SEC Division of Investment Management staff letter: Bradley A. Veld

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON. D.C. 20549
..ø . ........:... ... '. ."._.. _. .... w" . . .....". f'~" ,.. i ".Åm"'~-b-. ~~~

SECTON Î (d) -~

.----..;.~.:. RUL ----'-.:~-b"~
,
PULIO August 15, 1997

AVJJ. l'PJ! '6. ~'-:'." .... -. J6rti'.,~~..--~"."" ,... .
Mr: Bradley A. Veld
14315' SE 29th Circle

Vancouver, W A 98638
Re: U. S. Regulation of Canadian Mutual Funds

Dea Mr. Veld:
Ths is in response to your letter to Chairan Arhur Levitt, dated May 13, 1997, in which you describe the difficulties that you are having in connection with the trasfer of your retiement assets between Canadian mutual funds that are managed by

Mackenzie Financial Services Inc. Your letter was forwarded to the Division of Investment Management, which has priar responsibilty' for the regulation of investment companes such as mutual funds, and to the Division of Corporation Finance, which oversees the offer and sale of securities generay. , In your letter, you refer to recent rule changes that have liited your abilty to

trasfer your assets between funds. Cert U.S. securities laws, which we discuss

below, can restrct the abilty of non-U.S. registered mutual funds to permit trasfers

between funds by shareholders who reside in the United States. You should be aware, however, that none of these laws has been~:.od~ed recntly, nor has tIre Securities and Exchange Commission (the "Commission") recently changed its enforcement policies with respect to these laws or any of its rules promulgated under these laws. As a genera proposition, any issuer that publicly offers or sells its securities in the United States is subject to regulation under U.S. securities laws. Most requirements apply equaly to domestic and foreign issuers, irespective of whether the offerees or purchasers of the issuer's securities are U.S. residents or citizens. The pricipal U.S. securities laws that impose requirements with respect to the offer and sale of mutual fund shars are the Securities Act of 1933 (the "Securities Act") and the Investment Company Act of 1940 (the "Inv:estment Company Act").

Mr. Bradley A. Veld
August 15, 1997
2
Securities Act
Under the Securities Act, any company that publicly offers or sells its securities to persons in the United States must register those securities wtt~4.the Commission. Ths registration requirement applies to both U.S. anã'rór-èíi-fÍc~O" companes, including investment companes. The registration requirement applies to al types of public sales of securities, whether the sale is for cash or whether the sale involves an exchange of securities. An exchange offer that alows an investor to trasfer assets from one mutual fund to another is deemed to involve a public offer of securities in the United States if the offer is made to a U.S. resident. As noted above, public offers to U.S. residents must be registered with the Commission. Ths registrtion requirement may not be waived simply because the trasfer taes place between related funds withi the same family of funds. Because you are now a resident of the United States, and because the Canadian fund in which you seek to invest has not registered its securities with the Commission, the fund would be conducting an ilegal public offerig in the United States if it alowed you to trasfer among funds. Investment Company Act , In addition to the requirements of the Securities Act, the Investment Company Act and the Commission's rules thereunder requir the registrtion of mutual funds and set comprehensive requirements concerng many aspects of a mutual fund's operations. In the case of a mutual fund organed under the laws of another country,
Section 7(d) of the Investment Company Act prohibits such a fund from publicly
offerig or sellg its securities in the United States unless the Commission has issued an order permitting the fund to register under the Investment Company Act. Rule 7d-l under the Investment Company Act, adopted by the Commssion in 1954, establishes conditions whereby a Canadian mutual fund ca be eligible to relye an order permittg Investment Company Act registmtion. Only a very smal number of Canadi mutual funds, however, have elected to comply with the conditions set forth in Rule 7d-l and to apply for a Section 7(d) order. . Mackenzie Financia Services Inc. has not registered its funds with the Commission. As applied to securities offerigs and sales by foreign mutual funds, the provisions of the Securities Act and the Investment Company Act do not prohibit such \ ) offerigs and sales completely, but rather ensure that they wil be subject to the same type and degree of regulation that applies to offerigs and saes of securities by U. S. mutual funds. Accordingly, foreign mutual funds that elect not to comply with U.S. securities laws are not permitted to offer and sell their securities publicly in the United States. We note, however, that a foreign mutual fund could structure an

Mr. Bradley A. Ve1d 3
August 15, 1997 offerig and sale of its securities to qualy for an exemption from the registration 1 A foreign requirements of the Securities Act and the Investment Company Act.

mutual fund must make an independent determination as to whether an exemptifln from U. S. registration requirements is avaiable with respect to the offe~K.~d sale of its shares. --"-~--=-"~~~t.~'" .

I hope that the inormation in this letter is useful to you. Should you have any additional questions, please do not hesitate to contact me or Matthew McGuire of this Office at (202) 942-0660. Very truly yours, n 1 ¡j. Il'jij l6..-: Ac~l,.,L~r￾DOUgia3. Scheidt Associate Director and Chief Counsel cc: Ms. Glenna Gideon, Office of Congresswoman Linda Smith

~
....
1 For example, an issuer ca offer and sell securities without registrtion if it complies with provisions intended to support the charcterition of its offerig and

sale as a private placement rather than a public offerig. Similly, cert offerigs

and sales are not subject to U.S. registration requirements if they are strctured as

offshore trasactions, even if the purchasers of the offered securities are U.S. residents. Ths provision, however, does not permit the foreign issuer to taget offers to U.S. residents, and thus foreign mutual funds would be prohibited from sending prospectuses and exchange inormation to a U.S. resident regarding funds that the ) I U. S. resident does not aleady own.

OS/22/97 11: 22 '513607533141 RON LINDA SMITH It 002/006 .d May 20, 1997 Congresswoman Linda Smith P.O. Box 1219 Olympia, WA 98507 Dear Congresswoman Smith, rWlíl~lLrmW r , ..,¡

Il~ __ '...A' ~...~l~Aj ! -~~~~~-~::)-~-:
U. 11\ MA Y 2 2 1997 W ¡
I recently sent you a copy of a letter which I sent to Mr. Arthur Leavitt, President of the ~~ US Securities and Exchange Commission, in which I expressed my concern over the recent rule enforcement regarding foreign investments. As i explained in my letter, my wife and I are owners of mutual funds in Canada. These funds were purchased with our pension settlements from our Canadian employers, as required by Canadian Law. The rule enforcement by the SEC, as I understand it, makes these funds practically inaccessible. It seems that the only options that we have is to leave the funds as they are now, and hope that the mutual funds perform well over the next 20 years, or to redeem them and incur a large tax penalty for early withdrawaL. As this is a large part of our retirement portolio, not having any contrl over it is rather wonisome. I am asking for your assistance in either relaxing the rule enforcement to at least allow access to these accounts for the purpose of exchanging from one fund to another or to do away with the rule altogether. If you or your staff have any questions regarding this ~ request, please feel free to contact me. Sincerely, -& vM

Brad Veld
14315 SE 29th Circle
Vancouver, W A 98683 ph: 360.s96-7495

fax: 360-896-3428

)
.... .'
.....

.' . 0~122/97 11: 22 '513607533141 RON LINDA SMITH It 003/006 "'.... ,. '- C)7/J (~di i-'l~!.:; . "" rc. '''. ....: : .' ..' -- /)/ /8/' LL.i..i-l..:.i.........J.'...;...';i: i . -'"' /. . --I - . /, "- ,/ HAY 1 ~~9~l

.._ ..._.__ø. ...."'-~
May 13, 1997
Mr. Arur Leavitt
President
U.S. Securities and Exchange Commission

450 5th St. NW

WashIngton. DC 20549
Deat Sir: ~~
I was recently informed by Mackenzie Financial Services that there were some recent changes in rule enforcement which wil have an effect on the Canadian Mutual Funds which my wife and i own (Copy of letter attached). i was a resident of Canada during the period 1981..1989. During this time I was employed by a company which funded a pension in my name. When i left Canada, I was required by Canadian law to put this pension money into a "Locked-in" Registered Retirement Savings Plan (RRSP) which, I am sure you know. is similar to an IRA account. My wife. a Canadian Citizen, also had a pension fund which was placed in , RRSP's when we moved to the United States.

This rule enforcement makes it virtually impossible for us to manage these accounts, as we are not allowed transfer between funds. As both my wife and i are at least 15 years from retirement age, redemption of these funds is not a viable option due to the tax implications of early withdrawaL. This ruling has made our pension funds untouchable and quite possibly wortless if the particular funds in which they are invested take a turn for the worse. This will leave us with little money for retirement. The other thing which Is upsetting Is that there was no prior notification that the rule was going to be enforced allowing us the opportunity to place our pension money in potentially more stable funds. My only hope is that the rule enforcement. as described in the letter from my Financial Advisor. is either Incorrect or that there are some special provisions which would allow us access to these accounts. I also find it hard to believe that this rule could be enforced on Canadian citizens who happen to reside in the U.S.

.. n5/22/97 11:23 '513607533141 RON LINDA S~.ITH "- "- .._-. I4 0041006

• ".I
  Mr. Arhur Leavitt
  US Securities and Exchange Commission
  Pago 2 of2
  .
  _::.,:.":'.=-~~"'..:-=~:..;
  Please fill me in on the intent of thIs rule and If my interpretation is correct. It seems ilogical that the US Government would be Interested in making my pension funds untouchable and possibly worthless. Sincerely. ~ A-1JJJ

Bradley A. Veld
14315 SE 29th Circle
Vancouver, W A 98683 ene. cc: Senator Paty Murry

Senator Slade Gorton

~tøLlnda SmIth
~
~~ r0"'tJ -I'" - 7 ~7.r

,