June 16, 1999

Mr. Jonathan G. Katz

, Secretary

Securities and Exchange Commission

450 5^th Street, N.W.

Washington, D.C.

20549-0609

Dear Mr. Katz:

This letter is submitted in response to the request for comments on the proposed rules on the exemption for offers and sales to certain Canadian tax-deferred retirement savings accounts ("Canadian retirement accounts").

The provincial and territorial securities regulators that comprise the Canadian Securities Administrators ("CSA") are generally supportive of the proposed rules. The CSA are currently in the process of finalizing National Instrument 35-101, a rule that will provide United States ("U.S.") broker-dealers and their agents relief similar to that under the SEC proposed rules. It is very important to the CSA and industry participants in Canada that U.S. jurisdictions provide relief that is reciprocal to that provided under National Instrument 35-101.

Please note that we have adopted, for ease of comparison with other comments that you will be receiving, the use of the terms "broker-dealer" and "agent". Under Canadian securities regulation, the corresponding terms are "dealer" and "salesperson".

National Instrument 35-101 provides full relief from the prospectus requirements regarding any "foreign securities" (non-Canadian securities) sold to a U.S. resident who is temporarily resident in Canada or, in the case of a former U.S. resident who now resides in Canada, sold into a U.S. tax-advantaged retirement savings plan. The relief provided by National Instrument 35-101 is much broader than the relief proposed in your rules. The exemptions from registration requirements set out in your proposed rules are limited to transactions involving Canadian retirement accounts. Therefore, Canadian residents temporarily in the U.S. would be at a significant disadvantage to U.S. residents temporarily in Canada. We urge you to extend the relief so that it is reciprocal.

Under the proposed rules, only written materials concerning securities already held in the participant’s Canadian retirement account are permitted to be delivered to a Canadian participant (section 237 (b)(1)(iv)).

Comment: The proposed rules appear to distinguish, unnecessarily, between oral
and written solicitation. Section 237(b)(3) seems to permit an authorized agent to
orally solicit a Canadian participant concerning an eligible security. However, section 237(b)(1)(iii) only permits the delivery of material relating to securities outside the participant’s Canadian retirement account if the participant requests such material. In our view, it is impractical and unnecessary to prohibit certain written solicitation, particularly given that oral solicitation is permissible. An authorized agent should be able to send written material to a participant without the participant having to specifically request the material. The CSA believe that the best means of restricting solicitation is by restricting authorized agents to dealing with only those participants with whom they have pre-existing relationships. This is the approach being taken under NI 35-101.

On this issue of written solicitation, the SEC has requested specific comment on whether Canadian funds commonly use joint prospectuses or other joint informational material to offer and sell securities of several affiliated funds or different classes or series of the same fund. If so, should rule 237 specifically permit persons relying on the rule to deliver updated joint prospectuses and other joint materials that concern both securities that are held in a participant’s Canadian retirement account and securities that are not held in the account?

Comment: It is very common for Canadian funds to use joint prospectuses and other joint informational material. For the reasons outlined above, the CSA are of the view that, if solicitation is restricted as suggested, the delivery of joint prospectuses and other joint informational material does not present a regulatory concern.

A person relying on the rule would be permitted to solicit a Canadian participant only if that person is an authorized agent of the participant (section 237 (b)(3)).

Comment: It is not clear who would qualify as an "authorized agent". It should be clarified that "authorized agent" includes any broker-dealer and any agent of the dealer registered in a Canadian jurisdiction with which a participant had a Canadian retirement account prior to the participant moving to the U.S.

The proposed rule defines "participant" as any individual in the U.S. who is entitled to receive the income and assets from a Canadian retirement account (section 237 (a)(6)).

Comment: It is permissible under Canadian tax law for an individual to create and contribute to a Canadian retirement account for the benefit of their spouse. It is the person contributing to the spousal plan who is dealing with the Canadian broker-dealer, not the "participant" in whose name the Registered Retirement Savings Plan ("RRSP") is registered. In order to make the individual contributing to such a spousal plan eligible for relief under the proposed rules, the definition of participant should be expanded to include persons that make contributions, within the provision of Canadian tax law, to plans from which other persons will receive the benefits.

In the Concept Proposal, the SEC expresses the view that it is unlikely that Canadian participants would be in a position to make significant additional contributions to their plans. This view is taken because the level of contribution allowed is based on the participant’s Canadian earned income. A participant that is residing in the U.S. would not, generally, have a significant level of Canadian earned income. The SEC has asked for comment on whether or not this was an accurate view of the situation.

If, however, a Canadian participant could make a significant additional contribution, the SEC has requested comment on whether or not the proposed exemptions should exclude those additional contributions. Comment was also requested on whether or not such an exclusion would lead to problems in monitoring of account activity.

Comment: The purpose of the Canadian retirement accounts is to encourage taxpayers to save a greater proportion of their taxable Canadian income for retirement. If participants are able to make additional contributions to their Canadian retirement accounts, it is our view that there is no reason to preclude them from doing so. National Instrument 35-101 does not impose such a restriction on Canadian residents who have U.S. retirement accounts.

An individual can contribute the lesser of Cdn $13,500 or 18% of earned income per year (Income Tax Act, s. 146(1)). "Earned income" is defined as income earned when resident in Canada and income earned in Canada if resident elsewhere (Income Tax Act,
s. 146(1)). A typical Canadian participant would not, generally, be entitled to make significant additional contributions. However, on occasion, they may be able to do so. For example, a Canadian participant who was in Canada earning income for a portion of the year and is then in the U.S. when she is making her investment decision may be in such a position.

Another situation involving the disposition of a significant sum will occur where an RRSP account holder is required under Canadian tax law to collapse their RRSP at age 69. In order to avoid paying taxes on the full amount of these funds, RRSP account holders are permitted to transfer the funds into a Registered Retirement Income Fund. Therefore, it is to be expected that participants will make a large contribution to a Canadian retirement account in order to avoid significant adverse tax consequences.

Significant additional contributions may also occur by an individual making a lump sum contribution (for example, upon retirement or upon receipt of a severance package) into a Life Income Retirement Account and such contributions should be covered by the proposed rules.

Under sections 237 (b)(2) and 7d-2 (b)(2) of the proposed rules, 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 from registration under the U.S. securities laws. This disclosure requirement would apply to all written offering materials, including prospectuses, advertisements and newsletters that are sent to participants in reliance on the proposed exemption. Comment is requested on this disclosure requirement. Comment is also requested on the costs associated with the requirement that any written offering materials delivered to a Canadian participant in reliance on the rules include a prominent statement that the securities are not registered with the SEC and, in the case of securities issued by a foreign fund, that the fund also is not registered with the SEC. This requirement may be met by adding a sticker or supplement containing this disclosure to existing offering materials.

Comment: Under National Instrument 35-101 there is no such obligation and we are of the view that it should not be required in the proposed rules.

Comment is requested whether a person relying on rule 237 should be required to obtain from each participant who desires to purchase securities offered and sold in reliance on the rule a written acknowledgement that those securities are not subject to the registration provisions of the U.S. securities laws.

Comment: Under National Instrument 35-101 there is no such obligation and we are of the view that it should not be required in the proposed rules.

If the proposed disclosure in sections 237 (b)(2) and 7d-2 (b)(2) were required, the CSA are of the view that an additional written acknowledgement would clearly be unnecessary and redundant.

It is the understanding of the CSA that, as part of the Investment Dealers Association of Canada (the "IDA") request for exemptive relief under section 15(a)(2) of the Securities Exchange Act of 1934 (the "1934 Act"), the Canadian self-regulatory organizations represented that their member broker-dealers would disclose to Canadian participants (at least once annually and any time a new account is opened) that Canadian retirement accounts are not regulated under the securities laws of the U.S. and member broker-dealers are not subject to the broker-dealer regulations of the U.S.

Furthermore, a recently adopted proposed amendment to section 201 of the Uniform Securities Act by the North American Securities Administrators Association ("NASAA") that would permit Canadian broker-dealers to trade on behalf of owners of Canadian retirement accounts and other self-directed tax-advantaged retirement plans, would require under paragraph (f)(4) that the Canadian dealer "disclose to its clients in the state that the broker-dealer and its agents are not subject to the full regulatory requirements of the [1934] Act." The CSA are of the view that it would be unduly burdensome for Canadian broker-dealers to obtain written acknowledgement from individuals currently residing in the U.S. Therefore, the CSA submit that the disclosure proposal above, in addition to the NASAA requirements, would adequately address the SEC’s concerns.

The SEC also requests comment on whether the rules should prohibit resales in the U.S. of securities offered and sold in reliance on the proposed exemptions. Is a restriction on resales necessary to ensure that unregistered securities sold to Canadian retirement accounts in reliance on the proposed exemptions are not later transferred to persons in the U.S. who are not Canadian participants?

Comment: Practically speaking, such resales are very unlikely to occur since most Canadian funds are open end mutual funds and therefore the investor cannot resell units to other investors but must redeem the units with the funds. With respect to the non-mutual fund assets held in Canadian retirement accounts, the CSA are of the view that no restriction is practicably required to prevent the subsequent transfer of these assets to non-participants. Under Canadian tax law, Canadian retirement accounts must be structured such that a custodian in Canada is the legal owner and holder of the assets in which these accounts have invested. As such, all transactions relating to a Canadian retirement account are placed with a custodian in Canada, who is only able to execute transactions through dealers that are conducting their business in Canada. The CSA are, therefore, of the view that a restriction on resales is unnecessary to ensure that unregistered securities sold to Canadian retirement accounts are not later transferred to persons in the U.S. who are not Canadian participants.

The SEC requests comment on whether any specific provisions of proposed rule 7d-2 should differ from those of rule 237. Are any specific provisions of proposed rule 7d-2 broader than necessary to achieve the intended purpose of permitting Canadian participants to manage their Canadian retirement account investments?

Comment: It is our view that our comments regarding rule 237 apply equally to rule 7d-2.

We hope that the foregoing comments will be useful to you. If you would like to discuss any of these matters further, please contact the undersigned.

Yours truly,

Douglas M. Hyndman

Chair

Canadian Securities Administrators

cc CSA Chairs

DMH/RJH/el