Jonathan G. Katz, Secretary
Securities and Exchange Commission
450 5th Street, NW
Dear Mr. Katz,
RE: Proposed SEC Rules, File No. S7-10-99
Strategic Value Corporation ("SVC") and its subsidiaries sponsor and manage the Strategic Value Series of Funds, and have approximately $2.1 billion invested in over 200,000 unitholder accounts in sixteen public mutual funds and one private fund. SVC is publicly listed for trading on the Montreal Exchange under the symbol "SVA". As a member of the Investment Funds Institute of Canada, ("IFIC") the national association for Canadian investment funds, we are writing to offer support for the proposed SEC rule changes regarding Canadian foreign investments.
SVC supports the SECís proposed adoption of the rules that would permit Canadian mutual fund companies to sell securities to holders of retirement savings accounts who reside or are located in the U.S., without the requirement of registration under the Investment Company Act of 1940 [15 U.S.C. 80a] or the Securities Act of 1933 [U.S.C. 77a].
Registered retirement savings accounts are widely used by Canadian residents as a means of maximizing their income during retirement. Canadians that hold these tax-advantaged retirement savings plans often move from Canada to the U.S. after acquiring the investment and fund companies may inadvertently end up with U.S.-resident fundholders. These individuals are currently unable to adjust the allocation of their Canadian mutual fund investments to suit their changing retirement needs.
Although generally supportive of the SEC rules, we would suggest the following comment on what we perceive to be impractical requirements as currently embodied in the proposed changes, as outlined below.
Under proposed rule 237 of the Securities Act, only updated written offerings or informational materials regarding securities then held in the participantís retirement account could be delivered to a Canadian/U.S. participant. Since Canadian mutual funds commonly use joint prospectuses and other consolidated informational material to offer and sell securities of several affiliated mutual funds or different series of the same mutual fund, proposed rule 237 should specifically permit persons relying on the rule to deliver updated joint prospectuses and other joint materials regarding both securities that are held in a participantís retirement account and securities that are not held in the account. Preventing the delivery of such joint informational material would not be cost effective given the relative size of the Canadian market as a whole. Also, in our opinion, any rule changes undertaken by the SEC in this regard will be of little or no effect since such a rule may, for many mutual funds, cause them to continue to refuse trades from persons in the U.S., with whom they would otherwise be entitled to deal with under the proposed rules.
Furthermore, under proposed rule 237, offering materials for eligible securities must prominently disclose that the securities are not registered with the SEC and may not be offered or sold in the U.S. unless registered or exempt under U.S. securities laws. This disclosure requirement applies to all written offering materials, including prospectuses, advertisements and newsletters that are sent to participants. We feel that the intended effect of the statement would be adequately served if it were only included in mutual fund prospectuses, which are the legal documents that govern purchases, and not in advertising, which serves a much wider audience nor shareholder reports which are delivered only to existing shareholders.
SVC hopes that the detailed commentary on the proposed rules to be submitted by IFIC is granted earnest consideration by the SEC to help ensure that the final implemented rules are functional and will effectively achieve their requisite purpose. We feel that the proposed rules are vital and hope that they will be swiftly implemented by the SEC in order to alleviate the current disadvantageous situation for Canadian/U.S. participants holding retirement accounts.
Lauren A. Cohen
Chief Compliance Officer
cc: John Mountain