<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED COMMISSION FILE NUMBER
MARCH 31, 2000 000-17994
MACKENZIE INVESTMENT MANAGEMENT INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 59-2522153
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
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
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, PAR VALUE $.01 PER SHARE
(Title of Class)
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ ]
There were 18,707,800 shares of the Company's Common Stock outstanding as of
June 23, 2000. Based on the last sale price of the Registrant's Common Stock on
the Toronto Stock Exchange on June 23, 2000, the aggregate market value of the
shares of such Common Stock held by non-affiliates of the registrant was
approximately $14,472,790.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement (the "Proxy Statement"), to be filed
with the Securities and Exchange Commission relating to the Company's Annual
Meeting of Stockholders to be held on September 7, 2000 (the "Annual Meeting"),
are incorporated by reference in Part III hereof (as indicated therein).
<PAGE> 2
FORWARD-LOOKING STATEMENTS
Certain statements in this Form 10-K under the captions "Business",
"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; and investor sentiment for international investing.
These forward-looking statements speak only as of the date of this Form 10-K.
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.
ITEM 1. 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
18, 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
Ivy Fund and beginning in July 1999, to Mackenzie Solutions, both of which are
Massachusetts business trusts registered under the Investment Company Act of
1940, as amended (the "40 Act"), as U.S. open-end investment companies,
consisting of nineteen and five separate portfolios, respectively, as of March
31, 2000. 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 eleven Universal mutual funds sold only in
Canada and managed by MFC (the "Canadian Funds") as of March 31, 2000. In
addition, IMI separately manages accounts which consist of international equity
accounts for an investment partnership and the accounts of a private foundation
formed under Internal Revenue Code Section 501(c) ("Separate Accounts").
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<PAGE> 3
The following table provides a summary of net assets under management
and associated revenues. The U.S. mutual funds consist of international equity
funds, domestic equity funds, taxable fixed income funds and a money market
fund. The Canadian Funds consist of the Universal mutual funds. As of March 31,
2000, net assets under management for the U.S. mutual funds and Canadian funds
totaled $7.03 billion.
<TABLE>
<CAPTION>
As of March 31,
Net assets under management --------------------------------------------------------------------------
2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- ----------
(in thousands)
<S> <C> <C> <C> <C> <C>
U.S. mutual funds(1) $3,512,187 $3,330,892 $3,917,952 $2,844,544 $1,576,687
Canadian Funds 3,515,816 1,437,379 1,328,136 962,269 599,920
---------- ---------- ---------- ---------- ----------
Total net assets under management $7,028,003 $4,768,271 $5,246,088 $3,806,813 $2,176,607
---------- ---------- ---------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
For the years ended March 31,
--------------------------------------------------------------------------
2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- ----------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Revenues
Management fees $32,546 $33,813 $33,223 $18,326 $11,125
Sub-advisory fees from Canadian 9,468 5,994 5,556 3,954 2,114
Funds
12b-1 Service and Distribution fees 8,924 14,676 14,650 7,096 2,791
Transfer Agent fees 2,994 3,019 3,013 3,021 2,446
Administrative and Other Fee Income 4,853 7,319 6,583 4,000 2,665
Other income 4,721 1,437 2,071 746 696
------- ------- ------- ------- -------
Total revenues $63,506 $66,256 $65,096 $37,143 $21,837
------- ------- ------- ------- -------
Net Income $ 6,448 $ 8,549 $ 9,526 $ 7,291 $ 2,053
Earnings per share - basic $ 0.34 $ 0.45 $ 0.51 $ 0.44 $ 0.13
Earnings per share - diluted $ 0.34 $ 0.44 $ 0.49 $ 0.43 $ 0.13
</TABLE>
(1) Includes separately managed accounts which represented less than 1% of net
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 A
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 then market
price at the time of acquisition for a total cost of $1,701,923. In July 1999,
MIMI entered into
3
<PAGE> 4
another normal course issuer bid, which was approved by the TSE, to purchase up
to 941,610 shares of its common stock representing 5% of the issued and
outstanding common shares at the date of the notice. From the July 1999 bid
commencement date through March 31, 2000, MIMI purchased an additional 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. MIMI believes that, at the dates of
repurchases, its common stock was undervalued at the then market prices based on
its earnings and that the repurchase of the common stock was an appropriate use
of corporate funds that 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 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 an investment
specialist with a worldwide perspective 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 that specialize in the
international and emerging growth areas.
When used in this document, the following terms generally apply unless
otherwise noted:
the "Company" MIMI and its consolidated subsidiaries
the "Funds" the separate portfolios of Ivy Fund and the
separate portfolios of Mackenzie Solutions,
collectively
the "Ivy Funds" the separate portfolios of Ivy Fund,
collectively
the "Solutions Funds" the five separate portfolios of Mackenzie
Solutions that participate in the
International Solutions asset allocation
program, collectively*
* 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.
MIMI is an SEC-registered investment advisor and conducts business
through three Boca Raton, Florida based, wholly-owned subsidiaries as follows:
IVY MANAGEMENT, INC. ("IMI") is 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
the Ivy Funds and the Solutions Funds, and provides
sub-advisory services to the Canadian Funds.
IVY MACKENZIE DISTRIBUTORS, INC. ("IMDI") is incorporated
under the laws of the State of Florida and is registered as a
broker-dealer under the Securities Exchange Act of 1934, as
amended, (the "34 Act"). IMDI is a member of the National
Association of Securities Dealers, Inc. ("NASD"). Under the
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 CORP. ("IMSC") is 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.
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<PAGE> 5
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 the Funds under various contracts for administrative, transfer agent,
investment advisory, distribution and fund accounting services. The level of net
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 net assets under management
fluctuates, so does management, sub-advisory, distribution, and administrative
services fee revenue. Mutual funds 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 net 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 economies and technologies. Funds seeking income focus
on taxable money market instruments, fixed-income debt securities of
corporations and of the U.S. government and its agencies and instrumentalities
such as the Government National Mortgage Association, the Federal National
Mortgage Association and the Federal Home Loan Mortgage Corporation. Still
others focus on investments in particular countries and regions. A majority of
the assets managed by IMI are equity-oriented.
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 the Funds' shareholders and is most conducive to
developing loyal investors and repeat business from the Funds' distributors. The
chart below shows net assets under management and revenues by broad investment
objective.
<TABLE>
<CAPTION>
As of March 31,
Net assets under management --------------------------------------------------------------------------
(in thousands) 2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Fixed Income $ 457,982 $ 612,655 $ 528,710 $ 385,545 $ 248,814
International Equity 5,452,002 3,416,113 3,863,332 2,592,820 1,080,365
Money Market 22,117 28,435 23,529 22,345 19,396
Tax Exempt Municipal 0 0 0 144,860 186,468
U.S. Equity 1,095,902 711,068 830,517 661,243 641,564
---------- ---------- ---------- ---------- ----------
Total net assets under management $7,028,003 $4,768,271 $5,246,088 $3,806,813 $2,176,607
---------- ---------- ---------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
For the years ended March 31,
--------------------------------------------------------------------------
Revenues (in thousands) 2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Fixed Income $ 3,424 $ 4,377 $ 3,332 $ 2,556 $ 2,014
International Equity 46,223 51,444 49,816 23,775 9,863
Money Market 240 243 197 201 248
Tax Exempt Municipal 0 0 600 1,774 2,396
U.S. Equity 8,898 8,757 9,080 8,091 6,620
Other 4,721 1,435 2,071 746 696
------- ------- ------- ------- -------
Total revenues $63,506 $66,256 $65,096 $37,143 $21,837
------- ------- ------- ------- -------
</TABLE>
5
<PAGE> 6
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. Purchases of Ivy Money Market Fund are not subject to
a sales charge. 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 A MULTI-CLASS SHARE STRUCTURE"
under "NARRATIVE DESCRIPTION OF BUSINESS." In accordance with certain terms and
conditions described in the Prospectuses 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.
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 the Funds 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, each
Fund pays IMI a management fee based upon the 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 eleven 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
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Small Companies Fund and 100% of Ivy European Opportunities Fund. MFC acts as
advisor to Ivy Global Natural Resources Fund. Effective May 27, 2000, IMI
terminated its sub-advisory agreement with Northern Cross. IMI's investment
management personnel are managing IIF.
IMI (i) determines, with respect to the Funds it advises, which
investments the Funds will purchase 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 sources such 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.
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 Cdn.$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 and receives a sub-advisory fee of 0.50% per annum of
approximately 18% of the Industrial Yield Advantage Fund's average daily net
assets. Net assets of the Canadian Funds in excess of Cdn.$50 million per fund
are added to a pool of funds with the following rates: 0.50% of the first
Cdn.$1.3 billion of consolidated net assets in excess of the 0.50% paid on the
first Cdn.$50 million in each fund; 0.35% on the excess of the consolidated net
assets of Cdn.$1.3 billion up to Cdn.$3.0 billion; 0.25% on the excess of the
consolidated net assets from Cdn.$3.1 billion up to Cdn.$5.0 billion; 0.20% on
the excess of the consolidated net assets from Cdn.$5.1 billion up to Cdn.$10.0
billion; and 0.15% on consolidated net assets above Cdn.$10.0 billion.
Effective July 1, 2000, sub-advisory fees on consolidated net assets of
the Canadian Funds in excess of Cdn.$1.3 billion will be paid at the rate of
0.20% per annum. Sub-advisory services provided to new Universal funds after
March 31, 2000 ("New Canadian Funds") will be paid at the rate of 0.40% per
annum of the first Cdn.$50 million of the average daily net assets of the New
Canadian Funds. Net assets of the New Canadian Funds in excess of Cdn.$50
million per fund will be added to a pool of New Canadian Funds with the
following rates: 0.40% of the first Cdn.$1.3 billion on consolidated net assets
in excess of the 0.40% paid on the first Cdn.$50 million in each New Canadian
Fund; and 0.20% on the excess of the consolidated net assets of the New Canadian
Funds.
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' and Solutions Funds' total operating expenses (excluding
12b-1 Service and Distribution Fees and taxes) to annual rates ranging from
0.85% to 1.95% and 0.08% to 0.39%, respectively, of each such Ivy Fund's and
Solutions Fund's average daily net assets, depending upon the size of the Funds.
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 risks 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
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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 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 included 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 included
evaluation of a long-term return forecast; 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 paid GIT an annual fee of
$50,000. As noted previously, 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. GIT's services have also been
terminated.
THE PRODUCTS
As of March 31, 2000, the Company's groups of Funds consisted of
nineteen separate portfolios of Ivy Fund and five separate portfolios of
Mackenzie Solutions. The business affairs of Ivy 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, management fees and year of introduction.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
Net Assets as
of March 31, Management Fee
2000 (% of Fund
Name of Fund Investment (In Millions of Average Daily Year
(Portfolio Manager) Objective Dollars)(12) Net Assets) Introduced
---------------------------------------------------------------------------------------------------------------------------
INTERNATIONAL EQUITY FUNDS
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Long-term capital growth by
Ivy European Opportunities Fund investing in the securities 219.9 1.00(1) 1999*
(Stephen Peak, Henderson) markets of Europe.
---------------------------------------------------------------------------------------------------------------------------
Ivy Global Fund (IMI's Long-term capital growth. 17.7 1.00 1991
International Equity Team)
--------------------------------- ------------------------------------ ----------------- ----------------- ----------------
Ivy Global Natural
Resources Fund Long-term growth. 7.9(2) 1.00(3) 1997
(Frederick Sturm, MFC)
---------------------------------------------------------------------------------------------------------------------------
Ivy Global Science & Technology
Fund Long-term capital growth. 132.4 1.00 1996
(IMI's Global Technology Team)
---------------------------------------------------------------------------------------------------------------------------
Ivy International Fund
(Northern Cross - Long-term capital growth. 2,036.3 1.00(4) 1986
Hakan Castegren)
---------------------------------------------------------------------------------------------------------------------------
Ivy International Fund II
(IMI's International Equity Long-term capital growth. 164.9 1.00 1997
Team)
---------------------------------------------------------------------------------------------------------------------------
Ivy International Small
Companies Fund
(Co-managed by Henderson and Long-term growth. 6.7 1.00(5) 1997
IMI's International Equity Team)
---------------------------------------------------------------------------------------------------------------------------
Ivy Pan Europe Fund
(IMI's International Equity Long-term capital growth. 5.1 1.00 1997
Team)
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
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<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
Net Assets as
of March 31, Management Fee
2000 (% of Fund
Name of Fund Investment (In Millions of Average Daily Year
(Portfolio Manager) Objective Dollars)(12) Net Assets) Introduced
---------------------------------------------------------------------------------------------------------------------------
U.S. EQUITY FUNDS
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Ivy Growth Fund
(Co-managed by James W.
Broadfoot and Paul P. Baran, Long-term growth. 414.6 0.85(6) 1960
IMI)
---------------------------------------------------------------------------------------------------------------------------
Ivy Growth with
Income Fund Long-term growth. 82.8 0.75 1984
(Paul P. Baran, IMI)
---------------------------------------------------------------------------------------------------------------------------
Ivy US Blue Chip Fund Long-term growth. 16.0 0.75 1998
(Paul P. Baran, IMI)
---------------------------------------------------------------------------------------------------------------------------
Ivy US Emerging
Growth Fund(7) Long-term growth. 235.4 0.85 1993
(James W. Broadfoot, IMI)
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
EMERGING MARKETS FUNDS
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Ivy Asia Pacific Fund
(IMI's International Equity Long-term growth. 9.1 1.00 1997
Team)
---------------------------------------------------------------------------------------------------------------------------
Ivy China Region Fund
(IMI's International Equity Long-term capital growth. 19.8 1.00 1993
Team)
---------------------------------------------------------------------------------------------------------------------------
Ivy Developing
Markets Fund(8) Long-term growth. 16.9 1.00 1994
( Moira A. McLachlan, IMI)
---------------------------------------------------------------------------------------------------------------------------
Ivy South America Fund(9)
(IMI's International Equity Long-term growth. 5.1 1.00 1994
Team)
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FIXED INCOME FUNDS
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Ivy Bond Fund High level of current income. 90.6 0.75(10) 1985
(IMI's Fixed Income Team)
---------------------------------------------------------------------------------------------------------------------------
Ivy International Total return and, consistent with
Strategic Bond Fund that objective, to maximize current 1.4 0.75 1999*
(Richard A. Gluck, IMI) income.
---------------------------------------------------------------------------------------------------------------------------
To obtain as high a level of
Ivy Money Market Fund current income as is consistent
(IMI's Fixed Income Team) with the preservation of capital 22.1 0.40 1987
and liquidity.
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
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<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
Net Assets as
of March 31, Management Fee
2000 (% of Fund
Name of Fund Investment (In Millions of Average Daily Year
(Portfolio Manager) Objective Dollars)(12) Net Assets) Introduced
---------------------------------------------------------------------------------------------------------------------------
CANADIAN FUNDS
IMI acts as sub-adviser to the following Canadian Funds which are offered for sale only in Canada.
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Universal World Balanced Long-term capital growth by
RRSP Fund pursuing both current income and
(Co-managed by Richard A. capital gains, generally through 325.5 0.50(11) 1994
Gluck and Moira A. McLachlan, international fixed income and
IMI) equity derivative securities.
---------------------------------------------------------------------------------------------------------------------------
Universal World Income
RRSP Fund Long-term capital growth. 363.6 0.50(11) 1975
(Richard A. Gluck, IMI)
---------------------------------------------------------------------------------------------------------------------------
Universal World Growth
RRSP Fund Long-term capital growth. 386.1 0.50(11) 1994
(Moira A. McLachlan, IMI)
---------------------------------------------------------------------------------------------------------------------------
Universal Americas Fund
(Co-managed by Paul P. Baran Long-term capital growth. 52.0 0.50(11) 1978
and Moira A. McLachlan, IMI)
---------------------------------------------------------------------------------------------------------------------------
Universal U.S. Emerging
Growth Fund Long-term capital growth. 337.8 0.50(11) 1991
(James W. Broadfoot, IMI)
---------------------------------------------------------------------------------------------------------------------------
Universal World Science and
Technology Fund
(Co-managed by three portfolio Capital growth. 437.3 0.50(11) 1996
managers from MFC, IMI and
Henderson)
---------------------------------------------------------------------------------------------------------------------------
Universal World High
Yield Fund Above-average income with the 2.3 0.50(11) 1997
(Michael Borowsky, IMI) potential for capital growth.
---------------------------------------------------------------------------------------------------------------------------
Universal Select Managers Fund
(Co-managed by five portfolio
managers from MIMI, Henderson Long-term growth. 1,589.9 0.50(11) 1998
and Cundill(13))
---------------------------------------------------------------------------------------------------------------------------
Universal World Value Fund
(Co-managed by Paul P. Baran Long-term capital appreciation. 11.0 0.50(11) 1997
and Moira A. McLachlan, IMI)
---------------------------------------------------------------------------------------------------------------------------
Industrial Yield Advantage Fund Above-average income with the 1.0 0.50(11) 1999
(Michael Borowsky, IMI) potential for capital growth.
---------------------------------------------------------------------------------------------------------------------------
Universal U.S. Blue
Chip Fund Long-term capital growth. 9.3 0.50(11) 1999
(Paul P. Baran, IMI)
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE> 11
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
Net Assets as
of March 31, Management Fee
2000 (% of Fund
Name of Fund Investment (In Millions of Average Daily Year
(Portfolio Manager) Objective Dollars)(12) Net Assets) Introduced
---------------------------------------------------------------------------------------------------------------------------
SOLUTIONS FUNDS
The following funds participate in the asset allocation program known as International Solutions.
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
International Solutions I - Capital preservation with moderate
primarily Conservative Growth current income and, secondarily ** 0.25 1999
(IMI) capital appreciation.
---------------------------------------------------------------------------------------------------------------------------
International Solutions II A balance of capital appreciation
-primarily Balanced Growth and capital preservation, with ** 0.25 1999
(IMI) moderate current income.
---------------------------------------------------------------------------------------------------------------------------
International Solutions III - Capital appreciation and,
primarily Moderate Growth secondarily preservation of ** 0.25 1999
(IMI) capital.
---------------------------------------------------------------------------------------------------------------------------
International Solutions IV -
primarily Long-term Growth Capital appreciation without ** 0.25 1999
(IMI) regard to current income.
---------------------------------------------------------------------------------------------------------------------------
International Solutions V -
primarily Aggressive Growth Aggressive capital appreciation ** 0.25 1999
(IMI) without regard to current income.
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Ivy European Opportunities Fund and Ivy International Strategic Bond Fund
began sales on May 3, 1999.
** The Solutions Funds began sales on July 2, 1999 (and are included in the
Ivy Fund net assets under management). The Solutions Funds were dissolved
as of April 26, 2000.
(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 net
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 net 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. Effective May 27, 2000, IMI
terminated its sub-advisory agreement with Northern Cross. Sheridan Reilly,
Chief Investment Officer-International Equities of IMI, is managing IIF.
(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 and effective April 14, 2000, the Fund changed its name from Ivy
Developing Nations 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."
(12) Excludes net assets of Separate Accounts.
(13) Cundill Investment Research, Inc., Canada
11
<PAGE> 12
IVY INTERNATIONAL FUND
In April 1997, IIF exceeded $2 billion in net assets. The sub-adviser,
Northern Cross, believed that in light of the total international assets it was
managing at that time, its 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 have been able to
continue to invest in IIF. Effective May 27, 2000, IMI terminated its
sub-advisory agreement with Northern Cross. Sheridan Reilly, Chief Investment
Officer-International Equities of IMI, is managing IIF. The Company intends to
reopen IIF to new investors on June 1, 2000.
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
$1,755,000, which after recording related expenses resulted in a gain of
approximately $1,049,000. The transfer of the assets of these municipal funds
did not have a material effect on MIMI's financial results.
FUND MERGERS
In April 1999, Ivy Canada Fund merged into Ivy Global Natural Resources
Fund. In May 2000, the Board of Trustees of Ivy Fund approved the following
mergers: the assets of Ivy Growth with Income Fund into Ivy US Blue Chip Fund;
the assets of Ivy Pan-Europe Fund into Ivy European Opportunities Fund; and the
assets of Ivy South America Fund into Ivy Developing Markets Fund. Pending
approval by the respective fund's shareholders, the reorganizations should be
effective on or about June 27, 2000.
FUND INTRODUCTIONS
In May 1999, Ivy European Opportunities Fund and Ivy International
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. 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. In
April 2000, Ivy Cundill Value Fund commenced operations, which is sub-advised by
Peter Cundill & Associates.
FUND ACQUISITION
In September 1999, the Company acquired the assets of Hudson Capital
Appreciation Fund (approximately $20,056,000), which were merged into the assets
of Ivy US Emerging Growth Fund.
INTRODUCTION OF A MULTI-CLASS SHARE STRUCTURE
In October 1993, Ivy Fund began offering a multi-class structure which
allows investors to choose an appropriate purchase option based on the amount
purchased and the anticipated duration of the investments. MIMI implemented this
multi-class structure in response to increasing competition from mutual fund
managers offering funds without a front-end sales charge. The multi-class share
structure allows investors to choose between paying a front-end sales charge at
the time of purchase, or not paying a front-end sales charge at the time of
purchase but instead paying a Contingent Deferred Sales Charge ("CDSC") on
redemption. Prior to October 1993, Ivy Fund 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-
12
<PAGE> 13
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. Approximately eight years after the original date of purchase, Class B
shares convert automatically to Class A shares.
In March 1999, MIMI sold a portion of 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. Class C shares do not have a conversion
feature.
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 net assets in the account. Currently, Advisor Class shares
are offered 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 Service or Distribution Fees.
Class I shares also bear lower fees than Class A, Class B and Class C shares.
Currently, Class I shares are sold by eight of the Ivy Funds.
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
13
<PAGE> 14
agreements of the Company with the Funds have been terminated other than in
connection with Fund closings.
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 other than in connection with Fund
closings.
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 0.01% 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 Solutions
Funds at the preceding month end. MIMI is also reimbursed by the Funds for
certain out-of-pocket expenses.
IMSC serves as transfer agent and dividend paying agent for the Funds
and provides certain shareholder and shareholder-related services as required by
the Funds. For transfer agent services, IMSC receives a per shareholder account
fee ranging from $20 to $22 per year. The shareholder account fee received by
IMSC for Class I shares is $10.25. In addition, the Funds pay IMSC a monthly fee
at an annual rate of $4.70 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 shares 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
twelve 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 977 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 44% of the Company's mutual fund sales for the
year ended March 31, 2000. Merrill Lynch & Co., Inc. is not under any obligation
to sell a specific amount of shares of the 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.
14
<PAGE> 15
Over the years, MIMI has gained access to the mutual fund sales network
created by the emergence of registered investment advisers and financial
planners. This network consists of independent registered investment advisers
and financial planners who work with the traditional broker-dealer distribution
network in selling funds to their clients. Firms such as Charles Schwab & Co.,
Inc. and Fidelity Investment Advisor Group act as clearing houses for thousands
of U.S. mutual funds enabling smaller, independent registered investment
advisers and financial planners to have access to mutual fund groups previously
sold only by broker-dealers. Management of MIMI believes that MIMI was one of
the first U.S. mutual fund managers whose funds impose front-end sales charges
or CDSCs to actively participate in this expanding network and has established
selling arrangements with many U.S.
registered investment advisers and financial planner groups.
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 Trustees. All such plans are subject to termination at
any time by a majority vote of the disinterested Trustees 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.
Each Fund pays 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 Fund, 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 they 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, 2000, there were approximately 109,000 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.
15
<PAGE> 16
RISK FACTORS AND CAUTIONARY STATEMENTS
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. As of
March 31, 2000, the Company's market share of monthly average net assets under
management was .03%. However, the Company's market share of international and
emerging market fund monthly average net assets under management was 1.02%.
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.
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 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 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
16
<PAGE> 17
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.
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, 2000, 29% of the net 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. Net redemptions in IIF for the Company's
fiscal year ended March 31, 2000 were $583 million, compared to average net
sales of $363 million over the past four years. The Company intends to reopen
IIF to new investors on June 1, 2000.
Sales for fiscal year 2000 in IIF were $320 million as compared to $325
million in fiscal year 1999, a 2% decrease, and net assets under management in
IIF at March 31, 2000 were $2,036 million as compared to $2,377 million at March
31, 1999.
ABSENCE OF PUBLIC TRADING MARKET
MFC owns 86% of the issued and outstanding common shares of MIMI as of
March 31, 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.
RELATIONSHIP WITH MFC
For the year ended March 31, 2000, 15% 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.
RELIANCE ON KEY EMPLOYEES
Although MIMI takes a team approach to the management of several of the
Funds' portfolios whereby all members work together in developing and carrying
out investment strategies, it is possible that levels of investment in a Fund
may not grow at the same rate should the principal portfolio manager cease
managing that Fund.
NUMBER OF EMPLOYEES
As of March 31, 2000, the Company had 129 employees, including twelve
investment professionals, of whom six are portfolio managers, four are research
analysts and two are traders. The
17
<PAGE> 18
average period of employment of these professionals with the Company is
approximately four years and their average investment experience is
approximately fifteen 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 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.
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 certain transactions and restrict or prohibit other 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 and recent amendments to Rule 17j-1 under
the 40 Act.
To the extent that existing or future regulations cause a reduction in
sales of Fund shares or investment products or impair the investment performance
of the Funds or such other investment products, the Company's aggregate net
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 and
activities, as discussed in more detail in "ITEM 7. 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 Rule 12b-1
distribution plan to IMDI. Such limitations would apply in a situation where a
Fund has no, or limited, new sales for a prolonged period of time.
Under the 40 Act, each of the Funds must file annually a current
Prospectus and Statement of Additional Information with, and pay registration
fees to, the SEC. The public may read and copy any material filed with the SEC
at the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.
20549. Information on the operation of the Public Reference Room may be obtained
by calling the SEC at 1-800-SEC-0330. Additionally, each of the Funds must pay
registration fees in some or all of the states.
Under the 40 Act and rules thereunder, each of the Funds 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.
18
<PAGE> 19
ITEM 2. 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 in 2001.
o Approximately 5,300 square feet located at 1239-1287 East Newport Center
Drive, Suite 106 and 205, Deerfield Beach, Florida 33442, for an average
rent per year of $70,000. The lease expires in 2001.
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 in 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 over the next fiscal year.
The Company has entered into a lease with Boca II Associates, Ltd.,
landlord for First Union Plaza, located at 925 South Federal Highway, Boca
Raton, Florida 33432. The Company intends to move its corporate, research and
administrative offices into approximately 40,000 square feet of office space at
First Union Plaza on March 1, 2001.
ITEM 3. 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the Company's security holders
during the fourth quarter of the Company's most recently completed fiscal year.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below are the names and ages of the executive officers of the
Company, and a description of the positions and offices each holds with the
Company and its significant subsidiaries.
<TABLE>
<CAPTION>
NAME AGE POSITIONS WITH THE COMPANY AND ITS SIGNIFICANT SUBSIDIARIES
---- --- -----------------------------------------------------------
<S> <C> <C>
Keith J. Carlson Age President, Chief Executive Officer,
44 and Director since July 1999. Prior
thereto, Executive Vice President and
Chief Operating Officer from December
1997 to July 1999. Senior Vice
President August 1989 to
December 1997. Director from
April 1985 to October 1996.
Director of IMDI since June
1993. President and Chief
Executive Officer of IMDI since
December 1994. Director of IMI
since November
</TABLE>
19
<PAGE> 20
<TABLE>
<S> <C> <C>
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.
James W. Broadfoot III Age Senior Vice President and Portfolio Manager
57 since August 1990. Director since June 1995.
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.
C. William Ferris Age Senior Vice President and Secretary/Treasurer
55 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.
Beverly J. Yanowitch Age Chief Financial Officer since January 2000.
50 Vice President since December 1999. Senior
Vice President, IMDI since October 1997 and
Vice President, IMDI since December 1993.
Prior thereto, Controller from January 1993
to December 1999.
Paul P. Baran Age Portfolio Manager and Vice President of IMI
49 since July 1998. Vice President since
December 1999. Prior thereto, Senior Vice
President and Chief Investment Officer for
Central Fidelity National Bank from
September 1987 to June 1998.
Thomas H. Bivin, Jr. Age Vice President since September 1999. Executive
61 Vice President and National Sales Manager
for Ivy Mackenzie Distributors, Inc. since
September 1999. Senior Vice President and
Wholesaler of Ivy Mackenzie Distributors,
Inc. since July 1994.
</TABLE>
PART II
ITEM 5. MARKET FOR 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
20
<PAGE> 21
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>
2000 Fiscal Year 1999 Fiscal Year
-------------------------- ----------------------------
Quarter High Low High Low
----------------------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C>
April - June $5.34 $4.03 $13.31 $8.20
July-September 4.72 3.73 10.48 4.79
October-December 4.29 3.08 7.15 3.90
January-March 6.46 3.19 5.90 3.77
</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 9, 1999, MIMI amended the 1994 Plan to fix the maximum
number of shares issuable under the 1994 Plan at 3,114,220 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, 2000, there were 1,505,500 options
outstanding.
There are approximately 169 registered shareholders of the Company. As
of March 31, 2000, MFC was the primary shareholder holding 15,987,910 shares, or
86% of the Company.
In the past, MIMI has retained its earnings for use in the operation
and expansion of its business. Commencing in fiscal year 2001, it anticipates
paying a cash dividend, subject to any legal restrictions and such other factors
as the Board of Directors of MIMI may deem appropriate.
ITEM 6. SELECTED 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,
2000. The selected consolidated financial data have been derived from the
Company's consolidated financial statements. 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,
----------------------------------------------------------------------------
2000 1999 1998 1997 1996
------- ------- ------- ------- -------
(In thousands of dollars, except per share amounts)
<S> <C> <C> <C> <C> <C>
Revenues $63,506 $66,256 $65,096 $37,143 $21,837
Net Income 6,448 8,549 9,526 7,291 2,053
Per common share:
Net income - basic 0.34 0.45 0.51 0.44 0.13
Net income - diluted 0.34 0.44 0.49 0.43 0.13
</TABLE>
21
<PAGE> 22
<TABLE>
<CAPTION>
As of March 31,
--------------------------------------------------------------------------
2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- ----------
(In thousands of dollars)
<S> <C> <C> <C> <C> <C>
Total Net Assets Under
Management $7,028,003 $4,768,271 $5,246,088 $3,806,813 $2,176,607
Total Assets 64,072 68,169 61,925 64,406 25,951
Total Liabilities 7,777 15,865 18,475 32,836 6,976
Stockholders' equity 56,295 52,304 43,450 31,569 18,975
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
YEAR ENDED MARCH 31, 2000 COMPARED WITH YEAR ENDED MARCH 31, 1999
Net assets under management, exclusive of net assets of the Canadian
Funds for which MIMI provided sub-advisory services to MFC, increased 5% to
$3,512 million at March 31, 2000 from $3,331 million at March 31, 1999. Of the
$181 million increase, $689 million was attributable to market appreciation and
$(508) million was attributable to net redemptions (sales less redemptions). Net
redemptions decreased by $15 million compared to the year ended March 31, 1999
due to (i) a $246 million increase in sales primarily due to increased interest
in international investing, in addition to the reopening of Ivy European
Opportunities Fund and (ii) a $231 million increase in redemptions over the
prior year of which redemptions in Ivy International Fund represented 71% of the
total redemptions.
At March 31, 2000, the net assets of the Canadian Funds for which MIMI
provides sub-advisory services to MFC totaled approximately $3,516 million as
compared to $1,437 million at March 31, 1999, representing a 145% increase.
REVENUES
Total revenues decreased 4% to $63.5 million for the year ended March
31, 2000 from $66.3 million for the year ended March 31, 1999. The decrease is
primarily due to (i) the sale of the Class B deferred selling commission asset
and (ii) the decrease in average net assets under management and the fees
derived therefrom. The following is an explanation of the increase or decrease
in each major category.
Management fees decreased 4%, or $1.3 million, to $32.5 million for the
year ended March 31, 2000 from $33.8 million for the year ended March 31, 1999,
solely attributable to the decrease in average net assets under management.
Sub-advisory fees from the Canadian Funds increased 58%, or $3.5
million, to $9.5 million for the year ended March 31, 2000 from $6.0 million for
the year ended March 31, 1999. This increase can be attributed to (i) the growth
in net assets of the Canadian Funds as discussed above and (ii) an increase in
the number of funds to 11 from 9 for which sub-advisory services were rendered
in fiscal year 2000 as compared to fiscal year 1999, respectively.
12b-1 Service and Distribution Fees received from the Funds decreased
39%, or $5.8 million, to $8.9 million for the year ended March 31, 2000 from
$14.7 million for the year ended March 31, 1999, attributable to the sale of the
Class B deferred selling commission asset in March 1999.
Administrative, fund accounting and transfer agent fees during fiscal
year 2000 of $7.1 million were comparable with fiscal year 1999 amounts.
Underwriting fees increased 300%, or $0.3 million, to $0.4 million for
the year ended March 31, 2000 from $0.1 million for the year ended March 31,
1999, due to the overall increase in sales volume.
22
<PAGE> 23
Redemption fees in the form of CDSCs, decreased 87%, or $2.7 million,
to $0.4 million for the year ended March 31, 2000 from $3.1 million for the year
ended March 31, 1999. This decrease can be attributed to the sale of the
deferred selling commission asset in March 1999.
Interest, dividends, and other revenue increased 129%, or $1.8 million,
to $3.2 million for the year ended March 31, 2000 from $1.4 million for the year
ended March 31, 1999, primarily due to MIMI's higher cash balances resulting
from the sale of the deferred selling commission asset, as discussed previously,
and dividends earned on the Company's investment in Ivy European Opportunities
Fund.
Net realized gain on marketable securities increased $1.5 million for
the year ended March 31, 2000 primarily due to the Company's liquidation of its
investment in Ivy European Opportunities Fund.
EXPENSES
Total operating expenses of $52.6 million for the year ended March 31,
2000 were comparable to the prior year.
Sales literature, advertising and promotion expenses increased 54%, or
$1.3 million, to $3.7 million for the year ended March 31, 2000 from $2.4
million for the year ended March 31, 1999 due to sales force and related
marketing expenditure increases for the promotion of new and existing products.
12b-1 Service Fees paid to broker/dealers were comparable to the
corresponding period last year.
Employee compensation and benefits increased 29%, or $3 million, to
$13.3 million for the year ended March 31, 2000 from $10.3 million for the year
ended March 31, 1999 due to (i) an increase in the number of employees to 129 at
March 31, 2000 from 123 at March 31, 1999; (ii) salary and cost-of-living
adjustments; and (iii) a retirement allowance made to the former President and
Chief Executive Officer who resigned in July 1999.
Sub-advisory fees paid decreased 8%, or $1.2 million, to $13.6 million
for the year ended March 31, 2000 from $14.8 million for the year ended March
31, 1999 due to a decrease in average net assets in Ivy International Fund.
Amortization of deferred selling commissions decreased 82%, or $5.1
million, to $1.1 million for the year ended March 31, 2000 from $6.2 million for
the year ended March 31, 1999. This decrease was attributable to the sale of the
deferred selling commission asset in March 1999.
General and administrative expenses increased 30%, or $1.5 million, to
$6.5 million for the year ended March 31, 2000 from $5 million for the year
ended March 31, 1999 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 recruiting activities; and (iv) costs, including office and
computer supplies, and other general operating expenses.
In fiscal year 2000, there was no interest expense as the bank line of
credit used to fund the payment of sales commissions paid to broker/dealers for
the sale of Class B and C shares was repaid when the deferred selling commission
asset was sold in March 1999.
Occupancy and equipment rental increased 8%, or $81,000, to $1,044,000
for the year ended March 31, 2000 from $963,000 for the year ended March 31,
1999 due to the expansion of office space to accommodate the increase in staff
and the escalation clauses in the leases.
IMI voluntarily limits total fund expenses for certain Funds and bears
expenses in excess of such limits. The increase of $0.9 million, to $2.6 million
for the year ended March 31, 2000 from $1.7 million for the year ended March 31,
1999 in the reimbursement to the Funds for expenses is attributable
23
<PAGE> 24
to: (i) the increase in the number of Funds reimbursed; and (ii) a decrease in
the average 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 net 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 March 31, 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 March 31, 1998, representing an 8% increase.
REVENUES
Total revenues increased 2% to $66.3 million for the year ended March
31, 1999 from $65.1 million for the year ended March 31, 1998. The increase is
primarily due to the increase in average net 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 $0.6 million, 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 net assets under management.
Sub-advisory fees from the Canadian Funds increased 7%, or $0.4 million
to $6.0 million for the year ended March 31, 1999 from $5.6 million for the year
ended March 31, 1998. This increase can be attributed to (i) the growth in net
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%, or $0.1 million, to $14.7 million for the year ended March 31, 1999 from
$14.6 million for the year ended March 31, 1998, as average net assets for the
year ended March 31, 1999 were above the year ended March 31, 1998.
Administrative, fund accounting and transfer agent fees during fiscal
year 1999 of $7.1 million were comparable with fiscal year 1998 amounts.
Underwriting fees decreased 80%, or $0.4 million, to $0.1 million for
the year ended March 31, 1999 from $0.5 million for the year ended March 31,
1998, due to the overall decrease in sales volume.
Redemption fees in the form of CDSCs increased 63%, or $1.2 million, to
$3.1 million for the year ended March 31, 1999 from $1.9 million for the year
ended March 31, 1998. This increase can be attributed to the $125 million
increase in Class B and C share redemptions over the last fiscal year.
Interest, dividends, and other revenue decreased 33%, or $0.7 million,
to $1.4 million for the year ended March 31, 1999 from $2.1 million for the year
ended March 31, 1998. Other revenue during fiscal year 1998 included a net gain
of $1 million resulting from the sale of assets of the Company's four municipal
funds comprising the Mackenzie Series Trust.
24
<PAGE> 25
EXPENSES
Total operating expenses increased by 6%, or $3 million, to $52.6
million for the year ended March 31, 1999 from $49.6 million for the year ended
March 31, 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 net 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 net assets under management in certain
of the Funds.
Sales literature, advertising and promotion expenses decreased 38%, or
$1.5 million, to $2.4 million for the year ended March 31, 1999 from $3.9
million for the year ended March 31, 1998 due to a more tightly focused
advertising and marketing program.
12b-1 Service Fees paid to broker/dealers increased 27%, or $1.9
million, to $9.0 million for the year ended March 31, 1999 from $7.1 million for
the year ended March 31, 1998 due to the increase in average net assets under
management.
Employee compensation and benefits increased 7%, or $0.7 million, to
$10.3 million for the year ended March 31, 1999 from $9.6 million for the year
ended March 31, 1998 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 1%, or $0.1 million, to $14.8 million for the year ended March 31,
1999 from $14.7 million for the year ended March 31, 1998 due to an increase in
average net assets under management in the Fund.
Amortization of deferred selling commissions decreased 13%, or $0.9
million, to $6.2 million for the year ended March 31, 1999 as compared to $7.1
million for the year ended March 31, 1998. 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 asset.
General and administrative expenses increased 35%, or $1.3 million, to
$5.0 million for the year ended March 31, 1999 from $3.7 million for the year
ended March 31, 1998 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 2% for the year ended March 31, 1999 due to
lower interest rates during fiscal year 1999 as compared to fiscal year 1998.
Occupancy and equipment rental increased 25%, or $0.2 million, to $1.0
million for the year ended March 31, 1999 from $0.8 million for the year ended
March 31, 1998 due to the expansion of office space to accommodate the increased
staff.
IMI voluntarily limits total fund expenses for certain Ivy Funds and
bears expenses in excess of such limits. The increase of $0.7 million, to $1.7
million, 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.
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 mutual funds offered in the U.S.
25
<PAGE> 26
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.
At March 31, 2000, the Company's position in cash and cash equivalents
decreased to $41.1 million from $51.0 million at March 31, 1999. This $9.9
million decrease for the year ended March 31, 2000 resulted from (i) cash used
in operating activities of $6.1 million (primarily for payment of federal and
state income taxes); (ii) cash used in investing activities of $1.4 million,
primarily related to the acquisition of the Hudson Capital Appreciation Fund and
purchases of property and equipment; and (iii) cash used in financing activities
of $2.5 million primarily to repurchase and retire MIMI's common stock. Included
in cash equivalents at March 31, 2000 are $30.9 million of short-term
investments that can be readily converted to cash.
The payment of deferred selling commissions to broker/dealers increased
to $5.2 million for the year ended March 31, 2000 from $3.9 million for the year
ended March 31, 1999. The increase, in the opinion of management, can be
attributed to the increased interest in international investing and the
reopening of the Ivy European Opportunities Fund. Commission payments made
during the year ended March 31, 2000 were funded internally from operations.
On October 13, 1999, the Company entered into a $10 million line of
credit with First Union National Bank. The line of credit has a term of 364 days
and is available for general working capital and short-term capital expenditure
needs. There are no immediate plans to draw on the line of credit as the Company
maintains sufficient cash balances to meet its financial commitments.
Capital expenditures for fiscal years 2000 and 1999 were internally
funded and primarily consisted of computer equipment and software enhancements.
The Company anticipates investing approximately an additional $1.7 million
during the year ended March 31, 2001 in equipment, technology and furniture and
furnishings.
YEAR 2000
The Company did not experience any interruptions to its business or
operations as a result of the transition to the year 2000, nor did it have to
implement any of its contingency plans. Although it incurred costs in
preparation for the transition, those costs did not affect its financial
position in any material way.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Reference is made to the information contained under the heading
"Business - Risk Factors and Cautionary Statements".
26
<PAGE> 27
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The table below indicates selected financial information for MIMI on a
consolidated basis for the last eight fiscal quarters.
<TABLE>
<CAPTION>
FISCAL 2000 FOR THE QUARTER ENDED JUN 30 SEPT 30 DEC 31 MAR 31
------ ------- ------ ------
(In thousands of dollars, except per share amounts) U.S.$ U.S.$ U.S.$ U.S.$
<S> <C> <C> <C> <C>
Revenues 14,873 14,661 16,157 17,815
Expenses 12,715 13,646 12,907 13,326
Provision for income taxes 963 535 1,375 1,591
Net income 1,195 480 1,875 2,898
Earnings per share - basic 0.06 0.03 0.10 0.16
Earnings per share - diluted 0.06 0.03 0.10 0.16
</TABLE>
<TABLE>
<CAPTION>
FISCAL 1999 FOR THE QUARTER ENDED JUN 30 SEPT 30 DEC 31 MAR 31
------ ------- ------ ------
(In thousands of dollars, except per share amounts) U.S.$ U.S.$ U.S.$ U.S.$
<S> <C> <C> <C> <C>
Revenues 17,866 16,694 16,219 15,477
Expenses 14,012 13,304 12,914 12,325
Provision for income taxes 1,553 966 1,346 1,287
Net income 2,301 2,424 1,959 1,865
Earnings per share - basic 0.12 0.13 0.10 0.10
Earnings per share - diluted 0.12 0.13 0.10 0.10
</TABLE>
The financial statements required by this item appear beginning on
page F-1.
27
<PAGE> 28
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not Applicable
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The Company incorporates by reference the information contained under
the captions "Election of Directors," "Securities Ownership of Certain
Beneficial Owners and Management" and "Section 16(a) Beneficial Ownership
Reporting Compliance" in our Definitive Proxy Statement (the "Proxy Statement")
relative to our annual meeting of shareholders, to be filed within 120 days
after the end of the year covered by this Form 10-K Report pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended. We also
incorporate by reference "Executive Officers of the Registrant" as set forth
under Item 4A of this Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
Information called for by this item is set forth under "Named Executive
Officer Compensation" in the Proxy Statement and incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information called for by this item is set forth under "Voting Shares and
Principal Ownership" in the Proxy Statement and incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this report:
1. FINANCIAL STATEMENTS:
Consolidated Financial Statements and Report of Independent Certified
Public Accountants included herein: See Index on page F-1.
2. FINANCIAL STATEMENT SCHEDULES:
All schedules are omitted because they are inapplicable, not required,
or the information is included elsewhere in the Consolidated Financial
Statements or the notes thereto.
28
<PAGE> 29
EXHIBITS:
The following exhibits are filed herewith or incorporated by reference
as indicated below.
<TABLE>
<CAPTION>
EXHIBIT # DESCRIPTION DOCUMENT IF INCORPORATED BY REFERENCE
--------- ----------- -------------------------------------
<S> <C> <C>
3.1.1 Certificate of Incorporation - Exhibit 3.1.1 to the Company's
Mackenzie Investment Management, Inc. Form 10 filed with the Commission
on Oct. 13, 1999
3.1.2 Articles of Organization - Ivy Management, Inc. Exhibit 3.1.2 to the Company's
Form 10 filed with the Commission
on Oct. 13, 1999
3.1.3 Articles of Incorporation - Exhibit 3.1.3 to the Company's
Ivy Mackenzie Distributors, Inc. Form 10 filed with the Commission
on Oct. 13, 1999
3.1.4 Articles of Incorporation - Exhibit 3.1.4 to the Company's
Ivy Mackenzie Services Corp. Form 10 filed with the Commission
on Oct. 13, 1999
3.2.1 By-Laws - Exhibit 3.2.1 to the Company's
Mackenzie Investment Management Inc. Form 10 filed with the Commission
on Oct. 13, 1999
3.2.2 By-Laws - Ivy Management, Inc. Exhibit 3.2.2 to the Company's
Form 10 filed with the Commission
on Oct. 13, 1999
3.2.3 By-Laws - Ivy Mackenzie Distributors, Inc. Exhibit 3.2.3 to the Company's
Form 10 filed with the Commission
on Oct. 13, 1999
3.2.4 By-Laws - Ivy Mackenzie Services Corp. Exhibit 3.2.4 to the Company's
Form 10 filed with the Commission
on Oct. 13, 1999
4.1 Stock Certificate - Mackenzie Investment Exhibit 4.1 to the Company's
Management Inc. Form 10 filed with the Commission
on Oct. 13, 1999
10.1 Revolving Credit and Term Loan Agreement Exhibit 10.1 to the Company's
dated February 11, 1994 between Mackenzie form 10 filed with the Commission
Investment Management Inc. and The First on Oct. 13, 1999
National Bank of Boston, as amended
10.2 Mackenzie Program Master Agreement Dated Exhibit 10.2 to the Company's
as of March 16, 1999 among Mackenzie Form 10 filed with the Commission
Investment Management Inc, as Parent, Ivy on Oct. 13, 1999
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.
</TABLE>
29
<PAGE> 30
<TABLE>
<CAPTION>
EXHIBIT # DESCRIPTION DOCUMENT IF INCORPORATED BY REFERENCE
--------- ----------- -------------------------------------
<S> <C> <C>
10.3 Lease Agreement between Via Mizner Associates Exhibit 10.3 to the Company's
(Landlord) and Mackenzie Investment Management Form 10 filed with the Commission
Inc. (Tenant) on Oct. 13, 1999
10.4 Sublease Agreement between Buenos Aires Exhibit 10.4 to the Company's
Embotelladora S.A. as Lessor and Mackenzie Form 10 filed with the Commission
Investment Management Inc. as Lessee. on Oct. 13, 1999
10.5 First Amendment to Sublease Between Buenos Exhibit 10.5 to the Company's
Aires Embotelladora S.A. (Lessor) and Mackenzie Form 10 filed with the Commission
Investment Management Inc., (Lessee) on Oct. 13, 1999
10.6 Lease Agreement Between Via Mizner Associates Exhibit 10.6 to the Company's
and Ivy Management, Inc. Form 10 filed with the Commission
on Oct. 13, 1999
10.7 First Amendment to Lease Agreement Between Exhibit 10.7 to the Company's
Via Mizner Associates and Ivy Management, Inc. Form 10 filed with the Commission
on Oct. 13, 1999
10.8 Mackenzie Investment Management, Inc. Exhibit 10.8 to the Company's
1994 Stock Option Plan Form 10 filed with the Commission
on Oct. 13, 1999
10.9 Mackenzie Investment Management, Inc. Exhibit 10.9 to the Company's
Profit Sharing Plan, as amended Form 10 filed with the Commission
on Oct. 13, 1999
10.10 Master Administrative Services Agreement - Exhibit 10.10 to the Company's
Ivy Fund Form 10 filed with the Commission
on Oct. 13, 1999
10.11 Master Business Management and Investment Exhibit 10.11 to the Company's
Advisory Agreement - Ivy Fund Form 10 filed with the Commission
on Oct. 13, 1999
10.12 Master Fund Accounting Services Agreement - Exhibit 10.12 to the Company's
Ivy Fund Form 10 filed with the Commission
on Oct. 13, 1999
10.13 Master Business Management and Investment Exhibit 10.13 to the Company's
Advisory Agreement - Mackenzie Solutions Form 10 filed with the Commission
on Oct. 13, 1999
10.14 Master Fund Accounting Services Agreement - Exhibit 10.14 to the Company's
Mackenzie Solutions Form 10 filed with the Commission
on Oct. 13, 1999
10.15 Subadvisory Agreement dated July 1, 1999, Exhibit 10.15 to the Company's
between Ivy Management, Inc. and Garmaise Form 10 filed with the Commission
Investment Technologies (US) Inc. on Oct. 13, 1999
10.16 Credit Agreement dated October 13, 1999 Exhibit 10.16 filed herewith
between Mackenzie Investment Management
Inc. and its Subsidiaries, and First Union
National Bank
</TABLE>
30
<PAGE> 31
<TABLE>
<CAPTION>
EXHIBIT # DESCRIPTION DOCUMENT IF INCORPORATED BY REFERENCE
--------- ----------- -------------------------------------
<S> <C> <C>
10.17 Lease Agreement dated March 20, 2000 between Exhibit 10.17 filed herewith
Boca II Associates, Ltd. (Landlord) and Mackenzie
Investment Management Inc. (Tenant)
10.18 Master Mackenzie Dealer Agreement for the Sale Exhibit 10.18 filed herewith
of Shares of The Mackenzie Group of Funds
10.19 Ivy Fund Amended and Restated Distribution Exhibit 10.19 filed herewith
Agreement dated October 23, 1993
10.20 Subadvisory Contract between Ivy Fund, Ivy Exhibit 10.20 filed herewith
Management, Inc. and Boston Overseas
Investors, Inc. dated December 31, 1999
10.21 Assignment Agreement between Northern Cross Exhibit 10.21 filed herewith
Investments Limited, Boston Overseas Investors,
Inc., Ivy Fund and Ivy Management, Inc. dated
April 1, 1993
10.22 Investment Advisory Agreement between Ivy Fund Exhibit 10.22 filed herewith
and Mackenzie Financial Corporation
10.23 Transfer Agency and Shareholder Services Exhibit 10.23 filed herewith
Agreement between Ivy Fund and Ivy Management,
Inc. dated January 1, 1992
10.24 Assignment Agreement between Mackenzie Ivy Exhibit 10.24 filed herewith
Investor Services Corp., Ivy Fund and Ivy
Management, Inc. dated October 1, 1993
10.25 Ivy Fund Addendum to Transfer Agency and Exhibit 10.25 filed herewith
Shareholder Services Agreement dated
October 1, 1993
10.26 Subadvisory Agreement between Ivy Management, Exhibit 10.26 filed herewith
Inc. and Henderson Investment Management
Limited dated February 1, 1999
10.27 Amendment to Schedule A to Subadvisory Exhibit 10.27 filed herewith
Agreement between Ivy Management, Inc. and
Henderson Investment Management Limited
dated April 30, 1999
10.28 Subadvisory Agreement between Ivy Management, Exhibit 10.28 filed herewith
Inc. and Peter Cundill and Associates, Inc. dated
March 1, 2000
21.1 Subsidiaries Exhibit 21.1 to the Company's
Form 10 filed with the Commission
on Oct. 13, 1999
24.1 Powers of Attorney Exhibit 24.1 to the Company's
Form 10 filed with the Commission
on Oct. 13, 1999
27.1 Financial Data Schedule
</TABLE>
31
<PAGE> 32
(b) Reports on Form 8-K:
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
the Ivy International Fund will be reopened to new investors on or about June
1, 2000.
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 Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Company has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
MACKENZIE INVESTMENT
MANAGEMENT INC.
By: /s/ KEITH J. CARLSON
----------------------------------
Keith J. Carlson
President and Chief
Executive Officer
Date: June 29, 2000
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 President and Chief Executive Officer June 29, 2000
----------------------------
Keith J. Carlson
/s/ C. WILLIAM FERRIS Senior Vice President, Secretary/Treasurer June 29, 2000
----------------------------
C. William Ferris
/s/ NEIL LOVATT Chairman and Director June 29, 2000
----------------------------
Neil Lovatt
/s/ JAMES W. BROADFOOT III Senior Vice President and Director June 29, 2000
----------------------------
James W. Broadfoot III
/s/ ALAN J. DILWORTH Director June 29, 2000
----------------------------
Alan J. Dilworth
</TABLE>
32
<PAGE> 33
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ ALLAN S. MOSTOFF Director June 29, 2000
----------------------------
Allan S. Mostoff, Esq.
/s/ JAMES L. HUNTER Director June 29, 2000
----------------------------
James L. Hunter
/s/ ALASDAIR J. MCKICHAN Director June 29, 2000
----------------------------
Alasdair J. McKichan
/s/ MICHAEL R. PEERS Director June 29, 2000
----------------------------
Michael R. Peers
/s/ DOLPH W. VON ARX Director June 29, 2000
----------------------------
Dolph W. von Arx
/s/ BEVERLY J. YANOWITCH Vice President and Chief Financial Officer June 29, 2000
----------------------------
Beverly J. Yanowitch
/s/ PAUL P. BARAN Vice President June 29, 2000
----------------------------
Paul P. Baran
/s/ THOMAS H. BIVIN, JR. Vice President June 29, 2000
----------------------------
Thomas H. Bivin, Jr.
</TABLE>
33
<PAGE> 34
TABLE OF CONTENTS
PAGES
-----
Management's Report to the Shareholders F-2
Report of Independent Certified Public Accountants F-3
Financial Statements:
Consolidated Statements of Financial Condition as of
March 31, 2000 and 1999 F-4
Consolidated Statements of Operations for the years ended
March 31, 2000, 1999 and 1998 F-5
Consolidated Statements of Changes in Stockholders' Equity
for the years ended March 31, 2000, 1999 and 1998 F-6
Consolidated Statements of Cash Flows for the years ended
March 31, 2000, 1999 and 1998 F-7
Notes to Consolidated Financial Statements F-8-20
F-1
<PAGE> 35
MANAGEMENT'S REPORT TO THE SHAREHOLDERS
The accompanying consolidated financial statements and all information
in the Form 10-K have been prepared by management and approved by the Board of
Directors of Mackenzie Investment Management Inc. (the "Company"). The
consolidated financial statements were prepared in accordance with accounting
principles generally accepted in the United States and, where appropriate,
reflect management's best estimates and judgments. 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 financial
statements and the amounts which would be reported in accordance with accounting
principles generally accepted in Canada.
Management is responsible for the accuracy, integrity and objectivity
of the consolidated financial statements within reasonable limits of materiality
and for the consistency of financial data included in the text of the Form 10-K
with that contained in the consolidated financial statements.
Management is responsible for the maintenance of a system of internal
controls designed to provide reasonable assurance that the Company's assets are
safeguarded; that only valid and authorized transactions are executed; and that
accurate, timely, and comprehensive financial information is prepared.
The Company's Audit, Finance and Risk Committee is appointed by the
Board of Directors annually and is comprised of two non-management and one
management director. The Audit, Finance and Risk Committee meets with management
as well as with the independent certified public accountants to satisfy itself
that management is properly discharging its financial reporting responsibilities
and to review the consolidated financial statements and the report of
independent certified public accountants. The Audit, Finance and Risk Committee
reports its findings to the Board of Directors for consideration in approving
the consolidated financial statements for presentation to the shareholders. The
independent certified public accountants have direct access to the Audit,
Finance and Risk Committee of the Board of Directors.
The consolidated financial statements have been independently audited
by PricewaterhouseCoopers LLP on behalf of the shareholders, in accordance with
auditing standards generally accepted in the United States. Their report
outlines the nature of their audit and expresses their opinion on the
consolidated financial statements of the Company.
Keith J. Carlson Beverly J. Yanowitch
President and Chief Executive Officer Vice President and Chief
Financial Officer
April 28, 2000
F-2
<PAGE> 36
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Mackenzie Investment Management Inc.
In our opinion, the accompanying consolidated statements of financial condition
and the related consolidated statements of operations, of changes in
stockholders' equity and of cash flows present fairly, in all material respects,
the financial position of Mackenzie Investment Management Inc. and its
subsidiaries as of March 31, 2000 and 1999, and the results of their operations
and their cash flows for each of the three years in the period ended March 31,
2000 in conformity with accounting principles generally accepted in the United
States. 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 auditing standards generally accepted in the United States,
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.
PricewaterhouseCoopers LLP
Fort Lauderdale, Florida
April 28, 2000
F-3
<PAGE> 37
MACKENZIE INVESTMENT MANAGEMENT INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARCH 31,
----------------------------
2000 1999
----------- -----------
<S> <C> <C>
ASSETS
Cash and cash equivalents $41,095,301 $51,032,223
Marketable securities 3,388,768 1,447,734
Receivables:
Funds for fees and expense advances 4,725,964 5,372,633
Other 1,893,628 854,343
Property and equipment, net 1,084,212 1,306,696
Management contracts, net 5,430,191 5,643,284
Deferred selling commissions 5,828,749 1,761,002
Other assets 624,964 751,342
----------- -----------
Total assets $64,071,777 $68,169,257
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Payable to Funds for purchases of Funds' shares and
expense reimbursements $ 488,920 $ 158,365
Sub-advisory fees payable 3,249,994 3,447,159
Accounts payable 760,636 876,578
Accrued expenses and other liabilities 1,311,084 2,138,424
Income taxes payable 275,650 9,241,917
Deferred tax liability 1,690,899 2,976
----------- -----------
Total liabilities 7,777,183 15,865,419
----------- -----------
Commitments
Stockholders' equity:
Capital stock, $.01 par value, 100,000,000 shares authorized, 18,591,800 and
19,210,200 shares issued and outstanding as of March 31, 2000
and 1999, respectively 185,918 192,102
Additional paid-in capital 37,952,532 40,403,488
Retained earnings 18,156,144 11,708,248
----------- -----------
Total stockholders' equity 56,294,594 52,303,838
----------- -----------
Total liabilities and stockholders' equity $64,071,777 $68,169,257
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 38
MACKENZIE INVESTMENT MANAGEMENT INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEARS ENDED MARCH 31,
---------------------------------------------
2000 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Management fees $32,546,397 $33,812,998 $33,223,349
Sub-advisory fees from Canadian Funds 9,468,542 5,994,295 5,556,333
12b-1 Service and Distribution fees 8,923,631 14,675,809 14,649,757
Transfer agent fees 2,993,736 3,018,847 3,012,911
Administrative services fees 3,251,215 3,415,947 3,396,325
Fund accounting fees 819,391 707,358 724,670
Underwriting fees 394,970 140,940 515,823
Redemption fees 387,025 3,054,426 1,946,276
Interest, dividends and other 3,206,366 1,435,261 2,066,548
Net realized gain on marketable securities 1,514,857 -- 3,899
----------- ----------- -----------
63,506,130 66,255,881 65,095,891
----------- ----------- -----------
Expenses:
Sales literature, advertising and promotion 3,664,595 2,429,708 3,881,964
12b-1 Service fees 8,984,970 9,036,835 7,082,591
Employee compensation and benefits 13,327,869 10,335,240 9,603,448
Sub-advisory fees 13,603,911 14,826,319 14,672,847
Amortization of management contracts 1,123,262 1,081,895 1,095,782
Amortization of deferred selling commissions 1,113,821 6,202,132 7,065,446
Depreciation 696,535 549,930 336,549
General and administrative 6,451,071 4,990,050 3,664,911
Interest -- 473,842 483,645
Occupancy and equipment rental 1,044,229 962,903 767,535
Reimbursement to Funds for expenses 2,584,021 1,667,174 950,898
----------- ----------- -----------
52,594,284 52,556,028 49,605,616
----------- ----------- -----------
Income before income taxes 10,911,846 13,699,853 15,490,275
Provision for income taxes 4,463,950 5,151,197 5,964,056
----------- ----------- -----------
Net income $ 6,447,896 $ 8,548,656 $ 9,526,219
=========== =========== ===========
Basic earnings per share: 0.34 0.45 0.51
=========== =========== ===========
Weighted average number of common
shares outstanding used in basic
calculation 18,781,410 19,137,480 18,644,026
=========== =========== ===========
Diluted earnings per share: 0.34 0.44 0.49
=========== =========== ===========
Weighted average number of common and
common equivalent shares outstanding
used in diluted calculation 18,817,070 19,267,093 19,306,659
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 39
MACKENZIE INVESTMENT MANAGEMENT INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 2000, 1999 AND 1998
--------------------------------------------------------------------------------
<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, 1997 9,000,000 $ 90,000 $ 37,846,048 $ (6,366,627) $ 31,569,421
Two-for-one stock split (Note 10) 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
Issuance of common stock under
stock option plan 3,000 30 3,720 -- 3,750
Purchase and retirement of common stock (621,400) (6,214) (2,454,676) -- (2,460,890)
Net income for the year -- -- -- 6,447,896 6,447,896
---------- ------------ ------------ ------------ ------------
Balance, March 31, 2000 18,591,800 $ 185,918 $ 37,952,532 $ 18,156,144 $ 56,294,594
========== ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 40
MACKENZIE INVESTMENT MANAGEMENT INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 2000, 1999 AND 1998
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEARS ENDED MARCH 31,
------------------------------------------------
2000 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 6,447,896 $ 8,548,656 $ 9,526,219
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation 696,535 549,930 336,549
Amortization of management contracts 1,123,262 1,081,895 1,095,782
Amortization of deferred selling commissions 1,113,821 6,202,132 7,065,446
Deferred tax expense (benefit) 1,687,923 (4,656,197) 5,806,756
Net realized gain on marketable securities (1,514,857) -- (3,899)
Other (336,041) 51,229 (24,018)
Proceeds from sale of marketable securities 2,515,446 -- 73,057
Purchases of marketable securities (2,605,582) (506,219) (621,916)
Payment of deferred selling commissions (5,181,570) (3,876,736) (11,489,731)
Change in assets and liabilities:
Receivables (392,616) 518,444 20,736,957
Other assets 126,378 (313,377) 56,861
Payable to Funds for purchases of Fund shares and
expense reimbursements 330,555 65,687 (22,651,960)
Sub-advisory fees payable (197,165) (316,788) 1,307,027
Accounts payable, accrued expenses and other liabilities (943,282) (143,980) 594,926
Income taxes payable (8,966,267) 9,241,917 --
------------ ------------ ------------
Net cash (used in) provided by operating activities (6,095,564) 16,446,593 11,808,056
------------ ------------ ------------
Cash flows from investing activities:
(Purchase) sale of management contracts (910,169) -- 232,449
Purchases of property and equipment (474,049) (696,410) (836,785)
Proceeds from the sale of deferred selling commissions, net -- 20,816,896 --
------------ ------------ ------------
Net cash (used in) provided by investing activities (1,384,218) 20,120,486 (604,336)
------------ ------------ ------------
Cash flows from financing activities:
Note payable borrowings -- -- 1,800,000
Note payable repayments -- (6,800,000) --
Costs associated with the issuance of common stock -- -- (135,231)
Purchase and retirement of common stock (2,460,890) (108,537) --
Proceeds from the exercise of stock options 3,750 413,900 1,271,350
------------ ------------ ------------
Net cash (used in) provided by financing activities (2,457,140) (6,494,637) 2,936,119
------------ ------------ ------------
Net (decrease) increase in cash and cash equivalents (9,936,922) 30,072,442 14,139,839
Cash and cash equivalents, beginning of year 51,032,223 20,959,781 6,819,942
------------ ------------ ------------
Cash and cash equivalents, end of year $ 41,095,301 $ 51,032,223 $ 20,959,781
============ ============ ============
Supplemental disclosures:
Interest paid $ -- $ 490,783 $ 461,268
============ ============ ============
Income taxes paid $ 11,740,000 $ 495,000 $ 157,300
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE> 41
MACKENZIE INVESTMENT MANAGEMENT INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Mackenzie Investment Management Inc. ("MIMI") is a majority-owned
subsidiary of Mackenzie Financial Corporation of Toronto, Ontario
("MFC"). MIMI is an investment adviser and has three wholly-owned
subsidiaries as follows: Ivy Management, Inc. ("IMI"), an investment
adviser; Ivy Mackenzie Distributors, Inc. ("IMDI"), a broker/dealer; and
Ivy Mackenzie Services Corp. ("IMSC"), a transfer agent. MIMI and IMI
(the "Advisers") are registered with the Securities and Exchange
Commission ("SEC") as investment advisers. IMDI is registered with the
SEC as a broker-dealer and is a member of the National Association of
Securities Dealers, Inc. IMSC is registered with the SEC as a transfer
agent.
The Advisers are engaged in the management of Ivy Fund, a registered
investment company consisting of nineteen funds at March 31, 2000. In
addition, the Advisers are engaged in the management of Mackenzie
Solutions, a registered investment company, consisting of five separate
portfolios at March 31, 2000. Ivy Fund and Mackenzie Solutions are
collectively referred to as the "Funds." The Advisers have exclusive
management agreements entitling them to manage the Funds. The Advisers
also provide sub-advisory services to eleven 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-8
<PAGE> 42
MACKENZIE INVESTMENT MANAGEMENT INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
CONTINUED
MARKETABLE SECURITIES
Marketable securities are recorded at fair value. Realized gains and
losses are based on the specific identification method. The Company's
marketable securities at March 31, 2000 and 1999 are principally invested
in the Funds.
PROPERTY AND EQUIPMENT
Property and equipment, which are stated at cost, are depreciated on a
straight-line basis over the estimated useful lives 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 contracts
are shown net of accumulated amortization of $7,954,929 and $6,831,667 at
March 31, 2000 and 1999, respectively. Management periodically assesses
the value of its management contracts by considering the future economic
benefit associated with the revenue capacity of the contracts.
During September 1999, the Company acquired the assets of the Hudson
Capital Appreciation Fund (the "Hudson Fund"), which were merged into the
assets of the Ivy US Emerging Growth Fund. Through March 31, 2000, the
Company paid approximately $764,000 in order to obtain the rights to the
management contract for such assets. The terms of the agreement require a
final payment by the Company in September 2000 based on the net asset
value of the shares outstanding in the Ivy US Emerging Growth Fund from
the Hudson Fund acquisition.
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.
F-9
<PAGE> 43
MACKENZIE INVESTMENT MANAGEMENT INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
CONTINUED
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.
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.
F-10
<PAGE> 44
MACKENZIE INVESTMENT MANAGEMENT INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
CONTINUED
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 statements of operations. No amounts have been
reflected in the consolidated statements 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 current or deferred tax liability
and an increase in additional paid-in capital.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, marketable securities,
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.
SEGMENT REPORTING
The Company 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 June 1998, the Financial Accounting Standards Board ("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. In June 1999, the FASB issued Statement No. 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral
of the Effective Date of FASB Statement No. 133, an amendment of FASB
Statement No. 133." As a result, the Company will be required to adopt
the statement in fiscal year 2002. 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.
RECLASSIFICATIONS
Certain amounts in the 1998 and 1999 consolidated financial statements
have been reclassified to conform with the 2000 presentation.
F-11
<PAGE> 45
MACKENZIE INVESTMENT MANAGEMENT INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
2. PROPERTY AND EQUIPMENT
Property and equipment owned consist of the following:
MARCH 31,
----------------------------
2000 1999
----------- -----------
Furniture and equipment $ 1,035,462 $ 980,926
Computer hardware 1,905,302 1,553,419
Computer software 594,430 543,828
Leasehold improvements 507,323 490,909
----------- -----------
Total cost 4,042,517 3,569,082
Less accumulated depreciation (2,958,305) (2,262,386)
----------- -----------
$ 1,084,212 $ 1,306,696
=========== ===========
3. INCOME TAXES
The provision for income taxes consists of the following:
YEAR ENDED MARCH 31,
---------------------------------------------
2000 1999 1998
----------- ----------- -----------
Current income taxes:
Federal $ 2,367,741 $ 8,360,277 $ --
State 408,286 1,447,117 157,300
----------- ----------- -----------
2,776,027 9,807,394 157,300
----------- ----------- -----------
Deferred income taxes:
Federal 1,443,757 (3,985,948) 5,115,340
State 244,166 (670,249) 691,416
----------- ----------- -----------
1,687,923 (4,656,197) 5,806,756
----------- ----------- -----------
$ 4,463,950 $ 5,151,197 $ 5,964,056
=========== =========== ===========
F-12
<PAGE> 46
MACKENZIE INVESTMENT MANAGEMENT INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
3. INCOME TAXES, CONTINUED
A reconciliation of the statutory federal income tax rate to the
effective rate is as follows:
YEAR ENDED MARCH 31,
-------------------------
2000 1999 1998
---- ---- ----
Statutory federal income tax rate 34.0% 34.0% 34.0%
State taxes, net of federal benefit 3.7 3.3 3.9
Amortization of management contracts 2.8 2.3 2.0
Change in valuation allowance -- -- (1.9)
Other 0.4 (2.0) 0.5
---- ---- ----
40.9% 37.6% 38.5%
==== ==== ====
At March 31, 2000 and 1999, deferred income taxes consist of the
following:
<TABLE>
<CAPTION>
MARCH 31, 2000 MARCH 31, 1999
DEFERRED TAXES DEFERRED TAXES
------------------------- -------------------------
ASSETS LIABILITIES ASSETS LIABILITIES
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Accrued payables not yet deducted for
tax purposes $ 70,407 $ -- $ 78,000 $ --
Prepaid Class B and C share commissions -- 1,563,892 -- 210,000
Other 173,329 370,743 132,000 2,976
---------- ---------- ---------- ----------
$ 243,736 $1,934,635 $ 210,000 $ 212,976
========== ========== ========== ==========
Net deferred tax $1,690,899 $ 2,976
========== ==========
</TABLE>
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 .25% 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.
F-13
<PAGE> 47
MACKENZIE INVESTMENT MANAGEMENT INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
4. MANAGEMENT, UNDERWRITING, ADMINISTRATIVE SERVICES, FUND ACCOUNTING AND
TRANSFER AGENT AGREEMENTS, CONTINUED
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.
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.
F-14
<PAGE> 48
MACKENZIE INVESTMENT MANAGEMENT INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
6. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities consist of the following:
MARCH 31,
-------------------------
2000 1999
---------- ----------
Accrued compensation and benefits $ 245,241 $ 867,313
Due to Purchaser (Note 13) 554,029 701,178
Other 511,814 569,933
---------- ----------
$1,311,084 $2,138,424
========== ==========
7. LINE OF CREDIT
During October 1999, the Company entered into a $10,000,000 line of
credit (the "Agreement"), with a maturity date of October 11, 2000, to
provide for the Company's general working capital and short-term capital
expenditure needs. The Agreement provides for interest and principal on
advances outstanding until maturity. The advances bear interest at a
fluctuating rate equal to the LIBOR Market Index Rate plus 1.50%. The
Agreement requires the Company to maintain a specified consolidated
tangible net worth. As of March 31, 2000, the Company had no amounts
outstanding under the Agreement.
Prior to entering into the Agreement, the Company had a $10 million
revolving credit and term loan agreement to fund the payment of sales
commissions paid to dealers for the sale of Class B and C shares of the
Funds. Interest only payments were required on advances outstanding under
the revolving credit line. The advances bore interest based on either the
prime rate or the lender's funding rate plus 1.50%. The terms of the
agreement included compliance with specified covenants. At March 31,
1999, no amounts were outstanding under the revolving credit and term
loan agreement, which expired during June 1999.
F-15
<PAGE> 49
MACKENZIE INVESTMENT MANAGEMENT INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
8. COMMITMENTS
Under operating leases with remaining non-cancelable terms in excess of
one year at March 31, 2000, aggregate annual rental payments for office
space and equipment are as follows:
YEARS ENDING MARCH 31,
2001 $ 1,190,470
2002 1,031,796
2003 1,345,037
2004 1,318,767
2005 1,300,262
Thereafter 10,822,735
-------------
$17,009,067
=============
Rent expense for the years ended March 31, 2000, 1999 and 1998 was
approximately $992,000, $899,000 and $762,000, 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 $157,000, $136,000 and $141,000 for the years
ended March 31, 2000, 1999 and 1998, respectively.
IMDI is subject to net worth and capital requirements and bonding
requirements imposed by the Securities and Exchange Commission.
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
3,114,220 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.
F-16
<PAGE> 50
MACKENZIE INVESTMENT MANAGEMENT INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
9. STOCK OPTION PLANS, CONTINUED
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, 2000, 1999 and 1998 is as
follows:
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------------------------------------------
MARCH 31, 2000 MARCH 31, 1999 MARCH 31, 1998
-------------------- --------------------- -------------------
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 1,372,500 $ 8.04 1,119,500 $ 7.54 1,284,000 $ 1.36
Options granted 547,000 5.40 674,000 5.81 752,500 10.58
Options exercised (3,000) 1.25 (316,000) 1.31 (917,000) 1.39
Options expired (411,000) 8.14 (105,000) 8.61 -- --
========= ========= =========
Options outstanding, end of year 1,505,500 7.07 1,372,500 8.04 1,119,500 7.54
========= ========= =========
Options exercisable, end of year 958,500 8.02 709,500 10.19 337,000 1.30
========= ========= =========
</TABLE>
Significant option groups outstanding as of March 31, 2000 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-$4.91 487,500 $ 3.92 3.9 282,500 $ 3.91
$5.78-$9.62 733,300 6.82 3.9 391,300 7.29
$10.92-$12.35 178,700 12.29 2.5 178,700 12.29
$14.02-$18.63 106,000 14.48 2.9 106,000 14.48
--------- --------- --- ------- ---------
1,505,500 $ 7.07 3.6 958,500 $ 8.02
========= ========= === ======= =========
</TABLE>
F-17
<PAGE> 51
MACKENZIE INVESTMENT MANAGEMENT INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
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 produced the following results:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------------------------
2000 1999 1998
---------- ---------- ----------
<S> <C> <C> <C>
Pro forma net income $5,575,611 $6,343,184 $7,710,432
Basic earnings per share 0.30 0.33 0.41
Diluted earnings per share 0.30 0.33 0.40
</TABLE>
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,
---------------------------------------
2000 1999 1998
---------- ---------- ----------
<S> <C> <C> <C>
Dividend yield 0% 0% 0%
Expected volatility 66% 69% 66%
Risk free interest rates 6.24% 5.50% 6.21%
Expected lives in years 5 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 $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 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. In July 1999, the
Company entered into another normal course issuer bid on similar terms.
During the years ended March 31, 2000 and 1999, the Company repurchased
621,400 and 22,800 shares, respectively, at a cost of approximately
$2,461,000 and $109,000, respectively. The shares were acquired at market
price at the time of the acquisition and were immediately retired.
F-18
<PAGE> 52
MACKENZIE INVESTMENT MANAGEMENT INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
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, 2000, 1999 and 1998:
<TABLE>
<CAPTION>
2000 1999 1998
---------- ---------- ----------
<S> <C> <C> <C>
Weighted average number of common shares
outstanding used in basic calculation 18,781,410 19,137,480 18,644,026
Effect of dilutive stock options 35,660 129,613 662,633
---------- ---------- ----------
Weighted average number of common and
common equivalent shares outstanding used
in the diluted calculation 18,817,070 19,267,093 19,306,659
========== ========== ==========
</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. The
transaction was included in 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 (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 sale
of the deferred selling commissions provided cash to the Company for
general corporate purposes.
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.
F-19
<PAGE> 53
MACKENZIE INVESTMENT MANAGEMENT INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
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, 1997
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,
2000, 1999 and 1998 were approximately $309,000, $369,000 and $183,000,
respectively.
15. CONCENTRATION OF RISK
As of March 31, 2000 and 1999, the Company had approximately $10,475,000
and $21,917,000, 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.
The Company has dealer agreements with several hundred broker-dealer
firms; however, during the years ended March 31, 2000, 1999 and 1998, one
firm was responsible for approximately 44%, 53% and 38%, respectively, of
the Company's mutual fund sales.
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.
17. SUBSEQUENT EVENT
On April 26, 2000, the Board of Trustees of Mackenzie Solutions approved
the termination and dissolution of Mackenzie Solutions Trust and its five
separate portfolios.
F-20
