<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________to_________
Commission File No. 000-17994
MACKENZIE INVESTMENT MANAGEMENT INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 59-2522153
------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
700 SOUTH FEDERAL HIGHWAY, SUITE 300
BOCA RATON, FL 33432
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (561) 393-8900
--------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]
As of July 24, 2000, there were 18,707,800 shares of the Registrant's Common
Stock, par value $.01 per share issued and outstanding.
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MACKENZIE INVESTMENT MANAGEMENT INC.
Index to Form 10-Q
Part I
FINANCIAL INFORMATION
PAGE
----
Item 1. CONDENSED FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets 1
Condensed Consolidated Statements of Operations 2
Condensed Consolidated Statement of Changes in
Stockholders' Equity 3
Condensed Consolidated Statements of Cash Flows 4
Notes to Condensed Consolidated Financial Statements 5-7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 8-11
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK 12-13
Part II
OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS 13
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 13
Item 3. DEFAULTS UPON SENIOR SECURITIES 14
Item 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITIES HOLDERS 14
Item 5. OTHER INFORMATION 14
Item 6. EXHIBITS AND REPORTS ON FORM 8-K 14
<PAGE> 3
PART I. - FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
MACKENZIE INVESTMENT MANAGEMENT INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
2000 MARCH 31,
----------- ---------
(UNAUDITED) 2000
<S> <C> <C>
ASSETS:
Cash and cash equivalents $ 41,224,786 $ 41,095,301
Marketable securities 3,518,874 3,388,768
Receivables:
Funds for fees and expense advances 3,767,253 4,725,964
Other 1,372,289 1,893,628
Property and equipment, net of accumulated
depreciation of $3,149,533 as of June 30, 2000
and $2,958,305 as of March 31, 2000 984,553 1,084,212
Management contracts, net of accumulated
amortization of $8,258,257 as of June 30, 2000
and $7,954,929 as of March 31, 2000 5,129,249 5,430,191
Deferred selling commissions 6,633,785 5,828,749
Other assets 787,246 624,964
------------ ------------
TOTAL ASSETS $ 63,418,035 $ 64,071,777
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY:
Liabilities:
Payable to Funds for purchases of Funds' shares
and expense reimbursements $ 218,696 $ 488,920
Sub-advisory fees payable 46,257 3,249,994
Accounts payable 776,017 760,636
Accrued expenses and other liabilities 2,429,356 1,311,084
Income taxes payable 655,532 275,650
Deferred tax liability 1,851,066 1,690,899
------------ ------------
Total liabilities 5,976,924 7,777,183
------------ ------------
Commitments
Stockholders' equity:
Capital stock, $0.01 par value, 100,000,000 shares authorized;
18,707,800 shares as of June 30, 2000 and 18,591,800
shares as of March 31, 2000 issued and outstanding 187,078 185,918
Additional paid-in capital 38,596,222 37,952,532
Retained earnings 19,305,325 18,156,144
Unearned stock compensation (613,860) --
Accumulated other comprehensive loss, net of tax (33,654) --
------------ ------------
Total stockholders' equity 57,441,111 56,294,594
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 63,418,035 $ 64,071,777
============ ============
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
1
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MACKENZIE INVESTMENT MANAGEMENT INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
---------------------
2000 1999
---- ----
<S> <C> <C>
REVENUES:
Management fees $ 7,555,887 $ 8,057,538
Sub-advisory fees from Canadian Funds 3,029,430 1,807,393
12b-1 Service and Distribution fees 2,297,774 2,136,159
Transfer agent fees 784,870 722,915
Administrative services fees 764,066 801,248
Fund accounting fees 209,149 177,746
Underwriting fees 112,582 35,606
Redemption fees 145,251 50,320
Interest, dividends and other 673,569 1,083,811
----------- -----------
15,572,578 14,872,736
----------- -----------
EXPENSES:
Sales literature, advertising and promotion 1,727,359 1,474,547
12b-1 Service fees 1,789,362 1,938,214
Employee compensation and benefits 4,104,947 2,981,062
Sub-advisory fees 1,864,248 3,484,368
Amortization of management contracts 303,328 270,474
Amortization of deferred selling commissions 700,420 223,057
Depreciation 195,213 163,888
General and administrative 1,865,742 1,464,245
Occupancy and equipment rental 329,637 263,942
Reimbursement to Funds for expenses 731,957 450,672
----------- -----------
13,612,213 12,714,469
----------- -----------
Income before income taxes 1,960,365 2,158,267
Provision for income taxes 811,184 963,466
----------- -----------
NET INCOME 1,149,181 1,194,801
=========== ===========
BASIC EARNINGS PER SHARE $ 0.06 $ 0.06
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING USED IN BASIC CALCULATION 18,669,053 18,981,738
=========== ===========
DILUTED EARNINGS PER SHARE $ 0.06 $ 0.06
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING
USED IN DILUTED CALCULATION 18,810,975 19,023,867
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
2
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MACKENZIE INVESTMENT MANAGEMENT INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED JUNE 30, 2000
UNAUDITED
<TABLE>
<CAPTION>
Accumulated
Capital Stock Additional Unearned Other Total
------------------------- Paid-in Retained Stock Comprehensive Stockholders'
Shares Amount Capital Earnings Compensation Loss, net of tax Equity
------------ ------------ ------------ ---------- -------------- ---------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, March 31, 2000 18,591,800 $ 185,918 $37,952,532 $18,156,144 $ -- $ -- $56,294,594
Issuance of common stock
under stock option plan 1,000 10 4,290 -- -- -- 4,300
Issuance of common stock
under stock compensation
agreement 115,000 1,150 639,400 -- (640,550) -- --
Amortization of unearned
stock compensation -- -- -- -- 26,690 -- 26,690
Other comprehensive
loss, net of tax (33,654) (33,654)
Net income for the quarter -- -- -- 1,149,181 -- -- 1,149,181
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance, June 30, 2000 18,707,800 $ 187,078 $38,596,222 $19,305,325 $ (613,860) $ (33,654) $57,441,111
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
3
<PAGE> 6
MACKENZIE INVESTMENT MANAGEMENT INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
----------------------------
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,149,181 $ 1,194,801
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 195,213 163,888
Amortization of management contracts 303,328 270,474
Amortization of deferred selling commissions 700,420 223,057
Amortization of unearned compensation 26,690 --
Deferred tax expense 181,302 345,000
Payment of deferred selling commissions (1,505,456) (688,665)
Other 148,967 (483,869)
Change in assets and liabilities:
Receivables 1,480,050 (155,495)
Other assets (162,282) (2,117,390)
Payable to Funds for purchases of Funds' shares
and expense reimbursements (270,224) 12,459
Sub-advisory fees payable (3,203,737) 39,166
Accounts payable, accrued expenses and
other liabilities 1,133,653 102,694
Income taxes payable 379,882 (8,631,325)
------------ ------------
Net cash provided by (used in) operating activities 556,987 (9,725,205)
------------ ------------
Cash flows from investing activities:
Purchase of management contracts (2,386) --
Purchases of property and equipment (95,554) (195,989)
Purchases of marketable securities (901,007) --
Proceeds from the sale of marketable securities 567,145 --
------------ ------------
Net cash used in investing activities (431,802) (195,989)
------------ ------------
Cash flows from financing activities:
Purchase and retirement of common stock -- (1,593,388)
Proceeds from the exercise of stock options 4,300 --
------------ ------------
Net cash provided by (used in) financing activities 4,300 (1,593,388)
------------ ------------
Net increase (decrease) in cash and cash equivalents 129,485 (11,514,582)
Cash and cash equivalents, beginning of period 41,095,301 51,032,223
------------ ------------
Cash and cash equivalents, end of period $ 41,224,786 $ 39,517,641
============ ============
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
4
<PAGE> 7
MACKENZIE INVESTMENT MANAGEMENT INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
(Unaudited)
1. BASIS OF PRESENTATION
The unaudited interim financial statements of Mackenzie Investment
Management Inc. ("MIMI") and its consolidated subsidiaries (the "Company")
included herein have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly,
they do not include all footnote disclosures normally included in
consolidated financial statements prepared in accordance with generally
accepted accounting principles. In the opinion of management, these
condensed consolidated financial statements include all appropriate
adjustments, consisting of normal recurring adjustments, necessary for a
fair presentation of the financial position and 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-month period ended June 30, 2000 are not necessarily indicative of
the results of operations to be expected for the year ended March 31, 2001.
These interim condensed consolidated financial statements should be read in
conjunction with the Company's audited consolidated financial statements
for the fiscal year ended March 31, 2000.
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 repurchase up to 5%
of the outstanding shares of the Company's common stock. The normal course
issuer bid terminated in June 1999. During the first quarter of fiscal year
2000, the Company purchased 378,000 of its common shares at a total cost of
$1,593,388 under this normal course issuer bid.
In July 1999, the Company entered into a normal course issuer bid to
purchase up to 941,610 of its common shares, representing 5% of the issued
and outstanding common shares at the date of the notice. From the July 1999
bid commencement date through June 30, 2000, the Company purchased 243,400
of its common shares at a total cost of $867,504. All shares were acquired
at market price at the time of acquisition and were immediately retired.
The Company has filed another notice with the TSE to commence a normal
course issuer bid to purchase up to an additional 500,000 of its common
shares, representing approximately 2.7% of the issued and outstanding
common shares at the date of the notice. The bid was approved by the TSE
effective on July 24, 2000 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 23, 2001.
3. COMPREHENSIVE INCOME
Comprehensive income was $1,115,527 and $1,194,801 for the three-month
periods ended June 30, 2000 and 1999, respectively. Other comprehensive
loss for the three-month period ended June 30, 2000 relates to unrealized
depreciation on marketable securities.
5
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4. EARNINGS PER SHARE
The following table reconciles the weighted average shares outstanding used
to calculate basic and diluted earnings per share for the three-month
periods ended June 30, 2000 and 1999.
<TABLE>
<CAPTION>
2000 1999
---------- ----------
<S> <C> <C>
Weighted average number of common shares
outstanding used in basic calculation 18,669,053 18,981,738
Effect of dilutive stock options 141,922 42,129
---------- ----------
Weighted average number of common and
common equivalent shares outstanding used in
the diluted calculation 18,810,975 19,023,867
========== ==========
</TABLE>
During the three-month periods ended June 30, 2000 and 1999, options to
purchase 1,106,360 and 967,780, respectively, shares of common stock were
excluded from the computation of diluted earnings per share due to their
antidilutive effect.
5. STOCK COMPENSATION
In May 2000, the Company awarded a grant of 115,000 shares of the Company's
common stock to a key salaried employee. The shares vest in three
installments over three years provided the employee remains in the
Company's employ on each of the vesting dates. In the event the employment
terminates for any reason, all shares, which on the date of such
termination have not vested, shall be forfeited and cancelled. The shares
issued were recorded at their fair market value on the date of the grant
with a corresponding reduction of stockholders' equity, which will be
amortized as compensation expense on a straight-line basis over the related
vesting period. Compensation expense of $26,690 was recorded for the
three-month period ended June 30, 2000 in connection with this grant.
6. EMPLOYEE STOCK PURCHASE PLAN
On May 12, 2000, the Board of Directors approved the adoption of the 2000
Employee Stock Purchase Plan (the "Employee Stock Plan") under which
500,000 shares of the Company's common stock will initially be reserved for
issuance pursuant to the terms of the Employee Stock Plan. At the
shareholders meeting to be held on September 7, 2000 ("the Annual
Shareholders Meeting"), the shareholders will be asked to approve the
Employee Stock Plan. The Employee Stock Plan will provide the Company's
employees the continuing opportunity to acquire stock in the Company and
will serve as an incentive for them to remain with the Company.
7. DIRECTOR STOCK PURCHASE PLAN
On May 12, 2000, the Board of Directors approved the adoption of the 2000
Director Stock Purchase Plan (the "Director Stock Plan"). At the Annual
Shareholders Meeting, the shareholders will be asked to approve the
Director Stock Plan. The purpose of the Director Stock Plan is to provide
the non-employee directors the continuing opportunity to acquire stock in
the Company and to attract and retain non-employee directors.
6
<PAGE> 9
8. NEW ACCOUNTING PRONOUNCEMENTS
In June 2000, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 138 ("Statement No. 138"), "Accounting
for Certain Derivative Instruments and Certain Hedging Activities - an
amendment of Financial Accounting Standards Board Statement No. 133".
Statement No. 138 expands the normal purchases and sales exception,
redefines identified specific risks, recognizes that
foreign-currency-denominated assets and liabilities may be the hedged item
in fair value or cash flow hedges, and allows the designation of
inter-company derivatives as hedging instruments in certain cash flow
hedges. The implementation of this statement is not expected to have a
material effect on the Company's financial position, results of operations
or cash flows.
7
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
Certain statements in the Quarterly Report on Form 10-Q 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 relationships; changes in
the relative investment performance; and investor sentiment for
international investing. The Company wishes to caution readers not to place
undue reliance on such forward-looking statements and remind readers that
these forward-looking statements speak only as of the date of this
Quarterly Report. 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.
GENERAL
MIMI is a public company listed on the TSE. Its majority shareholder,
Mackenzie Financial Corporation ("MFC"), a Toronto-based investment counsel
and mutual fund management company, owns 85.5% of the outstanding common
shares of MIMI at June 30, 2000. MIMI is an investment adviser and has
three wholly owned subsidiaries, as follows:
o Ivy Management, Inc. ("IMI"), an investment adviser;
o Ivy Mackenzie Distributors, Inc. ("IMDI"), a broker/dealer; and
o Ivy Mackenzie Services Corp. ("IMSC"), a transfer agent.
The Company's principal business activities are carried on solely in the
United States and include:
o Managing public mutual funds offered in the U.S. by Ivy Fund (the "U.S.
Funds") which is a U.S. open-end series investment company registered
under the Investment Company Act of 1940, as amended;
o Providing investment advisory services to the U.S. Funds and
sub-advisory services to thirteen Universal Funds at June 30, 2000 sold
only in Canada and managed by MFC (the "Canadian Funds");
o Underwriting, selling and otherwise distributing redeemable shares of
the U.S. Funds in the U.S. through various distribution channels; and
o Providing transfer agent, administrative and fund accounting services
to the U.S. Funds.
The Company derives its revenues 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
the U.S. Funds under contracts for administrative, transfer agent and fund
accounting services. The level of net assets under management is affected
by gross sales, redemptions and changes in market values of the mutual
fund's portfolio of investments. As the level of assets under management
fluctuates so does management, sub-advisory, distribution, and
administrative services fee revenue. While an increase in assets under
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management will most likely increase transfer agent fees, these fees are
more directly related to the number of shareholder accounts in the U.S.
Funds.
IVY INTERNATIONAL FUND
During the first quarter of fiscal year 2001, the Company internalized the
portfolio management of its largest fund, Ivy International Fund, which has
approximately $1.7 billion in net assets at June 30, 2000. Previously, Ivy
International Fund had been sub-advised by an unrelated third party under a
sub-advisory agreement, which was terminated as of May 27, 2000. The
sub-advisory agreement provided for payment of sub-advisory fees at the
rate of 0.60% of average daily net assets. The Company reopened Ivy
International Fund, which had been closed to new investors, on June 1,
2000.
FUND INTRODUCTION
On April 18, 2000, the Company launched Ivy Cundill Value Fund, which is
sub-advised by Peter Cundill & Associates.
FUND MERGERS
On June 27, 2000, the assets of Ivy Pan-Europe Fund were merged into the
assets of Ivy European Opportunities Fund and the assets of Ivy Growth with
Income Fund were merged into the assets of Ivy US Blue Chip Fund. On July
21, 2000, the assets of Ivy South America Fund were merged into the assets
of Ivy Developing Markets Fund. The respective portfolios in each merger
had similar investment objectives and policies. Management believes that
these mergers will achieve enhanced investment performance and distribution
capabilities, as well as achieve certain economies of scale and cost
savings over time.
FUND DISSOLUTION
Effective April 26, 2000, the Board of Trustees of Mackenzie Solutions
approved the termination and dissolution of Mackenzie Solutions Trust and
its five separate portfolios. Management believes that the dissolution will
not have a material effect on the Company's operations.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE MONTHS ENDED JUNE 30,
1999
Net assets under management, exclusive of net assets of the thirteen
Canadian Funds, decreased 7% to $3,096 million at June 30, 2000 from $3,338
million at June 30, 1999.
At June 30, 2000, the net assets of the Canadian Funds were approximately
$3,482 million as compared to $1,716 million at June 30, 1999, representing
a 103% increase.
Sales of the U.S. Funds for the three-month period ended June 30, 2000
increased by $100 million compared to the three-month period ended June 30,
1999, while redemptions increased by $232 million for the three-month
period ended June 30, 2000 compared to the three-month ended June 30, 1999.
Ivy International Fund, which had been closed to new investors from April
1997 through June 2000, accounted for 74% and 69% of the redemptions for
the three-month periods ended June 30, 2000 and 1999, respectively. If Ivy
International Fund sales and redemptions were excluded from these figures,
the Company would show net sales of $24 million for the three-month period
9
<PAGE> 12
ended June 30, 2000 as compared to net redemptions of $44 million for the
three-month period ended June 30, 1999.
REVENUES
Total revenues increased by 5% for the three-month period ended June 30,
2000 as compared to the three-month period ended June 30, 1999 due to the
increase in the net assets of the Canadian Funds.
Management fees, transfer agent fees, administrative services fees and fund
accounting fees decreased 5% for the three-month period ended June 30, 2000
as compared to the three-month period ended June 30, 1999 primarily as a
result of the decrease in the U.S. Funds' net assets under management.
12b-1 Service and Distribution fees increased 8% for the three-month period
ended June 30, 2000 as compared to the three-month period ended June 30,
1999 due to an increase in the asset base on which the Company collects
12b-1 Distribution fees. Underwriting and redemption fees have increased by
$77,000 and $95,000, respectively, for the three-month period ended June
30, 2000 as compared to the three-month period ended June 30, 1999 due to
increases in Class A share sales and redemptions of Class B and C shares,
respectively.
Sub-advisory fees from the Canadian Funds increased 68% for the three-month
period ended June 30, 2000 as compared to the three-month period ended June
30, 1999. This increase is attributable to a 105% increase in the Canadian
Funds' average net assets to $3,241 million for the three-month period
ended June 30, 2000 from $1,582 million for the three-month period ended
June 30, 1999.
Interest, dividends and other revenue decreased 38% for the three-month
period ended June 30, 2000 compared to the three-month period ended June
30, 1999 due to an increase in dividends received on investments held by
the Company which were offset by a decrease in other revenue. Other
revenue, for the three-month period ended June 30, 1999, included $480,000
in unrealized appreciation on marketable securities. Unrealized
depreciation on marketable securities has been included as a component of
stockholders' equity for the three-month period ended June 30, 2000.
EXPENSES
Total operating expenses for the three-month period ended June 30, 2000
increased 7% compared to the three-month period ended June 30, 1999. The
increase in expenses is related to compensation costs, fund mergers, and
the dissolution of Mackenzie Solutions Trust.
Sales literature, advertising and promotion increased 17% for the
three-month period ended June 30, 2000 compared to the three-month period
ended June 30, 1999 due to increased marketing costs related to the
development of a new product plan for more diverse fund offerings and the
promotion of existing products.
12b-1 Service fees paid to broker/dealers decreased 8% for the three-month
period ended June 30, 2000 compared to the three-month period ended June
30, 1999 due to the decrease in net assets under management.
Employee compensation and benefits increased 38% for the three-month period
ended June 30, 2000 compared to the three-month period ended June 30, 1999.
This increase is due to cost of living increases and an increase in
staffing levels at June 30, 2000 as compared to June 30, 1999. The
increased staffing levels generally relate to the internalization of the
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<PAGE> 13
portfolio management of Ivy International Fund and the hiring of
experienced marketing personnel.
Sub-advisory fees decreased 46% for the three-month period ended June 30,
2000 compared to the three-month period ended June 30, 1999 due to the
internalization of the portfolio management of Ivy International Fund.
Amortization of deferred selling commissions increased 214% for the
three-month period ended June 30, 2000 compared to the three-month period
ended June 30, 1999 due to a higher Class B share asset base and stronger
Class B share sales.
General and administrative expenses increased 27% for the three-month
period ended June 30, 2000 compared to the three-month period ended June
30, 1999 as a result of expenses related to fund mergers and the
dissolution of Mackenzie Solutions Trust. For the three-month period ended
June 30, 2000, expenses related to fund mergers and the dissolution of
Mackenzie Solutions Trust which have been incurred by the Company are
approximately $514,000.
IMI voluntarily limits total fund expenses for certain U.S. Funds and bears
expenses in excess of such limits. The increase of 62% for the three-month
period ended June 30, 2000 compared to the three-month period ended June
30, 1999 resulted from (i) expense reimbursement to the Mackenzie Solutions
Funds (prior to dissolution), which were not in existence during the
comparable period in the prior year; (ii) the introduction of a new fund in
April 2000; and (iii) a decrease in the net asset values of funds that IMI
voluntarily limits expenses.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity and capital resources are primarily derived from the operating
cash flows received by the Company from managing and providing investment
advisory services to the Ivy Funds and from providing sub-advisory services
to the Canadian Funds. The Company manages its resources to ensure the
availability of sufficient cash flows to meet all of its financial
commitments.
The Company's cash and cash equivalents increased by $129,000 for the
period from March 31, 2000 to June 30, 2000. The increase resulted from (i)
cash provided by operating activities of $557,000, primarily related to a
decrease in sub-advisory fees payable; (ii) cash used in investing
activities of $432,000, primarily related to purchases and sales of
marketable securities; and (iii) cash provided from investing activities of
$4,300 from the exercise of stock options.
The payment of deferred selling commissions to broker/dealers increased to
$1.5 million for the three-month period ended June 30, 2000 as compared to
$689,000 for the three-month period ended June 30, 1999. The increase, in
the opinion of management, can be attributed to the increased interest in
international investing noted during the three-month period ended June 30,
2000. Commission payments made during the three-month periods ended June
30, 2000 and 1999 were funded internally from operations.
YEAR 2000
The Company did not experience any interruptions to its business or
operations as a result of the transition to the year 2000, nor did it have
to implement any of its contingency plans. Although it incurred costs in
preparation for the transition, those costs did not affect its financial
position in any material way.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
COMPETITION
The financial services industry is highly competitive and has increasingly
become a global industry. There are over 7,500 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 an
investment specialist with a worldwide perspective offering mutual funds
with an emphasis on international and emerging growth investing. 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.
The Company competes 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.
ASSET MIX
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 U.S. Funds and the Canadian Funds (collectively, 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 net assets under
management as well as on the flow of monies to and from fixed-income funds
and, as a result, will affect 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 net assets under
management.
Certain portions of the Company's managed portfolios are invested in
various securities of corporations located or doing business in developing
regions of the world, commonly known as emerging markets. These portfolios
and the Company's revenues derived from the management of such portfolios
are subject to significant risks of loss from, among other factors,
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.
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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.
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 that 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.
ABSENCE OF PUBLIC TRADING MARKET
MFC owns 85.5% of the issued and outstanding common shares of MIMI as of
June 30, 2000. The shares have been thinly traded. Further, the number of
common shares of MIMI held by persons other than MFC are very small by
market standards and this may have an adverse impact on liquidity and
trading of the common shares.
PART II - OTHER INFORMATION
ITEM 1. 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 which is adverse to the
Company. There are no material administrative or judicial proceedings
pending or known to be contemplated by any governmental authorities.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(c) Changes in Securities
Effective May 1, 2000, the Company granted 115,000 shares of its common
stock, par value $.01 per share (the "Common Stock"), to a key salaried
employee of the Company which shares shall vest as follows: 25% of the
shares shall become vested upon the first anniversary of the date of the
grant which is May 1, 2000 (the "Grant Date"), 25% of the shares shall
become vested upon the second anniversary of the Grant Date, and 50% of the
shares shall become vested upon the third anniversary of the Grant Date,
provided that the employee continues to be employed by the Company on each
of said dates. In the event that the employee's employment with the Company
terminates for any reason, all shares which on the date of such termination
are not vested in accordance with the terms of the stock grant agreement
shall be forfeited, the certificate(s) representing the shares shall be
cancelled, and the employee shall have no right to or interest in the
forfeited shares. No underwriters were involved in the foregoing sale which
was made in reliance upon an exemption from the registration provisions of
the Securities Act of 1933, as amended (the "Securities Act"), set forth in
Section 4(2) thereof, or the rules and regulations thereunder, relative to
sales by an issuer not involving any public offering.
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ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS:
The following exhibits are filed herewith or incorporated by reference
as indicated below.
EXHIBIT # DESCRIPTION
--------- -----------
27.1 Financial Data Schedule
(B) REPORTS ON FORM 8-K:
The following Current Reports on Form 8-K were filed by the Company
during the quarter ended June 30, 2000:
1. On May 1, 2000, the Company filed a Form 8-K under Item 5
announcing the hiring of a new portfolio manager who will serve as
Senior Vice President and Chief Investment Officer-International
Equities. It was also announced that Ivy International Fund would
be reopened to new investors on or about June 1, 2000.
2. On May 15, 2000, the Company filed a Form 8-K under Item 5
announcing its financial results for the fourth quarter and year
ended March 31, 2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the Company and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME CAPACITY DATE
---- -------- ----
<S> <C> <C>
/s/ KEITH J. CARLSON
----------------------------
Keith J. Carlson President and Chief Executive Officer July 26, 2000
/s/ BEVERLY YANOWITCH
----------------------------
Beverly Yanowitch Vice President and Chief Financial Officer July 26, 2000
</TABLE>
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