[Federal Register Volume 64, Number 58 (Friday, March 26, 1999)]
[Proposed Rules]
[Pages 14648-14658]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-7237]


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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 230, 240 and 270

[Release Nos. 33-7656, 34-41189, IC-23745; File No. S7-10-99; 
International Series Release No. 1188]
RIN 3235-AH32


Offer and Sale of Securities to Canadian Tax-Deferred Retirement 
Savings Accounts

AGENCY: Securities and Exchange Commission.

ACTION: Proposed rule.

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SUMMARY: The Commission is proposing a new rule that would permit 
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. The 
Commission also is proposing a new rule that would permit foreign 
investment companies to offer securities to those U.S. participants and 
sell securities to their Canadian retirement accounts without 
registering under the Investment Company Act of 1940. These rules would 
enable investors who hold securities in certain Canadian tax-deferred 
retirement accounts, and who reside or are temporarily present in the 
United States, to manage their investments within those accounts.

DATES: Comments must be received on or before May 28, 1999.

ADDRESSES: Comments should be submitted in triplicate to Jonathan G. 
Katz, Secretary, Securities and Exchange Commission, 450 5th Street, 
NW, Washington, DC 20549-0609. Comments also may be submitted 
electronically to the following E-mail address: [email protected]. 
All comment letters should refer to File No. S7-10-99; this file number 
should be included on the subject line if E-mail is used. Comment 
letters will be available for public inspection and copying in the 
Commission's Public Reference Room, 450 5th Street, NW, Washington, DC 
20549. Electronically submitted comment letters will be posted on the 
Commission's Internet web site (http://www.sec.gov).

FOR FURTHER INFORMATION CONTACT: Cynthia Gurnee Pugh, Special Counsel, 
at (202) 942-0690, Office of Regulatory Policy, Division of Investment 
Management, Securities and Exchange Commission, 450 5th Street NW, 
Washington DC 20549-0506, or Paul M. Dudek, Chief, at (202) 942-2990, 
Office of International Corporate Finance, Division of Corporation 
Finance, Securities and Exchange Commission, 450 5th Street NW, 
Washington DC 20549-0302.

SUPPLEMENTARY INFORMATION: The Securities and Exchange Commission 
(``Commission'') today is proposing for public comment rule 237 (17 CFR 
230.237) under the Securities Act of 1933 (15 U.S.C. 77a) (the 
``Securities Act''), rule 7d-2 (17 CFR 270.7d-2) under the Investment 
Company Act of 1940 (15 U.S.C. 80a) (the ``Investment Company Act''), 
and amendments to rule 12g3-2 under the Securities Exchange Act of 1934 
(15 U.S.C. 78a) (the ``Exchange Act'').

Table of Contents

Executive Summary

I. Introduction
II. Discussion
    A. Proposed Securities Act Rule
    1. Scope of the Rule
    2. Conditions of the Rule
    a. Limitations on Marketing Activities
    b. Restriction on Disclaiming Canadian or U.S. Law or 
Jurisdiction
    B. Proposed Investment Company Act Rule
    C. Proposed Amendments to Exchange Act Rule 12g3-2
    D. General Request for Comments
III. Cost-Benefit Analysis
IV. Paperwork Reduction Act
V. Summary of Initial Regulatory Flexibility Analysis
VI. Statutory Authority

TEXT OF PROPOSED RULES

Executive Summary

    In Canada, individuals can invest a portion of their earnings in 
tax-deferred retirement savings accounts (''Canadian retirement 
accounts''), which operate in a manner similar to Individual Retirement 
Accounts (``IRAs'') in the United States. Individuals themselves can 
decide how to invest the assets held in the accounts, but contributions 
and withdrawals are subject to strict limits. Individuals who have 
established Canadian retirement accounts and later moved to the United 
States (``Canadian/U.S. Participants'' or ``participants'') have 
encountered obstacles to the continued management of their retirement 
investments in those accounts. Most securities held in these accounts, 
and the investment companies (``funds'') that issue many of those 
securities, are not registered in the United States, and issuers 
therefore cannot publicly offer and sell those securities to Canadian/
U.S. Participants. As a result, these participants have not been able 
to make changes in their retirement accounts to carry out the financial 
planning needed to meet their individual retirement goals.
    The Commission is proposing two rules that would enable Canadian/
U.S. Participants to continue to manage the assets in their Canadian 
retirement accounts. The proposed rules would provide relief from the 
U.S. registration requirements, under certain conditions, for offers of 
securities to these participants and sales to their accounts. Under the 
proposals, (i) securities of foreign issuers, including securities of 
foreign funds, could be offered to Canadian/U.S. Participants and sold 
to their Canadian retirement accounts without being registered under 
the Securities Act or the Exchange Act and (ii) foreign funds could 
offer securities to Canadian/U.S. Participants and sell securities to 
their Canadian retirement accounts without registering as investment 
companies under the Investment Company Act. The offer and sale of these 
securities, however, would remain fully subject to the antifraud 
provisions of the U.S. securities laws.

I. Introduction

    More than half of all Canadian households invest retirement savings 
through some form of Canadian retirement account.\1\ Canadian 
retirement accounts, like IRAs in the United States,\2\ encourage 
retirement saving by permitting individuals to invest savings on a tax-
deferred basis.\3\

[[Page 14649]]

Similar to U.S. law, Canadian law restricts the amount of money that a 
participant may contribute to a Canadian retirement account, and early 
withdrawals by a participant are subject to immediate taxation.\4\ 
Unlike U.S. law, Canadian law also restricts the investments that may 
be held in a Canadian retirement account to certain ``qualified 
investments,'' which must consist primarily of Canadian securities.\5\ 
A participant who violates any of these restrictions may face 
significant adverse tax consequences.\6\
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    \1\ See, e.g., Royal Trust Seventh Annual RRSP Survey (1997), 
available at <http://www.royalbank.com/rt-wealth/01survey/01fk.html> 
(visited Dec. 22, 1998). Assets held in Canadian retirement accounts 
represent a sizable portion of Canadian pension assets. See The 
Conference Board of Canada, Maximizing Choice: Economic Impacts of 
Increasing the Foreign Property Limit at Table 1 (Jan. 1998), 
available at <http://www.ific.ca/eng/
frames.asp?l1=Regulation__and__Committees> (through the ``Current 
Issues & Initiatives'' and the ``Impact of the Foreign Property 
Rule'' hyperlinks) (visited Dec. 22, 1998). In addition, a 1998 
survey reports that approximately half of Canadian retirement 
account holders plan to invest the greatest proportion of their 
annual contributions in mutual funds. See Royal Trust Eighth Annual 
RRSP Survey (1998), available at <http://www.royalbank.com/rt-
wealth/01survey/01h3.html> (visited Dec. 28, 1998).
    \2\ See 26 U.S.C. 408, 408A (providing for Individual Retirement 
Accounts under U.S. tax law). Canadian retirement accounts are 
established and governed by the Income Tax Act of Canada and the 
regulations thereunder. See generally Income Tax Act, R.S.C. 1985, 
ch. 1 (5th Supp.) (Can.) (as amended) (''Canadian Income Tax Act''); 
Income Tax Regulations, C.R.C., ch. 945 (1997) (Can.) (``Canadian 
Income Tax Regulations'').
    \3\ Contributions to a Canadian retirement account and earnings 
on those contributions are not subject to Canadian income tax until 
withdrawn. A Canadian retirement account typically is structured as 
a trust and must be registered with the Canadian Minister of 
National Revenue and maintained with a qualified Canadian financial 
institution, such as a trust company, insurance company, or bank. 
See generally Canadian Income Tax Act Paras. 146(1), 146.3(1). The 
most common types of Canadian retirement accounts are Registered 
Retirement Savings Plans (``RRSPs'') and Registered Retirement 
Income Funds (``RRIFs''). See Canadian Income Tax Act Paras. 146 
(RRSPs), 146.3 (RRIFs). RRSPs and RRIFs may be ``self-directed,'' in 
which the individual participant decides how to invest account 
assets, or ``single vendor,'' in which a Canadian trustee or plan 
manager invests the account assets. The rules proposed in this 
release do not cover the offer or sale of securities to single 
vendor and other types of Canadian retirement accounts whose assets 
are managed exclusively in Canada. See infra note 26.
    \4\ Contributions to an RRSP Canadian retirement account are 
subject to an annual limit of 18 percent of an individual's ``earned 
income'' (i.e., generally income from Canadian employment or self-
employment) for the previous year (up to a maximum of $13,500 
(Can.)), less certain pension adjustments. See Canadian Income Tax 
Act para. 146(1) (``earned income,'' ``RRSP deduction limit,'' 
``RRSP dollar limit''). Early withdrawals are subject to withholding 
tax and must be included in taxable income in the year withdrawn. 
See, e.g., id. Paras. 146(8) (benefits taxable), 153(1)(j) 
(withholding).
    \5\ Canadian Income Tax Act Paras. 146(1), 146.3(1) (defining 
``qualified investment'' for RRSPs and RRIFs); Canadian Income Tax 
Regulations Sec. 4900 (qualified investments). At least 80 percent 
of the book value of a Canadian retirement account must be invested 
in Canadian securities. See generally Foreign Property of Registered 
Plans, Revenue Canada Bulletin No. IT-412R2 (Jan. 16, 1995).
    \6\ For example, excess contributions to a Canadian retirement 
account generally are subject to a penalty tax of one percent per 
month of the excess contributions. See Contributions to Registered 
Retirement Savings Plan, Revenue Canada Bulletin No. IT-124R6 (Jan. 
31, 1995), at para. 30. Non-qualified investments held in a Canadian 
retirement account are subject to a penalty tax of one percent per 
month of the market value of the non-qualified investments, and 
earnings on non-qualified investments are subject to Canadian income 
tax. See, e.g., Canadian Income Tax Act Paras. 146(10.1), 207.1(1).
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    Individuals who establish Canadian retirement accounts while living 
and working in Canada and who later move to the United States often 
continue to hold their retirement assets in their Canadian retirement 
accounts rather than prematurely withdrawing (or ``cashing out'') those 
assets, which would result in immediate taxation in Canada.\7\ Once in 
the United States, however, these participants (i.e., Canadian/U.S. 
Participants) may not be able to manage their Canadian retirement 
account investments.\8\ Most securities and most funds that are 
``qualified investments'' for Canadian retirement accounts are not 
registered under the U.S. securities laws. Funds and other issuers 
therefore generally cannot offer and sell those securities in the 
United States without violating the registration requirements of the 
Securities Act \9\ and, in the case of securities of an unregistered 
fund, the Investment Company Act.\10\ As a result of these registration 
requirements of the U.S. securities laws, Canadian/U.S. Participants 
have not been able to purchase or exchange securities for their 
Canadian retirement accounts as needed to meet their changing 
investment goals or income needs.\11\
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    \7\ See supra note 4.
    \8\ The Commission believes that a significant number of 
Canadian/U.S. Participants may face this predicament. At the end of 
1995, approximately 660,000 U.S. residents were either Canadian 
citizens or former Canadian citizens. Bureau of the Census, U.S. 
Dep't of Commerce, March 1996 Current Population Survey. In 
addition, U.S. citizens who live and work in Canada on a temporary 
basis may be able to establish Canadian retirement accounts, and so 
may face this predicament upon returning to the United States.
    \9\ Absent an exemption, all securities offered or sold through 
use of the U.S. mails or other means of interstate commerce must be 
registered under the Securities Act. See section 5(a) of the 
Securities Act (15 U.S.C. 77e(a)).
    \10\ The Investment Company Act requires a foreign fund to 
obtain an order from the Commission permitting it to register under 
that Act before it uses the U.S. mails or any means of interstate 
commerce in connection with a public offering of its securities. See 
section 7(d) of the Investment Company Act (15 U.S.C. 80a-7(d)). The 
Commission may issue this type of order only if it finds both that 
registration of the foreign fund is consistent with the public 
interest and protection of investors and that it is legally and 
practically feasible to enforce the provisions of the Investment 
Company Act against the fund. Id. Rule 7d-1 (17 CFR 270.7d-1) 
specifies the conditions that a Canadian fund may meet to satisfy 
the standards of section 7(d). Only one Canadian fund currently is 
registered with the Commission.
    \11\ The registration requirements of the Securities Act 
generally would not preclude Canadian/U.S. Participants from 
purchasing some types of securities for their Canadian retirement 
accounts in secondary market transactions on stock exchanges or in 
other markets. As discussed below, however, Canadian broker-dealers 
that effect transactions, including secondary market transactions 
(i.e., those involving securities that are not required to be 
registered under the Securities Act), for Canadian/U.S. Participants 
are subject to the broker-dealer registration requirements of the 
Exchange Act, absent an exemption. See infra note 24. In addition, 
there are generally no secondary markets for the securities of open-
end management funds (or ``mutual funds''), which continuously 
publicly offer and redeem securities. The requirement that public 
offers be registered under the Securities Act thus deters most 
foreign mutual funds from offering securities to Canadian/U.S. 
Participants.
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    The Commission and its staff have interpreted section 7(d) to 
generally prohibit a foreign fund from making a U.S. private offering 
if that offering would cause the securities of the fund to be 
beneficially owned by more than 100 U.S. residents. See Resale of 
Restricted Securities, Securities Act Release No. 6862 (Apr. 23, 1990) 
[55 FR 17933 (Apr. 30, 1990)] at text following n.64; Investment Funds 
Institute of Canada, SEC No-Action Letter (Mar. 4, 1996); Touche 
Remnant & Co., SEC No-Action Letter (Aug. 27, 1984). Given the large 
number of Canadian/U.S. Participants, it is unlikely that a Canadian 
fund could sell securities to Canadian retirement accounts of Canadian/
U.S. Participants without exceeding the limit of 100 U.S. beneficial 
owners.
    The Commission and its staff have received numerous inquiries from 
Canadian/U.S. Participants concerned about their inability to manage 
retirement assets held in their Canadian retirement accounts. In 
addition, the Investment Funds Institute of Canada (``IFIC''), an 
association representing Canadian mutual funds, has filed a petition 
for rulemaking requesting that the Commission adopt rules to permit 
Canadian mutual funds to offer securities to Canadian/U.S. Participants 
and sell securities to their accounts, without registering those 
securities under the Securities Act or registering as investment 
companies under the Investment Company Act (``IFIC Petition'').\12\
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    \12\ The IFIC Petition is available for inspection and copying 
in the Commission's Public Reference Room in File No. 4-407 and File 
No. S7-10-99. The proposed rules respond to the issues raised in 
that petition.
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II. Discussion

    The Securities Act's registration and disclosure requirements are 
premised on the notion that investors in a public offering are best 
protected if they are provided with full and fair disclosure of 
material information needed for an informed investment decision.\13\ 
Securities offered publicly in the United States generally must be 
registered with the Commission, and a prospectus must be delivered to 
investors.\14\ Congress recently amended the Securities Act to 
authorize the Commission to adapt its regulations, including its 
registration requirements, to the changing circumstances in which 
securities are offered and traded.\15\ Under these

[[Page 14650]]

amendments, the Commission may exempt persons, securities or 
transactions from any provision of the Securities Act, if necessary or 
appropriate in the public interest and consistent with the protection 
of investors.\16\ Congress intended the Commission to use this 
authority to address, among other things, developments in the 
securities markets that ``do not fit neatly into the existing 
regulatory framework.''\17\
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    \13\ See Securities Act Concepts and Their Effects on Capital 
Formation, Securities Act Release No. 7314 (July 25, 1996) (61 FR 
40044 (July 31, 1996)) at text accompanying n.13; SEC v. Ralston 
Purina Co., 346 U.S. 119, 124 (1953).
    \14\ Section 5 of the Securities Act (15 U.S.C. 77e).
    \15\ Section 28 of the Securities Act (15 U.S.C. 77z-3) (enacted 
as part of the National Securities Markets Improvement Act of 1996, 
Pub. L. 104-290, 110 Stat. 3416).
    \16\ Id.
    \17\ S. Rep. No. 293, 104th Cong., 2d Sess. 15 (1996).
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    The growth of self-directed Canadian retirement accounts, the 
migration of participants to the United States, and the need of these 
participants to manage their retirement investments by buying and 
selling Canadian and other foreign securities for their accounts, 
appear to be developments that do not fit neatly into the existing 
regulatory framework of the Securities Act. According to some Canadian/
U.S. Participants, the registration requirements of the Securities Act 
have operated to impede rather than promote their interests. These 
participants have purchased securities in Canada pursuant to a Canadian 
retirement program and, as a result, have the protections of the 
Canadian securities laws and regulatory system with respect to those 
investments. In light of the need for these investors to be able to 
manage their Canadian retirement account assets,\18\ and the existence 
of a well-developed legal system in Canada, the Commission believes 
that it may be in the public interest and consistent with the 
protection of investors to exempt from the registration requirements of 
the Securities Act offers of foreign securities to Canadian/U.S. 
Participants and sales to their retirement accounts. The Commission 
therefore is proposing new rule 237 under the Securities Act to exempt 
these transactions from Securities Act registration, under certain 
conditions discussed below.\19\
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    \18\ Financial planning experts stress the importance of 
periodically reallocating retirement investments to reflect the 
investor's changing age and income needs. See, e.g., Laird H. Shuart 
& Michael E. Ruhlman, Planning for Retirement in the 21st Century--A 
New Approach 77-78 (1991); Timothy E. Johnson, Investment Principles 
452-53 (1978). Some analysts also have suggested that, due to 
increasing life expectancies and health care costs, the careful 
management of individual retirement investments may be more 
important than ever. See, e.g., Employee Benefit Research Institute, 
Fundamentals of Employee Benefit Programs 179, 196 (5th ed. 1997).
    \19\ See infra Part II.A.2. The Commission anticipates that this 
proposed exemption from the Securities Act's registration 
requirements would be used primarily in connection with offers and 
sales of securities of Canadian mutual funds, although other foreign 
issuers may use the exemption for offers and sales to Canadian/U.S. 
Participants in connection with public offerings.
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    The registration requirement of the Investment Company Act is an 
additional regulatory provision that can prevent Canadian/U.S. 
Participants from purchasing securities of foreign funds in the course 
of managing their Canadian retirement accounts. A foreign fund that 
publicly offers securities in the United States not only must register 
its securities under the Securities Act, but also must obtain an order 
permitting it to register as an investment company under the Investment 
Company Act.\20\ Because most Canadian funds have not obtained such an 
order (and cannot be expected to do so \21\), Canadian/U.S. 
Participants have not been able to purchase securities of Canadian 
funds for their Canadian retirement accounts. As a result, participants 
who hold securities of Canadian funds through their Canadian retirement 
accounts cannot exchange those securities for other Canadian fund 
securities as, for example, they age and their financial needs 
change.\22\ In order to allow Canadian/U.S. Participants to manage 
their Canadian retirement accounts, the Commission is proposing new 
rule 7d-2 under the Investment Company Act, which would permit a 
foreign fund to make offers to these participants and sales to their 
retirement accounts without registering as an investment company under 
the Investment Company Act.\23\
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    \20\ As noted above, section 7(d) of the Investment Company Act 
requires a foreign fund to obtain an order from the Commission 
permitting it to register under that Act before it uses the U.S. 
mails or any means of interstate commerce in connection with a 
public offering of its securities. See supra note 10. The 
requirement that a foreign fund register under the Investment 
Company Act before making a public offering in the United States is 
intended to subject foreign funds that access the U.S. markets to 
the same type and degree of regulation as domestic funds. See S. 
Rep. No. 1775, 76th Cong., 3d Sess. 13 (1940); H.R. Rep. No. 2639, 
76th Cong., 3d Sess. 13 (1940).
    \21\ According to IFIC, a Canadian fund that satisfies the 
conditions necessary to obtain such an order likely would not be 
able to continue to operate as a registered mutual fund under 
Canadian law. See IFIC Petition, supra note 12, at n.34.
    \22\ This is true even for Canadian/U.S. Participants who 
already own securities of the other funds in their retirement 
accounts.
    \23\ Proposed rule 7d-2 would deem a foreign fund's offer of 
securities to Canadian/U.S. Participants, and the sale of securities 
to their Canadian retirement accounts, not to be a ``public 
offering'' for purposes of section 7(d) of the Investment Company 
Act, under the conditions discussed below. As noted earlier, the 
Commission and its staff have interpreted section 7(d) to generally 
prohibit a foreign fund from making a U.S. private offering if that 
offering would cause the securities of the fund to be beneficially 
owned by more than 100 U.S. residents. See supra note 10. Ownership 
by Canadian/U.S. Participants of foreign fund shares through their 
Canadian retirement accounts, however, would not count toward the 
100 U.S. investors under this interpretation of section 7(d).
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    The provisions of proposed rules 237 and 7d-2 are substantially the 
same. They are designed to permit offers of foreign securities to 
Canadian/U.S. Participants and sales to their accounts, and to permit 
participants to receive prospectuses and other informational materials 
necessary for managing their investments, without permitting the types 
of additional sales or communications that could result in a more 
generalized public offering of securities in circumvention of the 
registration requirements of the U.S. securities laws.\24\ The proposed 
rules would strictly limit the activities of persons making offers or 
sales in reliance on the rules, and would in no way limit the 
application of the antifraud provisions of the U.S. securities laws or 
the provisions of any state laws that may govern the offer or sale of 
securities to Canadian retirement accounts.
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    \24\ Purchases or sales of securities held through Canadian 
retirement accounts generally are effected through Canadian 
securities dealers. Absent an exemption, however, Canadian broker-
dealers that effect securities transactions for Canadian/U.S. 
Participants with respect to their Canadian retirement accounts are 
subject to the broker-dealer registration requirements of section 15 
of the Exchange Act (15 U.S.C. 78o). Although rule 15a-6 under the 
Exchange Act (17 CFR 240.15a-6) provides several conditional 
exemptions from this registration requirement for foreign broker-
dealers, additional relief may be required to permit Canadian 
broker-dealers to engage in activities generally necessary to 
maintain participants' Canadian retirement accounts without 
registration under the Exchange Act. The Commission has received a 
request for exemptive relief from the broker-dealer registration 
requirements of the Exchange Act for certain Canadian broker-dealers 
that effect transactions for Canadian/U.S. Participants with respect 
to their Canadian retirement accounts. Letter from Susan E. Pravda, 
Epstein, Becker & Green, to Jonathan G. Katz, Secretary, U.S. 
Securities and Exchange Commission (Jan. 7, 1999). The Commission 
will be considering this request for exemptive relief.
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A. Proposed Securities Act Rule \25\
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    \25\ The following discussion focuses on the scope and 
conditions of proposed rule 237. The scope and conditions of 
proposed rule 7d-2, as noted above, are largely identical. See infra 
note 47 and accompanying text.
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1. Scope of the Rule
    Proposed rule 237 under the Securities Act would exempt from the 
registration requirements of that Act the offer of a foreign issuer's 
securities to a ``participant'' and the sale of those securities to his 
or her Canadian retirement account.\26\ The rule would

[[Page 14651]]

define a ``participant'' as any individual in the United States who is 
entitled to receive the income and assets from a Canadian retirement 
account.\27\ Typically, a participant would be an individual who 
established a Canadian retirement account while living and working in 
Canada and has moved to the United States either permanently or 
temporarily.\28\ The exemption would be available for offers and sales 
of securities of any type of issuer.\29\ To qualify for the exemption, 
however, the securities must be eligible for investment by Canadian 
retirement accounts, and they also must be available for purchase by 
Canadian investors other than participants.\30\
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    \26\ The definition of ``Canadian retirement account'' would 
include self-directed individual retirement accounts that are both 
established and qualified for tax-advantaged treatment under 
Canadian law. Proposed rule 237(a)(2). The definition would exclude 
Canadian retirement accounts that are not self-directed, because 
those accounts are managed entirely in Canada and generally would 
not entail U.S. registration requirements. The proposed definition 
therefore does not include Registered Pension Plans (Canadian Income 
Tax Act para. 147.1), Deferred Profit Sharing Plans (Canadian Income 
Tax Act para. 147), single vendor RRSPs and RRIFs, and other 
Canadian tax-advantaged plans whose investments are managed by 
trustees or other fiduciaries in Canada.
    \27\ Proposed rule 237(a)(6). Participants, for example, would 
include individuals who have established Canadian retirement 
accounts with Canadian earned income and are in the United States 
(i) permanently, (ii) as a result of being stationed or transferred 
by an employer, or (iii) only during the winter months. An 
individual's status as a participant would not depend on the length 
of his or her stay in the United States. A participant would be an 
``annuitant'' of a Canadian retirement account as provided by 
Canadian law. See Canadian Income Tax Act Paras.  146(1), 146.3(1) 
(defining ``annuitant'' as the individual, or a spouse in certain 
cases, for whom a RRSP or RRIF will provide retirement income).
    \28\ Certain ``deemed'' Canadian residents (i.e., Canadian 
government and military personnel) may be able to establish Canadian 
retirement accounts with income earned while living and working in 
the United States. See infra note 31.
    \29\ Persons relying on the exemption would be persons that 
engage in transactions not otherwise exempt from the registration 
requirements of section 5 of the Securities Act (i.e., issuers, 
underwriters or dealers under U.S. law). See, e.g., section 4(1) of 
the Securities Act (15 U.S.C. 77d(1)).
    \30\ The types of securities that are qualified investments for 
Canadian retirement accounts are identified in the Canadian Income 
Tax Act and the Canadian Income Tax Regulations. See supra note 5 
and accompanying text. The proposed rule would be available only for 
``eligible securities'' issued by a ``qualified company.'' Eligible 
securities would be securities issued by a qualified company that 
(i) are offered to participants or sold to their Canadian retirement 
accounts in reliance on the proposed rule and (ii) may also be 
purchased by Canadians other than participants. Proposed rule 
237(a)(3)(i), (ii). The rule would define a qualified company as a 
foreign issuer whose securities are qualified for investment on a 
tax-deferred basis by a Canadian retirement account under Canadian 
law. Proposed rule 237(a)(7). A ``foreign issuer'' would include any 
issuer that is a foreign government, a national of any foreign 
country or a corporation or other organization incorporated or 
organized under the laws of any foreign country, except for an 
issuer that has a substantial presence in the United States as 
described in the rule. Proposed rule 237(a)(5). This definition is 
modeled on the definitions of ``foreign issuer'' and ``foreign 
private issuer'' in rule 405 under the Securities Act (17 CFR 
230.405).
    As noted above, the proposed exemption would be available only 
for offers and sales of eligible securities of qualified companies. 
No condition of the rule, however, would require that a 
participant's Canadian retirement account comply with the other 
requirements of Canadian tax law, such as the limitations on 
contributions. See generally supra notes 4--5 and accompanying text 
(discussing certain restrictions on Canadian retirement account 
contributions and investments).
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    The proposed rule would exempt sales to a Canadian/U.S. 
Participant's retirement account in connection with an exchange or re-
allocation of existing Canadian retirement account investments, as well 
as sales in connection with new investments made with additional 
contributions to the account. The Commission believes that most 
Canadian/U.S. Participants would not be permitted to make significant 
additional contributions to their Canadian retirement accounts, because 
Canadian tax law penalizes contributions greater than a specified 
percentage of an individual's Canadian earned income (i.e., income that 
is earned and taxable in Canada), which an individual residing in the 
United States ordinarily would not have.\31\ The Commission requests 
comment whether this view of Canadian tax law is accurate. If 
participants generally would be able to make significant additional 
contributions to their Canadian retirement accounts, should the 
proposed exemption exclude additional purchases? If additional 
purchases are excluded, would persons relying on the exemption be able 
to adequately monitor whether purchase requests from participants, or 
their broker-dealers, represent the exchange or re-allocation of 
previous Canadian retirement account investments, rather than 
additional acquisitions with new contributions?
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    \31\ See Canadian Income Tax Act para. 146(1) (defining ``earned 
income''). See also supra notes 4, 6 (describing restrictions on 
Canadian retirement account contributions and certain penalties on 
excess contributions). Taxation in Canada generally depends on an 
individual's residence in Canada. Whether a Canadian/U.S. 
Participant's income is subject to Canadian tax or U.S. tax 
typically would depend on several factors, including (i) the 
permanence and purpose of the stay in the United States, (ii) 
residential ties to Canada, (iii) residential ties to the United 
States, and (iv) regularity and length of return visits to Canada. 
See generally Determination of an Individual's Residence Status, 
Revenue Canada Bulletin No. IT-221R2 (Feb. 25, 1983). Under the 
United States-Canada Tax Treaty and Canadian law, Canadian 
government employees, diplomats, and military personnel stationed in 
the United States are ``deemed'' to be Canadian residents, and their 
income remains subject to Canadian tax, despite their residence in 
the United States. See Convention with Respect to Taxes on Income 
and on Capital, Sept. 26, 1980, U.S.-Can., art. IV, para. 5, 
T.I.A.S. No. 11,087 (as amended by protocols); Canadian Income Tax 
Act para. 250(1) (deemed residents of Canada). Because most 
Canadian/U.S. Participants, other than deemed Canadian residents, 
who relocate to, maintain primary residence in, or spend most of 
their time in, the United States would no longer be residents of 
Canada for tax purposes, the Commission believes that they would not 
be able to contribute significant additional income to their 
Canadian retirement accounts. For individuals who are deemed 
residents of Canada, however, additional contributions to a Canadian 
retirement account may be the only mechanism for making a Canadian 
tax-advantaged retirement investment while in the United States.
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2. Conditions of the Rule
    a. Limitations on Marketing Activities. Proposed rule 237 includes 
conditions that limit the activities of persons relying on the rule, in 
order to prevent the exemption from being used as an avenue for a 
distribution of securities in the United States beyond the rule's 
limited purpose. Thus, a person relying on the rule would be permitted 
to solicit a Canadian/U.S. Participant only if that person is an 
authorized agent of the participant.\32\ Persons relying on the rule 
would be limited to (i) processing transaction requests from 
participants,\33\ (ii) paying dividends and distribution on securities 
held in a Canadian retirement account,\34\ (iii) delivering

[[Page 14652]]

written offering materials upon the request of a participant,\35\ and 
(iv) delivering updated offering materials, proxy statements, account 
statements and other materials typically provided to other security 
holders regarding securities held in a Canadian retirement account.\36\ 
Persons relying on the rule could not engage in activities that would 
condition the U.S. market for the securities, such as advertising the 
securities in the United States,\37\ or that would facilitate secondary 
trading in the securities, such as arranging for dealers to make a 
secondary market in the United States when there was no pre-existing 
U.S. market.\38\
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    \32\ Proposed rule 237(b)(3). Generally, a ``solicitation'' 
would include any contact (i.e., telephone calls, mailings, 
facsimile transmissions, electronic mail or similar communications) 
with a participant that is intended to generate interest in, or 
induce the purchase of, eligible securities. The exception for 
solicitations by authorized agents is intended to permit Canadian 
broker-dealers relying on the rule to continue to provide investment 
advice to their Canadian/U.S. Participant customers. For example, a 
broker-dealer relying on the rule would not be prohibited from 
providing investment advice, prospectuses or other similar materials 
to an existing client who is a participant about possible 
investments in the participant's Canadian retirement account. Of 
course, to the extent persons relying on the rule are engaged in 
broker-dealer activity in the United States, they would be required 
to register as broker-dealers under section 15 of the Exchange Act, 
absent an available exemption. See supra note 24.
    \33\ Proposed rule 237(b)(1)(i). A person relying on the rule 
also would be permitted to effect routine transactions in securities 
held in a participant's Canadian retirement account. Id. Routine 
transactions would include routine or mechanical transfers of 
securities held in the account, such as transfers caused by a 
participant's death or divorce, and rollovers or other transfers of 
assets among Canadian retirement accounts as required or allowed 
under Canadian law. The Commission believes that generally these 
types of transfers would not entail registration under the 
Securities Act in any event.
    \34\ Proposed rule 237(b)(1)(ii). The payment of dividends would 
include the issuance of securities under a dividend reinvestment 
plan. For guidance on whether registration of securities issued 
pursuant to a dividend reinvestment plan would be required absent 
the proposed exemption, see, e.g., Securities Act Release No. 929 
(July 29, 1936) (11 FR 10957 (1936)); Investment Company Act Release 
No. 6480 (May 10, 1971) (36 FR 9627 (May 1971)); Interpretation of 
the Division of Corporation Finance Relating to Dividend 
Reinvestment and Similar Plans, Securities Act Release No. 5515 
(July 22, 1974) (39 FR 28520 (Aug. 8, 1974)).
    \35\ Proposed rule 237(b)(1)(iii).
    \36\ Proposed rule 237(b)(1)(iv).
    \37\ Proposed rule 237(b)(4). Activities with respect to an 
eligible security that constitute ``directed selling efforts'' for 
purposes of Regulation S under the Securities Act (17 CFR 
230.901-.905) generally would be considered to ``condition'' the 
U.S. market for purposes of proposed rule 237. See 17 CFR 
230.902(c); Offshore Offers and Sales, Securities Act Release No. 
6863 (Apr. 24, 1990) (55 FR 18306 (May 2, 1990)), at nn.47-72 and 
accompanying text.
    \38\ Proposed rule 237(b)(4).
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    As noted above, under the rule the only updated written offering 
materials or other informational materials that could be delivered to a 
Canadian/U.S. Participant would be those that concern securities 
already held in the participant's retirement account.\39\ The 
Commission requests comment whether Canadian funds commonly use joint 
prospectuses or other joint informational materials 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 retirement account and securities that are not held in 
the account?
---------------------------------------------------------------------------

    \39\ See supra note 36 and accompanying text.
---------------------------------------------------------------------------

    Under the proposed rule, offering materials for eligible securities 
must prominently disclose 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.\40\ 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.
---------------------------------------------------------------------------

    \40\ Proposed rule 237(b)(2).
---------------------------------------------------------------------------

    The Commission also requests comment whether the rule should 
prohibit resales in the United States of securities offered and sold in 
reliance on the proposed exemption.\41\ Is a restriction on resales 
necessary to ensure that unregistered securities sold to Canadian 
retirement accounts in reliance on the proposed exemption are not later 
transferred to persons in the United States who are not Canadian/U.S. 
Participants?
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    \41\ For example, the rule could provide that securities offered 
and sold in reliance on the exemption may not be eligible for resale 
other than in accordance with the requirements of Regulation S under 
the Securities Act, which generally excludes from Securities Act 
registration offers and sales of securities that occur in offshore 
transactions and do not involve U.S. marketing activities. A 
Canadian/U.S. Participant who desires to sell eligible securities 
thus might be required either to sell the securities in the Canadian 
or other foreign markets or, with respect to securities of a 
Canadian mutual fund, to tender the securities to the fund for 
redemption.
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    b. Restriction on Disclaiming Canadian or U.S. Law or Jurisdiction. 
Proposed rule 237 is premised on, among other things, the availability 
of the investor protections afforded by Canadian law for Canadian 
retirement account investments. We believe that, because these accounts 
were opened and remain in Canada, Canadian law would be applicable and 
Canadian courts would have jurisdiction. Nonetheless, we are proposing 
to include in the rule the condition that a person relying on the rule 
not disclaim the applicability of Canadian law or jurisdiction in any 
proceeding involving eligible securities.\42\ The Commission requests 
comment on this proposed condition.
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    \42\ Proposed rule 237(b)(5). The rule would define ``Canadian 
law'' to include the federal laws of Canada, the laws of any 
province or territory of Canada, and the rules of any Canadian 
federal or provincial regulator or self-regulatory authority, 
depending upon the applicability of each. Proposed rule 237(a)(1).
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    As noted above, offers and sales of securities made in reliance on 
the proposed rule would remain fully subject to the antifraud 
provisions of the U.S. securities laws. The proposed rule therefore 
also would include the condition that a person relying on the rule not 
disclaim the applicability of U.S. law, or the jurisdiction of the 
courts of the United States, in any proceeding involving eligible 
securities.\43\ Comment is requested on this proposed condition of the 
rule.
---------------------------------------------------------------------------

    \43\ Proposed rule 237(b)(5).
---------------------------------------------------------------------------

    The Commission also requests comment whether it would be unduly 
burdensome for rule 237 to require any person that relies on the rule 
to provide the Commission, upon request, with information, documents, 
testimony and assistance relating to their offers and sales of 
securities in reliance on the rule.\44\ This type of provision could 
facilitate the Commission's ability to investigate allegations of 
fraud. In the alternative, should the rule require any person relying 
on the rule to designate an agent for service of process in the United 
States? \45\ Finally, comment is requested whether persons 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 acknowledgment that those securities are not subject to the 
registration provisions of the U.S. securities laws.
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    \44\ For example, persons relying on the rule could be required 
to provide the Commission with the types of information, documents, 
testimony, and assistance described in rule 15a-6(a)(3)(i)(B) under 
the Exchange Act [17 CFR 240.15a-6(a)(3)(i)(B)], with respect to 
offers and sales of securities made in reliance on the rule.
    \45\ For example, rule 237 could require issuers, underwriters 
and other persons that rely on the rule to file a form similar to 
Form F-X under the Securities Act [17 CFR 239.42] identifying a U.S. 
agent for service of process. Designating an agent for service of 
process also might facilitate the ability of Canadian/U.S. 
Participants to pursue antifraud remedies in the United States.
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B. Proposed Investment Company Act Rule

    Proposed rule 7d-2 under the Investment Company Act would deem a 
foreign fund's offer of securities to Canadian/U.S. Participants and 
sale to their accounts not to be a ``public offering'' that would 
require the fund to register as an investment company under that 
Act.\46\ The scope of this proposed rule, and the conditions that must 
be met by a foreign fund relying on the rule, would be substantially 
the same as the proposed scope and conditions of rule 237 under the 
Securities Act.\47\ The Commission requests comment whether any 
specific provisions of proposed rule 7d-2 should differ from those of 
rule 237. Are any provisions of proposed rule 7d-2 broader than 
necessary to achieve the intended purpose of permitting Canadian/U.S. 
Participants to manage their Canadian retirement account investments? 
Comment also is requested whether rule 7d-2 should address the other 
issues on which comment was solicited in the discussion of proposed 
rule 237.\48\
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    \46\ See generally supra notes 20-23 and accompanying text.
    \47\ See supra Part II.A (discussion of the scope and conditions 
of proposed rule 237). The one substantive difference is that 
proposed rule 7d-2 would require written offering materials for 
eligible securities to disclose prominently not only that the 
securities are not registered with the Commission, but also that the 
foreign fund that issued those securities is not registered with the 
Commission. Proposed rule 7d-2(b)(2).
    \48\ See supra Part II.A.

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[[Page 14653]]

C. Proposed Amendments to Exchange Act Rule 12g3-2

    Section 12(g)(1) of the Exchange Act provides that an issuer whose 
securities are traded by any means of interstate commerce must register 
its equity securities with the Commission under the Exchange Act if it 
has more than 500 shareholders and total assets over $1 million.\49\ 
The Exchange Act authorizes the Commission to exempt securities of 
foreign issuers from this registration requirement.\50\ Under this 
authority, the Commission has adopted rule 12g3-2(a), which exempts 
securities of a foreign private issuer from the registration 
requirement if fewer than 300 shareholders reside in the United 
States.\51\ Rule 12g3-2(b) exempts securities of a foreign private 
issuer that has 300 or more shareholders resident in the United States 
if the issuer notifies the Commission that it is electing to be exempt 
under that rule, furnishes certain information to the Commission that 
it provides to shareholders in its home country, and meets certain 
other requirements.\52\
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    \49\ 15 U.S.C. 78l(g)(1). Rule 12g-1 under the Act (17 CFR 
240.12g-1) exempts an issuer from this section 12(g)(1) registration 
requirement if its total assets at fiscal year end do not exceed $10 
million and, with respect to a foreign private issuer, the 
securities were not quoted in an automated inter-dealer quotation 
system.
    \50\ Section 12(g)(3) of the Exchange Act (15 U.S.C. 78l(g)(3)) 
provides that the Commission may exempt any security of a foreign 
issuer from this registration requirement if the Commission finds 
that an exemption is in the public interest and consistent with the 
protection of investors.
    \51\ Exchange Act rule 12g3-2(a) (17 CFR 240.12g3-2(a)).
    \52\ See Exchange Act rule 12g3-2(b) (17 CFR 240.12g3-2(b)).
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    The registration requirements under the Exchange Act were designed 
to assure that U.S. investors would have available adequate information 
about publicly held issuers. In the case of Canadian retirement 
accounts, participants already have a source of information through the 
administrators of their retirement accounts. Thus, it appears that 
counting Canadian/U.S. Participants toward the 300 shareholder limit of 
rule 12g3-2(a) is not necessary with respect to Canadian/U.S. 
Participants.\53\ The Commission therefore is proposing to amend rule 
12g3-2 to provide that participants who hold shares of a foreign 
private issuer only through their Canadian retirement accounts should 
not be counted for purposes of determining whether the issuer has fewer 
than 300 shareholders who reside in the United States.\54\
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    \53\ In fact, counting these shareholders toward the 300 
shareholder limit may hinder foreign issuers or broker-dealers from 
selling foreign securities to Canadian/U.S. Participants' retirement 
accounts out of concern that the issuer might not have complied with 
the requirements of section 12(g).
    \54\ Proposed rule 12g3-2(a)(2).
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D. General Request for Comments

    The Commission requests comment on the proposed rules and rule 
amendments that are the subject of this Release, suggestions for 
additional provisions or changes to existing rules or forms, and 
comments on other matters that might have an effect on the proposals 
contained in this Release. The Commission also requests comment whether 
the proposals, if adopted, would promote efficiency, competition and 
capital formation. Comments will be considered by the Commission in 
satisfying its responsibilities under section 2(b) of the Securities 
Act and section 3(f) of the Exchange Act.\55\ The Commission encourages 
commenters to provide data to support their views. For purposes of the 
Small Business Regulatory Enforcement Fairness Act of 1996,\56\ the 
Commission also requests information regarding the potential impact of 
the proposals on the economy on an annual basis. Commenters are 
requested to provide empirical data to support their views.
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    \55\ Section 2(b) of the Securities Act (15 U.S.C. 77b(b)) and 
section 3(f) of the Exchange Act (15 U.S.C. 78c(f)) require the 
Commission, when it engages in rulemaking and is required to 
consider whether an action is consistent with the public interest, 
to consider, in addition to the protection of investors, whether the 
action will promote efficiency, competition, and capital formation.
    \56\ Pub. L. 104-121, Title II, 110 Stat. 857 (1996).
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III. Cost-Benefit Analysis

    The Commission is sensitive to the costs and benefits imposed by 
its rules. The proposals would provide substantial benefits to 
Canadian/U.S. Participants. Because most securities that are held in 
Canadian retirement accounts, and the Canadian funds that issue many of 
those securities, are not registered under the U.S. securities laws, 
those securities generally cannot be sold by issuers to persons in the 
United States without violating the registration requirements of the 
Securities Act and, in the case of securities of an unregistered fund, 
the Investment Company Act.\57\ As a consequence, Canadian/U.S. 
Participants have not been able to purchase or exchange securities for 
their Canadian retirement accounts as needed to meet their changing 
investment goals or income needs. Proposed rules 237 and 7d-2 would 
permit offers of a foreign issuer's securities to a Canadian/U.S. 
Participant and sales to his or her account, under certain conditions 
consistent with the protection of investors. The proposals thus would 
benefit these investors by making it possible for them to manage their 
Canadian retirement account investments.
---------------------------------------------------------------------------

    \57\ See supra notes 9-11.
---------------------------------------------------------------------------

    Proposed rules 237 and 7d-2 also would benefit foreign issuers and 
other persons that offer securities of foreign issuers (including 
securities of foreign funds) to Canadian/U.S. Participants and sell 
those securities to Canadian retirement accounts. Absent the proposals, 
these persons likely would forego offering foreign securities to 
Canadian/U.S. Participants and selling foreign securities to their 
accounts, because securities that are not registered under the U.S. 
securities laws may not be publicly offered or sold in the United 
States. Under the proposed rules, these persons would be able to sell 
those securities to participants' Canadian retirement accounts, because 
the proposals would permit (i) foreign securities, including securities 
of foreign funds, to be offered to Canadian/U.S. Participants and sold 
to their accounts without being registered under the Securities Act and 
(ii) foreign funds to offer securities to Canadian/U.S. Participants 
and sell securities to their accounts without registering as investment 
companies under the Investment Company Act.
    Foreign issuers and other persons may incur costs when relying on 
the proposed rules to offer or sell securities. The proposed rules 
require that any written offering materials delivered to a Canadian/
U.S. Participant in reliance on the rules include a prominent statement 
that the securities are not registered with the Commission and, in the 
case of securities issued by a foreign fund, that the fund also is not 
registered with the Commission. To meet these requirements, the foreign 
issuer, underwriter or broker-dealer may redraft an existing prospectus 
or other written offering material to add this disclosure statement, or 
may draft a sticker or supplement containing this disclosure to be 
added to existing offering materials. It appears that the associated 
costs likely would be minimal and are justified by the benefits of the 
relief provided by the proposed new rules. Comment is requested on the 
costs associated with these proposed disclosure requirements.
    Proposed rules 237 and 7d-2 also could result in some U.S. issuers, 
including some U.S. funds, incurring costs in the form of lost new 
business from Canadian/U.S. Participants who, absent the proposals, 
might cash out their Canadian retirement accounts and invest those 
assets in securities that are registered in the United States. Based on

[[Page 14654]]

inquiries that the Commission has received from Canadian/U.S. 
Participants, however, it appears that many currently do not choose 
this investment strategy because of the adverse tax consequences that 
likely would result from such action. It therefore appears that the 
proposals would not significantly affect the number of participants 
that may cash out their Canadian retirement accounts in order to invest 
their retirement assets in U.S.-registered securities. The proposed 
rules thus should not result in significant costs for U.S. issuers, 
including U.S. funds, in the form of lost new business. Because the 
proposed rules primarily will affect foreign issuers and other foreign 
persons, it appears that the proposals also would not cause any other 
costs or benefits for U.S. issuers. Comment is requested on these 
assumptions, and in particular whether the proposals would result in 
significant costs, in the form of lost new business or otherwise, for 
U.S. issuers.
    The proposed amendments to rule 12g3-2(a) would provide that a 
foreign issuer need not count the Canadian/U.S. Participants who hold 
its securities only through their Canadian retirement accounts for 
purposes of determining whether the issuer has fewer than 300 
shareholders resident in the United States and thus qualifies for the 
exemption from Exchange Act registration afforded by the rule. These 
proposed amendments would benefit any foreign issuer whose securities 
might not qualify for the rule 12g3-2(a) exemption from Exchange Act 
registration if it were required to count participants who hold its 
securities in Canadian retirement accounts for purposes of determining 
whether it has fewer than 300 U.S. shareholders. The proposed 
amendments also may benefit Canadian/U.S. Participants, because without 
the amendments foreign issuers and broker-dealers might be reluctant to 
sell foreign securities to participants' Canadian retirement accounts 
out of concern that those sales might make the foreign securities 
subject to registration under section 12(g). There would appear to be 
no significant costs to foreign issuers, domestic issuers, or investors 
associated with these proposed amendments.
    The Commission requests comment on the potential costs and benefits 
of the proposals and any suggested alternatives to the proposals. 
Specific comment is requested on the potential costs or benefits of 
these proposals to U.S. issuers, including U.S. funds. Data is 
requested concerning these costs and benefits.

IV. Paperwork Reduction Act

    Certain provisions of the proposed rules contain ``collection of 
information'' requirements within the meaning of the Paperwork 
Reduction Act of 1995 (44 U.S.C. 3501-3520), and the Commission has 
submitted the proposed rules to the Office of Management and Budget 
(``OMB'') for review in accordance with 44 U.S.C. 3507(d). The titles 
for the collections of information are: ``Exemption for offers and 
sales to certain Canadian tax-deferred retirement savings accounts'' 
and ``Definition of `public offering' as used in section 7(d) of the 
Act with respect to certain tax-deferred retirement savings accounts.'' 
An agency may not sponsor, conduct, or require response to an 
information collection unless a currently valid OMB control number is 
displayed.
    Proposed rule 237 would permit securities of foreign issuers, 
including securities of foreign funds, to be offered to Canadian/U.S. 
Participants and sold to their accounts without being registered under 
the Securities Act. The rule would require written offering materials 
for securities offered or sold in reliance on the rule to disclose 
prominently 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. Proposed rule 7d-2 under the Investment 
Company Act would permit foreign funds to offer securities to Canadian/
U.S. Participants and sell securities to their accounts without 
registering as investment companies under the Investment Company Act. 
The rule would require written offering materials for securities 
offered or sold in reliance on the rule to make the same disclosure 
concerning those securities as required by proposed rule 237, and in 
addition to disclose prominently that the foreign fund that issued 
those securities is not registered with the Commission. The purpose of 
these disclosure requirements is to ensure that participants are aware 
that those securities are not subject to the protections afforded by 
registration under the U.S. securities laws.
    The burden under either rule associated with adding this disclosure 
to written offering materials should be minimal and is non-recurring. 
The foreign issuer, underwriter or broker-dealer may redraft an 
existing prospectus or other written offering material to add this 
disclosure statement, or may draft a sticker or supplement containing 
this disclosure to be added to existing offering materials. In either 
case, based on discussions with representatives of the Canadian fund 
industry, the staff estimates that it would take an average of 10 
minutes per document to draft the requisite disclosure statement. The 
staff estimates the annual burden as a result of the disclosure 
requirements of proposed rules 7d-2 and 237 as follows.

A. Proposed Rule 7d-2

    The staff understands that there are approximately 1,300 publicly 
offered Canadian funds that potentially may rely on proposed rule 7d-2 
to offer securities to Canadian/U.S. Participants and sell securities 
to their accounts without registering under the Investment Company Act. 
The staff estimates that during the first year that proposed rule 7d-2 
is in effect, approximately 910 (70 percent) of these Canadian funds 
are likely to rely on the rule. The staff further estimates that each 
of those 910 Canadian funds, on average, distributes 3 different 
written offering documents concerning those securities, for a total of 
2,730 offering documents.\58\
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    \58\ Because Canadian tax law effectively precludes non-Canadian 
funds from being held in a Canadian retirement account, it is 
unlikely that any funds from countries other than Canada will rely 
on proposed rule 7d-2 to sell their shares to the Canadian 
retirement accounts of Canadian/U.S. Participants.
---------------------------------------------------------------------------

    The staff therefore estimates that during the first year that 
proposed rule 7d-2 is in effect, approximately 910 respondents \59\ 
would be required to make 2,730 responses by adding the new disclosure 
statements to approximately 2,730 written offering documents. Thus, the 
staff estimates that the total annual burden associated with this 
disclosure requirement in the first year after rule 7d-2 becomes 
effective would be approximately 455 hours (2,730 offering documents 
x  10 minutes per document).
---------------------------------------------------------------------------

    \59\ This estimate of respondents assumes that all respondents 
are Canadian funds that redraft existing offering documents to add 
the required disclosure. The number of respondents may be greater if 
foreign underwriters or broker-dealers draft a sticker or supplement 
to add the required disclosure to an existing offering document.
---------------------------------------------------------------------------

    In each year following the first year that proposed rule 7d-2 is in 
effect, the staff estimates that approximately 65 (5 percent) 
additional Canadian funds may rely on the rule to offer securities to 
Canadian/U.S. Participants and sell securities to their accounts, and 
that each of those funds, on average, distributes 3 different written 
offering documents concerning those securities, for a total of 195 
offering documents. The staff therefore estimates that in each year 
after the first year that proposed rule 7d-2 becomes effective,

[[Page 14655]]

approximately 65 respondents \60\ would make 195 responses by adding 
the new disclosure statement to approximately 195 written offering 
documents. The staff therefore estimates that after the first year, the 
annual burden associated with the rule 7d-2 proposed disclosure 
requirement would be approximately 32.5 hours (195 offering documents 
x  10 minutes per document).
---------------------------------------------------------------------------

    \60\ See supra note 59.
---------------------------------------------------------------------------

B. Proposed Rule 237

    Canadian issuers other than Canadian funds. The Commission 
understands that there are approximately 3,500 Canadian issuers other 
than funds that potentially may rely on proposed rule 237 to make an 
initial public offering of their securities to Canadian/U.S. 
Participants.\61\ The staff estimates that in any given year 
approximately 35 (or 1 percent) of those issuers are likely to rely on 
proposed rule 237 to make a public offering of their securities to 
participants, and that each of those 35 issuers, on average, 
distributes 3 different written offering documents concerning those 
securities, for a total of 105 offering documents.
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    \61\ Canadian funds would rely on both proposed rule 7d-2 and 
proposed rule 237 to offer securities to participants and sell 
securities to their Canadian retirement accounts without violating 
the registration requirements of the Investment Company Act or the 
Securities Act. Proposed rule 237, however, would not require any 
disclosure in addition to that required by proposed rule 7d-2. Thus, 
the disclosure requirements of proposed rule 237 would not impose 
any burden on Canadian funds in addition to the burden imposed by 
the disclosure requirements of rule 7d-2. To avoid double-counting 
this burden, the staff has excluded Canadian funds from the estimate 
of the hourly burden associated with proposed rule 237.
---------------------------------------------------------------------------

    The staff therefore estimates that during each year that proposed 
rule 237 is in effect, approximately 35 respondents \62\ would be 
required to make 105 responses by adding the new disclosure statements 
to approximately 105 written offering documents. Thus, the staff 
estimates that the total annual burden associated with the proposed 
rule 237 disclosure requirement would be approximately 17.5 hours (105 
offering documents  x  10 minutes per document).
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    \62\ This estimate of respondents assumes that all respondents 
are foreign issuers that redraft existing offering documents to add 
the required disclosure. The number of respondents may be greater if 
foreign underwriters or broker-dealers draft a sticker or supplement 
to add the required disclosure to an existing offering document.
---------------------------------------------------------------------------

    Other foreign issuers. In addition, issuers from foreign countries 
other than Canada could rely on proposed rule 237 to offer securities 
to Canadian/U.S. Participants and sell securities to their accounts 
without becoming subject to the registration requirements of the 
Securities Act. Because Canadian law strictly limits the amount of 
foreign investments that may be held in a Canadian retirement account, 
however, the staff believes that the number of issuers from other 
countries that might rely on proposed rule 237, and that therefore 
would be required to comply with the proposed offering document 
disclosure requirements, would be negligible.
    Pursuant to 44 U.S.C. 3506(c)(2)(B), the Commission solicits 
comments in order to: (i) Evaluate whether the proposed collections of 
information are necessary for the proper performance of the function of 
the Commission, including whether the information will have practical 
utility; (ii) evaluate the accuracy of the staff's estimate of the 
burden of the proposed collections of information; (iii) enhance the 
quality, utility and clarity of the information to be collected; and 
(iv) minimize the burden of collection of information on those who are 
to respond, including through the use of automated collection 
techniques or other forms of information technology.
    Persons wishing to submit comments on the collection of information 
requirements of the proposed rules should direct them to the following 
persons: (i) Desk Officer for the Securities and Exchange Commission, 
Office of Information and Regulatory Affairs, Office of Management and 
Budget, Room 3208, New Executive Office Building, Washington, DC 20503; 
and (ii) Jonathan G. Katz, Secretary, Securities and Exchange 
Commission, 450 5th Street NW, Washington, DC 20549-0609, with 
reference to File No. S7-10-99. OMB is required to make a decision 
concerning the collection of information between 30 and 60 days after 
publication; therefore, a comment to OMB is best assured of having its 
full effect if OMB receives it within 30 days after publication of this 
Release.

V. Summary of Initial Regulatory Flexibility Analysis

    The Commission has prepared an Initial Regulatory Flexibility 
Analysis (``IRFA'') in accordance with 5 U.S.C. 603 regarding proposed 
rules 237 and 7d-2, and the proposed amendments to rule 12g3-2. The 
following summarizes the IRFA.

A. Reasons for the Proposed Action

    In Canada, individuals can invest a portion of their earnings in 
tax-deferred Canadian retirement accounts, which operate in a manner 
similar to IRAs in the United States. Individuals who establish 
Canadian retirement accounts while living and working in Canada and who 
later move to the United States (``Canadian/U.S. Participants'' or 
``participants''), however, have encountered difficulties managing 
their Canadian retirement account investments. Most securities and most 
funds that are ``qualified investments'' for Canadian retirement 
accounts are not registered under the U.S. securities laws. Issuers, 
therefore, cannot publicly offer and sell those securities in the 
United States without violating the registration requirements of the 
Securities Act and, in the case of securities of an unregistered fund, 
the Investment Company Act. As a result of these registration 
requirements of the U.S. securities laws, Canadian/U.S. Participants 
have not been able to purchase or exchange securities for their 
Canadian retirement accounts as needed to meet their changing 
investment goals or income needs.

B. Objectives

    To enable Canadian/U.S. Participants to manage the assets in their 
Canadian retirement accounts, the Commission is proposing two new rules 
that would provide relief from the U.S. registration requirements, 
under certain conditions, for offers of foreign securities to Canadian/
U.S. Participants and sales to their accounts. Proposed rule 237 under 
the Securities Act would permit securities of foreign issuers, 
including securities of foreign funds, to be offered to Canadian/U.S. 
Participants and sold to their accounts without being registered under 
the Securities Act. Proposed rule 7d-2 under the Investment Company Act 
would permit foreign funds to offer securities to Canadian/U.S. 
Participants and sell securities to their accounts without registering 
as investment companies under the Investment Company Act.
    The Commission also is proposing to amend rule 12g3-2 under the 
Exchange Act. Section 12(g)(1) of the Exchange Act provides that an 
issuer whose securities are traded by any means of interstate commerce 
must register its equity securities with the Commission under the 
Exchange Act if it has more than 500 shareholders and total assets over 
$1 million.\63\ The Commission is authorized to exempt securities of 
foreign issuers from this registration requirement, and has adopted 
rule 12g3-2 to exempt (i) securities of a foreign private issuer if the 
issuer has fewer than 300 shareholders resident in

[[Page 14656]]

the United States (rule 12g3-2(a)); and (ii) securities of a foreign 
private issuer with 300 or more shareholders resident in the United 
States if the issuer furnishes certain information to the Commission 
that it provides to shareholders in its home country, and meets certain 
other requirements (rule 12g3-2(b)).
---------------------------------------------------------------------------

    \63\ Rule 12g-1 under the Act exempts an issuer from this 
section 12(g)(1) registration requirement if its total assets at 
fiscal year end do not exceed $10 million and, with respect to a 
foreign private issuer, the securities were not quoted in an 
automated inter-dealer quotation system.
---------------------------------------------------------------------------

    The registration requirements under the Exchange Act were designed 
to assure that U.S. investors would have available adequate information 
about publicly held issuers. In the case of Canadian retirement 
accounts, however, Canadian/U.S. Participants already have a source of 
information through the administrators of their retirement accounts. 
Because it appears that counting Canadian/U.S. Participants toward the 
300 shareholder limit of rule 12g3-2(a) would serve little purpose with 
respect to Canadian/U.S. Participants, the Commission is proposing to 
amend rule 12g3-2(a) to provide that participants who hold shares of a 
foreign private issuer only through their Canadian retirement accounts 
need not be counted for purposes of determining whether the foreign 
issuer has fewer than 300 shareholders resident in the United States.

C. Legal Basis

    The Commission is proposing rule 237 pursuant to the authority set 
forth in sections 19(a) and 28 of the Securities Act (15 U.S.C. 77s(a); 
77z-3) and is proposing rule 7d-2 pursuant to section 38(a) of the 
Investment Company Act (15 U.S.C. 37(a)). Rule 12g3-2 is proposed to be 
amended pursuant to the authority set forth in section 19(a) of the 
Securities Act and section 12(g)(3) of the Exchange Act (15 U.S.C. 
78l(g)(3)).

D. Small Entities Subject to the Rules

    Proposed rules 237 and 7d-2 primarily will affect foreign issuers 
and other persons that offer securities to participants and sell 
securities to their retirement accounts. Foreign businesses, however, 
are not small entities for purposes of the Regulatory Flexibility 
Act.\64\ Therefore, these proposals are unlikely to have a significant 
economic impact on a substantial number of small entities.
---------------------------------------------------------------------------

    \64\ See 13 CFR 121.105 (defining ``business concern'' for 
purposes of the Small Business Administration's definition of 
``small business'').
---------------------------------------------------------------------------

    It is possible, however, that some domestic issuers could be 
affected by proposed rules 237 and 7d-2, because they may lose 
potential new business from Canadian/U.S. Participants who, absent the 
proposals, might choose to cash out their Canadian retirement accounts 
and invest those assets in securities registered under the U.S. 
securities laws. Based on inquiries that the Commission has received 
from Canadian/U.S. Participants, however, it appears that many 
participants currently do not choose this investment strategy because 
of the adverse tax consequences that likely would result from such 
action. It is likely, therefore, that the proposals would not 
significantly affect the number of participants that may cash out their 
Canadian retirement accounts, and thus that the proposals should not 
have any significant affect on U.S. issuers, including U.S. funds, in 
the form of lost new business. Moreover, even if absent the proposals 
some Canadian/U.S. Participants would cash out their Canadian 
retirement accounts and invest those assets in domestic issuers, 
including domestic funds, we have no basis for predicting whether they 
would invest in domestic issuers that are small entities.\65\ 
Therefore, it appears that these proposals are unlikely to have a 
significant economic impact on a substantial number of domestic issuers 
that are small entities.
---------------------------------------------------------------------------

    \65\ For purposes of the proposed rules, a domestic issuer 
(other than an investment company) that has total assets of $5 
million or less and that is engaged or proposes to engage in small 
business financing is considered a small entity. 17 CFR 230.157. A 
domestic investment company that, together with other investment 
companies in the same group of related investment companies, has net 
assets of $50 million or less is considered a small entity. 17 CFR 
270.0-10.
---------------------------------------------------------------------------

    The proposed amendments to rule 12g3-2 would affect only foreign 
private issuers whose securities might not qualify for the exemption 
from Exchange Act registration afforded by rule 12g3-2(a) if the 
issuers are required to count Canadian/U.S. Participants who hold their 
securities in Canadian retirement accounts for purposes of determining 
whether they have fewer than 300 U.S. shareholders. Because foreign 
businesses are not small entities for purposes of the Regulatory 
Flexibility Act, it appears that these proposed amendments will not 
have a significant economic impact on a substantial number of small 
entities.

E. Reporting, Recordkeeping, and Other Compliance Requirements

    Proposed rules 237 and 7d-2 each would require written offering 
documents relating to securities that are offered and sold in reliance 
on the rule to disclose prominently that those securities are not 
registered with the Commission and, in the case of securities of a non-
U.S. fund, that the fund also is not registered with the Commission. 
These proposed rules, however, are only available for offers and sales 
of securities of foreign issuers. Because foreign businesses are not 
small entities for purposes of the Regulatory Flexibility Act, this 
compliance requirement would have no impact on small entities. Proposed 
rules 237 and 7d-2, and the proposed amendments to rule 12g3-2, do not 
involve any other reporting, recordkeeping, or compliance requirements. 
The Commission has not identified any overlapping or conflicting rules 
or forms.

F. Significant Alternatives

    The Regulatory Flexibility Act directs the Commission to consider 
significant alternatives that would accomplish the stated objective, 
while minimizing any significant economic impact on small entities. 
Virtually all of the entities that would be affected by proposed rules 
237 and 7d-2, and the proposed amendments to rule 12g3-2, however, are 
foreign, and foreign businesses are not considered small entities for 
purposes of the Regulatory Flexibility Act. As noted above, it appears 
that the only potential impact that any of the proposals may have on 
U.S. issuers, including those that are small entities, is the potential 
loss of new business from Canadian/U.S. Participants as a result of 
proposed rules 237 and 7d-2. As explained above, it appears that any 
such impact would not be significant. Therefore, alternatives to the 
proposed rules, including (i) establishing different compliance or 
reporting standards that take into account the resources available to 
small entities; (ii) clarifying, consolidating or simplifying the 
compliance requirements for small entities; (iii) using performance 
rather than design standards; or (iv) exempting small entities from 
coverage of all or part of the rule, would not minimize any impact that 
the proposals may have on small entities.
    The Commission encourages the submission of comments on matters 
discussed in the IRFA. Comment specifically is requested on the number 
of small entities that would be affected by the proposals and the 
impact of the proposals on small entities. Commenters are asked to 
describe the nature of any impact and provide empirical data supporting 
the extent of the impact. These comments will be placed in the same 
public comment file as comments on the proposals. A copy of the IRFA 
may be obtained by contacting Cynthia Gurnee Pugh, Securities and 
Exchange Commission, 450 5th Street, NW., Washington, DC 20549-0506.

[[Page 14657]]

VI. Statutory Authority

    The Commission is proposing rule 237 pursuant to authority set 
forth in sections 19(a) and 28 of the Securities Act (15 U.S.C. 77s(a); 
77z-3), rule 7d-2 pursuant to authority set forth in section 38(a) of 
the Investment Company Act (15 U.S.C. 37(a)), and the amendments to 
rule 12g3-2 pursuant to authority set forth in section 19(a) of the 
Securities Act and section 12(g)(3) of the Exchange Act (15 U.S.C. 
78l(g)(3)).

List of Subjects

17 CFR Parts 230 and 270

    Investment companies, Reporting and recordkeeping requirements, 
Securities.

17 CFR Part 240

    Reporting and recordkeeping requirements, Securities.

Text of Proposed Rules

    For the reasons set out in the preamble, title 17, chapter II of 
the Code of Federal Regulations is proposed to be amended as follows:

PART 230--GENERAL RULES AND REGULATIONS, SECURITIES ACT OF 1933

    1. The authority citation for part 230 continues to read, in part, 
as follows:

    Authority: 15 U.S.C. 77b, 77f, 77g, 77h, 77j, 77r, 77s, 77sss, 
78c, 78d, 78l, 78m, 78n, 78o, 78w, 78ll(d), 79t, 80a-8, 80a-24, 80a-
28, 80a-29, 80a-30 and 80a-37, unless otherwise noted.
* * * * *
    2. Section 230.237 is added to read as follows:


Sec. 230.237  Exemption for offers and sales to certain Canadian tax-
deferred retirement savings accounts.

    (a) Definitions. As used in this section:
    (1) Canadian law means the federal laws of Canada, the laws of any 
province or territory of Canada, and the rules or regulations of any 
federal, provincial, or territorial regulatory authority, or any self-
regulatory authority, of Canada.
    (2) Canadian Retirement Account means a trust or other arrangement, 
including, but not limited to, a ``Registered Retirement Savings Plan'' 
or ``Registered Retirement Income Fund'' administered under Canadian 
law, that is self-directed and:
    (i) Operated exclusively to provide retirement benefits to a 
Participant; and
    (ii) Established in Canada, administered under Canadian law, and 
qualified for tax-deferred treatment under Canadian law.
    (3) Eligible Security means a security issued by a Qualified 
Company that:
    (i) Is offered to a Participant, or sold to his or her Canadian 
Retirement Account, in reliance on this section; and
    (ii) May also be purchased by Canadians other than Participants.
    (4) Foreign Government means the government of any foreign country 
or of any political subdivision of a foreign country.
    (5) Foreign Issuer means any issuer that is a Foreign Government, a 
national of any foreign country or a corporation or other organization 
incorporated or organized under the laws of any foreign country, except 
an issuer meeting the following conditions:
    (i) More than 50 percent of the outstanding voting securities of 
the issuer are held of record either directly or through voting trust 
certificates or depositary receipts by residents of the United States; 
and
    (ii) Any of the following:
    (A) The majority of the executive officers or directors are United 
States citizens or residents;
    (B) More than 50 percent of the assets of the issuer are located in 
the United States; or
    (C) The business of the issuer is administered principally in the 
United States.
    (iii) For purposes of this definition, the term resident, as 
applied to security holders, means any person whose address appears on 
the records of the issuer, the voting trustee, or the depositary as 
being located in the United States.
    (6) Participant means a natural person who is a resident of the 
United States, or is temporarily present in the United States, and 
currently is entitled to receive the income and assets from a Canadian 
Retirement Account.
    (7) Qualified Company means a Foreign Issuer whose securities are 
qualified for investment on a tax-deferred basis by a Canadian 
Retirement Account under Canadian law.
    (8) United States means the United States of America, its 
territories and possessions, any State of the United States, and the 
District of Columbia.
    (b) Exemption. The offer to a Participant, or the sale to his or 
her Canadian Retirement Account, of Eligible Securities by any person 
is exempt from section 5 of the Act (15 U.S.C. 77e) if the person:
    (1) Limits its activities with respect to Participants and their 
Canadian Retirement Accounts to the following:
    (i) Processing requests from a Participant (or his or her 
authorized agent) for the purchase, sale, exchange, or redemption of an 
Eligible Security, and effecting other routine transactions under 
Canadian law;
    (ii) Paying dividends and distributions on securities of a 
Qualified Company held in a Canadian Retirement Account;
    (iii) Delivering, upon request, written offering materials or other 
informational materials concerning an Eligible Security; and
    (iv) Delivering updated written offering materials, shareholder 
reports, account statements, proxy statements, or other materials 
concerning securities of a Qualified Company held in a Canadian 
Retirement Account.
    (2) Includes in any written offering materials delivered to a 
Participant, or to his or her Canadian Retirement Account, a prominent 
statement that the Eligible Security is not registered with the U.S. 
Securities and Exchange Commission and may not be offered or sold in 
the United States or to any person in the United States unless 
registered, or an exemption from registration is available.
    (3) Has not directly or indirectly solicited the Participant 
concerning the Eligible Security, unless the person was an authorized 
agent of the Participant at the time of the solicitation.
    (4) Has not directly or indirectly engaged in activities that are 
intended or could reasonably be expected to condition the market in the 
United States or to facilitate secondary market trading in the United 
States with respect to an Eligible Security.
    (5) Has not asserted that Canadian or U.S. law, or the jurisdiction 
of the courts of Canada (or a province or territory of Canada) or of 
the United States, does not apply in a proceeding involving an Eligible 
Security.

PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF 
1934

    3. The authority citation for part 240 continues to read, in part, 
as follows:

    Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77eee, 
77ggg, 77nnn, 77sss, 77ttt, 78c, 78d, 78f, 78i, 78j, 78j-1, 78k, 
78k-1, 78l, 78m, 78n, 78o, 78p, 78q, 78s, 78u-5, 78w, 78x, 78ll(d), 
78mm, 79q, 79t, 80a-20, 80a-23, 80a-29, 80a-37, 80b-3, 80b-4 and 
80b-11, unless otherwise noted.
* * * * *
    4. Section 240.12g3-2 is amended by revising paragraph (a) to read 
as follows:


Sec. 240.12g3-2  Exemptions for American depositary receipts and 
certain foreign securities.

    (a) Securities of any class issued by any foreign private issuer 
shall be exempt from section 12(g) of the Act if the class has fewer 
than 300 holders resident in the United States. This exemption shall 
continue until the next

[[Page 14658]]

fiscal year end at which the issuer has a class of equity securities 
held by 300 or more persons resident in the United States. For the 
purpose of determining whether a security is exempt pursuant to this 
paragraph:
    (1) Securities held of record by persons resident in the United 
States shall be determined as provided in Sec. 240.12g5-1 except that 
securities held of record by a broker, dealer, bank or nominee for any 
of them for the accounts of customers resident in the United States 
shall be counted as held in the United States by the number of separate 
accounts for which the securities are held. The issuer may rely in good 
faith on information as to the number of such separate accounts 
supplied by all owners of the class of its securities which are 
brokers, dealers, or banks or a nominee for any of them.
    (2) Persons in the United States who hold the security only through 
a Canadian Retirement Account (as that term is defined in rule 
237(a)(2) under the Securities Act of 1933 (Sec. 230.237(a)(2) of this 
chapter)), may not be counted as holders resident in the United States.
* * * * *

PART 270--RULES AND REGULATIONS, INVESTMENT COMPANY ACT OF 1940

    5. The general authority citation for part 270 continues to read in 
part as follows:

    Authority: 15 U.S.C. 80a-1 et seq., 80a-34(d), 80a-37, 80a-39 
unless otherwise noted:

    6. Section 270.7d-2 is added to read as follows:


Sec. 270.7d-2  Definition of ``public offering'' as used in section 
7(d) of the Act with respect to certain Canadian tax-deferred 
retirement savings accounts.

    (a) Definitions. As used in this section:
    (1) Canadian law means the federal laws of Canada, the laws of any 
province or territory of Canada, and the rules or regulations of any 
federal, provincial, or territorial regulatory authority, or any self-
regulatory authority, of Canada.
    (2) Canadian Retirement Account means a trust or other arrangement, 
including, but not limited to, a ``Registered Retirement Savings Plan'' 
or ``Registered Retirement Income Fund'' administered under Canadian 
law, that is self-directed and:
    (i) Operated exclusively to provide retirement benefits to a 
Participant; and
    (ii) Established in Canada, administered under Canadian law, and 
qualified for tax-deferred treatment under Canadian law.
    (3) Eligible Security means a security issued by a Qualified 
Company that:
    (i) Is offered to a Participant, or sold to his or her Canadian 
Retirement Account, in reliance on this section; and
    (ii) May also be purchased by Canadians other than Participants.
    (4) Foreign Government means the government of any foreign country 
or of any political subdivision of a foreign country.
    (5) Foreign Issuer means any issuer that is a Foreign Government, a 
national of any foreign country or a corporation or other organization 
incorporated or organized under the laws of any foreign country, except 
an issuer meeting the following conditions:
    (i) More than 50 percent of the outstanding voting securities of 
the issuer are held of record either directly or through voting trust 
certificates or depositary receipts by residents of the United States; 
and
    (ii) Any of the following:
    (A) The majority of the executive officers or directors are United 
States citizens or residents;
    (B) More than 50 percent of the assets of the issuer are located in 
the United States; or
    (C) The business of the issuer is administered principally in the 
United States.
    (iii) For purposes of this definition, the term resident, as 
applied to security holders, means any person whose address appears on 
the records of the issuer, the voting trustee, or the depositary as 
being located in the United States.
    (6) Participant means a natural person who is a resident of the 
United States, or is temporarily present in the United States, and 
currently is entitled to receive the income and assets from a Canadian 
Retirement Account.
    (7) Qualified Company means a Foreign Issuer whose securities are 
qualified for investment on a tax-deferred basis by a Canadian 
Retirement Account under Canadian law.
    (8) United States means the United States of America, its 
territories and possessions, any State of the United States, and the 
District of Columbia.
    (b) Public Offering. For purposes of section 7(d) of the Act (15 
U.S.C. 80a-7(d)), the term ``public offering'' does not include the 
offer to a Participant, or the sale to his or her Canadian Retirement 
Account, of Eligible Securities issued by a Qualified Company, if the 
Qualified Company:
    (1) Limits its activities with respect to Participants and their 
Canadian Retirement Accounts to the following:
    (i) Processing requests from a Participant (or his or her 
authorized agent) for the purchase, sale, exchange, or redemption of an 
Eligible Security, and effecting other routine transactions under 
Canadian law;
    (ii) Paying dividends and distributions on securities of a 
Qualified Company held in a Canadian Retirement Account;
    (iii) Delivering, upon request, written offering materials or other 
informational materials concerning an Eligible Security; and
    (iv) Delivering updated written offering materials, shareholder 
reports, account statements, proxy statements, or other materials 
concerning securities of a Qualified Company held in a Canadian 
Retirement Account.
    (2) Includes in any written offering materials delivered to a 
Participant, or to his or her Canadian Retirement Account, a prominent 
statement that the Eligible Security, and the Qualified Company that 
issued the Eligible Security, are not registered with the U.S. 
Securities and Exchange Commission, and that the Eligible Security may 
not be offered or sold in the United States or to any person in the 
United States unless the security and the Qualified Company are 
registered, or exemptions from registration are available.
    (3) Has not directly or indirectly solicited the Participant 
concerning the Eligible Security, unless the person was an authorized 
agent of the Participant at the time of the solicitation.
    (4) Has not directly or indirectly engaged in activities that are 
intended or could reasonably be expected to condition the market in the 
United States or to facilitate secondary market trading in the United 
States with respect to an Eligible Security.
    (5) Has not asserted that Canadian or U.S. law, or the jurisdiction 
of the courts of Canada (or a province or territory of Canada) or of 
the United States, does not apply in a proceeding involving an Eligible 
Security.

    Dated: March 19, 1999.

    By the Commission.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-7237 Filed 3-24-99; 8:45 am]
BILLING CODE 8010-01-P