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May 28, 1999
Mr. Jonathan G. Katz
Securities and Exchange Commission
450 Fifth Street N.W.
Washington, D.C. 20549
RE: File No. S7-10-99
Dear Mr. Katz:
I am writing on behalf of Trimark Investment Management Inc. ("Trimark"), trustee and manager of a family of Canadian mutual funds. Trimark wishes by this letter to provide you with its comments on proposed rules to allow foreign securities to be offered to U.S. participants in certain Canadian tax-deferred retirement accounts and sold to those accounts without being registered under the Securities Act of 1933 and that to allow foreign investment companies to offer and sell securities to those U.S. participants without registering under the Investment Company Act of 1940 (collectively, the "Proposals").
Trimark is delighted to have the opportunity to make comments in support of the Proposals. Trimark and the investors who hold mutual funds in their retirement accounts have a great interest in the Proposals. Our investors have a strong desire to be able to retain the assets in their retirement accounts and deal with them should their lives take them to the United States. Restricting investors’ rights to deal with their accounts hampers them financially and increases their frustration in their investing activities. These Proposals represent a major step in the direction of resolving these difficulties for them and us in a way that we think is fair and reasonable.
While wholeheartedly endorsing the Proposals generally, Trimark does have a few additional suggestions.
First, Trimark requests that the Proposals be clarified so that single vendor retirement plans are "self-directed" within the meaning of the Proposals. Trimark offers to its clients Canadian retirement accounts to invest in various financial products offered by Trimark. Within these accounts, the investor fully directs the investments, however, those directions are limited by the products which Trimark makes available for the accounts. This is common practice in the Canadian mutual fund industry. Such accounts do represent investment choices over which an investor has complete control both in determining which vendors to deal with and the products in
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which to invest. If this clarification is not made, there is a risk that many of the investors intended to be assisted by the Proposals will not be.
Secondly, you have requested comments as to whether Canadian funds use joint propectuses or or other joint informational materials to offer and sell securities of different funds. Trimark manages a family of mutual funds which are sold under a Simplified Prospectus which deals with all of the mutual funds it manages (with the exception of funds established between annual prospectus renewals). In addition, the annual and periodic reports of the funds deal with all of the funds as do virtually all of the other informational and advertising materials. It would be a great cost and inconvenience to segregate the offering materials in order to do business with investors in the United States. Please clarify the Proposals so that consolidated material can be used for the purposes contemplated by the Proposals.
Thirdly, Trimark would like to comment on the necessity of detailed disclosure on all written offering materials that the funds are not qualified for distribution in the United States. We understand that those materials are to include prospectuses, advertisements and newsletters. Trimark is of the strong view that that disclosure requirement should apply only to prospectuses. Each investor is required to receive a prospectus in order to purchase a Trimark mutual fund. Accordingly, the investor would always be made aware of the restrictions. To include such a statement on other materials, including advertisements and newsletters, would require us to produce a separate stream of such materials for investors in the United States, who represent a very small portion of our investors. The information would be irrelevant to most of our investors who are Canadian residents. We see no gain for the investors in receiving such additional disclosure nor do we see any harm to them if the disclosure is made only in the prospectus.
As well, Trimark is of the view that investors purchasing securities under the proposals should not be required to provide a written acknowledgement that the securities are not subject to the provisions of the U.S. securities laws. The insertion of a signed acknowledgement in our current process for subscribing for mutual fund securities would be terribly cumbersome and, as a practical matter, likely to be honoured in the breach more than the observance. We believe that the prominent disclosure required is sufficient for the protection of those investors. The effect of requiring written acknowledgement would be to dramatically reduce demand for our mutual funds among investors in the United States with Canadian retirement accounts. The purpose of the Proposals, being to increase Canadian investors’ range of available legitimate investment options would, therefore, be subverted.
Finally, we urge you to address the ability of Canadian broker-dealers to effect securities transactions for Canadians residing in the United States in connection with their Canadian retirement accounts. Without resolution to this problem, the Proposals will not have their full effect.
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In conclusion, we strongly support this initiative and the initiatives of the Canadian government to grant reciprocal arrangement to U.S. residents temporarily in Canada.
Again, thank you for the opportunity to comment on the proposals. Should you have any questions or comments, please do not hesitate to contact me.
Kathryn E. Ash