HSBC Mutual Funds - Simplified Prospectus June 25, 2015
HSBC Mutual Funds - Simplified Prospectus June 25, 2015
HSBC Mutual Funds Simplified Prospectus June 25, 2015 Offering Investor Series, Advisor Series, Premium Series, Manager Series and Institutional Series units of the following Funds: Cash and Money Market Funds HSBC Canadian Money Market Fund HSBC U.S. Dollar Money Market Fund Income Funds HSBC Mortgage Fund HSBC Canadian Bond Fund HSBC Emerging Markets Debt Fund HSBC Monthly Income Fund HSBC U.S. Dollar Monthly Income Fund Domestic Equity Funds HSBC Canadian Balanced Fund HSBC Dividend Fund HSBC Equity Fund HSBC Small Cap Growth Fund Foreign Equity Funds HSBC Global Equity Fund HSBC U.S. Equity Fund HSBC European Fund HSBC AsiaPacific Fund HSBC Chinese Equity Fund HSBC Indian Equity Fund HSBC Emerging Markets Fund HSBC BRIC Equity Fund HSBC World Selection® Diversified Funds HSBC World Selection Diversified Conservative Fund HSBC World Selection Diversified Moderate Conservative Fund HSBC World Selection Diversified Balanced Fund HSBC World Selection Diversified Growth Fund HSBC World Selection Diversified Aggressive Growth Fund No securities regulatory authority has expressed an opinion about the units described in this Simplified Prospectus, and it is an offence to claim otherwise.
The Funds and the units of the Funds offered under this Simplified Prospectus are not registered with the United States Securities and Exchange Commission and are sold in the United States only in reliance on exemptions from registration. ® World Selection is a registered trademark of HSBC Bank Canada.
Table of contents Introduction and key terms . 2 General information about mutual funds and the HSBC Mutual Funds . 3 What is a mutual fund and what are the risks of investing in a mutual fund . 3 Organization and management of the HSBC Mutual Funds . 8 Purchases, switches and redemptions . 9 Optional services . 14 Fees and expenses . 16 Fees and expenses paid by the Funds . 17 Fees and expenses paid directly by you . 18 Impact of sales charges . 20 Dealer compensation . 20 Dealer compensation from management fees . 21 Income tax considerations for investors . 21 What are your legal rights .
22 Information regarding transactions with members of the HSBC Group or other related parties . 23 Specific information about each of the HSBC Mutual Funds described in this document . 25 Fund-specific information: Cash and money market funds HSBC Canadian Money Market Fund . 28 HSBC U.S. Dollar Money Market Fund . 30 Income funds HSBC Mortgage Fund . 32 HSBC Canadian Bond Fund . 35 HSBC Emerging Markets Debt Fund . 38 HSBC Monthly Income Fund . 41 HSBC U.S. Dollar Monthly Income Fund . 44 Domestic equity funds HSBC Canadian Balanced Fund . 47 HSBC Dividend Fund . 50 HSBC Equity Fund . 53 HSBC Small Cap Growth Fund .
56 Foreign equity funds HSBC Global Equity Fund . 58 HSBC U.S. Equity Fund . 61 HSBC European Fund . 64 HSBC AsiaPacific Fund . 67 HSBC Chinese Equity Fund . 70 HSBC Indian Equity Fund . 73 HSBC Emerging Markets Fund . 76 HSBC BRIC Equity Fund . 79 HSBC World Selection Diversified Funds HSBC World Selection Diversified Conservative Fund . 82 HSBC World Selection Diversified Moderate Conservative Fund . 84 HSBC World Selection Diversified Balanced Fund . 86 HSBC World Selection Diversified Growth Fund . 88 HSBC World Selection Diversified Aggressive Growth Fund . 90 How to reach us . back cover 1
Introduction and key terms T HIS SIMPLIFIED PROSPECTUS contains selected important information to help you make an informed investment decision and to help you understand your rights as an investor. In this document we use the following key terms: / you and your refer to you the investor / the Fund or Funds refers to one or more of the HSBC Mutual Funds offered under this Simplified Pro- spectus / we, us and our refer to HSBC Global Asset Management (Canada) Limited, the manager, trustee and primary investment advisor of the Funds / the Principal Distributor refers to HSBC Investment Funds (Canada) Inc., our wholly owned subsidiary that is principally responsible for marketing and distributing units of the Funds / dealer and dealers refer to the dealers authorized to sell units of the Funds, including the Principal Distributor / HSBC World Selection® Diversified Funds refers to the HSBC World Selection Diversified Conservative Fund, HSBC World Selection Diversified Moderate Conservative Fund, HSBC World Selection Diversi- fied Balanced Fund, HSBC World Selection Diversified Growth Fund and HSBC World Selection Diversified Aggressive Growth Fund This document is divided into two parts.
The first part, from page 2 to page 24, contains general information applicable to all of the HSBC Mutual Funds. The second part, from page 25 to page 91, contains specific information about each of the HSBC Mutual Funds offered under this Simplified Prospectus.
You can find more information about each Fund in the following documents: / the Annual Information Form / the most recently filed Fund Facts / the most recently filed annual financial statements / any interim financial report filed after the most recently filed annual financial statements / the most recently filed annual Management Report of Fund Performance / any interim Management Report of Fund Performance filed after the most recently filed annual Management Report of Fund Performance These documents are incorporated by reference into this Simplified Prospectus, which means that they legally form part of this document just as if they were printed as part of this document.
You can get a copy of these documents at your request, and at no cost, by calling 1-800-830-8888 or by contacting your dealer.
Copies of this Simplified Prospectus, and the Funds’ Annual Information Form, Fund Facts, Semi-Annual Report, Annual Report and annual and interim Management Report of Fund Performance, are available on our website at www.hsbc.ca/investment-resources. These documents and other information about the Funds, such as information circulars and material contracts, are available at www.sedar.com. 2
General information about mutual funds and the HSBC Mutual Funds What is a mutual fund and what are the risks of investing in a mutual fund? What is a mutual fund? A mutual fund is a pool of money that is professionally managed on behalf of a group of investors with similar investment objectives.
The investors then share in any gains or losses generated by the mutual fund. When you invest in a mutual fund you do so by buy- ing units of the mutual fund. The mutual fund’s investment advisor then uses the money invested to buy a variety of securities, other investments, depending on the investment objectives of the mutual fund, or exchange-traded funds. These can include stocks, bonds, foreign currencies, derivatives, income trust units, short-term fixed income securities or other mutual funds. When you buy units of a mutual fund you are indirectly buying these underlying investments, and the value of your investment is determined by the performance of these underlying investments.
Generally, you can at any time switch between mutual funds or sell your units back to the mutual fund in order to take your money out of a mutual fund. When you sell your units back to the mutual fund, the value of your investment may have increased or decreased.
Each of the Funds offers five series of units: Investor Series, Advisor Series, Premium Series, Manager Series and Institutional Series. A description of these different series is found in the section called Purchases, switches and redemptions. What are the risks of investing in mutual funds? As with any investment, there are risks associated with investing in mutual funds. The value of a mutual fund’s underlying invest- ments changes from day to day, which in turn affects the value of the mutual fund. Some of the factors that can affect the value of a mutual fund’s underlying investments include: / changes in interest rates; / current economic conditions; / events in financial markets; / fluctuating currency values; and / news about individual companies that the mutual fund has invested in.
The value of a mutual fund’s units can go up or down over time as a result of the changing value of the underlying investments and the value of your investment in a mutual fund may be more or less when you sell it than when you purchased it. Unlike Guaranteed Investment Certificates, also known as GICs, or money you have deposited in a bank account, mutual fund units are not covered by the Canada Deposit Insurance Corporation or any other government insurer or financial institution. None of your investment in a Fund is guaranteed.
Under exceptional circumstances, we may suspend your right to sell your units of a Fund.
See the section called Purchases, switches and redemptions for more details. Below we explain the specific risks that can apply to the Funds. Not all risks apply to each Fund. The risks and the extent of the risks that an individual Fund is exposed to will depend on that Fund’s strategies and underlying investments. The section called What are the risks of investing in the Fund? for each Fund will tell you which risks are the principal risks that apply to that Fund. Asset allocation risk Funds that invest across different asset classes, such as domestic fixed income, foreign fixed income, Canadian equities and/or for- eign equities, will assign a strategic weight to each of the asset classes that is consistent with the intended investment objective and risk profile of the Fund.
This is called “asset allocation”. In certain cases, the Fund’s investment advisor may also utilize tactical asset allocation strategies in an attempt to add value to the Fund and to provide more stable returns by taking advantage of current and expected future market conditions. This is done by actively adjust- ing the Fund’s exposure to the different asset classes by increasing or decreasing its weight to a particular asset class or asset classes, How risk is related to return Generally, there is a strong relationship between the level of risk associated with a particular investment and that investment’s long-term potential to provide a return to the investor.
Investments that have a lower risk also tend to have lower returns because factors that can affect the value of the investment, the risks, are well known or are well controlled and have already been worked into the price of the investment. On the other hand, investments that could have potentially higher returns due to favourable conditions also risk generating relatively higher losses if conditions become unfavourable. This is because the factors affecting the value of such investments are less certain or difficult to control.
General information about mutual funds and the HSBC Mutual Funds (continued) while remaining within an acceptable range. Asset allocation risk is the risk that one or more of the asset classes for which the Fund’s exposure was tactically increased may underperform relative to other asset classes; or conversely, that one or more of the asset classes for which the Fund’s exposure was tactically decreased may outperform relative to other asset classes. Concentration risk Concentration risk is the risk associated with investments that are concentrated in a particular issuer, issuers, sector, or in a single country or region of the world.
Concentration of investments allows a Fund to focus on the potential of a particular issuer, sector or region. However, concentration also means that the value of the Fund tends to be more volatile than the value of a more diversified Fund because the Fund’s value is affected more by the performance of that particular issuer, sector, country or region. Credit risk When you invest in fixed income securities, such as bonds, you are making a loan to the company or the government issuing the secu- rity. Credit risk is the risk that they may not be able to pay back this loan when it comes due. Fixed income securities are also rated by organizations such as Standard & Poor’s.
If a security’s rating is downgraded because the rating organization feels the issuer may not be able to pay investors back, the value of the investment may fall. Currency risk Funds that hold investments in foreign securities are subject to cur- rency risk, to the extent that this exposure is not directly hedged by foreign exchange contracts. This risk applies to any Fund that has foreign investments in its portfolio. Changes in the currency exchange rates between Canada and the country where a Fund holds an investment affect the Canadian dollar value of that investment because it must be bought and sold with a foreign currency.
When the value of the Canadian dollar falls in relation to foreign curren- cies, the Canadian dollar value of foreign securities will rise because selling them will bring investors a higher amount in Cana- dian dollars. Conversely, when the value of the Canadian dollar rises, the Canadian dollar value of foreign securities falls because their sale would earn fewer Canadian dollars.
Derivative risk A derivative is usually a contract between two parties to buy or sell an asset at a future date. The value of the contract is derived from the market price or value of the underlying asset, such as currency or stocks, or an economic indicator, such as stock market indices or interest rates. Derivatives may be used for hedging and non-hedging purposes. To hedge is to reduce the risk of an existing investment by fixing some or all aspects of the price of that investment at some point in the future. Hedging through the use of derivatives may help reduce the risks associated with other investments, including cur- rency value fluctuations, stock market risks and interest rate changes.
However, there can be no assurance that a Fund’s hedging strategies will be effective. Hedging against changes in currencies, stock markets or interest rates does not necessarily eliminate all fluctuations in the price of portfolio securities or prevent losses if the price of those securities declines. Hedging may also reduce the opportunity for gain if the value in the Fund’s reporting currency of the hedged currency or stock market should rise or if the hedged interest rate should fall. It may not be possible for a Fund to protect its investments against generally anticipated changes in currencies, stock markets or interest rates through the use of derivatives.
The use of derivatives for hedging or non-hedging purposes is subject to risks, including: / the other party to a derivative contract may not meet its obliga- tions; / a Fund may not be able to buy or sell a derivative to make a profit or cover a loss; and / derivatives traded on foreign markets may be less liquid than derivatives traded on North American markets. Derivatives will be used in a way that is consistent with each Fund’s investment objectives and as permitted by the Canadian securities regulatory authorities.
Foreign market risk Investing in foreign markets can present additional risk because foreign countries often have different accounting and financial reporting standards, political and legal systems, securities and stock exchange practices, and cultures and customs from those in Canada. Investments in a foreign market may also be subject to exchange control requirements, imposition of taxes, withholding taxes prior to payment of dividends or other distributions, and expropriation of assets. The ability of a Fund to make distributions to unitholders assumes the continuing free exchange of the currencies in which the Fund is invested.
As a result, the value of securities that are issued by a company in a foreign market may be lower, as they may be less liquid and more volatile than those issued by similar companies 4
General information about mutual funds and the HSBC Mutual Funds (continued) in North America. In general, investments in more developed mar- kets, such as the U.S. and Western Europe, have lower foreign market risk, while investments in emerging markets, such as South- east Asia or Latin America, have higher foreign market risk. Fund of funds risk Certain of the Funds invest directly in, or obtain exposure to, other mutual funds as part of their investment strategy. These Funds will be subject to the risks of the underlying funds. In addition, if a Fund holds units of an underlying fund, and the underlying fund suspends redemptions, the Fund will be unable to value part of its portfolio and may be unable to redeem units in the underlying fund.
These Funds may have more than 10% of their net assets invested in an underlying fund or they may own more than 10% of the units of an underlying fund at any time. Therefore, if the Funds redeem a large number of units of the underlying funds, it may cause the under- lying fund to have to change the composition of its portfolio sig- nificantly or sell its investments at unfavourable prices, which could impact the overall performance of the underlying fund, and con- sequently the Funds’ remaining investment, if any, in the under- lying fund.
Income trust risk Income trusts commonly hold debt or equity securities in, or are entitled to receive royalties from, an underlying active business. Income trusts generally fall into four sectors: business trusts, utility trusts, resource trusts and real estate investment trusts. Income trusts face similar risks to those set out in the security risk sec- tion on the next page. Investments in income trusts have varying degrees of risk, depending on the sector and the underlying assets. Such invest- ments are also subject to general risks associated with business cycles, commodity prices, interest rates and other economic factors.
Returns on income trusts are neither fixed nor guaranteed. Income trusts and other securities that are expected to distribute income are more volatile than fixed income securities. The value of income trust units may decline significantly if they are unable to meet their distribution targets. To the extent that claims against an income trust are not satisfied by the trust, investors in the income trust (including a mutual fund that invests in the income trust) could be held responsible for such obligations. Some, but not all, juris- dictions in Canada have enacted legislation to protect investors from some of this liability.
Interest rate risk Funds that invest in debt instruments – bonds, mortgages or debentures – are subject to interest rate risk. Debt instruments earn a fixed rate of interest, which is paid to investors on a regular basis, often semi-annually or annually. When interest rates rise, existing investments in debt instruments become less valuable because new debt instruments will pay the current, higher rate of interest. There- fore, as interest rates rise the price that investors are willing to pay for the existing investments in debt instruments will fall. Con- versely, if interest rates fall, the value of existing investments in debt instruments with a higher rate of interest will rise.
Longer-term debt instruments are generally more sensitive to changes in interest rates than other securities.
Large redemption risk An investor, group of investors or another mutual fund may hold a large portion of the outstanding units of a Fund. If an investor, group of investors or another mutual fund redeems units represent- ing a large portion of the outstanding units of a Fund, generally representing 10% or more of the net asset value of the Fund, the Fund may be required to change the composition of the portfolio significantly or sell a significant portion of its investments at unfavourable prices, which could affect the overall performance of the Fund.
Liquidity risk Liquidity risk is the risk that a significant portion of investments within a Fund’s portfolio cannot be readily converted into cash when required.
While each Fund has guidelines intended to limit the amount of illiquid securities that it may hold at any given time, the Funds are exposed to varying degrees of liquidity risk depending on market conditions. Market risk Funds that invest in securities listed on a stock exchange will be affected by general changes in the stock market. This is referred to as market risk. Stock market changes can be caused by a number of factors, including interest rate fluctuations, changes in market out- look and changes in the economic, social or political climate of the region. For example, if a recession is forecasted, the stock market may fall as investors fear poor economic performance and falling stock prices.
As investors sell their securities in an effort to mini- mize their losses, securities of a company listed on an exchange may be negatively affected by the overall downward movement of the market, even if the company that issued the securities is still strong.