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Waddell & Reed to Acquire Ivy Funds

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Aug. 29, 2002 — Waddell & Reed Financial (WDR) said it agreed to acquire Mackenzie Investment Management Inc. (MIMI), the U.S. investment management subsidiary of Mackenzie Financial Corp. (MFC), adviser to the Ivy funds.

Under terms of the agreement, Waddell & Reed will pay $30 million to purchase Florida-based MIMI, plus the amount of excess working capital, subject to certain adjustments relating primarily to assets under management and to excess working capital at closing. The transaction is expected to have a total value of about $74 million.

Based in Toronto, MFC also sells a different family of funds in Canada under the `Ivy funds’ label. Those funds, however, are not included in this transaction.

MFC, which owns 85.7% of MIMI, has agreed to vote its shares in favor of the transaction. As part of the deal, Waddell & Reed and MFC also will enter into sub-advisory and marketing agreements extending MFC’s existing sub-advisory agreements with MIMI — and, by extension going forward, with Waddell & Reed. The agreements also provide Waddell & Reed additional investment management opportunities in Canada.

As of July 31, 2002, MIMI had $2.1 billion in assets under management, including $756 million in the seventeen Ivy funds. Another $1.3 billion are represented by sub-advisory assets, principally in MFC’s Universal Funds family, which are offered only in Canada.

As of July 31, MFC had a total of $31.3 billion (Can.) in mutual-fund assets under management. MFC’s ultimate parent organization is Power Financial Corp.

In a press release, Keith Tucker, chairman of Waddell & Reed, said the transaction will provide his firm with “substantial sub-advisory assets and future sub-advisory opportunities in Canada; broad U.S. retail distribution that will enhance our U.S. nonproprietary sales efforts.”

With respect to MIMI’s U.S. business, Waddell & Reed said it expects to maintain the Ivy funds brand and use it for U.S. retail non-proprietary load fund distribution channel, including existing Ivy funds and future funds sub-advised by Waddell & Reed and its affiliates using the Ivy brand. Waddell & Reed currently makes its W&R funds and certain of its Waddell & Reed Advisors funds available to nonproprietary advisors on a no-load or load-waived basis. Use of the Ivy funds will mark its first use of load funds in nonproprietary distribution.

Thomas W. Butch, chief marketing officer of Waddell & Reed, stated in an interview that Waddell & Reed will keep the `Ivy funds’ brand name intact. “We will not change the names of the existing Ivy fund family,” he said. “We do not currently have any plans of consolidating any of the Ivy funds into an existing Waddell & Reed funds.”

In addition, Waddell & Reed said it expects to align MIMI’s investment management function with its own, and to combine Waddell & Reed’s nonproprietary sales team with MIMI’s wholesaling team in order to market the W&R funds, certain Waddell & Reed Advisors funds and the Ivy funds together in the United States.

As of June 30, 2002, Waddell & Reed had about $29.1 billion in assets under management, including about $24.2 billion in mutual funds, Butch noted.

Louis Harvey, president, Dalbar Inc., a Boston-based mutual fund consultant, is not overly impressed by the deal. “It sounds to me as if Mackenzie Financial is throwing in the towel with respect to expanding their business in the U.S.,” he said. “Their expansion program has been underway for about a decade, and it has not been very successful. For Waddell & Reed, this is certainly a good opportunity, but it will not revolutionize the way they do their business. Waddell & Reed will provide the distribution for Ivy, which has had some difficulty in attracting assets since Mackenzie first acquired them.”

The proposed transactions are expected to close by year-end 2002, subject to, among other things, approval by the shareholders of the Ivy Funds.


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