Guardian Capital LP and Guardian Strategic Income Fund
Headnote
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Relief granted from 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 15.1.1 of National Instrument 81-102 Investment Funds to permit an alternative mutual fund, that has not distributed securities under a simplified prospectus in a jurisdiction for 12 consecutive months, (i) to include in their sales communications performance data for the period when the fund was not a reporting issuer, and (ii) to permit a mutual fund to use performance data from periods prior the fund being a reporting issuer in calculating fund's investment risk level in accordance with Appendix F Investment Risk Classification Methodology -- relief also granted from section 2.1 of National Instrument 81-101 Mutual Fund Prospectus Disclosure for the purposes of the relief requested from Item 5 of Part I of Form 81-101F3 Contents of Fund Facts Document, to permit the mutual fund to include in its fund facts the past performance data for the periods when the fund was not a reporting issuer.
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- relief granted from section 4.4 of National Instrument 81-106 Investment Fund Continuous Disclosure for the purposes of the relief requested from Form 81-106F1 Contents of Annual and Interim Management Report of Fund Performance, items 3.1(7), 4.1(1), 4.1(2), 4.2(1), 4.3(1) and 4.3(2) of Part B of Form 81-106F1, and Items 3(1) and 4 of Part C of Form 81-106F1, to permit a mutual fund to include in annual and interim management reports of fund performance the financial highlights and past performance of the fund that are derived from the fund's annual financial statements that pertain to time periods when the fund was not a reporting issuer.
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), 15.1.1, 19.1.
National Instrument 81-101 Investment Fund Prospectus Disclosure, ss. 2.1, 6.1.
Form 81-101F1 Contents of Simplified Prospectus, Item 9.1(b) of Part B.
Form 81-101F3 Contents of Fund Facts Document, Item 5 of Part I.
National Instrument 81-106 Investment Fund Continuous Disclosure, ss. 4.4, 17.1.
Form 81-0106F1 Contents of Annual and Interim Management Report of Fund Performance, Items 3.1(7), 4.1(1), 4.1(2), 4.2(1), 4.3(1), 4.3(2) of Part B and Items 3(1), 4 of Part C.
May 21, 2020
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 GUARDIAN STRATEGIC INCOME FUND (the Fund)
DECISION
Background
The principal regulator in the Jurisdiction has received an application (the Application) from the Filer on behalf of the Fund for a decision under the securities legislation of the regulator (the Legislation) exempting the series A, series F and series I units (collectively, the Units) of the Fund 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 the Fund to include performance data in sales communications notwithstanding that the performance data will relate to a period prior to the Fund offering its Units under a simplified prospectus;
(b) section 15.1.1(a) of NI 81-102 and Items 2 and 4 of Appendix F Investment Risk Classification Methodology to NI 81-102 (Appendix F) to permit the Fund to include its past performance data in determining its investment risk level in accordance with Appendix F;
(c) section 15.1.1(b) of NI 81-102 and Item 4(2)(a) and Instruction (1) of Item 4 of Form 81-101F3 Contents of Fund Facts Document (Form 81-101F3) to permit the Fund to disclose its investment risk level as determined by including its past performance data in accordance with Appendix F;
(d) Item 9.1(b) of Part B of Form 81-101F1 Contents of Simplified Prospectus (Form 81-101F1) to permit the Fund to use its past performance data to calculate its investment risk rating in its simplified prospectus;
(e) section 2.1 of National Instrument 81-101 Mutual Fund Prospectus Disclosure (NI 81-101) for the purposes of the relief requested herein from Form 81-101F1 and Form 81-101F3;
(f) 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 the Fund to include in its fund facts documents 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) the Fund has not distributed its securities under a simplified prospectus for 12 consecutive months;
(g) section 4.4 of National Instrument 81-106 Investment Fund Continuous Disclosure (NI 81-106) for the purposes of relief requested herein from Form 81-106F1 Contents of Annual and Interim Management Report of Fund Performance (Form 81-106F1); and
(h) Items 3.1(7), 4.1(1) in respect of the requirement to comply with subsections 15.3(2) and 15.3(4)(c) of NI 81-102, 4.1(2), 4.2(1), 4.3(1) and 4.3(2) of Part B of Form 81-106F1 and Items 3(1) and 4 of Part C of Form 81-106F1 to permit the Fund to include in its annual and interim management reports of fund performance (MRFP) the past performance data of the Fund notwithstanding that such performance data relates to a period prior to the Fund offering its securities under a simplified prospectus.
(collectively, the Exemption Sought).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(a) the Ontario Securities Commission is the principal regulator for this 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 each of the other provinces and territories of Canada (together with Ontario, the Canadian Jurisdictions).
Interpretation
Terms defined in National Instrument 14-101 Definitions, MI 11-102, NI 81-101, NI 81-102 and NI 81-106 have the same meanings if used in this decision, unless otherwise defined.
Representations
This decision is based on the following facts represented by the Filer:
1. The Fund is an open-ended mutual fund trust created under the laws of the Province of Ontario and governed by an amended and restated declaration of trust dated March 14, 2011, as amended and restated as of December 13, 2019.
2. The Filer is the investment fund manager of the Fund. The head office of the Filer is located in Toronto, Ontario.
3. 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.
4. Between May 27, 2013 and December 13, 2019, the Units of the Fund were distributed to investors on a prospectus-exempt basis in accordance with National Instrument 45-106 Prospectus Exemptions (NI 45-106) in the Canadian Jurisdictions. Since May 27, 2013, series X units of the Fund have been distributed to investors on a prospectus-exempt basis in accordance with NI 45-106 in the Canadian Jurisdictions.
5. The Filer filed a simplified prospectus, annual information form and fund facts documents dated December 13, 2019 under which the Fund distributes Units to the public. Accordingly, since December 13, 2019, the Fund is a reporting issuer under the securities legislation of the Canadian Jurisdictions. In addition, the Fund is subject to the requirements of NI 81-102 that relate to alternative mutual funds and to the requirements of NI 81-106 that apply to investment funds that are reporting issuers. The series X units of the Fund continue to be offered only on a prospectus-exempt basis.
6. The investment objectives of the Fund are to generate capital gains, preserve capital and make monthly distributions by investing primarily in securities that can benefit from changes to interest rates and credit spreads and to maintain low volatility and low correlation with traditional equity and fixed income markets.
7. In order to seek to achieve its investment objectives, the Fund primarily invests in, or sells short securities of, issuers located primarily in North America. The Fund uses leverage, through the cash borrowing, short selling of securities and the use of derivatives, to hedge or enhance returns.
8. The Fund is managed substantially similarly after it became a reporting issuer as it was prior to becoming a reporting issuer. As a result of the Fund becoming a reporting issuer:
(a) the Fund's investment objectives did not change, other than minor grammatical changes;
(b) the only changes to the fee structure associated with the Units were that the management fee associated with the series A units and the series F units was reduced, the administration fee associated with all series was reduced, and the methodology for calculating the Fund's performance fee was simplified. Based on its calculations, the Filer believes that the change to the performance fee calculation methodology is immaterial; and
(c) the day-to-day administration of the Fund did not change, other than to comply with exemptive relief obtained on behalf of, among others, the Fund and the additional regulatory requirements associated with being a reporting issuer (none of which impact 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 Fund's simplified prospectus, annual information form and fund facts documents.
9. Since its inception as a "mutual fund in Ontario", the 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.
10. Since the inception of the Fund and prior to the Fund becoming a reporting issuer, the Filer produced a monthly fund profile for series A units and series F units, which included performance analysis for such units for each of the preceding month, year to date, 1 year, 3 year and 5 year periods, and the period since the applicable series' inception. The fund profile was produced for marketing purposes, distributed to registered dealers whose clients were holders of such series, and generally available to any holder upon request.
11. Since the inception of the Fund and prior to January 2, 2019, the Fund did not comply with the investment restrictions and practices contained in NI 81-102. On and after January 3, 2019 and except as set out in any exemptive relief received by, among others, the Fund, the Fund has complied with the investment restrictions and practices contained in NI 81-102 that relate to alternative mutual funds.
12. The Filer and the Fund are not in default of securities legislation in any of the Canadian Jurisdictions.
13. The Filer proposes to present the performance data of each series of the Units for the time period since the Fund's inception in sales communications pertaining to the Fund. Without the Exemption Sought, the sales communications pertaining to the Fund cannot include performance data of the Fund that relate to a period prior to its becoming a reporting issuer, and the Fund cannot provide performance data in its sales communications until it has distributed securities under a simplified prospectus for at least 12 consecutive months.
14. As a reporting issuer, the Fund is required under NI 81-101 to prepare and file a simplified prospectus and fund facts documents.
15. The Filer proposes to use the Fund's past performance data to determine its investment risk level and to disclose that investment risk level in the simplified prospectus and the fund facts document for each series of Units. Without the Exemption Sought, the Filer, in determining and disclosing the Fund's investment risk level in the simplified prospectus and the fund facts documents for each series of Units, cannot use performance data of the Fund that relates to a period prior to the Fund becoming a reporting issuer.
16. The Filer proposes to include in the fund facts document for each series of Units 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 Fund becoming a reporting issuer in the Canadian Jurisdictions. Without the Exemption Sought, the fund facts documents of the Fund cannot include performance data of the Fund that relate to a period prior to its becoming a reporting issuer.
17. As a reporting issuer, the Fund is required under NI 81-106 to prepare and send MRFPs to all holders of its securities on an annual and interim basis. Without the Exemption Sought, the MRFPs of the Fund cannot include financial highlights and performance data of the Fund that relate to a period prior to the Fund becoming a reporting issuer.
18. The performance data and other financial data of the Fund for the time period before it became a reporting issuer is significant and meaningful information for existing and prospective investors of Units.
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) any sales communication, fund facts documents and MRFP that contains performance data of the Units of the Fund relating to a period of time prior to when the Fund was a reporting issuer discloses:
(i) that the Fund was not a reporting issuer during such period;
(ii) 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;
(iii) the Filer obtained exemptive relief on behalf of the Fund to permit the disclosure of performance data of the Units relating to a period prior to when the Fund was a reporting issuer; and
(iv) with respect to any MRFP, the financial statements of the Fund for such period are posted on the Fund's website and are available to investors upon request; and
(b) the Filer posts the financial statements of the Fund since its inception on the Fund's website and makes those financial statements available to investors upon request.
"Darren McKall"
Manager, Investment Funds and Structured Products
Ontario Securities Commission