FAQs – Publicly offered investment products: Open-ended Fund Companies

The Securities and Futures Commission (SFC) has published revised frequently asked questions (FAQs) relating to Open-ended Fund Companies (OFCs). The FAQs aim to „provide basic information to market practitioners in respect of open-ended fund companies“, thereby addressing a wide range of topics ranging from registration issues to the discontinuation of sub-funds.
Besides some editorial changes, this latest revised version contains a new added FAQ as well as modifications to the following existing FAQ relating to financial reporting of OFCs, which are read as follows – as quoted:
FAQ 21A (amended): May an OFC be exempted from the requirement to prepare and publish an annual report? (page 20)
Answer: Pursuant to rule 151 of the OFC Rules, on application by an OFC, the SFC may, if it considers appropriate in the circumstances, exempt the directors of an OFC from the requirement to prepare an annual report for a financial year and the OFC from the requirement to publish the annual report and provide a copy to any shareholder (“AR exemption”). In this connection, it is generally expected that for an application seeking an AR exemption, the OFC should meet the following conditions (“Conditions”):
– i. the relevant OFC has not been launched; and
– ii. the relevant OFC has no investor.
An OFC is generally not considered to have been launched if it has not received any subscription proceeds for investments. For the avoidance of doubt, management shares may be issued by an OFC which does not provide the holder(s) with any right to the income or profits of the OFC concerned but only a return of capital upon winding-up.
In making an application to the SFC, the directors of the OFC should provide a certification that the above Conditions concerning the OFC are fulfilled, and the SFC may request other supporting documents if necessary.
Notwithstanding the grant of an AR exemption, the OFC and its directors should continue to comply with the applicable provisions in the OFC Rules and OFC Code, including the obligation to maintain proper books and records of the OFC and its sub-fund(s) pursuant to rule 157 of the OFC Rules and make such documents available for inspection upon request.
The AR exemption, if granted by the SFC, will lapse when the OFC concerned no longer meets one or more of the above Conditions, in which case the OFC should notify the SFC in writing immediately.
The first financial year of an OFC should commence from the date of incorporation according to rules 148 and 149 of the OFC Rules. Thus, after the OFC concerned has been launched, its first annual report should cover the period commencing from the incorporation of the OFC to the end of the relevant financial year.
OFCs are encouraged to contact relevant case officers to consult the SFC in advance should they wish to apply for such exemption and waiver.
FAQ21AB (new): Does a sub-fund of an OFC have to apply for a waiver from disclosure of its financial position and results in the annual report of an umbrella OFC where the subfund is not yet launched? (page 22)
Answer: No. Directors of an umbrella OFC may determine if the start date of a sub-fund’s first financial period should fall on the date of its establishment or its date of launch as they deem appropriate. Accordingly, where a sub-fund is not launched upon establishment and if the directors determine to use the sub-fund’s launch date as the start date of the first financial period, the financial position and results of that sub-fund can be disclosed in the annual report after the sub-fund has been launched, and no waiver is required.
A sub-fund is generally not considered to have been launched if it has not received any subscription proceeds for investments.