Guardian Capital LP et al.

Headnote

National Policy 11-203 – relief granted from sections 15.3(2), 15.3(4)(c), 15.6(1)(a)(i), 15.6(1)(d), 15.8(2)(a.1) and 15.8(3)(a.1) of National Instrument 81-102 Investment Funds to permit mutual funds, including mutual funds that have not distributed securities under a simplified prospectus in a jurisdiction for 12 consecutive months, to include in their sales communications performance data for the period when the funds were not reporting issuers – relief also granted from section 2.1 of National Instrument 81-101 Mutual Fund Prospectus Disclosure for the purposes of relief requested from Item 5 of Part I of Form 81-101F3 Contents of Fund Facts Document, to permit the Funds to include in their respective fund facts for series I, the past performance data for the period when the funds were not reporting issuers.

Applicable Legislative Provisions

National Instrument 81-102 Investment Funds, ss. 15.3(2), 15.3(4)(c), 15.6(1)(a)(i), 15.6(1)(d), 15.8(2)(a.1),15.8(3)(a.1) and 19.1.
National Instrument 81-101 Mutual Fund Prospectus Disclosure, s. 2.1.

September 20, 2017

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
GUARDIAN CAPITAL LP
(the Filer)

AND

IN THE MATTER OF
GUARDIAN CANADIAN EQUITY SELECT FUND,
GUARDIAN CANADIAN FOCUSED EQUITY FUND,
GUARDIAN EMERGING MARKETS EQUITY FUND,
GUARDIAN INTERNATIONAL EQUITY SELECT FUND AND
GUARDIAN U.S. EQUITY SELECT FUND
(each a Fund, and collectively, the Funds)

DECISION

Background

The principal regulator in the Jurisdiction has received an application (the Application) from the Filer on behalf of the Funds for a decision under the securities legislation of the regulator (the Legislation) exempting the series I units of the Funds (Series I Units) from:

(a)           Sections 15.3(2), 15.3(4)(c), 15.6(1)(a)(i), 15.6(1)(d), 15.8(2)(a.1) and 15.8(3)(a.1) of National Instrument 81-102 Investment Funds (NI 81-102) to permit each Fund to include performance data in sales communications notwithstanding that:

(i)            the performance data will relate to a period prior to the Fund offering its securities under a simplified prospectus; and

(ii)           in the case of Guardian Canadian Equity Select Fund, Guardian International Equity Select Fund and Guardian U.S. Equity Select Fund, the Funds have not distributed their securities under a simplified prospectus for 12 consecutive months,

(b)           Section 2.1 of National Instrument 81-101 Mutual Fund Prospectus Disclosure (NI 81-101) for the purposes of relief requested herein from Form 81-101F3 Contents of Fund Facts Document (Form 81-101F3); and

(c)           Items 5(2), 5(3) and 5(4), and Instructions (1) and (5) of Part I of Form 81-101F3 in respect of the requirement to comply with Sections 15.3(2), 15.3(4)(c), 15.6(1)(a)(i), 15.6(1)(d), 15.8(2)(a.1) and 15.8(3)(a.1) of NI 81-102 to permit each Fund to include in its fund facts the past performance data of the Fund notwithstanding that:

(i)            such performance data relates to a period prior to the Fund offering its securities under a simplified prospectus; and

(ii)           in the case of Guardian Canadian Equity Select Fund, Guardian International Equity Select Fund and Guardian U.S. Equity Select Fund, the Funds have not distributed their securities under a simplified prospectus for 12 consecutive months,

(collectively, the Requested Relief).

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):

(a)           the Ontario Securities Commission is the principal regulator for the Application; and

(b)           the Filer has 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, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Northwest Territories, Nova Scotia, Nunavut, Prince Edward Island, Québec, Saskatchewan and Yukon.

Interpretation

Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.

Representations

This decision is based on the following facts represented by the Filer:

1.             Each Fund is an open-ended mutual fund trust created under the laws of the Province of Ontario on the date of formation shown in the table below:

2.             The inception date for a series of a Fund (individually, an Inception Date, and collectively, the Inception Dates) is the day, on or after the date of formation, that units of the series of the Fund were first available for sale.

3.             The Funds are governed by an amended and restated master declaration of trust dated March 14, 2011, as amended.

4.             The Filer is the investment fund manager of the Funds. The head office of the Filer is located in Ontario.

5.             The Filer is registered as a portfolio manager and exempt market dealer in each province of Canada and as an investment fund manager in each of Ontario, Québec and Newfoundland and Labrador. The Filer is also registered as a commodity trading counsel and commodity trading manager in Ontario.

6.             Since the respective Inception Dates until April 22, 2016, Series I Units of Guardian Canadian Focused Equity Fund and Guardian Emerging Markets Equity Fund were distributed to investors on a prospectus-exempt basis in accordance with National Instrument 45-106 Prospectus Exemptions (NI 45-106) in each Jurisdiction. Since the respective Inception Dates until April 20, 2017, Series I Units of Guardian Canadian Equity Select Fund, Guardian International Equity Select Fund and Guardian U.S. Equity Select Fund were distributed to investors on a prospectus-exempt basis in accordance with NI 45-106 in each Jurisdiction. During such period of time, the Funds were distributed to accredited investors, the majority of which investors were managed account investors.

7.             Since the issuance of the receipt for the simplified prospectus, annual information form and fund facts (the Disclosure Documents):

i.              in the case of each of Guardian Canadian Focused Equity Fund and Guardian Emerging Markets Equity Fund on April 22, 2016, series W units and the Series I Units were qualified for distribution to the public and such Funds became reporting issuers under the securities legislation of each province and territory of Canada, other than Québec (collectively, the Jurisdictions); at that time, these Funds commenced offering series W units to the public pursuant to the Disclosure Documents; although Series I Units of these Funds were also qualified for distribution to the public at that time, the Filer has only recently decided to more actively market Series I Units of Guardian Canadian Focused Equity Fund and Guardian Emerging Markets Equity Fund to the public; and

ii.             in the case of each of Guardian Canadian Equity Select Fund, Guardian International Equity Select Fund and Guardian U.S. Equity Select Fund on April 20, 2017, such Funds became reporting issuers under the securities legislation of the Jurisdictions and have distributed Series I Units to the public.

8.             Since becoming reporting issuers, the Funds have been available for distribution to any investor that enters into an agreement, or whose investment advisor enters into an agreement, with the Filer or one of the Filer’s affiliates. The majority of these investors are managed account investors. In addition, each Fund became subject to the requirements of NI 81-102 and National Instrument 81-106 Investment Fund Continuous Disclosure (NI 81-106) that apply only to investment funds that are reporting issuers.

9.             The Filer and the Funds are not in default of securities legislation in any province or territory of Canada.

10.          Since its Inception Date, as a “mutual fund in Ontario”, each Fund has complied with its obligation to prepare and send audited annual and unaudited interim financial statements to all holders of its securities in accordance with NI 81-106.

11.          Since its Inception Date, each Fund has complied with the investment restrictions and practices contained in NI 81‑102, including not using leverage in the management of its portfolio.

12.          Each Fund has been managed substantially similarly after it became a reporting issuer as it was prior to becoming a reporting issuer. As a result of each Fund becoming a reporting issuer:

i.              the Fund’s investment objectives have not changed other than minor changes, such as regarding the change in tax status of certain investments;

ii.             Series I unitholders of the Fund continue to pay a negotiated investment advisory fee;

iii.            the day-to-day administration of the Fund has not changed other than to comply with the additional regulatory requirements associated with being a reporting issuer (none of which would have impacted the portfolio management of the Fund) and to provide additional features that are available to investors of mutual funds managed by the Filer, as described in the Disclosure Documents; and

iv.            the management expense ratio (MER) of Series I Units of the Fund has not increased by more than 0.10%, which the Filer considers to be an immaterial amount.

13.          The Filer proposes to present the performance data of Series I Units of each Fund for the time period since its Inception Date in sales communications pertaining to each Fund.

14.          Without the Requested Relief, the sales communications pertaining to each Fund cannot include performance data of the Fund that relate to a period prior to its becoming a reporting issuer.

15.          Without the Requested Relief, the sales communications pertaining to Guardian Canadian Equity Select Fund, Guardian International Equity Select Fund and Guardian U.S. Equity Select Fund would not be permitted to include performance data until the Funds have distributed securities under a simplified prospectus in a Jurisdiction for 12 consecutive months.

16.          As a reporting issuer, each Fund is required under NI 81-101 to prepare and file fund facts.

17.          The Filer proposes to include in the fund facts for Series I Units of each Fund, past performance data in the chart required by Items 5(2), 5(3) and 5(4) under the sub-headings “Year-by-year returns”, “Best and worst 3-month returns” and “Average return”, respectively, related to periods prior to the Funds becoming reporting issuers in a Jurisdiction. Without the Requested Relief, the fund facts of each Fund cannot include performance data of the Fund that relates to a period prior to its becoming a reporting issuer.

18.          The Filer has been granted exemptive relief similar to the Requested Relief, which permits the fund facts of Series I Units of the mutual funds, not including the Funds, for which the Filer acts as investment fund manager to include performance data that relates to a period prior to the mutual fund becoming a reporting issuer, such relief having been sought in respect of all mutual funds that were offered on a private placement basis prior to becoming reporting issuers.

19.          As a reporting issuer, each Fund is required under NI 81-106 to prepare and send annual and interim management reports of fund performance (individually, an MRFP and collectively, the MRFPs) to all holders of its securities on an annual and interim basis.

20.          The Filer has filed a separate application for exemptive relief from certain provisions of NI 81‑106 (the NI 81-106 Relief) to enable each Fund to include in its MRFPs the performance data of Series I Units of the Fund that relate to a period prior to its becoming a reporting issuer.

21.          The performance data of each Fund for the time period before it became a reporting issuer is significant and meaningful information for existing and prospective investors of Series I Units of the Fund.

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 Requested Relief is granted provided that:

(a)           any sales communication and any fund facts that contains performance data of Series I Units of a Fund relating to a period prior to when that Fund became a reporting issuer discloses:

(i)            that the Fund was not a reporting issuer during such period;

(ii)           that the expenses of the Fund would have been higher during such period had the Fund been subject to the additional regulatory requirements applicable to a reporting issuer; and

(iii)          that the Filer obtained exemptive relief to permit the disclosure of performance data of Series I Units of the Fund relating to a period prior to when the Fund was a reporting issuer;

(b)           the information contained under the heading “Fund Expenses Indirectly Borne by Investors” in Part B of the simplified prospectus of the Funds in respect of each of Guardian Canadian Equity Select Fund, Guardian International Equity Select Fund and Guardian U.S. Equity Select Fund based on the MER for Series I Units of each Fund for the financial year ended December 31, 2017 be accompanied by disclosure that:

(i)            the information is based on the MER of the Fund for its last completed financial year when its Series I Units were offered privately during part of such financial year; and

(ii)           the MER of the Fund may increase as a result of the Fund offering its Series I Units under the simplified prospectus; and

(c)           the Funds prepare their MRFPs in accordance with the NI 81-106 Relief.

“Vera Nunes”
Manager
Investment Funds and Structured Products Branch
Ontario Securities Commission