SEC Division of Investment Management staff letter: Mackenzie Investment Management et al.

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:-:::.~ >.:'; .-J1U'..I.i----- nJL.E I ; J -- , FUELlC I ~v.n..f ATTI TI,6'BII.1TY _.--JY4Ar+/~ol) __- , RESPONSE OF THE OFFICE OF CHIEF COUNSEL DIVISION OF INVESTMENT MANAGEMENT PUBL\C' August 8,2000 Our Ref. No. 200051298 Mackenzie Invesunent Management et aI. File No. 801-24426 Your letter ofAugust 3, 2000 requests our assurance that we would not recommend enforcement action to the Commission under Section 170) ofthe Invesunent Company Act of 1940 ("Act") and Rule 17j-l thereunder if, for purposes ofthe personal trading reporting requirements ofRule 17j-l, certain directors ofMackenzie Invesunent Management, Inc. ("MIMI") and Mackenzie Financial Corporation ("MFC," and together with MIMI, the "Mackenzie Management Companies") are treated in the same manner as are directors of an investment company who are not "interested persons" of that company. You state that MIMI, a majority-owned subsidiary ofMFC, provides, through various subsidiaries, investment management, marketing, distribution, transfer agency and other administrative services to the Ivy Fund, an open-end investment company registered under the Act. MFC also provides investment advisory services to a series of the Ivy Fund. MFC and MIMI are investment advisers registered under the Investment Advisers Act of 1940 ("Advisers Act"). You state that currently MIMI's board of directors includes four independent directors. and MFC's board of directors includes seven independent directors. I Solely for purposes ofthis letter, you consider an independent director ofthe board of any ofthe Mackenzie Management Companies to be a director that would not be deemed to be an "interested person." as defined in Section 2(a)(19)(B) ofthe Act,2 of any ofthose companies for any reason other than the fact that the person is a director of a Mackenzie Management Company and knowingly has any direct or indirect beneficial interest in J You state that tv.'o ofthe independent directors of MIMI are also independent directors ofMFC. : Section 2(a)( 19)(8) defines an "interested person" of an investment adviser of any investment company, in relevant part, to include: (i) any affiliated person ofthe investment adviser; (ii) any member ofthe immediate family of any natural person who is an affiliated person ofthe investment adviser; (iii) any person who knowingly has any direct or indirect beneficial interest in any security issued by the investment adviser or by a controlling person ofthe investment adviser; (iv) any person or partner or employee of any . person who at any time since the beginning ofthe last two completed fiscal years ofthe investment company has acted as legal counsel for the investment adviser; (v) any broker or dealer registered under the Securities Exchange Act of 1934 or any affiliated person ofsuch a broker or dealer; and (vi) any natural person whom the Commission by order shall have detennined to be an interested person by reason of having had at any time since the beginning ofthe last two
completed fiscal years ofthe investment company a material business or professional relationship with the investment adviser or with the principal executive officer or any controlling person ofthe investment adviser. Section 2(a)(3) defmes "affiliated person" of another person, in relevant part, to include: (i) any person directly or indirectly owning, controlling. or holding with power to vote, 5% or more ofthe outstanding voting securities ofsuch other person; (ii) any person directly or indirectly controlling, controlled by, or under common control with, such other person; and (iii) any officer, director, partner, copartner, or employee ofsuch other person.

2 securities issued by a Mackenzie Management Company.3 You state that the independent directors ofthe Mackenzie Management Companies serve in a traditional oversight capacity, providing an independent check on the management ofthe Mackenzie Management Companies. Specifically, you state that the independent directors give attention to matters such as approving the selection ofqualified senior management, reviewing institutional nonns and control procedures, monitoring the perfonnance of both senior management and the companies, and reviewing management-fonnulated strategic planning initiatives. You state that the independent directors have no involvement with the day-to-day operations of either the Ivy Fund or the Mackenzie Management Companies. Thus, you state that the independent directors are not involved in decisions or recommendations regarding the purchase or sale ofsecurities by any series ofthe Ivy Fund.
Section 17(j) ofthe Act makes it unlawful for anyperson affiliated with a
registered investment company, its investment adviser, or its principal underwriter, in connection with the purchase or sale by the person ofsecurities held or to be acquired by the investment company, to engage in any fraudulent, deceptive or manipulative act or practice in contravention ofrules and regulations adopted by the Commission. Rule 17j-l(a) makes it unlawful for any person affiliatedwith ari investment company or its investment adviser or principal underwriter from engaging in fraudulent, deceptive or manipulative activities in connection with the purchase or sale by the person ofsecurities held or to be acquired by the investment company. The rule also contains certain requirements that are designed to prevent fr~udulent activity on the part ofpersons who are in the position to gain personal benefit through their relationship with the investment company. One such requirement is that "access persons," as defined in the rule,S must make certain reports with respect to their personal trading and holdings in securities. Rule 17j-l(d) requires every access person of an investment company, and every access person of an investment adviser of or principal underwriter for the investment company, to submit to that investment company, investment adviser or principal underwriter: (i) an initial holdings report no later than 10 days after the person becomes an access person; 3 You state that certain of the independent directors beneficially own securities issued by MIMI and/or MFC. You state. however, that no independent director of MIMI or MFC owns, controls, or holds 5% or more ofthe outstanding voting securities of either MIMI or MFC. In addition, you state that no independent director has control of either MIMI or MFC, either individually or by virtue of any arrangement with any other person. Section 2(a)(9) dermes the term "control," in r~levant part, to mean the power to exercise a controlling influence over the management or policies of a company, unless such power is solely the result of an official position with the company. In addition, Section 2(a)(9) provides that any person who owns beneficially, either directly or through one or more controlled companies, more than 25% ofthe voting securities of a company is presumed to control that company. 4 See "Personal Investment Activities ofInvestment Company Personnel," Investment Company Act Release No. 23958 (Aug. 20, 1999) (adopting amendments to Rule 17j-l) ("1999 Release"). s Rule 17j-l(a)( 1), in relevant part, defines an "access person" to include any director, officer, or general partner of an investment company or ofits investment adviser.

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(ii) a quarterly transaction report no later than 10 days after every calendar quarter; and .. (iii) an annual holdings report. These reporting requirements are intended to enable the relevant organization to monitor effectively potential conflicts ofinterests that may arise from an access person's securities holdings and transactions.6 Rule I7j-I(d)(2)(ii) excepts from the initial and annual holding reporting requirements any director of an investment company who is not an interested person of the company within the meaning of Section 2(a)(19)(A) ("disinterested fund director"), and who would have been required to make a report solely by reason ofbeing an investment company director. That provision also excepts a disinterested fund director from the quarterly transaction reporting requirement unless the director knew or, in the ordinary course offulfilling his or her official duties as a director, should have known that during the IS-day period immediately before or after the director's transaction, the investment company purchased or sold the security, or the investment company or its investment adviser considered purchasing or selling the security. In proposing the rule, the Commission explained that it was unnecessary "to subject disinterested [fund] directors to reporting requirements as extensive as those applicable to other persons, since disinterested [fund] directors would, as a general matter, have less contact with an investment company's day-to-day operations than other access persons.,,7 . You state that all ofthe directors ofthe Mackenzie Management Companies are required to make the personal trading and holding reports required by Rule 17j-1(d) because they are access persons ofthe Ivy Fund. You believe, however, that, solely for purposes ofthese reporting requirements, the independent directors ofthe Mackenzie Management Companies should be treated in the same manner as the disinterested fund directors ofthe Ivy Fund, and therefore should be able to rely on the exceptions from the reporting requirements of Rule I7j-I(d)(2)(ii).8 You state that the independent directors ofthe Mackenzie Management Companies do not have greater access to, or involvement with, the management or fund investment and trading personnel ofthe Mackenzie Management Companies or the Ivy Fund than do the disinterested fund directors ofthe Ivy Fund. Furthennore, you argue that the purposes underlying Section 170) and Rule 17j-1 are not advanced by subjecting the independent directors ofthe Mackenzie Management Companies to reporting requirements as extensive as those that apply to other access persons, because the independent directors have no involvement with the day-to-day operations of either the Mackenzie Management Companies or the Ivy Fund. 6See 1999 Release, supra note 4; "Personal Invesbnent Activities ofInvesbnent Company Personnel and Codes of Ethics of Investment Companies and their Invesbnent Advisers and Principal Underwriters," Investment Company
Act Release No. 21341 (Sept. 8, 1995) (proposing amendments to Rule I7j-I). '''Prevention of Unlawful Activities With Respect to Registered Invesbnent Companies," Invesbnent Company Act Release No. 10162 (Mar. 20, 1978) (proposing Rule 17j-l). . 'You state, however, that the Mackenzie Management Companies and the independent directors ofthese companies will continue to comply with the reporting requirements ofRule 204-2(a)(12) under the Advisers Act.

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We would not recommend enforcement action to the Commission under Section 17(j) and Rule 17j-l if, solely for purposes ofthe exceptions to the personal reporting requirements ofRule 17j-l(d)(2)(ii), the independent directors, as defined above, ofthe Mackenzie Management Companies are treated in the same manner as are disinterested directors of an investment company. This position is based on the facts and representations set forth in your letter, in particular that the independent directors (1) would not be deemed to be interested persons, defined in Section 2(a)(19)(B) ofthe Act, of a Mackenzie Management Company for any reason other than that they are directors of a Mackenzie Management Company and knowingly have any direct or indirect beneficial interests in securities issued by a Mackenzie Management Company,9 and (2) have no involvement with the day-to-day operations of either the Mackenzie Management Companies or the Ivy Fund. This response represents the views ofthe staff on enforcement action only and does not purport to state any legal conclusion on the issue presented. '5~a~*se~~ Senior Counsel 9Sc:c: nole 3.

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~Dechert
August 3. 2000
VIA FEDERAL EXPRESS
Douglas J. Schcidt. Esq.
Chief Counsel
Division of Ill'cstment Management
Securities and Exchange Commission
4:'0 Fifth Street. N.W.
Washington. DC 20544
Rc Request With Respect to Certain "Access
Persons" for Relieffrom the Personal Holding and Transaction Reporting Requirements of Rule 17j-l D~ar 1\1r. Scheidt:
Joseph R. Fleming
Direct Tel: 617.728.7161
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We are counsel to Mackenzie Investment Management Inc. ("MIMI") and Mackenzie Financial Corporation (""MFC," and together with MIMI, the "Mackenzie Management Companies"). MIMI. a majority owned subsidiary ofMFC, is a Delaware corporation that is registered with the Securities and Exchange Commission (the "Commission") as an invcstment adviser under the Investment Advisers Act of 1940 (the "Ad\isers Act') MIMI provides. through various subsidiaries, investment management; marketing. distribution. transfer agency and other administrative services to the series ofI"y Fund. an open-end investment company registered under the Investment Company Act of jl)·HJ. as amended (thc"1940 Act"). MFC is also registered with the Commission as an Il1\estment ad\iser under the Advisers Act. MFC provides investment advisory services to one series of h~' Fund. We are writing on behalf ofthe Mackenzie Management Companies to request assurance that the Division ofInvestment Management (the "Di'ision") wi II not recommend enforcement action to the Commission if, as discussed more fully below. certain directors ofthe Mackenzie Management Companies are treated in the same manner as arc directors of an investment company who are not "interested persons" ofthat il1'estment company for the purposes ofthe various personal trading n:porting requirements of Rule 17j-I under the 1940 Act.
I. Background
Section 17(j) ofthe 1940 Act makes it unlawful for certain affiliated persons of
registered invcstment companics and their investment advisers and principal underwriters to "engage in any act. practice. or course of business in connection with the purchase or S:lk ... by such person of any security held or to be acquired by such registered investment Dechert Price & Rhoads..~----------------------------- Ten PoSl OH,ce Square, Soulh • Boslon. MA 02109,4603 • Tel: 617.728.7100 • Fax: 617.426.6567 • www.dechert.com

August 3. 2000
Pagt: 2 company." The Commission has promulgated Rule 17j-1 to clarify and regulate those acts .that art: deemed to violatc Section 17(j). In adopting Rule 17j-l, the Commission expressed concem with thc "incrcasing number ofsituations involving parallel trading by individuals with knowlcdge regarding transactions anticipated or engaged in by registered investment companics.·· Investment Company Aet Release No. 11421 (Oct 31, 1980) (the "Adopting Releasc"). The abuscs that Rule 17j-1 is designed to eliminate are those "where access pcrsons improperly are able to gain personal benefit through their relationship with the investment company." Id. Rule I7j-1 (d) generally requires that "access persons" file reports with registered imestment companies. the companies' investment advisers or the companies' principal underwriters regarding the access persons' personal trading in securities. The required n:ports include an initial holdings report, filed within 10 days after an access person bt:comt:s an access person, quarterly transaction reports, filed within 10 days after the end of t:n:ry calendar quarter. and an annual holdings report. Rule 17j-1 (a) defines an "access p~rson" as. among other pcrsons, "any director, officer, general partner or Advisory Person of a Fund or of a Fund's invcstment adviser." Rule I7j-I(d)(2) generally excepts from the r~porting requiremcnts ofthe Rule those dircctors who are not deemed to be "interested pt:rsons" oftht: fund. I 2 Relief Requested Undt:r the definition of "access person." all directors ofthe Mackenzie t\1anagl'ment Companies would be required to file the personal trading reports required by Rule l7j-1 (d) with respect to Ivy Fund. For the reasons outlined below; we respectfully r~qut:st assurance that the Division will not recommend enforcement action to the CommiSSion ifthe Independcnt Directors (as defined below) ofthe Mackenzie Management COlllpanies~ an: treated. for purposes ofthe exceptions to the filing ofinitial and annual holdings reports and quartcrly transaction reports described in Rule 17j-1 (d)(2)(ii), as though they art: directors of a fund who are not "interested persons" ofthefund. 3 For the Rule 17j-1 (d)(2)(ii)(B) limits the exception applicable to a fund director who is not an "interested person-, ofthe fund, providing that such a director must file a quarterly transaction report with respect to a security if "the director knew or, in the ordinary coursc offulfilling his or her official duties as a Fund director, should have known that during the IS-day period immediately before or after the director's transaction ... the Fund purchased or sold" the security. Currently there arc four Independent Directors of MIMI and seven Independent Directors of MFC Two ofthe Independent Directors ofMIMI are also Independent Directors of MFC The Independent Directors and the Mackenzie Management Companies will continue to comply with the reporting and record-keeping requirements ofRule 204-2(a)( 12)
under the Advisers Act. as such provisions apply to the Independent Directors.

August 3. 2000
Pagl: ::; purposes ofthis relief, an Independent Director is a person who would not be deemed to be an "interested person" of a Mackenzie Management Company, as the term "interested person" is defined in Section 2(a)(l9)(B) ofthe 1940 Act, for any reason other than the fact that the person (i) is a director of a Mackenzie Management Company or (ii) knowingly has am direct or indirect beneficial interest in securities issued by a Mackenzie Management - 4 Company.
3. Discussion
Conflicts of interest between investment company personnel (such as portfolio managers) and their funds ean arise when these persons buy or sell securities for their own accounts. These conflicts arise because fund personnel have the opportunity to profit from information about fund transactions, often to the detriment offund investors. Rule 17j-I. addresses these conflicts of interest. in part, by requiring access persons to provide the pnsonal holding and trading reports described above. These requirements are appropriate with rcspl:ct to certain access persons, including. for example, any director or officer of an im estmcnt adviser \ho. in the ordinary course of his or her business, makes, participates in. or obtains information regarding the purchase or sale ofsecurities for a registered mn:stment company or whose functions or duties as part ofthe ordinary course of his or her business relate to the making of any recommendation to such investment company regarding the purchase or sale ofsecurities. We believe, however. that the interests of Sl:ctJon 17li) and Rule 17j-1 are not advanced by subjecting the Independent Directors of thl' Mackl:nzil: Management Companies to reporting requirements as extensive as those applicable to other access persons, since the Independent Directors have no involvement \ith the f\1ackl:nzil: Management Companies' day-to-day operations. 5 We believe that such an unnl:cessary burdl:n and invasion of privacy ofthe Independent Directors should be a\oided. so that highly qualified individuals are not discouraged from serving in such a position The Independent Directors ofthe Mackenzie Management Companies do not have greater access to. or JI1voh·ement with, the management or fund investment and trading personnel of the Mackenzie Management Companies or Ivy Fund than do the independent Certain ofthe Independent Directors beneficially own securities issued by MIMI and/or MFe. The Independent Directors of MIMI and MFC are eligible to participate in a Director Stock Purchase Plan under which the directors receive, in lieu of cash, securities issued by MIMI or MFC as compensation for their service as Independent Directors. No Independent Director of MIMI or MFC owns, controls or holds 5°1<, or more ofthe outstanding voting securities of either MIMI or MFC. In addition. no Independent Director has control of either MIMI or MFC, either individually or by virtue of any arrangement with any other person. We note that in the release proposing the adoption of Rule 17j-I the Commission used a similarrationalc to justify excluding disinterested directors offunds from the general reporting obligations of Rule 17j-I. Investment Company Act Release No. I() 162 (Mar. 20. 1978) .

August 3. 2000 trustees of h'' Fund. Like the independent trustees ofIvy Fund, the Independent Directors ofthe Macke;lzie Management Companies serve as an independent check on the management ofthe Mackenzie Management Companies. The Independent Directors do not manage their companies' operations on a day-to-day basis. Instead, the Independent Directors sen'e in a traditional oversight capacity, giving attention to matters such as approving the selection of qualified senior management, reviewing institutional norms and control procedures. monitoring the performance of both senior management and the companies. and reviewing management-formulated strategic planning initiatives. The Independent Directors also have no involvement with the day-to-day operations ofIvy Fund. Thus. the Independent Directors are not involved in decisions or recommendations regarding the purchase or sale ofsecurities for any series ofIvy Fund. In recognition ofthe fact that most fund's independent directors do not have immediate access to trading and portfolio management information, Rule I7j-I properly e:>.:cepts a fund's independent directors from the requirement to report personal securities transactions. This e:>.:ception to Rule 17j-I's reporting requirement is, we believe, ofsome importance to many independent directors ofinvestment companies for legitimate reasons of pri\ac~' and because reporting can be a substantial burden.6 We believe that it would not be inconsistent with the purposes underlying Section 17(j) and Rule I7j-I ifthe Independent Directors ofthe Mackenzie Management Companies were treated, for this limited purpose (i.e non-reporting of personal securities transactions), in the same manner as hy Fund's independent trustees. Subjecting independent directors ofinvestment ad\isers to Ruk 17j-I's reporting requirement is, we believe, a burden without any clear regulatory purpose or benefit. We do not belie"e that the relief requested hereunder, if granted, would compromise the protection ofinvestors. The Independent Directors ofthe Mackenzie Management Companies would still be subject to written codes of ethics, required under Rule 17j-l. containing provisions reasonably necessary to prevent these Independent Directors and other access persons from engaging in any conduct prohibited by Rule I7j-I. In addition. the Independent Directors will be subject to Rule I7j-I (d)(2)(ii)(B), which, in thiS conte:>.:!. will require that an Independent Director file a quarterly transaction report with respect to a security if the director knew or, in the ordinary course offulfilling his or her duties as a din:ctor. should have known, that during the IS-day period immediately before or after the director's transaction. a series ofIv)' Fund purchased or sold the security, or a Mackenzie Managemcnt Company considered purchasing or selling the security on behalf of a series of h'y Fund. The Independent Directors and the Mackenzie Management Companies will also continue to
comply with the reporting and record-keeping requirements of Rule 204-2(a)( 12) under the Advisers Act, as such provisions apply to the The Commission's recent mutual fund corporate governance proposal includes rules requiring disclosure of various positions and transactions offund directors and "their immediate family members." We respectfully note that the Commission's proposed definition of "immediate family members" has been met with significant opposition from members ofthe mutual fund industry because, among other things, such overly broad disclosure requirements will unduly burden fund directors and lI1\ade their privacy.

August 3. 2000
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Indl:pl:ndent Directors. Moreover, the Independent Directors would still be bound by the threshold legal principle that investment company personnel -- at all levels -- act as fiduciaries. This principle can be restated as a single core precept: the interests of Ivy Fund and its shareholders must and will come first.

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If you have any questions or need any additional information concerning the foregoing. please call William E. Schwartz at (617) 728-7163 or the undersigned at (617) 728-7161. Very truly yours, ~~~l ~. J:iv~ I~s Joseph R. Fleming JRF/cg