[Federal Register Volume 64, Number 11 (Tuesday, January 19, 1999)]
[Notices]
[Pages 2924-2926]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-1088]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-23645; 812-11180]


Ivy Fund, et al.; Notice of Application

January 12, 1999.
AGENCY: Securities and Exchange Commission (``SEC'').

ACTION: Notice of an application under section 12(d)(1)(J) of the 
Investment Company Act of 1940 (the ``Act'') for an exemption from 
section 12(d)(1) of the Act, and under sections 6(c) and 17(b) of the 
Act for an exemption from section 17(a) of the Act.

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SUMMARY OF APPLICATION: Applicants request an order that would permit 
them to implement a ``fund of funds'' arrangement. The fund of funds 
would invest in funds in the same group of investment companies, and in 
funds that are not part of the same group of investment companies in 
reliance on section 12(d)(1)(F) of the Act. The order also would permit 
the fund of funds to offer its shares to the public with a sales load 
that exceeds the 1.5% limit of section 12(d)(1)(F)(ii) of the Act.

APPLICANTS: Ivy Management, Inc. (``IMI''); Ivy Mackenzie Distributors, 
Inc. (``IMDI''); Mackenzie Financial Corporation (``MFC''); Ivy Fund, 
on behalf of its series (Ivy Asia Pacific Fund; Ivy Bond Fund; Ivy 
Canada Fund; Ivy China Region Fund; Ivy Developing Nations Fund; Ivy 
Global Fund; Ivy Global Natural Resources Fund; Ivy Global Science & 
Technology Fund; Ivy Growth Fund; Ivy Growth With Income Fund; Ivy 
International Fund; Ivy International Fund II; Ivy International Small 
Companies Fund; Ivy International Strategic Bond Fund; Ivy Money Market 
Fund; Ivy Pan-Europe Fund; Ivy South America Fund; Ivy US Blue Chip 
Fund; and Ivy US Emerging Growth Fund); and Mackenzie Solutions, on 
behalf of its series (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).

FILING DATES: The application was filed on June 10, 1998. Applicants 
have agreed to file an amendment during the notice period, the 
substance of which is reflected in this notice.

HEARING OR NOTIFICATION OF HEARING: An order granting the application 
will be issued unless the SEC orders a hearing. Interested persons may 
request a hearing by writing to the SEC's Secretary and serving 
applicants with a

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copy of the request, personally or by mail. Hearing requests should be 
received by the SEC by 5:30 p.m. on February 4, 1999, and should be 
accompanied by proof of service on the applicants, in the form of an 
affidavit or, for lawyers, a certificate of service. Hearing requests 
should state the nature of the writer's interest, the reason for the 
request, and the issues contested. Persons who wish to be notified of a 
hearing may request notification by writing to the SEC's Secretary.

addresses: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C. 
20549. Applicants: IMI, IMDI, Mackenzie Solutions, and Ivy Fund, 700 
South Federal Highway, Boca Raton, FL 33432; MFC, 150 Bloor Street, 
West, Toronto, Ontario, M5S 3B5 Canada.

for further information contact: Timothy R. Kane, Senior Counsel, at 
(202) 942-0615, or Christine Y. Greenlees, Branch Chief, at (202) 942-
0564, (Division of Investment Management, Office of Investment Company 
Regulation).

supplementary information: The following is a summary of the 
application. The complete application may be obtained for a fee at the 
SEC's Public Reference Branch, 450 Fifth Street, N.W., Washington, D.C. 
20549 (telephone 202-942-8090).

Applicants' Representations

    1. Ivy Fund and Mackenzie Solutions are Massachusetts business 
trusts registered under the Act as open-end management investment 
companies. Mackenzie Solutions consists of five series; Ivy Fund 
consists of 19. Ivy Fund and Mackenzie Solutions are part of the same 
``group of investment companies,'' as defined in section 
12(d)(1)(G)(ii) of the Act.
    2. IMI, registered under the Investment Advisers Act of 1940 
(``Advisers Act''), serves as investment adviser to 17 series of Ivy 
Fund. IMI is a wholly-owned subsidiary of Mackenzie Investment 
Management, Inc., which is a majority-owned subsidiary of MFC. MFC 
serves as investment adviser to two portfolios of Ivy Fund and is 
registered under the Advisers Act.
    3. Applicants request relief to permit the series of Mackenzie 
Solutions and any other registered open-end management investment 
company created in the future that is part of the same ``group of 
investment companies'' (as defined in section 12(d)(1)(G)(ii) of the 
Act) as Mackenzie Solutions (collectively, the ``Asset Allocation 
Funds''), to purchase shares of series of Ivy Fund and other registered 
open-end management investment companies or series thereof, now 
existing or created in the future, that are part of the same ``group of 
investment companies,'' as so defined, as the Asset Allocation Funds 
(collectively, the ``Underlying Portfolios'').\1\ The Asset Allocation 
Funds also would invest in other registered open-end management 
investment companies that are not part of the same group of investment 
companies as Mackenzie Solutions (the ``Other Portfolios'') in reliance 
on section 12(d)(1)(F) of the Act, discussed below. With respect to an 
Asset Allocation Fund's investment in Other Portfolios, applicants also 
seek an exemption from the sales load limitation in section 12(d)(1)(F) 
of the Act. Applicants state that the proposed structure of the Asset 
Allocation Funds will provide a consolidated and efficient means 
through which investors can have access to a comprehensive investment 
vehicle.
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    \1\ Applicants request relief for each existing or future 
registered open-end management investment company or series of such 
a company that is part of the same ``group of investment companies'' 
(as defined in section 12(d)(1)(G)(ii) of the Act) as Mackenzie 
Solutions, and (1) is, or will be advised by IMI or by any entity 
controlling, controlled by, or under common control with IMI; or (2) 
for which IMDI or any entity controlling, controlled by, or under 
common control with IMDI serves as principal underwriter. Each 
existing registered open-end management investment company that 
intends to rely on the order is named as an applicant. Any 
registered open-end management investment company that relies on the 
order in the future will do so only in accordance with the terms and 
conditions of the application.
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Applicants' Legal Analysis

A. Section 12(d)(1) of the Act

    1. Section 12(d)(1)(A) of the Act provides that no registered 
investment company may acquire securities of another investment company 
if such securities represent more than 3% of the acquired company's 
outstanding voting stock, more than 5% of the acquiring company's total 
assets, or if such securities, together with the securities of any 
other acquire investment companies, represent more than 10% of the 
acquiring company's total assets. Section 12(d)(1)(B) of the Act 
provides that no registered open-end investment company may sell its 
securities to another investment company if the sale will cause the 
acquiring company to own more than 3% of the acquired company's voting 
stock, or if the sale will cause more than 10% of the acquired 
company's voting stock to be owned by investment companies.
    2. Section 12(d)(1)(G) of the Act provides that section 12(d)(1) 
shall not apply to the securities of an acquired company purchased by 
an acquiring company if: (i) the acquiring company and the acquired 
company are part of the same group of investment companies; (ii) the 
acquiring company holds only securities of acquired companies that are 
part of the same group of investment companies, government securities, 
and short-term paper; (iii) the aggregate sales loads and distribution-
related fees of the acquiring company and the acquired company are not 
excessive under rules adopted pursuant to section 22(b) or section 
22(c) of the Act by a securities association registered under section 
15A of the Securities Exchange Act of 1934, or the SEC; and (iv) the 
acquired company has a policy that prohibits it from acquiring 
securities of registered open-end investment companies or registered 
unit investment trusts in reliance on section 12(d)(1) (F) or (G). 
Section 12(d)(1)(G)(ii) defines the term ``group of investment 
companies'' to mean any two or more registered investment companies 
that hold themselves out to investors as related companies for purposes 
of investment and investor services. Because the Asset Allocation Funds 
will invest in shares of the Other Portfolios, they cannot rely on the 
exemption from sections 12(d)(1) (A) and (B) afforded by section 
12(d)(1)(G).
    3. Section 12(d)(1)(F) of the Act provides that section 12(d)(1) 
shall not apply to securities purchased by an acquiring company if the 
company and its affiliates own no more than 3% of an acquired company's 
securities, provided that the acquiring company does not impose a sales 
load of more than 1.5% on its shares. In addition, section 12(d)(1)(F) 
provides that no acquired company is obligated to honor any acquiring 
company redemption request in excess of 1% of the acquired company's 
securities during any period of less than 30 days, and the acquiring 
company must vote its acquired company shares either in accordance with 
instructions from its shareholders or in the same proportion as all 
other shareholders of the acquired company. The Asset Allocation Funds 
will invest in Other Portfolios in reliance on section 12(d)(1)(F). If 
the requested relief is granted, shares of the Asset Allocation Funds 
will be sold with a sales load that exceeds 1.5%, subject to 
applicants' compliance with condition 3 of the application.
    4. Section 12(d)(1)(J) of the Act provides that the SEC may exempt 
persons or transactions from any provision of section 12(d)(1) if and 
to the extent such exemption is consistent with the public interest and 
the protection of investors.

[[Page 2926]]

    5. Applicants request relief under section 12(d)(1)(J) of the Act 
from the limitation of sections 12(d)(1) (A) and (B) to permit the 
Asset Allocation Funds to invest in the Underlying Portfolios and from 
section 12(d)(1)(F) to permit the Asset Allocation Funds to sell shares 
to the public with a sales load that exceeds 1.5%.
    6. Applicants state that the Asset Allocation Funds' investments in 
the Underlying Portfolios do not raise the concerns about undue 
influence that sections 12(d)(1) (A) and (B) were designed to address. 
Applicants further state that the proposed conditions would 
appropriately address any concerns about the layering of sales charges 
or other fees.
    7. The Asset Allocation Funds will invest in Other Portfolios only 
within the limits of section 12(d)(1)(F). Applicants believe that an 
exemption from the sales load limitation in that section is consistent 
with the protection of investors because applicants' proposed sales 
load limit would cap the aggregate sales charges of the Asset 
Allocation Fund and the Other Portfolio in which it invests. Applicants 
have agreed, as a condition to the relief, that any sales charges, 
asset-based distribution and service fees relating to the Asset 
Allocation Fund's shares, when aggregated with any sales charges, 
asset-based distribution and service fees paid by the Asset Allocation 
Fund relating to its acquisition, holding, or disposition of shares of 
the Underlying Portfolios and Other Portfolios, will not exceed the 
limits set forth in rule 2830 of the conduct Rules of the National 
Association of Securities Dealers, Inc. (``NASD Conduct Rules'').

B. Section 17(a) of the Act

    1. Section 17(a) of the Act generally prohibits an affiliated 
person of a registered investment company from selling securities to, 
or purchasing securities from, the company. Section 2(a)(3) of the Act 
defines an ``affiliated person'' of another person to include: (a) any 
person that directly or indirectly owns, controls, or holds with power 
to vote 5% or more of the outstanding voting securities of the other 
person; (b) any person 5% or more of whose outstanding voting 
securities are directly or indirectly owned, controlled, or held with 
power to vote by the other person; (c) any person directly or 
indirectly controlling, controlled by, or under common control with the 
other person; and (d) if the other person is an investment company, any 
investment adviser of that company. Applicants state that the Asset 
Allocation Funds and the Underlying Portfolios will be advised by IMI 
or MFC, its indirect parent. As a result, applicants submit that the 
Asset Allocation Funds and Underlying Portfolios may be deemed to be 
affiliated persons of one another by virtue of being under common 
control of IMI and MFC, or because the Asset Allocation Funds Own 5% or 
more of the shares of an Underlying Portfolio. Applicants state that 
purchases and redemptions of shares of the Underlying Portfolios by the 
Asset Allocation Funds could be deemed to be principal transactions 
between affiliated persons under section 17(a).
    2. Section 17(b) provides that the SEC shall exempt a proposed 
transaction from section 17(a) if evidence establishes that (a) the 
terms of the proposed transaction, including the consideration to be 
paid or received, are reasonable and fair and do not involve 
overreaching; (b) the proposed transaction is consistent with the 
policies of the registered investment company involved; and (c) the 
proposed transaction is consistent with the general purposes of the 
Act.
    3. Section 6(c) of the Act provides that the SEC may exempt persons 
or transactions from any provision of the Act if such exemption is 
necessary or appropriate in the public interest and consistent with the 
protection of investors and the purposes fairly intended by the policy 
and provisions of the Act. Applicants request an exemption under 
section 6(c) and 17(b) of the Act to permit the Asset Allocation Funds 
to purchase and redeem shares of the Underlying Portfolios.
    4. Applicants state that the terms of the proposed transactions 
will be reasonable and fair and will not involve overreaching because 
shares of Underlying Portfolios will be sold and redeemed at their net 
asset values. Applicants also state that the investment by the Asset 
Allocation Funds in the Underlying Portfolios will be effected in 
accordance with the investment restrictions of the Asset Allocation 
Funds and will be consistent with the policies as set forth in the 
registration statement of the Asset Allocation Funds.

Applicants' Conditions

    Applicants agree that any order of the SEC granting the requested 
relief will be subject to the following conditions:
    1. All Underlying Portfolios will be part of the same ``group of 
investment companies'' (as defined in section 12(d)(1)(G)(ii) of the 
Act) as the Asset Allocation Funds.
    2. No Underlying Portfolios will acquire securities of any other 
investment company in excess of the limits contained in section 
12(d)(1((A) of the Act, except to the extent that such Underlying 
Portfolio (a) receives securities of another investment company as a 
dividend or as a result of a plan of reorganization of a company (other 
than a plan devised for the purpose of evading section 12(d)(1) of the 
Act); or (b) acquires (or is deemed to have acquired) securities of 
another investment company pursuant to exemptive relief from the SEC 
permitting such Underlying Portfolio to (i) acquire securities of one 
or more affiliated investment companies for short-term cash management 
purposes; or (ii) engage in interfund borrowing and lending 
transactions. No Asset Allocation Fund will acquire securities of an 
Other Portfolio if, at the time of acquisition, the Other Portfolio 
owns securities of any other investment company in excess of the limits 
contained in section 12(d)(1)(A) of the Act.
    3. Any sales charges, distribution-related fees, and service fees 
relating to the shares of the Asset Allocation Funds, when aggregated 
with any sales charges, distribution-related fees, and service fees 
paid by the Asset Allocation Funds relating to their acquisition, 
holding, or disposition of shares of the Underlying Portfolios and 
Other Portfolios, will not exceed the limits set forth in rule 2830 of 
the NASD Conduct Rules.
    4. Before approving any advisory contract under section 15 of the 
Act, the board of trustees of the Asset Allocation Funds, including a 
majority of the trustees who are not ``interested persons'' (as defined 
in section 2(a)(19) of the Act), will find that the advisory fees 
charged under the contract are based on services provided that are in 
addition to, rather than duplicative of, services provided under any 
Underlying Portfolio or Other Portfolio advisory contract. This 
finding, and the basis upon which the finding was made, will be 
recorded fully in the minute books of the Asset Allocation Funds.
    5. Each Asset Allocation Fund's investments in Other Portfolio will 
comply with section 12(d)(1)(F) in all respects except for the sales 
load limitation of section 12(d)(1)(F)(ii).

    For the SEC, by the Division of Investment Management, under 
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-1088 Filed 1-15-99; 8:45 am]
BILLING CODE 8010-01-M