was $6,202,000 for fiscal
year 1999 as compared to $7,065,000 for fiscal year 1998, or a decrease of 12%.
This decrease was attributable to (i) the decline in Class B and C share sales;
and (ii) the sale of the Class B deferred selling commission. (See Liquidity and
Capital Resources).
General and administrative expenses increased $1,325,000, or 36%,
primarily due to increases in (i) expensing of Fund organization costs resulting
from the adoption of Statement of Position No. 98-5, Reporting on the Costs of
Start-up Activities; (ii) the outsourcing of certain technology-related
services; (iii) travel costs related to new product development; and (iv)
general increases in costs, including office and computer supplies and other
general operating expenses.
Interest expense decreased $10,000, or 2%, due to lower interest rates
during fiscal year 1999 as compared to fiscal year 1998.
Occupancy and equipment rental increased $195,000, or 25%, due to the
expansion of office space to accommodate the increased staff.
IMI voluntarily limits total fund expenses for certain Ivy Funds and
bears expenses in excess of such limits. The increase of $716,000, to
$1,667,000, in the reimbursement to the Funds for expenses is primarily
attributable to the decline in the net asset values of many of the Funds that
IMI reimburses.
FISCAL YEAR ENDED MARCH 31, 1998 COMPARED TO FISCAL YEAR ENDED MARCH 31, 1997
Net assets under management, exclusive of assets of the Canadian Funds,
for which MIMI provided sub-advisory services to MFC, increased 38% to $3,918
million at March 31, 1998 from $2,845 million at March 31, 1997. Of the $1,073
million increase, $611 million was attributable to net sales (gross sales less
redemptions) and the balance of $462 million was attributable to market
appreciation and dividend reinvestments. Net sales decreased by $451 million
compared to the year ended March 31, 1997 due to (i) a $251 million increase in
redemptions over the prior year primarily resulting from investors' apprehension
of the world financial markets, particularly during the last two quarters of the
fiscal year, and (ii) a $200 million decrease in sales primarily due to the
closing of IIF to new shareholders in April 1997. At the end of fiscal year
1998, the net assets of the Canadian Funds for which MIMI provides sub-advisory
services to MFC totaled approximately $1,328 million as compared to $962 million
at the previous fiscal year-end, representing a 38% increase.
Revenues
21
<PAGE> 22
Total revenues increased 75% to $65.1 million for the fiscal year 1998
from $37.1 million for the fiscal year 1997. The increase is primarily due to
the increase in assets under management and the fees derived there-from. The
following is an explanation of the increase or decrease in each major category.
Management fees increased $14.9 million to $33.2 million for the year
ended March 31, 1998 from $18.3 million for the year ended March 31, 1997 solely
attributable to the increase in assets under management. As discussed above,
U.S. assets under management increased 38% to $3,918 million at March 31, 1998
from $2,845 million at March 31, 1997. While IIF is closed to new investors, the
Company benefited from the large increase in assets under management in that
fund. IIF contributed $13.7 million of the $14.9 million increase in management
fees as purchases by existing shareholders, including 401(k) plans, continued
and the net assets of the fund increased.
Sub-advisory fees from the Canadian Funds increased $1.6 million to
$5.6 million in fiscal year 1998 from $4.0 million in fiscal year 1997. This
increase can be attributed to (i) the growth in assets of the Canadian Funds as
discussed above and (ii) the addition of two funds for which sub-advisory
services were rendered in fiscal year 1998 as compared to fiscal year 1997.
12b-1 Service and Distribution Fees received from the Funds increased
106% to $14.6 million for the year ended March 31, 1998 from $7.1 million for
the year ended March 31, 1997. This increase is attributable, in part, to an
increase in assets under management and to the increase in net sales of Class B
and C shares. These shares bear a 12b-1 Distribution Fee of 0.75% of the Funds'
average daily net asset value. Net sales for Class B and C shares for the year
ended March 31, 1998 were $267.9 million as compared to $219.5 million for the
year ended March 31, 1997, representing a 22% increase.
Administrative, fund accounting and transfer agent fees totaled $7.1
million and $5.7 million during fiscal years 1998 and 1997, respectively. This
25% increase resulted from an increase in assets under management, which caused
administrative and fund accounting fees to increase.
Underwriting fees decreased 39% to $516,000 for the fiscal year 1998
from $843,000 for the fiscal year 1997, as sales of shares that do not bear a
front-end sales charge replaced sales of Class A shares.
Redemption fees increased $1,423,000 to $1,946,000 for fiscal year 1998
from $523,000 for fiscal year 1997. This increase can be attributed to (i) a
broader Class B and C shareholder base and increases in Class B and C sales and
assets; and (ii) the $60 million increase in Class B and C share redemptions
over the last fiscal year.
Interest, dividends, and other revenue increased 177% to $2,070,000 in
the fiscal year 1998 from $746,000 in the fiscal year 1997, due to (i) a net
gain of $1 million resulting from the transfer of MIMI's four municipal funds
comprising the Mackenzie Series Trust; and (ii) the overnight investing of
MIMI's higher cash balances. MIMI's cash and cash equivalents increased to $20.9
million at March 31, 1998 from $6.8 million at March 31, 1997.
Expenses
Total operating expenses increased 66% from fiscal year 1997 to fiscal
year 1998. The increase was related to four factors: (i) the growth in assets
under management, which increased 38% to $3,918 million as of March 31, 1998
from $2,845 million as of March 31, 1997, resulting in increased sub-advisory
fees and 12b-1 Service Fees; (ii) an increase in the amortization of deferred
selling commissions resulting from a higher Class B and C share asset base;
(iii) increased marketing and public relations efforts; and (iv) an increase in
staff to support the growth in the business.
Sales literature, advertising and promotion expenses increased 65%, or
$1,530,000, due to the increase in literature and advertising of our niche
product funds and funds launched in fiscal year 1998 and the increased demand
for information by prospective investors. 12b-1 Service Fees paid to
broker/dealers increased $3,435,000, or 94%, due to the increase in assets under
management.
22
<PAGE> 23
Employee compensation and benefits increased by $2,272,000, or 31%, due
to (i) an increase in the number of employees to 117 at March 31, 1998 from 93
at March 31, 1997; (ii) salary and cost-of-living adjustments; and (iii) an
increase in bonuses earned by all employees due to the achievement of certain
performance, profitability and sales targets.
Sub-advisory fees paid to Northern Cross, the sub-advisor of IIF,
increased $7.7 million, or 111%, due to an increase in assets under management
in the fund. IIF's net assets were $2,881 million at March 31, 1998 as compared
to $1,969 million at March 31, 1997.
Amortization of deferred selling commissions increased 155% to
$7,065,000 for fiscal year 1998 from $2,772,000 for fiscal year 1997. This
increase was attributable to the continued popularity of Class B and C shares,
as deferred selling commissions paid to broker/dealers totaled $11 million
during fiscal year 1998.
General and administrative expenses increased $228,000, or 7%,
primarily due to (i) the outsourcing of certain technology-related services;
(ii) an increase in certain expenses due to being a publicly held company; and
(iii) general increases in costs, including office and computer supplies due to
the growth in the business.
Interest expense increased $249,000, or 107%, due to a higher average
balance of principal outstanding on MIMI's credit facility with BankBoston, N.A.
during fiscal year 1998. This credit facility is used to fund the payment of
deferred selling commissions paid on sales of Class B and C shares. At March 31,
1998, the principal outstanding balance was $6.8 million as compared to $5
million at March 31, 1997.
Occupancy and equipment rental increased $135,000, or 21%, due to the
expansion of office space to accommodate the increased staffing levels, as
discussed previously.
IMI voluntarily limits total fund expenses for certain Ivy Funds and
bears expenses in excess of such limits. The decrease of $164,000, to $951,000,
in the reimbursement to the Funds for expenses is primarily attributable to the
sale of the municipal funds that comprised the Mackenzie Series Trust, which
received reimbursement for expenses.
Liquidity and Capital Resources
Liquidity and capital resources are primarily derived from the
operating cash flows received by MIMI from managing and providing investment
advisory services to mutual funds offered in the U.S. and from providing
sub-advisory services to the Canadian Funds. MIMI manages its resources to
ensure the availability of sufficient cash flows to meet all of its financial
commitments.
In March 1999, the Class B deferred selling commission asset was sold
to an unrelated third party. The sale resulted in proceeds of approximately $21
million. The cash received will be used for general corporate purposes.
MIMI has increased its position in cash and cash equivalents to $51.0
million at the end of fiscal year 1999 from $20.9 million at the end of fiscal
year 1998. This $30.1 million increase resulted from (i) cash flows from
operating activities of $16.5 million; (ii) net proceeds of $20.1 million from
the sale of the Class B deferred selling commission asset, which are included in
cash flows from investing activities; (iii) repayment of $6.8 million under its
credit facility; and (iv) a net of $305,000 from the exercise of stock options
and the purchase and retirement of MIMI's common stock.
The payment of deferred selling commissions to broker/dealers decreased
to $3.9 million for fiscal year 1999 from $11.5 million for fiscal year 1998.
The decrease in deferred selling commissions is attributable to the closing of
IIF to new investors and investor apprehension towards international investing.
The fiscal year 1999 commission payments were funded internally from operations.
23
<PAGE> 24
As a result of the sale of the Class B deferred selling commission
asset, the purchaser will receive 12b-1 Distribution Fees and any CDSC upon
redemption of the asset sold. MIMI estimates that cash flows in fiscal year 2000
will decrease by approximately $8 million resulting from the transaction.
In March 1999, MIMI repaid BankBoston, N.A. all amounts outstanding
under its credit facility, which was used to fund the commissions paid to
brokers.
Included in cash equivalents are $29.4 million of short-term
investments that can be readily converted to cash.
Expenditures for capital assets were $696,000 and $837,000 for the
fiscal years ended March 31, 1999 and 1998, respectively. These expenditures
were primarily for computer equipment and software enhancements, and were
internally funded. Over the next year, MIMI anticipates investing approximately
$700,000 in equipment and technology. Operating cash flows will fund these
expenditures.
Year 2000 Project
In 1996, MIMI began the process of identifying, evaluating and
implementing changes to its critical computer programs and equipment to address
the year 2000 issue. MIMI's year 2000 project plan includes discovery,
assessment, remediation, system testing, contingency planning and internal
certification. MIMI's business areas are in various stages of completion of this
project plan. MIMI has completed 100% of the assessment, remediation and system
testing for internal mission critical information technology and non-information
technology systems. Internal systems have been certified as being year 2000
compliant. MIMI continues integration testing among internal systems. MIMI
continues testing with third-party vendors of mission-critical information
technology systems as well. The testing is precautionary and will continue
through the end of calendar year 1999.
To date, MIMI has incurred expenses of approximately $18,000 during
fiscal years 1997 and 1998 and $47,000 during fiscal year 1999 related to
discovery, assessment, strategy, remediation, system testing and internal
certification. MIMI expects to incur another $20,000 of such expenses during
fiscal year 2000. Existing staff has been redeployed to address the year 2000
project. MIMI does not believe that the redeployment of existing staff has had
or will have a material adverse effect on its business, results of operations or
financial position.
The impact of year 2000 issues on MIMI will depend not only on the
corrective actions that it takes, but also on the way in which year 2000 issues
are addressed by businesses and other third parties that provide services or
data to, or receive services or data from, MIMI. To reduce this exposure, MIMI
has an on-going process of contacting mission critical third-party vendors to
determine their year 2000 plans and target dates. As of July 15, 1999, MIMI has
not been advised by any such third-party vendors that they will not be year 2000
compliant. Notwithstanding MIMI's efforts, there can be no assurance that
mission critical third-party vendors will adequately address their year 2000
issues.
MIMI has developed contingency plans to address risks associated with
year 2000 issues. These activities include retaining and testing off-site
recovery procedures with a third party service to ensure that computer and
communications hardware will function. In addition, MIMI is developing and
testing manual procedures as alternatives to mission critical processes.
Until the year 2000 event actually occurs and for a period of time
thereafter, there can be no assurance that there will be no problems related to
year 2000. The year 2000 technology challenge is an unprecedented event. If year
2000 issues are not adequately addressed by MIMI and third parties, MIMI could
face, among other things, business disruptions, operational problems, financial
losses, legal liability and similar risks, and MIMI's business, results of
operations and financial position could be materially adversely affected.
24
<PAGE> 25
ITEM 3. PROPERTIES
The Company's corporate, research and administrative offices are located in
leased premises, which consist of the following:
- - Approximately 27,000 square feet located at Via Mizner Financial Plaza,
700 South Federal Highway, Boca Raton, Florida 33432 for an average
rent per year of approximately $680,000. The lease expires year 2001.
- - Approximately 5,300 square feet located at 1239-1287 East Newport
Center Drive, Suite 106 & 205, Deerfield Beach, Florida 33442 for an
average rent per year of $70,000. The lease expires year 2001.
- - Approximately 1,800 square feet located at 200 East Broward Boulevard,
Suite 1100, Fort-Lauderdale, Florida 33301 for an average rent per year
of $51,000. The lease expires year 2000.
The Company's headquarters are located in the Boca Raton facility.
All premises are leased from unaffiliated entities, and the Company believes
that the facilities currently occupied by it are satisfactory for its present
needs.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 31, 1999, certain information as to
holdings of the Company's common stock by the shareholders of the Company at
that date.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
Title of Class Name and Address of Amount and Nature of Percent of Class
Beneficial Owner Beneficial Ownership
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
> 5% Ownership Common Stock, Mackenzie Financial 15,987,910 (1) 83.20%
$.01 par value per share Corporation, ATTN:
Mr. James T. Dryburgh
C.A., Vice President
Finance
150 Bloor Street West,
Suite 400
Toronto, Ontario
M5S 2X9 Canada
- ------------------------------------------------------------------------------
> 5% Ownership Canadian Depository 2,091,180 (1) 10.89%
Common Stock, $.01 par value For Securities Ltd.
per share 25 The Esplanade
Box 1038 Station A
Toronto, Ontario
M5E IW5 Canada
- ------------------------------------------------------------------------------
</TABLE>
(1) All shares are owned of record and beneficially.
The following table sets forth, as of March 31, 1999, certain information as to
the holdings of the Company by the Company's officers and directors.
25
<PAGE> 26
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Amount and Nature of
Title of Class Name of Beneficial Owner Beneficial Ownership Percent of Class
Common Stock/Options
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock/Stock Options James W. Broadfoot III 44,000/141,000 *
Common Stock/Stock Options Keith J. Carlson** 0/127,500 *
Common Stock/Stock Options C. William Ferris 20,000/123,500 *
Common Stock/Stock Options Michael G. Landry*** 0/190,000 *
Common Stock/Stock Options Barbara J. Trebbi 0/79,000 *
Common Stock/Stock Options All Directors & Officers 82,200/671,000 *
as a group (12 persons)
- ---------------------------------------------------------------------------------------------------------
</TABLE>
* Represent less than 1%
** Keith J. Carlson served as President and Chief Executive Office from
July 1999 to present. Prior thereto, he served as Executive Vice
President and Chief Operating Officer since October 1997.
***Michael G. Landry served as President and Chief Executive Officer
from August 1987 to July 1999.
There are no arrangements known to the Company, including any pledge by any
person of the securities of the Company or MFC, the operation of which may at a
subsequent date result in a change in control of the Company.
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names, municipalities of residence, the
position held with MIMI and the principal occupation during the past five years
of the directors and senior officers of MIMI. All directors have been elected to
hold office until the next annual meeting of shareholders of MIMI.
<TABLE>
<CAPTION>
Directors and Executive Officers
--------------------------------
<S> <C> <C>
James W. Broadfoot III Age Senior Vice President, Director and Portfolio
Boca Raton, Florida 56 Manager since June 1995. Senior Vice President
and Portfolio Manager since August 1990. President,
IMI since October 1997. President and Interested
Trustee of Ivy Fund since July 1999. Prior thereto,
Vice President of Ivy Fund since June 1996.
Keith J. Carlson Age President, Chief Executive Officer, and Director since
Coral Springs, Florida 43 July 1999. Prior thereto, Executive Vice President and
Chief Operating Officer from December 1997 to July 1999.
Senior Vice President August 1989 to December 1997.
Director from April 1985 to October 1996. Director of IMDI
since June 1993. President and Chief Executive Officer
of IMDI since December 1994. Director of IMI since
November 1992. Senior Vice President IMI since August 1994.
President of IMSC from June 1993 to February 1996. Director of
IMSC since June 1993. Chairman and Trustee of Ivy Fund since
July 1999. Prior thereto, President of Ivy Fund since
December 1996. President and Trustee of Mackenzie Solutions
since November 1998.
Alan J. Dilworth Age Director since December 1996. President, Alan J. Dilworth
Toronto, Canada 68 Consulting, Inc., from September 1995 to present.
Prior thereto, Partner and Senior Counsel, Deloitte
& Touche, Chartered Accountants, from 1993 to 1995.
Director of MFC since January 1999. Director and
Chairman of St. Michael's Hospital (Toronto)
Research Institute since 1994. Director
</TABLE>
26
<PAGE> 27
<TABLE>
<S> <C> <C>
and Chairman of St. Michael's Hospital Crown
Foundation since December 1996. Director and
Secretary of Mary Centre of the Archdiocese of
Toronto since June 1996. Director of Toronto Lawn
Tennis Club since April 1997.
C. William Ferris Age Senior Vice President, Chief Financial Officer and
Palm Beach Gardens, Florida 54 Secretary/Treasurer since June 1995. Director, IMSC
since December 1994. President, IMSC since February
1996. Director and Senior Vice President of IMDI
since December 1994. Senior Vice President, IMI
since December 1994. Secretary and Treasurer of Ivy Fund
since February 1994. Vice President, Secretary
and Treasurer of MacKenzie Solutions since November
1998.
James L. Hunter Age Director since September 1994. Chairman from 1995 to
Etobicoke, Ontario 47 March 1997. Director, President and Chief Executive
Officer, MFC, since 1997. Executive Vice President and
Chief Executive Officer from September 1992 to January 1997.
Prior thereto, Chief Financial Officer and Senior Vice
President from September 1992 to May 1995. Director and
Chairman of Cundill Funds Inc. since September 1998.
Director and Chairman of Execuhold Investment Ltd.,
since March 1992. Director of IMI since August 1994.
Director and Chairman of Mackenzie Financial Services
since October 1994. Director and Chairman of Mackenzie
M.E.F. Management Inc. since August 1994. Director and
Chairman M.R.S. Securities Services Inc. since June
1996. Director and Chairman of M.R.S. Trust Co. since
September 1993. Director and Chairman of Multiple
Retirement Services Inc. from March 1993.
Neil Lovatt Age Chairman and Director since September 1994. Vice-Chairman
Unionville, Ontario 58 of MFC since October 1994. Prior thereto, Senior Vice
President, MFC, from April 1992 to October 1994.
Prior thereto, Vice President, MFC, from April 1989
to April 1992. Director of Mackenzie Financial
Services Inc. since October 1994. Director of IMI
since August 1994. Director of M.R.S. Trust Company
since June 1999. Governor of Cundill Funds (Board
of Governors) since September 1998.
Alasdair J. McKichan Age Director since November 1994. Associate of KPMG since
Cambellville, Ontario 68 February 1995. CEO of McKichan Associates since December
1994. Prior thereto, President, Retail Council of
Canada from 1975 to 1994. Director of MFC since
1994.
Allan S. Mostoff, Esq. Age Director since December 1998. Senior Partner of Dechert
Falls Church, Virginia 66 Price & Rhoads since March 1976.
Michael R. Peers Age Director since October 1996. Director, Ivy Fund, from 1972
Hamilton, Bermuda 69 to 1996. Chairman, Ivy Fund, from 1974 to December 2,
1996. Chairman and Principal, Ivy Management, Inc.
from 1980 to 1992.
</TABLE>
27
<PAGE> 28
<TABLE>
<S> <C> <C>
Dolph W. von Arx Age Director of MIMI. Chairman, NCH Healthcare System,
Naples, Florida 64 since June 1998. Prior thereto, Chairman, Morrison
Restaurants Inc. from February 1966 to June 1998.
Chairman, President and Chief Executive Officer of
Planters Lifesavers Company, an affiliate of R.J.R.
Nabisco, Inc. from 1988 to 1992. Director of Ruby
Tuesdays, Inc. since 1993. Director of Cree
Research Inc. since 1992. Director of International
Multifoods Corp. since 1997. Director of Northern
Trust of Florida Corp. since 1999. Director of BMC
Fund Inc. since 1996.
Vice President
- --------------
Age Vice President and Portfolio Manager since
Barbara J. Trebbi 33 September 1994. Prior thereto, Assistant Vice
Fort-Lauderdale, Florida President from August 1991 to September 1994.
Senior Vice President, IMI since February 1996
</TABLE>
The members of Audit, Finance and Risk Committee are Alan J. Dilworth, Chairman,
James L. Hunter and Michael R. Peers. The members of the Human Resources and
Corporate Governance Committee are Michael R. Peers, Chairman, Alasdair J.
McKichan, Allan S. Mostoff, Esq. and Dolph W. von Arx.
ITEM 6. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
NAME AND FISCAL SALARY BONUS OTHER ANNUAL OPTIONS ALL OTHER
PRINCIPAL POSITION YEAR ($) ($) COMPENSATION ($) (#) COMPENSATION ($)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 375,000 275,000 190,000
Michael G. Landry * 1998 375,000 484,375 0 100,000 0
1997 350,000 422,860 640,000
- --------------------------------------------------------------------------------------------------------------------------
1999 250,000 245,406 141,000
James W. Broadfoot 1998 250,000 343,125 0 90,000 0
Senior Vice-President 1997 225,000 335,608 144,000
- --------------------------------------------------------------------------------------------------------------------------
1999 250,000 188,000 127,500
Keith J. Carlson** 1998 250,000 300,000 0 156,000 0
1997 155,000 237,110 144,000
- --------------------------------------------------------------------------------------------------------------------------
C. WIlliam Ferris
Senior Vice- 1999 165,000 130,000 123,500
President, Chief 1998 165,000 233,154 0 130,000 0
Financial Officer and 1997 150,000 184,195 90,000
Secretary/Treasurer
- --------------------------------------------------------------------------------------------------------------------------
1999 175,000 135,253 79,000
Barbara J. Trebbi 1998 146,000 118,700 0 76,000 0
Vice-President 1997 120,000 76,160 76,000
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
- - Long Term Compensation Awards reflect the aggregate amounts outstanding
at the end of each fiscal year.
- - As permitted by applicable securities regulation, perquisites and other
personal benefits which do not exceed the lesser of $50,000 and 10% of
the total of the annual salary and bonus for any of the named executive
officers have not been disclosed.
* Michael G. Landry served as President and Chief Executive Officer from August
1987 to July 1999.
28
<PAGE> 29
** Keith J. Carlson served as President and Chief Executive Office from July
1999 to present. Prior thereto, he served as Executive Vice President and Chief
Operating Officer since October 1997.
<TABLE>
<CAPTION>
STOCK OPTION GRANTS IN LAST FISCAL YEAR
FROM 4/1/1998 TO 3/31/1999
- ---------------------------------------------------------------------------------------------------------------------
NAME OPTIONS PERCENT OPTION MARKET PRICE EXPIRATION POTENTIAL REALIZABLE VALUE
GRANTED OF TOTAL PRICE ON GRANT DATE DATE 0% 5% 10%
GRANTED U.S. $ U.S. $
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
James W. 21,000 3.12% 4.3000 4.3000 3/26/2004 $0 $24,948 $55,129
Broadfoot SSN 17,000 2.52% 5.7800 5.7800 9/10/2003 $0 $27,147 $59,989
###-##-#### 13,000 1.93% 9.6200 9.6200 5/29/2003 $0 $34,552 $76,350
- ---------------------------------------------------------------------------------------------------------------------
Keith J. 27,500 4.08% 4.3000 4.3000 3/26/2004 $0 $32,670 $72,193
Carlson SSN 22,600 3.35% 5.7800 5.7800 9/10/2003 $0 $36,090 $79,750
###-##-#### 17,400 2.58% 9.6200 9.6200 5/29/2003 $0 $46,246 $102,192
- ---------------------------------------------------------------------------------------------------------------------
C. William 21,000 3.12% 4.3000 4.3000 3/26/2004 $0 $24,948 $55,129
Ferris SSN 12,500 1.85% 5.7800 5.7800 9/10/2003 $0 $19,961 $44,109
###-##-#### 10,000 1.48% 9.6200 9.6200 5/29/2003 $0 $26,578 $58,731
- ---------------------------------------------------------------------------------------------------------------------
Michael G. 40,000 5.93% 4.3000 4.3000 3/26/2004 $0 $47,520 $105,008
Landry SSN 28,500 4.23% 5.7800 5.7800 9/10/2003 $0 $45,512 $100,569
###-##-#### 21,500 3.19% 9.6200 9.6200 5/29/2003 $0 $57,143 $126,272
- ---------------------------------------------------------------------------------------------------------------------
Barbara J. 16,000 2.37% 4.3000 4.3000 3/26/2004 $0 $19,008 $42,003
Trebbi SSN 13,000 1.93% 5.7800 5.7800 9/10/2003 $0 $20,760 $45,874
###-##-#### 10,000 1.48% 9.6200 9.6200 5/29/2003 $0 $26,578 $58,731
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
During the fiscal year ended March 31, 1999, grants of options to
purchase 291,000 common shares of the Company were issued to the named
executive officers. The options were granted on May 29, 1998, September
10, 1998 and March 26, 1999 at an exercise price of $14.00 (Canadian),
$8.80 (Canadian) and $6.50 (Canadian), respectively per share, being
the share price at the closing of trading on May 28, 1998, September 9,
1998, and March 25, 1999, respectively.
Exercise of Stock Options
The following table contains details of the shares acquired on: (i) the
exercise of options by the named executive officers during the most
recent fiscal year; (ii) the value realized from the exercise of those
options; (iii) the unexercised options at March 31, 1999; and (iv) the
financial year-end value of options previously granted to the named
executive officers, but which have not yet been exercised:
Aggregated Options Exercised during the Most Recently Completed Financial Year
and Financial Year -End Option Values
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Value of Unexercised
Number of Unexercised In-the-Money Options at
Name Shares Acquired on Value Realized Options at Fiscal Fiscal Year-end (U.S.$)
Exercise (#) ($) Year-end Exercisable/ Exercisable/
Unexercisable Unexercisable
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
James W. 0 0 90,000/51,000 0/$6,930
Broadfoot III
- ----------------------------------------------------------------------------------------------------------------------
Keith J. Carlson 96,000 728,160 60,000/67,500 0/$9,075
- ----------------------------------------------------------------------------------------------------------------------
C. William Ferris 50,000 376,000 80,000/43,500 $101,400/$6,930
- ----------------------------------------------------------------------------------------------------------------------
Michael G. Landry 0 0 100,000/90,000 0/$13,200
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
29
<PAGE> 30
<TABLE>
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Barbara J. Trebbi 36,000 273,960 40,000/39,000 0/$5,280
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not Applicable
ITEM 8. LEGAL PROCEEDINGS
There are currently no legal proceedings pending to which the Company
is a party or of which any of its property is the subject. Further, there are no
material legal proceedings to which any director, officer, or affiliate of the
Company or any associate thereof is a party adverse to the Company. There are no
material administrative or judicial proceedings pending or known to be
contemplated by any governmental authorities.
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The Company's common shares are traded on the TSE under the ticker
symbol MCI. The current bylaws of the TSE require every TSE listed company
incorporated under the laws of Canada or any province to disclose to
shareholders, on an annual basis, its corporate governance practices. That
statement of corporate governance practices must indicate whether the Company
complies with the guidelines for effective corporate governance contained in the
TSE Guidelines and, if not, the reasons for the differing practices. As the
Company is a foreign issuer in Canada, it is not technically required to comply
with the TSE Guidelines. However, the Company has adopted the same approach to
corporate governance as its majority shareholder, MFC, which follows the TSE
Guidelines.
The following table sets forth the high and low sales prices for the
Company's common stock in U.S. dollars. The prices were obtained from the TSE in
Canadian dollars and translated at each respective day's spot rate to U.S
dollars.
<TABLE>
<CAPTION>
1999 Fiscal Year 1998 Fiscal Year
Quarter High Low High Low
----------------------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C>
April - June $13.31 $8.20 $7.32 $5.87
July-September 10.48 4.79 24.55 6.70
October-December 7.15 3.90 25.16 15.99
January-March 5.90 3.77 17.02 12.97
</TABLE>
MIMI's stock option plan was adopted by the Board of Directors on
August 31, 1994 (the "1994 Plan"). In accordance with the rules of the TSE,
effective September 10, 1998, MIMI amended the 1994 Plan to fix the maximum
number of shares issuable under the 1994 Plan at 3,051,800 common shares,
representing 10% of the issued and outstanding common shares of MIMI's then
outstanding shares less the common shares issued on the exercise of options
within the preceding year. On March 31, 1999, there were 1,372,500 options
outstanding.
At the next shareholder meeting to be held on September 9, 1999,
management is proposing that an amendment to the 1994 Plan be authorized by
shareholders so that the new maximum limit of common shares to be reserved for
issuance under the 1994 Plan will be increased from 3,051,800 shares to
3,114,220 shares.
There are currently over 160 registered shareholders of the Company. As
of March 31, 1999, MFC was the primarily shareholder holding 15,987,910 shares,
or 83.2% of the Company.
30
<PAGE> 31
Although MIMI is permitted to pay dividends of up to 15% of its
consolidated net income under the terms of its credit facility with BankBoston,
N.A., MIMI expects that its earnings will be retained for use in the operation
and expansion of its business and therefore does not intend to pay any cash
dividends on Common Shares in the foreseeable future. Any future determination
as to the payment of cash dividends would depend on the earnings and financial
position of MIMI at such time, as well as applicable legal restrictions and such
other factors as the Board of Directors of MIMI may deem appropriate.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES
In December 1996, MIMI completed an underwritten public offering of
1,000,000 shares of its common stock, on the TSE, at a public offering price of
$US 6.25 ($Cdn. 8.50) per share, pre-split, (the "Offering"). The net proceeds
from the Offering of approximately $US 5.3 million were used to finance MIMI's
growth, which included the funding of deferred selling commissions paid to
broker-dealers on the sale of Class B and Class C shares of the Funds.
The three underwriters for the transactions were:
- Nesbitt Burns Inc. (a majority-owned subsidiary of a Canadian
chartered bank)
- Midland Walwyn Capital Inc. (a wholly-owned subsidiary of
Midland Walwyn Inc.)
- RBC Dominion Securities Inc. (a majority-owned subsidiary of a
Canadian chartered bank)
The total underwriters fees were $0.55 per share (Canadian dollar)
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED
The Company is authorized to issue 100,000,000 shares of common stock,
par value $.01 per share. Each share of common stock is entitled to participate
pro rata in dividends and distributions, if any, with respect to the common
stock when, as and if declared by the Board of Directors from funds legally
available therefor.
Upon liquidation of the Company's assets then legally available for
distribution to the holders of the Company's common stock, such assets are to be
distributed ratably among such holders in proportion to their share holdings.
Shares of common stock are not redeemable, do not have preemptive
rights or conversion rights and are not subject to call. The shares of common
stock presently outstanding are fully paid and non-assessable.
Each shareholder of record is entitled to one vote for each share of
common stock held on every matter properly submitted to the shareholders for
their vote. Cumulative voting is not permitted on any matters submitted to
shareholders for a vote.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Delaware law authorizes a Delaware corporation to eliminate or limit
the personal liability of a director to the corporation and its shareholders for
monetary damages for breach of certain fiduciary duties as a director. The
Company believes that such a provision is beneficial in attracting and retaining
qualified directors and, accordingly, the Company's Bylaws include a provision
eliminating liability for monetary damages for any breach of fiduciary duty as a
director, except: (1) for any breach of the duty of loyalty to the Company or
its shareholders; (2) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; (3) for any transaction
for which the director derived an
31
<PAGE> 32
improper personal benefit; (4) for certain other actions. Thus, pursuant to
Delaware law, directors of the Company are not insulated from liability for
breach of their duty of loyalty (requiring that, in making a business decision,
directors act in good faith and in the honest belief that the action was taken
in the best interest of the corporation), or for claims arising under the
federal securities laws. The foregoing provisions of the Bylaws may reduce the
likelihood of derivative litigation against directors and may discourage or
deter shareholders or management from bringing a lawsuit against directors for
breaches of their fiduciary duties, even though such an action, if successful,
might otherwise have benefited the Company and its shareholders.
Article 4 of the Company's Bylaws provides as follows:
Right to Indemnification
The Company shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative (a
"proceeding"), by reason of the fact that such person is or was a director or
officer of the Company or a constituent corporation absorbed in a consolidation
or merger, or is or was serving at the request of the Company or a constituent
corporation absorbed in a consolidation or merger, as a director or officer of
another corporation, partnership, joint venture, trust or other enterprise, or
is or was a director or officer of the Company serving at its request as an
administrator, trustee or other fiduciary of one or more of the employee benefit
plans of the Company or other enterprise, against expenses (including attorney's
fees), liability and loss actually and reasonably incurred or suffered by such
person in connection with such proceeding, whether or not the indemnified
liability arises or arose from any threatened, pending or completed proceedings
by or in the right of the Company, except to the extent that such
indemnification is prohibited by applicable law.
Advance of Expenses
Expenses incurred by a director or officer of the Company in defending
a proceeding shall be paid by the Company in advance of the final disposition of
such proceedings subject to the provisions of any applicable statute.
Procedure for Determining Permissibility
To determine whether any indemnification or advance of expenses under
this Article 4 is permissible, the board of directors by a majority vote of a
quorum consisting of directors not parties to such proceedings may, and on
request of any person seeking indemnification or advance of expenses shall be
required to, determine in each case whether the applicable standards in any
applicable statue have been met, or such determination shall be made by
independent legal counsel if such quorum is not obtainable, or, even if
obtainable, a majority vote of a quorum of disinterested directors so directs,
provided that, if there has been a change in control of the Company between the
time of the action or failure to act giving rise to the claim for
indemnification or advance of expenses and the time such claim is made, at the
option of the person seeking indemnification or advance of expenses, the
permissibility of indemnification or advance of expenses shall be determined by
independent legal counsel. The reasonable expenses of any director or officer in
prosecuting a successful claim for indemnification, and the fees and expenses of
any special legal counsel engaged to determine permissibility of indemnification
or advance of expenses, shall be borne by the Company.
Contractual Obligation
The obligations of the Company to indemnify a director or officer under
this Article 4, including the duty to advance expenses, shall be considered a
contract between the Company and such director or officer, and no modification
or repeal of any provision of this Article 4 shall affect, to the detriment of
the director or officer, such obligations of the Company in connection with a
claim based on any act or failure to act occurring before such modification or
repeal.
32
<PAGE> 33
Indemnification Not Exclusive; Inuring of Benefits
The indemnification and advance of expenses provided by this Article 4
shall not be deemed exclusive of any other right to which one indemnified may be
entitled under any statue, provision of the Certificate of Incorporation, these
bylaws, agreement, vote of stockholders or disinterested directors or otherwise,
both as to action in such person's official capacity and as to action in another
capacity while holding such office, and shall inure to the benefit of the heirs,
executors and administrators of any such person.
Insurance and Other Indemnification
The board of directors shall have the power to (i) authorize the
Company to purchase and maintain, at the Company's expense, insurance on behalf
of the Company and on behalf of others to the extent that power to do so has not
been prohibited by statue, (ii) create any fund of any nature, whether or not
under the control of a trustee, or otherwise secure any of its indemnification
obligations, and (iii) give other indemnification to the extent permitted by
statue.
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - FINANCIAL STATEMENTS
REQUIRED BY REG. S-X
The consolidated financial statements and the report thereon of
PricewaterhouseCoopers LLP, independent certified public accountants, dated
April 23, 1999 are filed as part of this Registration Statement. See Item 15.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants
Consolidated Statements of Financial Condition as of March 31, 1999 and 1998
Consolidated Statements of Operations for the years ended March 31, 1999, 1998
and 1997
Consolidated Statements of Cash Flows for the years ended March 31, 1999, 1998
and 1997
Consolidated Statements of Changes in Stockholders' Equity for the years ended
March 31, 1999, 1998 and 1997
Notes to Consolidated Financial Statements
33
<PAGE> 34
MACKENZIE INVESTMENT MANAGEMENT INC.
CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 1999 AND 1998
AND FOR THE YEARS ENDED MARCH 31, 1999, 1998 AND 1997
<PAGE> 35
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Pages
<S> <C>
Report of Independent Certified Public Accountants F-1
Financial Statements:
Consolidated Statements of Financial Condition as of
March 31, 1999 and 1998 F-2
Consolidated Statements of Operations for the years ended
March 31, 1999, 1998 and 1997 F-3
Consolidated Statements of Cash Flows for the years ended
March 31, 1999, 1998 and 1997 F-4
Consolidated Statements of Changes in Stockholders' Equity for the
years ended March 31, 1999, 1998 and 1997 F-5
Notes to Consolidated Financial Statements F-6 to F-18
</TABLE>
<PAGE> 36
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Mackenzie Investment Management Inc.
In our opinion, the accompanying consolidated statements of financial condition
and the related consolidated statements of operations, of cash flows and of
changes in stockholders' equity present fairly, in all material respects, the
financial position of Mackenzie Investment Management Inc. and its subsidiaries
as of March 31, 1999 and 1998, and the results of their operations and their
cash flows for the three years in the period ended March 31, 1999, in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
Fort Lauderdale, Florida, U. S. A.
April 23, 1999
F-1
<PAGE> 37
MACKENZIE INVESTMENT MANAGEMENT INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
March 31,
----------------------------
ASSETS 1999 1998
<S> <C> <C>
Cash and cash equivalents $51,032,223 $20,959,781
Receivables:
Funds for fees and expense advances 5,372,633 6,053,690
Other 854,343 691,730
Property and equipment, net of accumulated depreciation 1,306,696 1,160,216
Management contracts, net of accumulated amortization of
$6,831,667 in 1999 and $5,749,772 in 1998 5,643,284 6,725,179
Deferred selling commissions 1,761,002 24,903,294
Other assets 2,199,076 1,430,709
----------- -----------
Total assets $68,169,257 $61,924,599
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Payable to Funds for purchases of Funds' shares and
expense reimbursements $ 158,365 $ 92,678
Sub-advisory fees payable 3,447,159 3,763,947
Accounts payable 876,578 830,514
Accrued expenses and other liabilities 2,138,424 2,398,945
Note payable -- 6,800,000
Income taxes payable 9,241,917 --
Deferred tax liability 2,976 4,588,696
----------- -----------
Total liabilities 15,865,419 18,474,780
----------- -----------
Commitments
Stockholders' equity:
Capital stock, $.01 par value, 100,000,000 and 30,000,000
shares authorized as of March 31, 1999 and 1998, respectively;
19,210,200 and 18,917,000 shares issued and outstanding as
of March 31, 1999 and 1998, respectively 192,102 189,170
Additional paid-in capital 40,403,488 40,101,057
Retained earnings 11,708,248 3,159,592
----------- -----------
Total stockholders' equity 52,303,838 43,449,819
----------- -----------
Total liabilities and stockholders' equity $68,169,257 $61,924,599
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-2
<PAGE> 38
MACKENZIE INVESTMENT MANAGEMENT INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Years Ended March 31,
--------------------------------------------
1999 1998 1997
<S> <C> <C> <C>
Revenues:
Management fees $33,812,998 $33,223,349 $18,325,665
Sub-advisory fees from Canadian Funds 5,994,295 5,556,333 3,953,623
12b-1 Service and Distribution fees 14,675,809 14,649,757 7,095,643
Transfer agent fees 3,018,847 3,012,911 3,021,754
Administrative services fees 3,415,947 3,396,325 1,999,076
Fund accounting fees 707,358 724,670 634,312
Underwriting fees 140,940 515,823 843,263
Redemption fees 3,054,426 1,946,276 523,266
Interest, dividends and other 1,435,261 2,070,447 746,364
----------- ----------- -----------
66,255,881 65,095,891 37,142,966
----------- ----------- -----------
Expenses:
Sales literature, advertising and promotion 2,429,708 3,881,964 2,351,834
12b-1 Service fees 9,036,835 7,082,591 3,647,173
Employee compensation and benefits 10,335,240 9,603,448 7,331,197
Sub-advisory fees 14,826,319 14,672,847 6,948,083
Amortization of management contracts 1,081,895 1,095,782 1,115,223
Amortization of deferred selling commissions 6,202,132 7,065,446 2,772,084
Depreciation 549,930 336,549 267,959
General and administrative 4,990,050 3,664,911 3,436,651
Interest 473,842 483,645 234,158
Occupancy and equipment rental 962,903 767,535 632,514
Reimbursement to Funds for expenses 1,667,174 950,898 1,114,785
----------- ----------- -----------
52,556,028 49,605,616 29,851,661
----------- ----------- -----------
Income before income taxes 13,699,853 15,490,275 7,291,305
Provision for income taxes 5,151,197 5,964,056 --
----------- ----------- -----------
Net income $ 8,548,656 $ 9,526,219 $ 7,291,305
=========== =========== ===========
Basic earnings per share: 0.45 0.51 0.44
=========== =========== ===========
Weighted average number of common
shares outstanding used in basic
calculation 19,137,480 18,644,026 16,597,826
=========== =========== ===========
Diluted earnings per share: 0.44 0.49 0.43
=========== =========== ===========
Weighted average number of common and
common equivalent shares outstanding
used in diluted calculation 19,267,093 19,306,659 17,026,839
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-3
<PAGE> 39
MACKENZIE INVESTMENT MANAGEMENT INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended March 31,
--------------------------------------------------
1999 1998 1997
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 8,548,656 $ 9,526,219 $ 7,291,305
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 549,930 336,549 267,959
Amortization of management contracts 1,081,895 1,095,782 1,115,223
Amortization of deferred selling commissions 6,202,132 7,065,446 2,772,084
Deferred tax expense 4,656,197 5,806,756 --
Payment of deferred selling commissions (3,876,736) (11,489,731) (17,063,321)
Change in assets and liabilities:
Receivables 518,444 20,736,957 (22,087,632)
Management contracts -- 232,449 --
Other assets (768,367) (519,915) (360,931)
Payable to Funds for purchases of Fund shares 1,527 (22,654,680) 19,850,132
Payable to Funds for expense reimbursements 64,160 2,720 7,459
Sub-advisory fees payable (316,788) 1,307,027 1,473,328
Accounts payable, accrued expenses and other liabilities (214,457) 594,926 1,229,372
------------ ------------ ------------
Net cash provided by (used in) operating activities 16,446,593 12,040,505 (5,505,022)
------------ ------------ ------------
Cash flows from investing activities:
Purchases of property and equipment (696,410) (836,785) (408,242)
Proceeds from the sale of deferred selling commissions, net 20,816,896 -- --
------------ ------------ ------------
Net cash provided by (used in) investing activities 20,120,486 (836,785) (408,242)
------------ ------------ ------------
Cash flows from financing activities:
Note payable borrowings -- 1,800,000 3,300,000
Note payable repayments (6,800,000) -- --
Proceeds from the issuance of common stock -- -- 6,250,000
Costs associated with the issuance of common stock -- (135,231) (946,906)
Purchase and retirement of common stock (108,537) -- --
Proceeds from the exercise of stock options 413,900 1,271,350 --
------------ ------------ ------------
Net cash (used in) provided by financing activities (6,494,637) 2,936,119 8,603,094
------------ ------------ ------------
Net increase in cash and cash equivalents 30,072,442 14,139,839 2,689,830
Cash and cash equivalents, beginning of year 20,959,781 6,819,942 4,130,112
------------ ------------ ------------
Cash and cash equivalents, end of year $ 51,032,223 $ 20,959,781 $ 6,819,942
============ ============ ============
Supplemental disclosures:
Interest paid $ 490,783 $ 461,268 $ 216,399
============ ============ ============
Income taxes paid $ 495,000 $ 157,300 $ --
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-4
<PAGE> 40
MACKENZIE INVESTMENT MANAGEMENT INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
for the years ended March 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
(Accumulated
Common Stock Additional Deficit)/ Total
----------------------- Paid-in Retained Stockholders'
Shares Amount Capital Earnings Equity
----------- --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance, March 31, 1996 8,000,000 $ 80,000 $ 32,552,954 $(13,657,932) $ 18,975,022
Issuance of common stock in
connection with public offering, net of
issuance costs of $946,906 1,000,000 10,000 5,293,094 -- 5,303,094
Net income for the year -- -- -- 7,291,305 7,291,305
----------- --------- ------------ ------------ ------------
Balance, March 31, 1997 9,000,000 90,000 37,846,048 (6,366,627) 31,569,421
Two-for-one stock split (Note 9) 9,000,000 90,000 (90,000) -- --
Issuance of common stock issued under
stock option plan 917,000 9,170 1,262,180 -- 1,271,350
Tax benefit related to the exercise of
employee stock options -- -- 1,218,060 -- 1,218,060
Costs associated with the issuance of
common stock -- -- (135,231) -- (135,231)
Net income for the year -- -- -- 9,526,219 9,526,219
----------- --------- ------------ ------------ ------------
Balance, March 31, 1998 18,917,000 189,170 40,101,057 3,159,592 43,449,819
Issuance of common stock under
stock option plan 316,000 3,160 410,740 -- 413,900
Purchase and retirement of common stock (22,800) (228) (108,309) -- (108,537)
Net income for the year -- -- -- 8,548,656 8,548,656
----------- --------- ------------ ------------ ------------
Balance, March 31, 1999 19,210,200 $ 192,102 $ 40,403,488 $ 11,708,248 $ 52,303,838
=========== ========= ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-5
<PAGE> 41
MACKENZIE INVESTMENT MANAGEMENT INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Mackenzie Investment Management Inc. ("MIMI") is a majority-owned
subsidiary of Mackenzie Financial Corporation of Toronto, Ontario
("MFC"). MIMI is an investment adviser and has three wholly-owned
subsidiaries as follows: Ivy Management, Inc. ("IMI"), an investment
adviser; Ivy Mackenzie Distributors, Inc. ("IMDI"), a broker/dealer;
and Ivy Mackenzie Services Corp. ("IMSC"), a transfer agent. MIMI and
IMI (the "Advisers") are registered with the Securities and Exchange
Commission ("SEC") as investment advisers. IMDI is registered with the
SEC as a broker-dealer and is a member of the National Association of
Securities Dealers, Inc. IMSC is registered with the SEC as a transfer
agent.
The Advisers are engaged in the management of Ivy Fund, a registered
investment company consisting of eighteen funds (collectively the
"Funds") at March 31, 1999. The Advisers have exclusive management
agreements entitling them to manage the Funds. The Advisers also provide
sub-advisory services to nine Universal mutual funds sold only in Canada
and managed by MFC (the "Canadian Funds").
IMDI, as the broker-dealer, has underwriting agreements with the Funds
entitling IMDI to the exclusive right to sell redeemable shares of the
Funds. In addition, IMDI also receives distribution fees from certain of
the Funds for purposes of advertising and marketing the shares of such
Funds.
IMSC serves as transfer agent and dividend paying agent for the Funds and
provides certain shareholder and shareholder related services as are
required by the Funds.
MIMI also provides certain additional services for the Funds, such as
fund accounting and administrative services.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of MIMI, IMI,
IMDI and IMSC (the "Company"). All intercompany accounts and transactions
have been eliminated in consolidation.
The financial statements of the Company have been prepared in accordance
with accounting principles generally accepted in the United States and
are denominated in U. S. currency. The following is a summary of
significant accounting policies consistently followed by the Company in
the preparation of its consolidated financial statements.
CASH EQUIVALENTS
The Company includes as cash equivalents: demand deposits in interest
bearing bank accounts, short-term investments, repurchase agreements, and
investments in U.S. Government Securities with original maturities of
three months or less when purchased.
F-6
<PAGE> 42
MACKENZIE INVESTMENT MANAGEMENT INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
CONTINUED:
PROPERTY AND EQUIPMENT AND DEPRECIATION
Property and equipment, which are stated at cost, are depreciated on a
straight-line basis over the estimated useful life of the related assets,
which range from three to five years except for leasehold improvements.
Leasehold improvements are amortized over the lesser of the initial term
of the building lease, which is eleven years, or the remaining term of
the lease.
Additions and improvements that significantly extend the useful life of
an asset are capitalized. Other expenditures for repairs and maintenance
are charged to operations in the period incurred. The cost and
accumulated depreciation of assets sold or retired are removed from the
accounts and any related gains or losses are included in operations for
the period.
MANAGEMENT CONTRACTS
Management contracts, consisting principally of the cost of investment
advisory and service contracts, are being amortized over periods not
exceeding ten years from their date of inception. Management periodically
assesses the value of its management contracts by considering the future
economic benefit associated with the revenue capacity of the contracts.
REIMBURSEMENT TO FUNDS FOR EXPENSES
The Company reimburses certain of the Funds' expenses on a voluntary
basis. The Company records this commitment on an accrual basis. The
voluntary expense limitation may be terminated or revised at any time.
REVENUE RECOGNITION
Revenues for services rendered are recognized on an accrual basis when
the services are performed. Such revenues from services rendered include
management, underwriting, distribution, fund accounting, administrative
services and transfer agent fees.
INCOME TAXES
Deferred income taxes are recognized for the tax consequences in future
years of differences between the tax basis of assets and liabilities and
their financial reporting amounts. Deferred tax assets are also
established for the future tax benefits of loss and credit carryforwards.
Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that all or some
portion of the deferred tax assets will not be realized. Deferred tax
assets and liabilities are adjusted for the effects of changes in tax
laws and rates on the date of enactment.
F-7
<PAGE> 43
MACKENZIE INVESTMENT MANAGEMENT INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
CONTINUED:
EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income available to
common stockholders by the weighted-average number of common shares
outstanding during the period. Diluted earnings per share reflects the
potential dilution that could occur if securities or other contracts to
issue common stock were exercised and resulted in the issuance of common
stock.
DEFERRED SELLING COMMISSIONS
In conjunction with the sale of Class A shares sold at net asset value
and Class B and C shares, MIMI pays dealers a deferred selling
commission. MIMI then amortizes these amounts over periods ranging from
five to six years for commissions paid on Class A and B shares and one
year for commissions paid on Class C shares.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make some estimates
and assumptions that may affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from
those estimates.
ADVERTISING
The Company expenses the cost of advertising as incurred. The cost of
marketing literature, whose primary purpose is to elicit sales, is
capitalized and amortized over its estimated future period of economic
benefit, ranging from two to twelve months.
STOCK OPTIONS
The Company has elected to disclose pro forma net income and earnings per
share based on fair value accounting rules and not to apply those rules
in the consolidated statement of operations. No amounts have been
reflected in the consolidated statement of operations as a result of the
grant of stock options as the exercise price of the stock options equals
or exceeds the market value of the Company's stock on the date the
options are granted. The Company records amounts received upon the
exercise of options by crediting common stock and additional paid-in
capital. To the extent that the Company realizes an income tax benefit
from the exercise or early disposition of certain stock options, this
benefit results in a decrease in the tax liability and an increase in
additional paid-in capital.
F-8
<PAGE> 44
MACKENZIE INVESTMENT MANAGEMENT INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
CONTINUED:
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, receivables, accounts
payable, accrued expenses and the payables to Funds for purchases of Fund
shares approximate fair value due to the short term maturities of these
items. The carrying amount of the note payable approximates fair value
because the interest rates on this instrument change with market interest
rates.
SEGMENT REPORTING
The Company adopted Financial Accounting Standards Board ("FASB")
Statement No. 131, "Disclosure about Segments of an Enterprise and
Related Information" for the year ended March 31, 1999. The Company has
considered its operations and has determined that it operates in a single
operating segment for purposes of presenting financial information and
evaluating performance. As such, the accompanying consolidated financial
statements present financial information in a format that is consistent
with the financial information used by management for internal use.
NEW ACCOUNTING PRONOUNCEMENTS
In April 1998, the AICPA issued Statement of Position 98-5 ("SOP No.
98-5"), Reporting on the Costs of Start-up Activities. SOP No. 98-5
requires that the costs of start-up activities be expensed as incurred.
SOP No. 98-5 was adopted by the Company in fiscal year 1999 and did not
have a material effect on the Company's operations or cash flows.
In June 1998, the FASB issued FASB Statement No. 133, "Accounting for
Derivative Instruments and Hedging Activities." The statement establishes
accounting and reporting standards requiring that every derivative
instrument be recorded in the balance sheet as either an asset or
liability measured at its fair value. The statement requires that changes
in the derivative's fair value be recognized currently in earnings unless
specific hedge accounting criteria are met. The Company will be required
to adopt the standard in fiscal year 2001. The implementation of this
standard is not expected to have a material effect on the Company's
operations or cash flows.
RECLASSIFICATIONS
Certain amounts in the 1997 and 1998 consolidated financial statements
have been reclassified to conform with the 1999 presentation.
F-9
<PAGE> 45
MACKENZIE INVESTMENT MANAGEMENT INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
2. PROPERTY AND EQUIPMENT:
Property and equipment owned consist of the following:
<TABLE>
<CAPTION>
March 31,
--------------------------
1999 1998
<S> <C> <C>
Furniture and equipment $ 980,926 $ 821,348
Computer hardware 1,553,419 1,211,277
Computer software 543,828 373,950
Leasehold improvements 490,909 466,954
----------- -----------
Total cost 3,569,082 2,873,529
Less accumulated depreciation (2,262,386) (1,713,313)
----------- -----------
$ 1,306,696 $ 1,160,216
=========== ===========
</TABLE>
3. INCOME TAXES:
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
Year Ended March 31,
--------------------------------
1999 1998 1997
<S> <C> <C> <C>
Current income taxes:
Federal $ 8,360,277 $ -- $ --
State 1,447,117 157,300 --
----------- ---------- ----
9,807,394 157,300 --
----------- ---------- ----
Deferred income taxes:
Federal (3,985,948) 5,115,340 --
State (670,249) 691,416 --
----------- ---------- ----
(4,656,197) 5,806,756 --
----------- ---------- ----
$ 5,151,197 $5,964,056 $ --
=========== ========== ====
</TABLE>
F-10
<PAGE> 46
MACKENZIE INVESTMENT MANAGEMENT INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
3. INCOME TAXES, CONTINUED:
A reconciliation of the statutory federal income tax rate to the
effective rate is as follows:
<TABLE>
<CAPTION>
Year Ended March 31,
-----------------------------------
1999 1998 1997
<S> <C> <C> <C>
Statutory federal income tax rate 34.0% 34.0% 34.0%
State taxes, net of federal benefit 3.3 3.9 4.2
Goodwill 2.3 2.0 4.3
Change in valuation allowance -- (1.9) (43.2)
Other (2.0) 0.5 0.7
------ ------ ------
37.6% 38.5% -%
====== ====== ======
</TABLE>
At March 31, 1999 and 1998, deferred income taxes consist of the
following:
<TABLE>
<CAPTION>
March 31, 1999 March 31, 1998
Deferred Taxes Deferred Taxes
---------------------------- ---------------------------
Assets Liabilities Assets Liabilities
-------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Accrued payables not yet deducted for
tax purposes $ 78,000 $ -- $ 83,696 $ --
Prepaid Class B and C share commissions -- 210,000 -- 8,996,529
Net operating loss carryforwards -- -- 4,010,823 --
Alternative minimum tax credit carryforward -- -- 159,322 --
Other 132,000 2,976 167,560 13,568
-------- ---------- ---------- ----------
$210,000 $ 212,976 $4,421,401 $9,010,097
======== ========== ========== ==========
Net deferred tax $ 2,976 $4,588,696
========== ==========
</TABLE>
During the years ended March 31, 1998 and 1997, the Company reduced its
valuation allowance for deferred tax assets by $300,000 and $3,147,000,
respectively. The Company was able to eliminate the valuation allowance due to
changes in the expected reversal of deferred tax amounts.
F-11
<PAGE> 47
MACKENZIE INVESTMENT MANAGEMENT INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
4. MANAGEMENT, UNDERWRITING, ADMINISTRATIVE SERVICES, FUND ACCOUNTING AND
TRANSFER AGENT AGREEMENTS:
The Company is the manager of the Funds and, as such, furnishes the Funds
with accounting and various other services and office facilities in Boca
Raton, Florida and Fort Lauderdale, Florida. In addition, the Advisers
act as investment adviser for certain of the Funds. For these services
and facilities, the Funds pay the Advisers monthly management fees at
annual rates ranging from .40% to 1.00% of the Funds' average daily net
assets. The Management Agreements may be terminated upon 60 days written
notice by a vote of the majority of the outstanding voting securities of
the Funds, by vote of a majority of the Fund's entire Board of Trustees,
or by the Advisers.
Sub-advisory fees from the Canadian Funds represent fees earned for
certain management services rendered to mutual funds managed by MFC.
IMDI is the principal underwriter and national distributor of the Funds'
shares and, as such, purchases shares from the Funds at net asset value
to fill orders received from investment dealers. IMDI is permitted to
resell such shares at the public offering price, allowing for discounts
to dealers, if any. The differences in the purchase price and the resale
price constitutes underwriting fee income to IMDI.
MIMI has entered into Administrative Services Agreements with the Funds
wherein MIMI provides various services, including maintenance of
registration or qualification of Fund shares under state "Blue Sky" laws,
assisting in the preparation of U.S. Federal, state and local income tax
returns and preparing financial and other information for prospectuses,
statements of additional information, and periodic reports to
shareholders. For these services, the Funds pay MIMI monthly fees at an
annual rate of .10% of the Funds' average daily net assets. The
Administrative Services Agreement may be terminated by MIMI upon 60 days
written notice, or by the Funds upon 60 days written notice and
authorization by the Fund's Board of Trustees.
MIMI has entered into Fund Accounting Services Agreements with the Funds
wherein MIMI provides certain accounting and pricing services for the
Funds. As compensation for those services, each Fund pays MIMI a monthly
fee plus certain out-of-pocket costs. The monthly fee is based upon the
net assets of each Fund at the preceding month end at rates ranging from
$1,000 to $6,500. The Fund Accounting Services Agreements may be
terminated by MIMI upon 90 days written notice, or by the Funds upon 60
days written notice and authorization by the Fund's Board of Trustees.
F-12
<PAGE> 48
MACKENZIE INVESTMENT MANAGEMENT INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
4. MANAGEMENT, UNDERWRITING, ADMINISTRATIVE SERVICES, FUND ACCOUNTING AND
TRANSFER AGENT AGREEMENTS, CONTINUED:
IMSC provides services to the Funds under Transfer Agency and Shareholder
Services Agreements. The agreements provide compensation on a per account
basis plus reimbursement for out-of-pocket costs. The compensation range
on a per account basis per year is $20 to $22. The Transfer Agency and
Shareholder Services Agreements may be terminated by IMSC upon 90 days
written notice, or by the Funds upon 60 days written notice and
authorization by the Fund's Board of Trustees.
5. DISTRIBUTION FEES:
Pursuant to distribution plans adopted by certain of the Funds, IMDI
receives distribution fees at annual rates ranging from .25% to 1.00% of
certain of the Funds' average daily net assets attributable to the
respective classes of shares, subject to the respective distribution
plan, for the advertising and marketing of such Funds. The plans may be
terminated at any time. If such termination occurs, the Funds will owe no
payments to IMDI, other than any portion of the distribution fees accrued
through the effective date of termination, but unpaid as of such date.
6. ACCRUED EXPENSES AND OTHER LIABILITIES:
Accrued expenses and other liabilities consist of the following:
<TABLE>
<CAPTION>
March 31,
--------------------------
1999 1998
<S> <C> <C>
Accrued compensation and benefits $ 867,313 $1,797,038
Due to Purchaser (Note 13) 701,178 --
Other 569,933 601,907
---------- ----------
$2,138,424 $2,398,945
========== ==========
</TABLE>
F-13
<PAGE> 49
MACKENZIE INVESTMENT MANAGEMENT INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
7. NOTE PAYABLE:
The Company entered into a $10,000,000 revolving credit and term loan
agreement (the "Agreement") in order to fund the payment of sales
commissions paid to dealers for the sale of Class B and C shares of the
Funds. The Agreement provides for interest only payments on advances
outstanding until the revolving credit line converts to a term loan. The
advances bear interest at a fluctuating rate based on either the prime
rate or the lender's funding rate plus a margin of 1.50%. After June 30,
1999, the conversion date to a term loan, the Company may convert the
advances to a term loan, which stipulates principal payments in 20 equal
quarterly installments. The term loan bears interest at either the prime
rate plus a margin of .25% or the lender's funding rate plus a margin of
1.75%. Pursuant to the terms of the Agreement and the continued sales of
Class B and C shares, the conversion date may be extended. The Agreement
requires the Company to comply with consolidated cash flows, consolidated
fixed charges, consolidated net worth, consolidated net income and
leverage requirements and permits the Company to pay dividends of up to
15% of its consolidated net income. As of March 31, 1998, the Company had
$6,800,000 outstanding under the Agreement. As of March 31, 1999, the
Company had no amounts outstanding under the Agreement.
8. COMMITMENTS:
Under operating leases with remaining non-cancelable terms in excess of
one year at March 31, 1999, aggregate annual rental payments for office
space and equipment are as follows:
<TABLE>
<CAPTION>
YEARS ENDING MARCH 31,
<S> <C>
2000 $ 845,000
2001 843,000
2002 438,000
2003 85,000
2004 39,000
----------
$2,250,000
==========
</TABLE>
Rent expense for the years ended March 31, 1999, 1998 and 1997 was
approximately $899,000, $762,000 and $595,000, respectively. In addition,
the Company is responsible for payment of common area operating expenses
in connection with its office leases. Total expenses pursuant to these
clauses were approximately $136,000, $141,000 and $108,000 for the years
ended March 31, 1999, 1998 and 1997, respectively.
F-14
<PAGE> 50
MACKENZIE INVESTMENT MANAGEMENT INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
9. STOCK OPTION PLANS:
The Company has a stock option plan (the "Option Plan") which provides
for the granting of non-incentive and incentive stock options. The
maximum number of shares reserved for issue under the Option Plan is
3,051,800 common shares. Options are granted to key employees of the
Company. The Option Plan is administered by the Human Resource and
Corporate Governance Committee (the "Committee"), which reports its
recommendations to the Board of Directors for specific option grants.
Option vesting periods are subject to the discretion of the Committee and
generally range from one to four years. The exercise price of the options
shall not be less than the market price per common share on the Toronto
Stock Exchange on the business day prior to the date of the grant.
Non-incentive options granted under the Option Plan shall expire five
years after the date of grant and incentive options shall expire not
later than ten years after the date of grant. Information regarding the
above options for fiscal years ended March 31, 1999, 1998 and 1997 is as
follows:
<TABLE>
<CAPTION>
Year Ended
--------------------------------------------------------------------------------
March 31, 1999 March 31, 1998 March 31, 1997
-------------------------- -------------------------- -----------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
---------- ------ ---------- ------ --------- -----
<S> <C> <C> <C> <C> <C> <C>
Options outstanding, beginning
of year 1,119,500 $ 7.54 1,284,000 $ 1.36 1,284,000 $1.36
Options granted 674,000 5.81 752,500 10.58 -- 0.00
Options exercised (316,000) 1.31 (917,000) 1.39 -- 0.00
Options expired (105,000) 8.61 -- 0.00 -- 0.00
--------- --------- ---------
Options outstanding, end of year 1,372,500 8.04 1,119,500 7.54 1,284,000 1.36
========= ========= =========
Options exercisable, end of year 709,500 10.19 337,000 1.30 1,231,500 1.36
========= ========= =========
</TABLE>
Significant option groups outstanding as of March 31, 1999 and related
price and life information follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------- ----------------------------
Weighted
Weighted Average Weighted
Average Remaining Average
Exercise Contractual Exercise
Range of Exercise Prices Outstanding Price Life Exercisable Price
- -------------------------- -------------- ---------- ---------- -------------- -----------
<S> <C> <C> <C> <C> <C>
$1.25-$4.91 401,000 $ 3.98 $4.60 39,000 $ 1.28
$5.78-$9.62 554,200 7.28 3.80 260,700 7.13
$10.92-$12.35 288,800 12.31 3.50 281,300 12.35
$14.02-$18.63 128,500 14.40 4.00 128,500 14.40
--------- ------ ----- ------- ------
1,372,500 8.04 4.00 709,500 10.19
========= ====== ===== ======= ======
</TABLE>
F-15
<PAGE> 51
MACKENZIE INVESTMENT MANAGEMENT INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
9. STOCK OPTION PLANS, CONTINUED:
The Company utilizes the "intrinsic value based method" of accounting for
stock options issued to employees. Had compensation costs been determined
based on the "fair value based method" at the grant date for stock
options it would have resulted in pro forma net income of $6,882,066 and
$7,999,752, basic earnings per share of $.36 and $.43, and diluted
earnings per share of $.36 and $.41 for the years ended March 31, 1999
and 1998, respectively. Had compensation costs been determined based on
the "fair value based method", the Company's net income and basic and
diluted earnings per share for the year ended March 31, 1997 would have
been unchanged, as options were determined to have exercisable prices in
excess of fair value.
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted
average assumptions:
<TABLE>
<CAPTION>
March 31,
----------------------
1999 1998
<S> <C> <C>
Dividend yield 0% 0%
Expected volatility 69% 66%
Risk free interest rates 5.50% 6.21%
Expected lives in years 5 5
</TABLE>
10. CAPITAL TRANSACTIONS:
On July 23, 1997, the Company's Board of Directors approved a two-for-one
stock split of the Company's common shares. This stock split was effected
by declaring a stock dividend of one additional common share for each
common share of the Company issued and outstanding on the dividend record
date of August 25, 1997. As a result, the Company transferred
approximately $90,000 from additional paid-in capital to common stock.
All historical share and per share amounts have been adjusted
retroactively to reflect the two-for-one split.
In December 1996, the Company completed a public offering of 1,000,000
shares of its common stock (the "Offering"), on the Toronto Stock
Exchange, at a public offering price of $U.S. 6.25 ($Cdn. 8.50) per
share. The public offering price disclosed is prior to the two-for-one
stock split discussed in the preceding paragraph. The net proceeds from
the Offering of approximately $5,300,000 were used to finance the
Company's growth, which includes the funding of deferred selling
commissions paid to brokers/dealers on the sale of Class B and Class C
shares of the Funds.
F-16
<PAGE> 52
MACKENZIE INVESTMENT MANAGEMENT INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
10. CAPITAL TRANSACTIONS, CONTINUED:
In June 1998, the Company entered into a normal course issuer bid, which
was approved by the Toronto Stock Exchange, to repurchase up to 5% of the
outstanding shares of the Company's common stock. As of March 31, 1999,
the Company has purchased 22,800 of its common shares at a total cost of
$108,537. The shares were acquired at market price at the time of the
acquisition and were immediately retired.
11. EARNINGS PER SHARE:
The following table reconciles the weighted average shares outstanding
used to calculate basic and diluted earnings per share for the years
ended March 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Weighted average number of common shares
outstanding used in basic calculation 19,137,480 18,644,026 16,597,826
Effect of dilutive stock options 129,613 662,633 429,013
---------- ---------- ----------
Weighted average number of common and
common equivalent shares outstanding used
in the diluted calculation 19,267,093 19,306,659 17,026,839
========== ========== ==========
</TABLE>
12. PLAN OF REORGANIZATION OF MUNICIPAL FUNDS:
During the year ended March 31, 1998, the Company entered into a plan of
reorganization providing for the transfer of all of the assets comprising
the Mackenzie Series Trust, which it previously managed, to an unrelated
third party. This transaction resulted in gross proceeds of $1,755,137
and a net gain of $1,048,519 after recording related expenses which was
recorded as interest, dividends, and other in the consolidated statement
of operations for the year ended March 31, 1998.
13. SALE OF DEFERRED SELLING COMMISSIONS:
On March 23, 1999, the Company sold the portion of the deferred selling
commissions related to Class B shares to an unrelated third party
("Purchaser"). The sale resulted in the Company receiving cash proceeds
of $21,115,000 and recording a net gain of approximately $41,000 after
recording expenses incurred in connection with the transaction. The sale
of the deferred selling commissions provides cash to the Company for
general corporate purposes.
F-17
<PAGE> 53
MACKENZIE INVESTMENT MANAGEMENT INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
13. SALE OF DEFERRED SELLING COMMISSIONS, CONTINUED:
As a result of this sale, the Purchaser is entitled to receive 12b-1
Distribution fees of .75% on average daily assets of the mutual funds
shares represented by the deferred selling commissions sold ("Eligible
Shares"). In addition, the Purchaser will receive any contingent
deferred sales charges upon redemption of the Eligible Shares.
14. PROFIT SHARING PLAN:
MIMI maintains a 401(k) profit sharing plan (the "401(k) Plan") in
which all eligible, full-time employees may participate. From April 1,
1996 through March 31, 1998, MIMI was contributing to a trust amounts
ranging from 50% to 75% of the first 6% of pay that each employee
contributed to the 401(k) Plan. Effective April 1, 1998, MIMI's
contribution increased to 100% of the first 6% of pay that each
employee contributes. Participants are, at all times, fully vested in
their contributions, and Company contributions become fully vested to
the participants after six years of continued employment. Additionally,
on an annual basis, the Board of Directors may vote to make an
additional contribution to the 401(k) Plan. MIMI's total contributions
for the years ended March 31, 1999, 1998 and 1997 were approximately
$369,000, $183,000 and $103,000, respectively.
15. CONCENTRATION OF RISK:
As of March 31, 1999 and 1998, the Company had approximately
$21,916,504 and $13,337,091, respectively, in cash and cash equivalents
in excess of Federal deposit insurance limits. The Company's policy is
to only have funds on deposit with reputable financial institutions.
A significant percentage of the Company's assets under management are
represented by one fund, Ivy International Fund. A decline in the
performance of the Ivy International Fund or the securities markets in
general could have an adverse affect on the Company's revenues.
16. DIFFERENCES FROM CANADIAN ACCOUNTING PRINCIPLES:
The Company has reviewed its consolidated financial statements for the
periods presented for compliance with accounting principles generally
accepted in Canada and has determined that there are no material
differences between the amounts reported in these consolidated
financial statements and the amounts which would be reported in
accordance with accounting principles generally accepted in Canada.
F-18
<PAGE> 54
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
- -------- -----------
<S> <C>
3.1.1 Certificate of Incorporation - Mackenzie Investment Management Inc*
3.1.2 Articles of Organization - Ivy Management Inc*
3.1.3 Articles of Incorporation - Ivy Mackenzie Distributors Inc*
3.1.4 Articles of Incorporation - Ivy Mackenzie Services Corp.*
3.2.1 By - Laws -Mackenzie Investment Management Inc.*
</TABLE>
<PAGE> 55
<TABLE>
<CAPTION>
<S> <C>
3.2.2 By - Laws - Ivy Management Inc.*
3.2.3 By - Laws - Ivy Mackenzie Distributors Inc.*
3.2.4 By - Laws - Ivy Mackenzie Services Corp.*
4.1 Stock Certificate - Mackenzie Investment Management Inc.*
10.1 Revolving Credit and Term Loan Agreement dated February 11, 1994
between Mackenzie Investment Management Inc. and The First National Bank of Boston, as amended*
10.2 Mackenzie Program Master Agreement Dated as of March 16, 1999 among Mackenzie
Investment Management Inc, as Parent, Ivy Management, Inc. and Mackenzie
Investment Management, Inc as Advisor, Ivy Mackenzie Distributors Inc as
Distributor, Ivy Mackenzie Services Corp., as Program Service Agent, Putnam
Lovell Finance L.P. as Purchaser, Putnam, Lovell, De Guardiola & Thornton Inc.
as Program Administrator and Bankers Trust Company, not in its individual
capacity but solely as Collection Agent, except as otherwise expressly
provided.*
10.3 Lease Agreement between Via Mizner Associates(Landlord) and Mackenzie Investment
Management Inc. (Tenant)*
10.4 Sublease Agreement between Buenos Aires Embotelladora S.A. as Lessor and Mackenzie
Investment Management, Inc. as Lessee.*
10.5 First Amendment to Sublease Between Buenos Aires Embotelladora S.A.(Lessor) and
Mackenzie Investment Management, Inc., (Lessee)*
10.6 Lease Agreement Between Via Mizner Associates and Ivy Management, Inc.*
10.7 First Amendment to Lease Agreement Between Via Mizner Associates and Ivy Management,
Inc.*
10.8 Mackenzie Investment Management, Inc. 1994 Stock Option Plan*
10.9 Mackenzie Investment Management Inc. Profit Sharing Plan, as amended*
10.10 Master Administrative Services Agreement - Ivy Fund*
10.11 Master Business Management and Investment Advisory Agreement - Ivy Fund*
10.12 Master Fund Accounting Services Agreement - Ivy Fund*
10.13 Master Business Management and Investment Advisory Agreement - Mackenzie Solutions*
10.14 Master Fund Accounting Services Agreement - Mackenzie Solutions*
10.15 Subadvisory Agreement dated July 1, 1999, between Ivy Management Inc and Garmaise
Investment Technologies (US) Inc.*
21.1 Ivy Management Inc. incorporated in Massachusetts*
21.2 Ivy Mackenzie Distributors, Inc incorporated in Florida*
21.3 Ivy Mackenzie Services Corporation incorporated in Florida*
24.1 Power of attorney by Alan J. Dilworth*
24.2 Power of attorney by James L. Hunter*
24.3 Power of attorney by Neil Lovatt*
24.4 Power of attorney by Alasdair J. McKichan*
24.5 Power of attorney by Allan S. Mostoff, Esq.*
24.6 Power of attorney by Michael Peers*
24.7 Power of attorney by Dolph W. von Arx*
27.1 Financial Data Schedule*
</TABLE>
* to be filed by amendment
<PAGE> 56
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the Company has duly caused this registration statement to
be signed on its behalf by the undersigned, thereunto duly authorized.
<TABLE>
<CAPTION>
Name Capacity Date
- ---- -------- ----
<S> <C> <C>
/s/ Keith J. Carlson
- ----------------------------
Keith J. Carlson President and Chief Executive Officer July 28, 1999
/s/ C. William Ferris
- ----------------------------
C. William Ferris Senior Vice President, Chief Financial July 28, 1999
Officer and Secretary/Treasurer
/s/ Neil Lovatt
- ----------------------------
Neil Lovatt Chairman and Director July 28, 1999
/s/ James W. Broadfoot III
- ----------------------------
James W. Broadfoot III Senior Vice President and Director July 28, 1999
/s/ Alan J. Dilworth
- ----------------------------
Alan J. Dilworth Director July 28, 1999
/s/ Allan S. Mostoff, Esq.
- ----------------------------
Allan S. Mostoff, Esq. Director July 28, 1999
/s/ James L. Hunter
- ----------------------------
James L. Hunter Director July 28, 1999
/s/ Alasdair J. McKichan
- ----------------------------
Alasdair J. McKichan Director July 28, 1999
/s/ Michael R. Peers
- ----------------------------
Michael R. Peers Director July 28, 1999
/s/ Dolph W. von Arx
- ----------------------------
Dolph W. von Arx Director July 28, 1999
</TABLE>
