Subject: SEC File No. S7-10-99 Author: "Guest; Martin" at Internet Date: 5/21/99 9:15 PM Dear Sirs: Re: Offer and Sale of Securities to Canadian Tax-Deferred Retirement Savings Accounts This letter is in response to your request for comments on proposed rule 237 under the Securities Act of 1933, proposed rule 7d-2 under the Investment Company Act of 1940, and the proposed amendment to Exchange Act rule 12g3-2 (collectively, the "Rules"). The following are the comments of the group of companies known as Fidelity Investments, which includes Fidelity Investments Canada Limited and Fidelity Management and Research Company. These comments are being submitted directly by email; in the event that you require a hard copy or an electronic copy on diskette, please advise the undersigned Fidelity is very supportive of the SEC's initiative in proposing the Rules. We have had long experience with the problems faced by Canadians citizens who are living in the U.S. but wish to continue to manage their retirement accounts. The SEC's actions are a welcome step forward in an attempt to resolve the issues faced by these Canadian/U.S. Participants. We believe that the proposed Rules offer substantial relief to Canadian/U.S. Participants, without harming the interests of U.S. mutual fund industry participants. Although we are generally supportive of the Rules, we do have some comments, as set out below. Insufficient Flexibility As a general comment, we note that the proposed Rules may not be sufficient to realize the full intention of the rule, which is to permit US residents to deal with their Canadian tax sheltered accounts in substantially the same way that they could if they resided in Canada. We submit that the guiding precepts for the Rules ought to be that: (1) Canadian/U.S. Participants should be permitted to deal with their Canadian retirement accounts on substantially the same basis as if they were still resident in Canada; and (2) Canadian mutual fund firms ought to be able to deal with Canadian/U.S. Participants on substantially the same basis as they deal with Canadian resident investors. We are concerned that the proposed Rules do not achieve these goals. These concerns are set out in more detail below. Broker-Dealer Exemption In the Release, the SEC acknowledges that there is also the need for an Exchange Act broker-dealer registration exemption. Although note 24 to the Release indicates that such an exemption is in process, its absence currently leaves the proposed Rules useless from a practical perspective. Since investors can't trade securities without a broker and there is not yet the necessary broker-dealer exemption, the Rules do not yet accomplish their objective. In this sense, the Exchange Act issue is similar to the State regulation issue noted above: it is not that the proposed Rules are flawed; rather, it is that the proposed Rules are, by themselves, insufficient to achieve their objectives. Consequently, we would urge the SEC to consider the request for exemptive relief under the Exchange Act that is referred to in note 24 of the Release outlining the proposed Rules on an expeditious basis. Joint Prospectuses As mentioned above, we believe that one of the guiding principals behind the Rules ought to be that Canadian mutual fund companies should be able to deal with Canadian/U.S. Participants on substantially the same basis as they deal with Canadian resident investors. The standard practice in the Canadian mutual fund industry is to combine prospectuses and other materials to include many or all of a company's funds. For instance, all of Fidelity Canada's 27 funds are covered by a single prospectus. Consequently, we submit that the Rules should permit the use of "joint" prospectuses (i.e. prospectuses covering more than one or two funds). Moreover, we note that one of the objectives of the Rules is to permit investors the flexibility to adjust their investment exposure by reallocating their investments into new and different mutual funds. It is, therefore, both appropriate and useful that Canadian/U.S. Participants should be provided with prospectuses -- and other offering materials -- sufficient to provide them with information about other investment options that may be appropriate for inclusion in their retirement account. Forum Shopping The proposed Rules (e.g. proposed rule 237(b)(5)) require that the investor protections afforded by Canadian law cannot be disclaimed by a fund company relying on the Rules. We believe this is an appropriate restriction. These participants will have voluntarily chosen to invest in Canadian securities and will generally be familiar with the legal framework and protections provided to them in connection with these purchases. In our submission, the Canadian legal system provides ample protections to such investors and there is no sufficient reason to award these investors additional protections or to impose additional burdens on persons relying on the Rules. Notwithstanding this requirement that Canadian/U.S. Participants be awarded the full benefit of Canadian securities laws, the proposed Rules also impose a condition that any person relying on the Rules not disclaim the applicability of U.S. law or the jurisdiction of the U.S. courts. We are concerned that this condition may, in some circumstances, award Canadian-US Participants the right to engage in "forum shopping" in the event of litigation. Through this condition, the proposed Rules, in effect, give participants the full benefit of both Canadian and US law, at least with respect to some issues. To the extent that this is so, the Rules seem overly generous. In our submission, Canadian/U.S. Participants have, in effect, elected to accept the provisions of Canadian law by purchasing Canadian securities in a Canadian retirement plan, and it is unnecessary and inappropriate to award them additional rights with respect to these securities. SEC Requests for Specific Comments Throughout the Release, the SEC has made a number of specific requests for comments, in response to which we make the following additional comments: * We believe it is a correct statement of Canadian tax law that contributions to Canadian registered retirement savings plans are penalized if they exceed a specified percentage of an individual's Canadian earned income, and an individual residing in the United States would not ordinarily have "Canadian earned income" -- see page 15 of the Release. * Generally, one would not expect Canadian/U.S. Participants to make substantial additional contributions to their Canadian retirement accounts, but it is possible that, in some cases, additional contributions could arise during the time that the participant resided in the U.S. -- see page 15 of the Release. In our submission, such additional contributions should be included within the proposed exemption. * As noted above, Canadian funds do commonly use joint prospectuses and other joint informational materials to offer and sell securities of several affiliated funds or different classes or series of the same fund. In our submission, the Rules should permit the delivery of such joint prospectuses and other joint materials even though they may concern both securities held in a participant's retirement account and securities that are not held in that account -- see page 18 of the Release. * Although we believe it would be appropriate to require that prospectuses contain prominent disclosure that the securities are not registered with the Commission and may not be offered or sold in the United States unless registered or exempt from registration under the U.S. securities laws, we do not believe that such disclosure is necessary or desirable on other materials such as advertisements and newsletters -- see page 18 of the Release. Canadian securities law, such as National Policy 39, require extensive "disclaimers" on all "sales communications", which are, in our submission, appropriate and sufficient. Moreover, it may be impracticable for Canadian fund companies to comply with the detailed disclaimer requirements of the Commission as well as any other foreign authorities that may address similar issues. As stated above, one of the goals of the Rules ought to be to permit Canadian fund companies to deal with Canadian/U.S. Participants on the same basis as they deal with Canadian investors, including the delivery of the same documents. If extensive US-specific disclaimers are required on all marketing material, it could require Canadian fund companies to prepare special US materials, which, in our submission, is impracticable and undesirable. * We do not believe that it is necessary or desirable for the Commission to impose special burdens on Canadian fund companies that elect to rely upon the Rules in order to serve Canadian/U.S. Participants who wish to manage their Canadian accounts -- see page 20 of the Release. As noted above, these participants will have voluntarily chosen to invest in Canadian securities and will generally be familiar with the legal framework and protections provided to them in connection with these purchases. In our submission, the Canadian legal system provides ample protections to such investors and there is no sufficient reason to require Canadian fund companies to provide special assistance to the Commission, to appoint an agent for service of process in the U.S., or to obtain a form of written acknowledgement from Canadian/U.S. Participants. As above, we believe the intent of the Rules should be to permit Canadian/U.S. Participants to deal with their account on the same basis as if they were in Canada and to permit Canadian fund companies to deal with those Canadian/U.S. Participants on the same basis as they deal with other Canadian investors. Each additional requirement and burden imposed on Canadian fund companies reduces the likelihood of achieving those objectives. * We submit that the provisions of proposed rule 7d-2 should parallel the exemptions contained in proposed rule 237 -- see page 21 of the Release. * * * * * We appreciate the opportunity to make these comments for the SEC's consideration. Yours very truly, Martin Guest Vice President & Corporate Counsel Fidelity Investments Canada Limited Tel: 416 307 5216 Fax: 416 307 5535 email: martin.guest@fidelity.com