HSBC Investment Funds (Canada) Inc. and HSBC Global Asset Management (Canada) Limited
Headnote
National Policy 11-203 Process for Exemptive Relief in Multiple Jurisdictions -- Relief from requirement to deliver a renewal prospectus to mutual fund investors who purchase units pursuant to pre-authorized investment plans, subject to certain conditions.
Applicable Legislative Provisions
Securities Act (Ontario), ss. 71, 147.
November 24, 2009
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
ONTARIO
(the Jurisdiction)
AND
IN THE MATTER OF
THE PROCESS FOR EXEMPTIVE RELIEF
APPLICATIONS IN MULTIPLE JURISDICTIONS
AND
IN THE MATTER OF
HSBC INVESTMENT FUNDS (CANADA) INC.
AND HSBC GLOBAL ASSET MANAGEMENT
(CANADA) LIMITED
(the Filers)
AND
IN THE MATTER OF
THE HSBC POOLED FUNDS AND THE
HSBC MUTUAL FUNDS
(collectively, the Funds)
DECISION
Background
The principal regulator in the Jurisdiction has received an application from the Filers for a decision (the Exemption Sought) under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) that the requirement in the Legislation to deliver the latest prospectus and any amendment to said prospectus (the Delivery Requirement) not apply in respect of a purchase and sale of securities of the Funds pursuant to a pre-authorized investment plan, including employee purchase plans, capital accumulation plans, or any other contract or arrangement for the purchase of a specified amount of securities on a regularly scheduled basis (an Investment Plan).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(a) the Ontario Securities Commission is the principal regulator (Principal Regulator) for this application, and
(b) the Filers have provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in Alberta, Saskatchewan, Manitoba, Quebec, New Brunswick, Nova Scotia, and Newfoundland and Labrador.
Interpretation
Terms defined in National Instrument 14-101 Definitions have the same meaning if used in this decision, unless otherwise defined herein.
Representations
This decision is based on the following facts represented by the Filer:
1. HSBC Investment Funds (Canada) Inc. is a corporation governed by the Canada Business Corporations Act, with its head office in Vancouver, British Columbia. HSBC Investment Funds (Canada) Inc. is the manager, trustee and principal distributor of the HSBC Mutual Funds.
2. HSBC Global Asset Management (Canada) Limited is a corporation governed by the Canada Business Corporations Act, with its head office in Vancouver, British Columbia. HSBC Global Asset Management (Canada) Limited is the manager and investment advisor of the Funds.
3. The Funds are open-ended mutual fund trusts established under the laws of British Columbia.
4. The Funds are reporting issuers under the laws of each of the provinces of Canada other than Prince Edward Island (collectively, the Jurisdictions). None of the Funds is in default of any of the requirements of securities legislation of the Jurisdictions.
5. Securities of the HSBC Mutual Funds are currently qualified for distribution in each of the Jurisdictions under a simplified prospectus and annual information form dated December 16, 2008.
6. Securities of the HSBC Pooled Funds are currently qualified for distribution in each of the Jurisdictions under a simplified prospectus and annual information form dated November 21, 2008.
7. The HSBC Pooled Funds are currently sold only to investors as part of a discretionary management service provided by HSBC Global Asset Management (Canada) Limited or its affiliates. The HSBC Pooled Funds are distributed by HSBC Investment Funds (Canada) Inc. and HSBC Securities (Canada) Inc., and where permitted by applicable securities laws, by HSBC Global Asset Management (Canada) Limited. The HSBC Pooled Funds may also be distributed through other broker dealers, mutual fund dealers or approved advisors that may or may not be affiliated with HSBC Global Asset Management (Canada) Limited.
8. The HSBC Mutual Funds are distributed by HSBC Investment Funds (Canada) Inc. and its affiliates. The HSBC Mutual Funds may also be distributed through broker dealers or mutual fund dealers that may or may not be affiliated with the HSBC Investment Funds (Canada) Inc. (together with HSBC Investment Funds (Canada) Inc., HSBC Securities (Canada) Inc., HSBC Global Asset Management (Canada) Limited, and such other dealers or approved advisors described above under item 7, Distributors).
9. Each of the Funds may offer investors the opportunity to invest in a Fund on a regular or periodic basis pursuant to an Investment Plan.
10. Under the terms of an Investment Plan, an investor instructs a Distributor to accept additional contributions on a pre-determined frequency and/or periodic basis and to apply such contributions on each scheduled investment date to additional investments in specified Funds. The investor authorizes a Distributor to debit a specified account or otherwise makes funds available in the amount of the additional contributions. An investor may terminate the instructions, or give amended instructions, at any time.
11. An investor who establishes an Investment Plan (a Participant) receives a copy of the current simplified prospectus relating to the Funds at the time an Investment Plan is established.
12. Pursuant to the Legislation, a Distributor not acting as agent of the purchaser, who receives an order or subscription for a security of a Fund offered in a distribution to which the Delivery Requirement applies, must, unless it has previously done so, send by prepaid mail or deliver to the purchaser the latest prospectus and any amendment to the prospectus filed either before entering into an agreement of purchase and sale resulting from the order or subscription or not later than midnight on the second day, exclusive of Saturdays, Sundays and holidays, after entering into such agreement.
13. Pursuant to the Legislation, an agreement referred to in paragraph 12 above is not binding on the purchaser if a Distributor receives notice of the intention of the purchaser not to be bound by the agreement of purchase and sale within a specified time period (a Withdrawal Right).
14. As a result of exemptive relief from the Delivery Requirement, Withdrawal Rights will not apply in respect of purchases made by Participants pursuant to an Investment Plan.
15. The terms of an Investment Plan are such that an investor can terminate the instructions to the Distributor at any time. Therefore, there is no agreement of purchase and sale until a scheduled investment date arrives and the instructions have not been terminated. At this point, the securities are purchased.
16. A Distributor not acting as agent for the applicable investor is required to mail or deliver to all Participants who purchase securities of Funds pursuant to an Investment Plan, the current simplified prospectus of the applicable Funds at the time the investor enters into the Investment Plan and thereafter, any new prospectus or amendment thereto (a Renewal Prospectus) filed pursuant to the Legislation.
17. There is significant cost involved in the annual printing and mailing or delivery of the Renewal Prospectus to Participants. The annual cost of production of a Renewal Prospectus is borne by the applicable Fund. In addition, mailing costs are incurred.
18. Unitholders of the Funds who are currently Participants will be sent a notice (Notice) advising them:
(a) of the terms of the relief and that Participants will not receive any Renewal Prospectus of the Funds unless one is requested;
(b) that they may request the Renewal Prospectus by calling a toll-free number or by e-mail or by fax and the Applicants will send the Renewal Prospectus to any Participant that requests it. Participants will receive with the Notice a request form (a Request Form) under which a Participant may request, at no cost to the Participant, to receive the Renewal Prospectus;
(c) that the Renewal Prospectus may be found either on the SEDAR website or on the applicable Fund's website;
(d) that they can subsequently request the current Renewal Prospectus and any amendments thereto by contacting the applicable Applicant and the Applicants will provide a toll-free telephone number for contacting it for this purpose;
(e) that they will not have Withdrawal Rights in respect of purchases pursuant to an Investment Plan, but they will have the right of action for damages or rescission in the event any Renewal Prospectus contains a misrepresentation (a Misrepresentation Right), whether or not they request a copy of the Renewal Prospectus; and
(f) that they will continue to have the right to terminate the Investment Plan at any time before a scheduled investment date.
19. Future investors who choose to become Participants and invest in any Funds will be advised, in the documents they receive with respect to their participation in the Investment Plan or in the simplified prospectus of the Funds (in the section of the prospectus that describes the Investment Plan):
(a) of the terms of the relief granted, and that Participants will not receive a Renewal Prospectus unless they request it at the time they initially invest in an Investment Plan or subsequently request it from the Applicants;
(b) that a Renewal Prospectus and any amendments thereto may be found either on the SEDAR website or on the applicable Fund's website;
(c) that they will not have a Withdrawal Right with regard to purchases made pursuant to an Investment Plan, other than in respect of the initial purchase and sale, but they will have a Misrepresentation Right, whether or not they request the Renewal Prospectus; and
(d) that they have the right to terminate an Investment Plan at any time before a scheduled investment date.
20. Participants will also be advised annually in writing, as part of an account statement sent by the Distributor or otherwise, how they can request a current Renewal Prospectus and any amendments thereto and that they have a Misrepresentation Right.
Decision
The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.
The decision of the principal regulator under the Legislation is that the Exemption Sought is granted provided that:
(a) in respect of purchases and sales of securities of the Funds to Participants who purchase the securities pursuant to an Investment Plan which is in existence on the date of this decision:
(i) Participants who are current securityholders of the Funds are sent the Notice and Request Form described in paragraph 18 above;
(ii) under the terms of the Investment Plan, a Participant can terminate participation in the Investment Plan at any time;
(iii) Participants are advised annually in writing (in an account statement sent by the Distributor or otherwise) how they can request the current Renewal Prospectus and any amendments thereto and that they have a Misrepresentation Right; and
(iv) the Misrepresentation Right in the Legislation of a Jurisdiction is maintained in respect of a Participant whether or not a Renewal Prospectus is requested or received.
(b) in respect of purchases and sales of securities of the Funds to Participants who purchase the securities pursuant to an Investment Plan which is established after the date of this decision:
(i) Participants are advised, in the simplified prospectus of the applicable Funds or in the documents they receive in respect of their participation in the Investment Plan, of the information described in paragraph 19 above;
(ii) under the terms of the Investment Plan, a Participant can terminate participation in the Investment Plan at any time;
(iii) Participants are advised annually in writing (in an account statement sent by the Distributors or otherwise) how they can request the current Renewal Prospectus and any amendments thereto and that they have a Misrepresentation Right; and
(iv) the Misrepresentation Right in the Legislation of a Jurisdiction is maintained in respect of a Participant whether or not a Renewal Prospectus is requested or received.
The decision, as it relates to the jurisdiction of the Principal Regulator, will terminate one year after the publication in final form of any legislation or rule dealing with the Delivery Requirement.