BCSC

Exemption Orders (Discretionary)

HSBC INVESTMENT FUNDS (CANADA) INC.

2001 BCSECCOM 1042

Headnote

Mutual Reliance Review System for Exemptive Relief Applications – Relief granted from the substantial securityholder prohibition and the mutual fund manager reporting requirement to permit investments by a mutual fund in securities of another mutual fund under common management, subject to certain specified conditions. Previous order relating to funds revoked.

Applicable British Columbia Provisions

Securities Act, R.S.B.C. 1996, c. 418, ss. 121(2)(b), 126(a), 130, and 171

IN THE MATTER OF THE SECURITIES LEGISLATION OF BRITISH COLUMBIA, ALBERTA, SASKATCHEWAN, ONTARIO, NOVA SCOTIA AND NEWFOUNDLAND

AND

IN THE MATTER OF THE MUTUAL RELIANCE REVIEW SYSTEM FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF THE HSBC INVESTMENT FUNDS (CANADA) INC., HSBC GLOBAL EQUITY FUND AND HSBC EMERGING MARKETS FUND

MRRS DECISION DOCUMENT

[para 1]
WHEREAS the local securities regulatory authority or regulator (the “Decision Maker”) in each of British Columbia, Alberta, Saskatchewan, Ontario, Nova Scotia and Newfoundland (the “Jurisdictions”) has received an application from HSBC Investment Funds (Canada) Inc. (the “Filer”), in its capacity as the manager of the HSBC Global Equity Fund (the “Global Equity Fund”) and the HSBC Emerging Markets Fund (the “Emerging Markets Fund”), for a decision under the securities legislation of the Jurisdictions (the “Legislation”) that:

1. the provision contained in the Legislation prohibiting a mutual fund from knowingly holding an investment in a person or company in which the mutual fund, alone or together with one or more related mutual funds, is a substantial securityholder (the “Substantial Securityholder Prohibition”); and

2. the requirements contained in the Legislation for a mutual fund manager to file a report in the required form for each mutual fund in which the mutual fund manager provides services or advice respecting a purchase or sale of securities between the mutual fund and any related person (the “Management Reporting Requirement”),

shall not apply in relation to certain investments by the Global Equity Fund in the Emerging Markets Fund;

[para 2]
AND WHEREAS under the Mutual Reliance Review System for Exemptive Relief Applications (the “System”), the British Columbia Securities Commission is the principal regulator for this application;

[para 3]
AND WHEREAS the Filer has represented to the Decision Makers that:

1. the Filer is amalgamated under the laws of Canada, has its head office in Vancouver, British Columbia, is not a reporting issuer or the equivalent under the Legislation, and is registered under the Legislation in the category of mutual fund dealer;

2. the Filer is the manager, trustee, principal distributor and promoter of the HSBC Mutual Funds and is a wholly-owned subsidiary of HSBC Asset Management (Canada) Limited (“HAMC”); HAMC is a wholly-owned subsidiary of the HSBC Bank Canada (the “Bank”), a Schedule II chartered bank under the Bank Act (Canada);

3. each of the Global Equity Fund and the Emerging Market Fund is an open-ended unit investment trust established under the laws of Ontario, is a reporting issuer or the equivalent under the Legislation and is not in default of any requirement under the Legislation;

4. units of the Global Equity Fund and the Emerging Markets Fund are qualified for distribution in each of the Jurisdictions (and the other provinces of Canada, except Prince Edward Island) by means of a simplified prospectus and annual information form;

5. the fundamental investment objective of the Global Equity Fund was to achieve long-term capital growth by investing primarily in other foreign equity mutual funds managed by the Filer (the “Prior Objective”) including the Emerging Markets Fund (the "Underlying Funds");

6. in order to establish the fund-on-fund structure to achieve the Prior Objective, the Filer applied for and obtained an order under the Legislation from each of the Decisions Makers in 1997 and 1998 (the "Prior Orders") that allowed the Global Equity Fund to invest in the Underlying Funds; the Filer also obtained an exemption letter under National Instrument 81-102 ("NI 81-102") from the Decision Makers;

7. on August 14, 2001, the Filer announced its decision, subject to approval of unitholders, to change the fundamental investment objective of the Global Equity Fund from the Prior Objective to the objective of achieving long-term capital growth by investing primarily in a diversified portfolio of equity and equity-related securities of publicly traded companies located around the world (the “Current Objective”);

8. on September 28, 2001, the unitholders of the Global Equity Fund approved the Current Objective;

9. with the exception of the investment in the Emerging Market Fund, the Filer intends to or has liquidated the holdings of the Global Equity Fund in the Underlying Funds and will invest or has invested directly in the types of securities held by the Underlying Funds;

10. the Filer determined that it is in the best interests of the Global Equity Fund to continue to invest up to 10% of its net assets in the Emerging Markets Fund after approval and implementation of the Current Objective; no further purchases of units of the Emerging Markets Fund will be made;

11. the investment by the Global Equity Fund in the Emerging Markets Fund represents the business judgment of responsible persons uninfluenced by considerations other than the best interests of the Global Equity Fund;

12. except to the extent evidenced by this decision, the investments by the Global Equity Fund in the Emerging Markets Fund have been structured to comply with the investment restrictions of the Legislation and NI 81-102;

13. the Global Equity Fund is a “substantial security holder”, as such term is defined in the Legislation, of the Emerging Markets Fund; as of September 10, 2001, the Global Equity Fund owned approximately 71% of the issued voting securities of the Emerging Markets Fund;

14. in the absence of this decision, under the Legislation, the Global Equity Fund, is prohibited from holding an investment in the Emerging Markets Fund for so long as the Global Equity Fund, alone or in combination with one or more related mutual funds, owns more than 20% of the issued units of the Emerging Markets Fund; as a result, the Global Equity Fund would be required to divest itself of any investments in the Emerging Market Fund;

15. in the absence of this decision, the Legislation requires the Filer to file a report on every purchase or sale of securities of the Emerging Market Fund by the Global Equity Fund;

[para 4]
AND WHEREAS under the System this MRRS Decision Document evidences the decision of each Decision Maker (collectively, the “Decision”);

[para 5]
AND WHEREAS each of the Decision Makers is satisfied that the test contained in the Legislation that provides the Decision Maker with the jurisdiction to make the Decision has been met;

[para 6]
The Decision of the Decision Makers under the Legislation is that:

1. the Prior Orders are revoked; and

2. the Substantial Securityholder Prohibition and Management Reporting Requirement shall not apply to the Global Equity Fund in respect of holding or redeeming the securities of the Emerging Markets Fund, provided that:

(a) the securities of the Global Equity Fund and the Emerging Markets Fund are being offered for sale in the jurisdiction of the Decision Maker pursuant to a simplified prospectus and annual information form which has been filed with and accepted by the Decision Maker;

(b) the investment by the Global Equity Fund in the Emerging Markets Fund is compatible with the fundamental investment objectives of the Global Equity Fund;

(c) the Emerging Markets Fund is not a mutual fund whose investment objective includes investing directly or indirectly in other mutual funds;

(d) there are compatible dates for the calculation of the net asset value of the Global Equity Fund and the Emerging Markets Fund for the purpose of the issue and redemption of the securities of such mutual funds;

(e) no sales charges are payable by the Global Equity Fund in relation to its purchase of securities in the Emerging Markets Fund;

(f) no redemption fees or other charges are charged by the Emerging Markets Fund in respect of the redemption by the Global Equity Fund of securities of the Emerging Markets Fund owned by the Global Equity Fund;

(g) no fees or charges of any sort are paid by the Global Equity Fund and the Emerging Markets Fund by their respective managers or principal distributors, or by any affiliate or associate of any of the foregoing entities, to anyone in respect of the Global Equity Fund’s holding or redemption of the securities of the Emerging Markets Fund;

(h) the arrangements between or in respect of the Global Equity Fund and the Emerging Markets Fund are such as to avoid the duplication of management fees;

(i) any notice provided to security holders of the Emerging Markets Fund as required by applicable laws or the constating documents of the Emerging Markets Fund has been delivered by the Global Equity Fund to its security holders;

(j) all of the disclosure and notice material prepared in connection with a meeting of security holders of the Emerging Markets Fund and received by the Global Equity Fund has been provided to its security holders, the security holders have been permitted to direct a representative of the Global Equity Fund to vote its holdings in the Emerging Markets Fund in accordance with their direction, and the representative of the Global Equity Fund has not voted its holdings in the Emerging Markets Fund except to the extent the security holders of the Global Equity Fund have directed;

(k) security holders of the Global Equity Fund have received appropriate summary disclosure in respect of the Global Equity Fund’s holdings of securities of the Emerging Markets Fund in the financial statements of the Global Equity Fund; and

(l) to the extent that the Global Equity Fund and the Emerging Markets Fund do not use a combined simplified prospectus and annual information form containing disclosure about the Global Equity Fund and the Emerging Markets Fund, copies of the simplified prospectus and annual information form of the Emerging Markets Fund have been provided upon request to security holders of the Global Equity Fund and the right to receive these documents is disclosed in the simplified prospectus of the Global Equity Fund.

[para 7]
DATED November 2, 2001.

Brenda Leong
Director