<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10
AMENDMENT NO. 2
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:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH
TO BE SO REGISTERED EACH CLASS IS TO BE REGISTERED
- ------------------------------------- ----------------------------------
NONE N/A
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, PAR VALUE $.01 PER SHARE
--------------------------------------
(TITLE OF CLASS)
1
<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 Trust ("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 five separate portfolios,
respectively, as of September 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 investment advisory services to Ivy Fund and Mackenzie Solutions and
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).
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. As of September 30, 1999, assets under management, including U.S.
mutual funds and Canadian funds, totaled $5,217,830,303.
<TABLE>
<CAPTION>
For the year ended March 31,
Assets under management 1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
(in thousands)
<S> <C> <C> <C> <C> <C>
Assets under management
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>
2
<PAGE> 3
<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 5,994 5,556 3,954 2,114 1,077
Funds
12b-1 Service and Distribution fees 14,676 14,650 7,096 2,791 2,185
Transfer Agent fees 3,019 3,013 3,021 2,446 1,914
Administrative and Other Fee Income 7,318 6,583 4,000 2,665 2,331
Other income 1,436 2,071 746 696 97
---------- ---------- ---------- ---------- ----------
Total 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>
(1) Includes separately managed accounts which represented less than 1% of
assets under management.
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.
When used in this document, the following terms generally apply unless
otherwise noted:
3
<PAGE> 4
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
the "Ivy Funds" the separate portfolios of Ivy Fund,
collectively
the "Solutions Funds" the five separate portfolios of Mackenzie
Solutions that participate in the
International Solutions asset allocation
program, collectively
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 pursuant to which it manages 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
through 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 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, investment advisory, distribution 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 reflects 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 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
IMI'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,
As of 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 all of the 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 at net asset value for shares within the same class of another Fund
within the same trust without the payment of additional sales charges.
5
<PAGE> 6
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
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,
accounting 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 the
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 the Funds' trustees who are not parties to the 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 IMI, 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 fees and similar
expenses. Generally, the Ffunds pay IMI a management fee based upon a Fund's
average daily 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. MFC acts as sub-advisor
to Ivy Global Natural Resources Fund.
IMI (i) determines, with respect to the Funds it advises, which
investments the Funds will make and which investments will 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, and
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 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.
6
<PAGE> 7
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, with respect to 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 the excess of the consolidated assets
from $3.0 billion up to $5.0 billion; 0.20% on the excess of the consolidated
assets from $5.0 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 it 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 Products."
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 such 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.
The five 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 are 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.
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 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.
7
<PAGE> 8
THE PRODUCTS
The Company's groups of Funds currently consist of nineteen separate
portfolios of Ivy Fund and five 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 its
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 Management Fee
Name of Fund Investment Objective March 31, 1999 (% of Fund Year
(Portfolio Manager) (In Millions of Average Daily Introduced
Dollars) Net Assets)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTERNATIONAL EQUITY FUNDS
- ---------------------------------------------------------------------------------------------------------------------------
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 International Equity Long-term capital growth. 1.00 1991
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.
Broadfoot, Barbara Trebbi, and Long-term growth. 309.6 0.85(6) 1960
Paul P. Baran)
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
8
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<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Net Assets
as of Management Fee
Name of Fund Investment Objective March 31, 1999 (% of Fund Year
(Portfolio Manager) (In Millions of Average Daily Introduced
Dollars) Net Assets)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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 1993
(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 1994
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
Strategic Bond Fund consistent with that objective, to * 0.75 1999
(Richard A. Gluck) maximize current income.
- ---------------------------------------------------------------------------------------------------------------------------
To obtain as high a level of current
Ivy Money Market Fund income as is consistent with the 28.4 0.40 1987
(IMI's Fixed Income Team) preservation of capital and
liquidity.
- ---------------------------------------------------------------------------------------------------------------------------
CANADIAN FUNDS
- ---------------------------------------------------------------------------------------------------------------------------
IMI acts as sub-adviser to the following Canadian Funds which are offered for sale only in Canada.
- ---------------------------------------------------------------------------------------------------------------------------
Universal World Balanced RRSP Long-term capital growth by
Fund pursuing both current income and
(Co-managed by Richard A. capital gains, generally through 280.6 0.50(11) 1994
Gluck and Barbara international fixed income and
) equity derivative securities.
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
9
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<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Net Assets
as of Management Fee
Name of Fund Investment Objective March 31, 1999 (% of Fund Year
(Portfolio Manager) (In Millions of Average Daily Introduced
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
managers from MFC,
MIMI and Henderson)
- ---------------------------------------------------------------------------------------------------------------------------
Universal World High Yield
Fund Above-average income with the
(Michael Borowsky) potential for capital growth 2.7 0.50(11) 1997
- ---------------------------------------------------------------------------------------------------------------------------
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>
10
<PAGE> 11
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Net Assets
as of Management Fee
Name of Fund Investment Objective March 31, 1999 (% of Fund Year
(Portfolio Manager) (In Millions of Average Daily Introduced
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. 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) Reduced to 0.90% for average daily net assets over $2.5 billion. For
assets up to $2.5 billion (with respect to which the 1.00% fee applies),
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 billion in
average daily net assets. For assets over $2.5 billion (with respect to
which the 0.90% fee applies), Northern Cross is paid an amount equal to
0.50% of the Fund's average daily net assets.
(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) Reduced to 0.50% for average daily net assets over $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 effectively 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
$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.
11
<PAGE> 12
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.
INTRODUCTION OF A MULTI-CLASS SHARE STRUCTURE
In October 1993, the Ivy Funds began offering a multi-class structure
which allows investors to choose 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 October 1993, the Ivy Funds offered
Class A shares only, which normally bear a front-end sales charge payable by
the investor at the 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 of the Ivy Funds became available for sale starting in
October 1993. No front-end sales charge on such shares 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 selling 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. Currently, Advisor Class shares are
sold by all the Funds other than Ivy Money Market Fund and Ivy International
Fund.
Class I shares became available for sale starting in October 1994.
Class I shares are offered only to institutions and are not subject to an
initial sales charge or CDSC, nor to ongoing 12b-1 Sservice 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
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 state Blue Sky laws,
preparation of 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 the 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 the Funds'
trustees who are not parties to the agreement or interested persons, within the
meaning of the 40 Act, of the Funds or the Company . 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
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 the 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 the Funds' trustees who are not parties to such
agreement or interested persons, within the meaning of the 40 Act, of the Funds
or the Company. 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 terminated.
For the administrative services provided to the Funds as described
above, all Ivy Funds 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 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.
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<PAGE> 14
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
received by IMSC for Class I shares is $10.25. In addition, the Funds pay IMSC
a monthly fee at an annual rate of $4.58 per account that is closed. 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 their 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' shares through their regional offices. Merrill Lynch &
Co., Inc. was responsible for approximately 53% of the Company's 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 the
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 fFront-eEnd
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:
Distribution Channel Percent of Total Fund Sales
-------------------- ---------------------------
Broker-dealers 56%
Financial Planners 10%
House Accounts / Insurers / Other 9%
Regional Representatives 3%
Registered Investment Advisers 22%
---
100%
===
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<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 each Fund's 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 is paid monthly.
IMDI is entitled to receive a CDSC on the redemption of Class B and
Class C shares depending on when are redeemed. For Class B shares, the fee
ranges from 5% of the value of shares 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 purchase.
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 operations, 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 U.S. 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 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%.
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<PAGE> 16
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.
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<PAGE> 17
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, 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 the Company's 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 Company's fiscal 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 Company's fiscal 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.
17
<PAGE> 18
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
aFund may not grow at the same rate should the principal portfolio manager
cease managing that Fund.
NUMBER OF EMPLOYEES
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 a reduction in
sales of Ffund 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.
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<PAGE> 19
Under the 40 Act and rules thereunder, each of the Funds is 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 contracts be annually approved by
the Funds' Board of Trustees.
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>
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<PAGE> 20
FORWARD-LOOKING STATEMENTS
Certain statements in this Form 10 under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations", and
elsewhere in this report constitute "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors, which may cause the actual results, performance or achievements
of the Company to be materially different from any future results, performance
or achievements expressed or implied by such forward-looking statements. Such
factors include, among others, the following: general economic and business
conditions; the loss of, or the failure to replace, any significant
sub-advisory relationship; changes in the relative investment performance;
investor sentiment for international investing; the Year 2000 issue. These
forward-looking statements speak only as of the date of this Form 10. The
Company expressly disclaims any obligation or undertaking to release publicly
any updates or revisions to any forward-looking statements contained herein to
reflect any change in the Company's expectations with regard thereto or any
change in events, conditions or circumstances on which any such statement is
based.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1999 COMPARED WITH THREE MONTHS ENDED JUNE 30, 1998
Net assets under management, exclusive of assets of the Canadian
Funds, for which MIMI provided sub-advisory services to MFC, decreased 13% to
$3,338 million at June 30, 1999 from $3,815 million at June 30, 1998. Of the
$477 million decrease, a $673 million decrease was attributable to net
redemptions (sales less redemptions) which was offset by a $196 million
increase which was attributable to market appreciation.
Net sales for the quarter ended June 30, 1999 decreased by $150
million compared to the quarter ended June 30, 1998 due to (i) a $108 million
increase in redemptions over the prior quarter and (ii) a $42 million decrease
in sales. The increase in redemptions and the decrease in sales are primarily
caused by (i) the closing of IIF to new shareholders and (ii) in management's
opinion, investors' apprehension of the world financial markets.
REVENUES
Total revenues decreased 17% to $14.9 million for the quarter ended
June 30, 1999 from $17.9 million for the comparable period last year. The
decrease is primarily due to the decrease in assets under management, as
discussed above. The following is an explanation of the increase or decrease in
each major category.
Management fees decreased 14%, to $8,058,000 for the quarter ended
June 30, 1999 from $9,340,000 for the comparable period last year, resulting
from a decrease in assets under management.
Sub-advisory fees from the Canadian Funds increased 17%, or $266,000
to $1,807,000 for the quarter ended June 30, 1999 from $1,541,000 for the
comparable period last year. This increase is attributable to a 31% increase in
the Canadian Funds' assets to $1,716 million at June 30, 1999, from $1,309
million at June 30, 1998.
20
<PAGE> 21
12b-1 Service and Distribution fees received from the Funds decreased
by $2,056,000, to $2,136,000 for the quarter ended June 30, 1999, from
$4,192,000 for the comparable period last year, primarily due to a decrease in
assets under management and the sale of the Class B deferred selling commission
asset. As a result of the sale, the purchaser is entitled to receive 12b-1
Distribution Fees on the mutual fund shares represented by the deferred selling
commission asset sold. Consequently, there has been a decrease in the asset
base on which the Company collects 12b-1 Distribution related Fees (See
Liquidity and Capital Resources).
Transfer agent, administrative services and fund accounting fees
decreased 9%, to $1,702,000 for the quarter ended June 30, 1999 from $1,877,000
for the comparable period last year. This decrease is primarily due to a
decrease in assets under management.
Underwriting fees decreased 35% to $36,000 for the quarter ended June
30, 1999 from $55,000 for the comparable period last year, due to the overall
decrease in sales volume.
Redemption fees decreased 92% to $50,000 for the quarter ended June
30, 1999 from $633,000 for the comparable period last year. This decrease is
due to the sale of the Class B deferred selling commission asset. As a result
of the sale, the purchaser is entitled to receive redemption fees on the mutual
fund shares represented by the deferred selling commission asset sold. (See
Liquidity and Capital Resources).
Interest, dividends and other income increased 375% to $1,084,000 for
the quarter ended June 30, 1999 from $228,000 for the comparable period last
year. This increase is due to (i) an increase in average cash balances
primarily due to cash received from the sale of the Class B deferred selling
commission asset and (ii) the appreciation in the market value of our
investments.
EXPENSES
Total operating expenses decreased by 9% to $12.7 million for the
quarter ended June 30, 1999 from $14.0 million for the comparable period last
year. The decrease is primarily due to (i) the amortization of deferred selling
commissions as a result of the sale of Class B deferred selling commission
asset (See Liquidity and Capital Resources); (ii) sub-advisory fees expense due
to a decrease in the net assets of IIF, for which a third party provides
investment advisory services; and (iii) 12b-1 Service fees resulting from a
decrease in average assets under management.
Sales literature, advertising and promotion increased 67%, or
$503,000, to $1,250,000 for the quarter ended June 30, 1999 from $747,000 for
the comparable period last year. This increase is related to an increase in the
sales force and related marketing expenditures for the promotion of new and
existing products.
12b-1 Services fees paid to broker/dealers decreased $295,000, or 12%
to $2,163,000 for the quarter ended June 30, 1999, from $2,458,000 for the
comparable period last year, due to the decrease in assets under management.
Employee compensation and benefits increased 5%, or $155,000, to
$2,981,000 for the quarter ended June 30, 1999 from $2,826,000 for the
comparable period last year. This increase is due to higher staffing levels at
June 30, 1999 as compared to June 30, 1998.
Sub-advisory fees paid to the sub-advisor of IIF, decreased $603,000,
or 15% to $3,484,000 for the quarter ended June 30, 1999, from $4,087,000 for
the comparable period last year, due to the decrease in net assets of IIF.
Amortization of deferred selling commissions was $223,000 for the
quarter ended June 30, 1999, as compared to $1,698,000 for the comparable
period last year. This decrease was attributable to the sale of the deferred
selling commission asset. (See Liquidity and Capital Resources).
21
<PAGE> 22
General and administrative expenses increased $395,000, or 37%, to
$1,464,000 for quarter ended June 30, 1999, from $1,069,000 for the comparable
period last year. This increase is primarily related to the expensing of
certain fund organization costs resulting from the adoption of Statement of
Position No. 98-5, Reporting on the Cost of Start-Up Activities.
There was no interest expense for the quarter ended June 30, 1999 as
compared with $123,000 for the comparable period last year. The line of credit
with BankBoston, N.A. was repaid when the deferred selling commission asset was
sold in fiscal year 1999. (See Liquidity and Capital Resources).
IMI voluntarily limits total fund expenses for certain Ivy Funds and
bears expenses in excess of such limits. The increase of $68,000, to $451,000
for the quarter ended June 30, 1999 in the reimbursement to the Funds for
expenses is primarily attributable to the decline in the net assets of many of
the Funds that IMI reimburses.
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 which the Company believes was 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. As a result of the sale of the
Class B deferred selling commission asset, MIMI estimates that 12b-1
Distribution Fees will decrease by approximately $5.8 million in fiscal year
2000. (See Liquidity and Capital Resources).
Administrative, fund accounting and transfer agent fees during fiscal
year 1999 of $7.1 million were comparable with fiscal year 1998 amounts.
22
<PAGE> 23
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 in the form of CDSCs, 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. Redemption fees in the form of CDSCs, in fiscal year
2000 are expected to decrease as a result of the sale of the Class B deferred
selling commission asset. It is difficult to quantify the decrease since MIMI
cannot control the redemption rates in the Funds but management estimates that
redemption fees will decrease by approximately $2.2 million. (See Liquidity and
Capital Resources).
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 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 to 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. As a result of
the sale of the Class B deferred selling commission asset, MIMI estimates that
the amortization of Class B deferred selling commissions will decrease by
approximately $5.3 million in fiscal year 2000. (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) 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.
23
<PAGE> 24
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.
YEAR ENDED MARCH 31, 1998 COMPARED TO 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
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 therefrom. 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 assets. 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 in the form of CDSCs 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 previous fiscal year.
24
<PAGE> 25
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 payments of
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.
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 to 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.
25
<PAGE> 26
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 it 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. As a
result of the sale of the Class B deferred selling commission asset, the
purchaser will receive 12b-1 Distribution Fees and any contingent deferred
sales charges upon redemption of the asset sold. MIMI estimates that cash flows
in fiscal year 2000 will decrease by approximately $8 million due to the
estimated decrease in 12b-1 Distribution Fees and redemption fees 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.
MIMI is currently negotiating a $10 million line of credit with a
local lending institution. The purpose of the line is for general working
capital and short-term capital expenditures.
At March 31, 1999, MIMI increased its position in cash and cash
equivalents to $51.0 million from $20.9 million at March 31, 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. Included in cash equivalents at
March 31, 1999 and June 30, 1999 are $29.4 million and $29.7 million,
respectively, of short-term investments that can be readily converted to cash.
At June 30, 1999, MIMI decreased its cash position in cash and cash
equivalents to $39.5 million from $51.0 million at March 31, 1999. This $11.5
million decrease resulted from (i) cash flows used in operating activities of
$9.7 million, primarily related to federal and state income taxes paid; (ii)
purchases of property and equipment of $196,000; and (iii) purchase and
retirement of MIMI's common stock for $1,593,000.
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. For the quarter ended June 30, 1999, the payments of deferred
selling commissions to broker/dealers decreased to $689,000 from $1,642,000 for
the quarter ended June 30, 1998. The decreases in deferred selling commissions
is believed to be attributable primarily to the closing of IIF to new investors
and, in the opinion of management, investor apprehension towards international
investing. Commission payments made during the fiscal year 1999 and the quarter
ended June 30, 1999 were funded internally from operations.
Expenditures for capital assets were $696,000 and $837,000 for the
fiscal years ended March 31, 1999 and 1998, respectively. Expenditures for
capital assets were $196,000 and $232,000 for the quarters ended June 30, 1999
and June 30, 1998, respectively. These expenditures were primarily for computer
equipment and software enhancements, and were internally funded. MIMI
anticipates investing approximately an additional $500,000 during fiscal year
2000 in equipment and technology.
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.
26
<PAGE> 27
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. However, in many cases, MIMI is not in a position to verify the
accuracy or completeness of the information it receives from third parties and
as a result is dependent on their willingness and ability to disclose, and to
address, their Year 2000 problems. While MIMI has received assurances from some
of its critical vendors regarding Year 2000 compliance, such assurances have
been qualified and it is not clear whether or not such assurances are legally
enforceable. Thus, 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.
ITEM 3. PROPERTIES
The Company's corporate, research and administrative offices are located in
leased premises, which consist of the following:
o 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.
o 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.
27
<PAGE> 28
o 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 (2) 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.
(2) The entity set forth above is the shareholder of record (for the benefit
of its customers) and may be deemed to be the beneficial owner of certain
of the shares listed for certain purposes under the securities laws,
although it generally does not have an economic interest in these shares
and would ordinarily disclaim any beneficial ownership therein.
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.
<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>
28
<PAGE> 29
* 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.
DIRECTORS AND EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
<S> <C> <C>
James W. Broadfoot III Age Senior Vice President, Director and Portfolio Manager since
Boca Raton, Florida 56 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 July
Coral Springs, Florida 43 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 of MIMI since December 1996. President, Alan J.
Toronto, Canada 68 Dilworth 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 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.
</TABLE>
29
<PAGE> 30
<TABLE>
<CAPTION>
<S> <C> <C>
James L. Hunter Age Director since September 1994. Chairman from 1995
Etobicoke, Ontario 47 to 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.
Unionville, Ontario 58 Vice-Chairman 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
Cambellville, Ontario 68 since 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
Falls Church, Virginia 66 Dechert Price & Rhoads since March 1976.
Michael R. Peers Age Director since October 1996. Director, Ivy Fund,
Hamilton, Bermuda 69 from 1972 to 1996. Chairman, Ivy Fund, from 1974 to
December 2, 1996. Chairman and Principal, Ivy Management,
Inc. from 1980 to 1992.
Dolph W. von Arx Age Director of MIMI. Chairman, NCH Healthcare System, since
Naples, Florida 64 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.
</TABLE>
30
<PAGE> 31
<TABLE>
<CAPTION>
<S> <C> <C>
Vice President
Thomas H. Bivin, Jr. Age 60 Vice President and National Sales Manager since September
1999. Executive Vice President and National Sales Manager
for Ivy Mackenzie Distributors, Inc. since August 1999.
Prior thereto, wholesaler for Fidelity Investments and
Eaton Vance.
Barbara J. Trebbi Age 33 Vice President and Portfolio Manager since September 1994.
Fort-Lauderdale, Florida Prior thereto, Assistant Vice 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 185,000 237,110 144,000
- --------------------------------------------------------------------------------------------------------------------------
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>
o Long Term Compensation Awards reflect the aggregate amounts outstanding
at the end of each fiscal year.
31
<PAGE> 32
o 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.
** 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.
STOCK OPTION GRANTS IN LAST FISCAL YEAR
FROM 4/1/1998 TO 3/31/1999
<TABLE>
<CAPTION>
- ----------------- ---------- ---------- ---------- --------------- ------------ ----------- ------------- -----------
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. Broadfoot 0 0 90,000/51,000 0/$6,930
- --------------------- --------------------- ---------------------- ------------------------- -------------------------
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
- --------------------- --------------------- ---------------------- ------------------------- -------------------------
Barbara J. Trebbi 36,000 273,960 40,000/39,000 0/$5,280
- --------------------- --------------------- ---------------------- ------------------------- -------------------------
</TABLE>
32
<PAGE> 33
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 shareholder meeting held on September 9, 1999, management
proposed thaand the shareholders approved an amendment to the 1994 Plan so that
the new maximum limit of common shares to be reserved for issuance under the
1994 Plan was increased from 3,051,800 shares to 3,114,220 shares.
33
<PAGE> 34
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.
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:
o Nesbitt Burns Inc. (a majority-owned subsidiary of a Canadian chartered
bank)
o Midland Walwyn Capital Inc. (a wholly-owned subsidiary of Midland Walwyn
Inc.)
o 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.
34
<PAGE> 35
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 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.
35
<PAGE> 36
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, page F-1
Consolidated Statements of Financial Condition as of March 31, 1999 and 1998,
page F-2
Consolidated Statements of Operations for the years ended March 31, 1999, 1998
and 1997, page F-3
Consolidated Statements of Cash Flows for the years ended March 31, 1999, 1998
and 1997, page F-4
Consolidated Statements of Changes in Stockholders' Equity for the years ended
March 31, 1999, 1998 and 1997, page F-5
Notes to Consolidated Financial Statements, pages F-6 to F-18
Condensed Consolidated Statement of Financial Condition as of June 30, 1999
(unaudited) and March 31, 1999, page F-19
Condensed Consolidated Statement of Operations for the three months ended June
30, 1999 and 1998 (unaudited), page F-20
Condensed Consolidated Statement of Cash Flows for the three months ended June
30, 1999 and 1998 (unaudited), page F-21
Notes to Condensed Consolidated Financial Statements, page F-22
36
<PAGE> 37
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> 38
<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> 39
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.
/s/ PricewaterhouseCoopers LLP
Fort Lauderdale, Florida, U. S. A.
April 23, 1999
F-1
<PAGE> 40
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> 41
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> 42
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> 43
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> 44
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> 45
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> 46
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> 47
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> 48
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> 49
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> 50
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> 51
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> 52
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> 53
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> 54
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> 55
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> 56
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> 57
MACKENZIE INVESTMENT MANAGEMENT INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(U.S. Dollars)
<TABLE>
<CAPTION>
ASSETS
UNAUDITED
June 30, March 31,
1999 1999
----------- ------------
<S> <C> <C>
ASSETS:
Cash and cash equivalents $39,517,641 $51,032,223
Receivables:
Funds for fees and expense advances 5,439,871 5,372,633
Other 942,599 854,343
Property and equipment, net of accumulated
depreciation of $2,426,273 as of June 1999 and $2,262,386 as of
March 1999 1,338,798 1,306,696
Management contracts, net of accumulated
amortization of $7,102,141 as of June 1999 and $6,831,667 as of
March 1999 5,372,810 5,643,284
Deferred selling commissions 2,226,610 1,761,002
Other assets 4,800,335 2,199,076
----------- -----------
TOTAL ASSETS $59,638,664 $68,169,257
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Payable to the Funds for purchases of Funds' shares and
expense reimbursements $ 170,824 $ 158,365
Sub-advisory fees payable 3,486,325 3,447,159
Accounts payable, accrued expenses and other liabilities 3,117,696 3,015,002
Income taxes payable 610,592 9,241,917
Deferred tax liability 347,976 2,976
----------- -----------
TOTAL LIABILITIES 7,733,413 15,865,419
----------- -----------
STOCKHOLDERS' EQUITY:
Capital stock, $.01 par value, 100,000,000 shares authorized;
18,832,200 and 19,210,200 shares issued and outstanding as of
June 30, 1999 and March 31, 1999, respectively 188,322 192,102
Additional paid-in capital 38,813,880 40,403,488
Retained earnings 12,903,049 11,708,248
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 51,905,251 52,303,838
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $59,638,664 $68,169,257
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
F-19
<PAGE> 58
MACKENZIE INVESTMENT MANAGEMENT INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND RETAINED EARNINGS (UNAUDITED)
(U.S. Dollars)
<TABLE>
<CAPTION>
FOR THE
THREE MONTHS ENDED
JUNE 30,
1999 1998
----------- -----------
<S> <C> <C>
REVENUES:
Management fees $ 8,057,538 $ 9,339,513
Sub-advisory fees from Canadian Funds 1,807,393 1,540,567
12b-1 Service and Distribution fees 2,136,159 4,192,357
Transfer agent fees 722,915 749,541
Administrative services fees 801,248 948,340
Fund accounting fees 177,746 178,740
Underwriting fees 35,606 55,334
Redemption fees 50,320 633,377
Interest, dividends and other 1,083,811 227,921
----------- -----------
14,872,736 17,865,690
----------- -----------
EXPENSES:
Sales literature, advertising and promotion 1,249,629 746,870
12b-1 Service fees 2,163,132 2,458,186
Employee compensation and benefits 2,981,062 2,825,584
Sub-advisory fees 3,484,368 4,087,460
Amortization of management contracts 270,474 270,474
Amortization of deferred selling commissions 223,057 1,698,033
Depreciation 163,888 118,678
General and administrative 1,464,245 1,068,951
Interest -- 123,442
Occupancy and rental expense 263,942 232,783
Reimbursement to Funds for expenses 450,672 382,188
----------- -----------
12,714,469 14,012,649
----------- -----------
Income before income taxes 2,158,267 3,853,041
Provision for income taxes 963,466 1,552,539
----------- -----------
NET INCOME 1,194,801 2,300,502
RETAINED EARNINGS, BEGINNING OF PERIOD 11,708,248 3,159,592
----------- -----------
RETAINED EARNINGS, END OF PERIOD $12,903,049 $ 5,460,094
=========== ===========
BASIC EARNINGS PER SHARE $ 0.06 $ 0.12
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTAINDING USED IN BASIC CALCULATION 18,981,738 18,917,253
=========== ===========
DILUTED EARNINGS PER SHARE $ 0.06 $ 0.12
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES OUTSTAINDING
USED IN DILUTED CALCULATION 19,023,867 19,314,879
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
F-20
<PAGE> 59
MACKENZIE INVESTMENT MANAGEMENT INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(U.S. Dollars)
<TABLE>
<CAPTION>
FOR THE
THREE MONTHS ENDED
JUNE 30,
1999 1998
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,194,801 $ 2,300,502
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation 163,888 118,678
Amortization of management contracts 270,474 270,474
Amortization of deferred selling commissions 223,057 1,698,033
Provision for deferred income taxes 345,000 1,457,539
Payment of deferred selling commissions (688,665) (1,642,081)
Change in assets and liabilities:
Receivables (155,495) (1,275,002)
Other assets (2,601,259) (277,838)
Payable to Funds for purchases of Funds' shares and
expense reimbursements 12,459 76,128
Sub-advisory fees payable 39,166 327,612
Accounts payable, accrued expenses and other liabilities 102,694 (606,815)
Income taxes payable (8,631,325) --
------------ ------------
Net cash (used in) provided by operating activities (9,725,205) 2,447,230
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (195,989) (231,888)
------------ ------------
Net cash used in investing activities (195,989) (231,888)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase and retirement of common stock (1,593,388) --
Proceeds from the exercise of stock options -- 1,400
------------ ------------
Net cash (used in) provided by financing activities (1,593,388) 1,400
------------ ------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (11,514,582) 2,216,742
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 51,032,223 20,959,781
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 39,517,641 $ 23,176,523
============ ============
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
F-21
<PAGE> 60
MACKENZIE INVESTMENT MANAGEMENT INC.
Notes to Condensed Consolidated Financial Statements
June 30, 1999
(Unaudited)
1. Basis of Presentation
The unaudited interim financial statements of Mackenzie Investment
Management Inc. and its consolidated subsidiaries (the "Company")
included herein do not include all footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles. In the opinion of management, these
financial statements include all appropriate adjustments, consisting
of normal recurring adjustments, necessary to a fair presentation of
the results of operations for the periods shown. Certain prior year
amounts have been reclassified to conform to current year
presentation. The results of operations for the three months ended
June 30, 1999, are not necessarily indicative of the results of
operations to be expected for the year ended March 31, 2000. These
interim financial statements should be read in conjunction with the
Company's audited financial statements for the fiscal year ended March
31, 1999.
2. Normal Course Issuer Bid
In June 1998, the Company entered into a normal course issuer bid,
which was approved by the Toronto Stock Exchange ("TSE"), to purchase
up to 945,000 of its common shares. The bid commenced on June 10, 1998
and terminated on June 9, 1999. During this bid period, the Company
purchased 400,800 of its common shares at a total cost of $1,701,923.
These shares were acquired at market price at the time of acquisition.
The Company has filed another notice with the TSE to commence a normal
course issuer bid to purchase, through the facilities of the TSE, up
to an additional 941,610 common shares of its stock, representing 5%
of the issued and outstanding common shares at the date of the notice.
The bid was approved by the TSE effective on July 16, 1999 and will
terminate on the earlier of the date on which the maximum number of
common shares have been purchased, the date the Company provides
notice of termination, or July 15, 2000. The Company believes that its
common shares are undervalued at current market prices based on its
current earnings and that the repurchase of common shares is an
appropriate use of corporate funds and will benefit shareholders.
3. Subsequent Event
On September 29, 1999, the Company acquired the assets of Hudson
Capital Appreciation Fund (the "Hudson Fund"). The assets of the
Hudson Fund, which were approximately $20,056,000, were merged into
the Ivy U.S. Emerging Growth Fund. The purchase price consists of
three payments: 3.25% of the Hudson Fund's net assets at the time of
closing, or approximately $652,000, and two additional payments each
of 0.375% of the net assets represented by the acquisition at six
months and twelve months after closing.
F-22
<PAGE> 61
EXHIBITS DESCRIPTION
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.*
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 Subsidiaries*
24.1 Power of Attorney*
27.2 Financial Data Schedule*
* previously filed
37
<PAGE> 62
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 October 29, 1999
/s/ C. WILLIAM FERRIS
- ----------------------
C. William Ferris Senior Vice President, Chief Financial October 29, 1999
Officer and Secretary/Treasurer
*
- ----------------------
Neil Lovatt Chairman and Director October 29, 1999
*
- ----------------------
James W. Broadfoot III Senior Vice President and Director October 29, 1999
*
- ----------------------
Alan J. Dilworth Director October 29, 1999
*
- ----------------------
Allan S. Mostoff, Esq. Director October 29, 1999
*
- ----------------------
James L. Hunter Director October 29, 1999
*
- ----------------------
Alasdair J. McKichan Director October 29, 1999
*
- ----------------------
Michael R. Peers Director October 29, 1999
*
- ----------------------
Dolph W. von Arx Director October 29, 1999
</TABLE>
* Executed pursuant to the Power of Attorney filed herewith as Exhibit
24.1.
