Securities Law & Instruments

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- relief granted from sections 15.3(2), 15.3(4)(c), 15.6(a)(i), 15.6(d), 15.8(2)(a) and 15.8(3)(a) of National Instrument 81-102 Mutual 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 the relief requested from Item 4 of Part 1 of Form 81-101F3 Contents of Fund Facts Document, to permit the Funds to include in their respective fund facts for Class I units, the past performance data for the period when the funds were not reporting issuers -funds distributed their securities under prospectus exemptions prior to becoming reporting issuers -- the funds have complied with the investment restrictions and practices in NI 81-102 since inception -- the funds are managed substantially similarly since commencing to distribute securities under a simplified prospectus -- the funds have prepared annual audited financial statements since inception -- the performance data of the funds for the time period before it became a reporting issuer is relevant and useful information for investors.

Applicable Legislative Provisions

National Instrument 81-102 Mutual Funds, ss. 15.3(2), 15.3(4)(c), 15.6(a)(i), 15.6(d), 15.8(2)(a), 15.8(3)(a), 19.1.

National Instrument 81-101 Mutual Fund Prospectus Disclosure, s. 2.1.

Item 4 of Part I of Form 81-101F3 Contents of Fund Facts Document.

September 30, 2013


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 BALANCED FUND, GUARDIAN BALANCED INCOME FUND, GUARDIAN CANADIAN BOND FUND,
GUARDIAN CANADIAN EQUITY FUND, GUARDIAN CANADIAN GROWTH EQUITY FUND,
GUARDIAN CANADIAN PLUS EQUITY FUND, GUARDIAN CANADIAN SHORT-TERM INVESTMENT FUND,
GUARDIAN CANADIAN SMALL/MID CAP EQUITY FUND, GUARDIAN EQUITY INCOME FUND,
GUARDIAN GLOBAL DIVIDEND GROWTH FUND, GUARDIAN GLOBAL EQUITY FUND,
GUARDIAN GROWTH & INCOME FUND, GUARDIAN HIGH YIELD BOND FUND,
GUARDIAN INTERNATIONAL EQUITY FUND AND GUARDIAN U.S. EQUITY FUND
(individually, 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 Funds from:

(a) Sections 15.3(2), 15.3(4)(c), 15.6(a)(i), 15.6(d), 15.8(2)(a) and 15.8(3)(a) of NI 81-102 to permit each Fund to include, with respect to its Series I Units, 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 prospectus; and

(ii) in the case of Guardian Balanced Income Fund and Guardian Growth & Income Fund, the Fund has not distributed its securities under a prospectus for 12 consecutive months,

(b) Section 2.1 of NI 81-101 for the purposes of relief requested herein from Form 81-101F3 -- Contents of Fund Facts Document (Form 81-101F3), and

(c) Item 4(3) and Instructions (1) and (5) of Form 81-101F3 to permit each Fund to include in its fund facts the past performance data of the Series I Units of the Fund notwithstanding that such performance data relates to a period prior to the Fund offering its securities under a prospectus,

(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 British Columbia, Alberta, Saskatchewan, Manitoba, Québec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, Northwest Territories, Yukon and Nunavut.

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 following dates:

Fund Name

Date of Inception

 

Guardian Canadian Equity Fund

December 1, 1985

 

Guardian Canadian Growth Equity Fund

July 31, 1986

 

Guardian Balanced Fund

July 31, 1995

 

Guardian U.S. Equity Fund

November 28, 1995

 

Guardian Canadian Bond Fund

January 3, 1997

 

Guardian Canadian Small/Mid Cap Equity Fund

January 3, 1997

 

Guardian International Equity Fund

January 3, 1997

 

Guardian Global Equity Fund

July 10, 1998

 

Guardian High Yield Bond Fund

May 1, 1999

 

Guardian Equity Income Fund

February 14, 2003

 

Guardian Canadian Plus Equity Fund

January 1, 2006

 

Guardian Canadian Short-Term Investment Fund

February 2, 2009

 

Guardian Global Dividend Growth Fund

May 31, 2010

 

Guardian Growth & Income Fund

September 30, 2012

 

Guardian Balanced Income Fund

October 22, 2012

(individually, an Inception Date, and collectively, the Inception Dates).

2. Each Fund is governed by an amended and restated master declaration of trust dated March 14, 2011, as amended.

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

4. Since the respective Inception Dates until March 30, 2011, Series I units (the Series I Units) of each Fund, other than Guardian Balanced Income Fund and Guardian Growth & Income Fund (individually, a 2013 New Fund and collectively, the 2013 New Funds), were distributed to investors on a prospectus-exempt basis in accordance with National Instrument 45-106 -- Prospectus and Registration Exemptions (NI 45-106) and its predecessor legislation in each Jurisdiction. Since the respective Inception Dates of the 2013 New Funds until April 8, 2013, Series I Units of each 2013 New Fund were distributed to investors on a prospectus-exempt basis in accordance with NI 45-106 in each Jurisdiction.

5. Since the issuance of the receipt for the simplified prospectus and annual information form on March 30, 2011, each Fund, other than the 2013 New Funds, has distributed Series I Units to the public and each Fund, other than the 2013 New Funds, also became a reporting issuer under the securities legislation of each province and territory of Canada, other than Québec (collectively, the "Jurisdictions"). In addition, each Fund, other than the 2013 New Funds, became subject to the requirements of National Instrument 81-102 -- Mutual Funds (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.

6. Each 2013 New Fund commenced distributing its Series I Units pursuant to a simplified prospectus dated April 5, 2013 (the Prospectus). Since the issuance of the receipt for the Prospectus and annual information form of the Funds on April 8, 2013, each 2013 New Fund became a reporting issuer in each of the Jurisdictions and became subject to the requirements of NI 81-102. Each 2013 New Fund also became subject to the requirements of NI 81-106 that apply only to investment funds that are reporting issuers.

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

8. Since its Inception Date, as a "mutual fund in Ontario", each Fund has prepared and sent annual and interim financial statements to all holders of its securities in accordance with NI 81-106.

9. 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.

10. 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 to provide additional detail as required by National Instrument 81-101 -- Mutual Fund Prospectus Disclosure (NI 81-101);

ii. the management fee charged to the Fund in respect of its Series I Units has not changed;

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 Prospectus; and

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

11. The Filer proposes to present the performance data of the Series I Units of each Fund for the time period since its inception, or for the last ten years, as applicable, in sales communications pertaining to each Fund.

12. 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.

13. Without the Requested Relief, sales communications pertaining to each 2013 New Fund would not be permitted to include performance data until the 2013 New Fund has distributed securities under a prospectus in a jurisdiction for 12 consecutive months and sales communications pertaining to each 2013 New Fund would only be permitted to include performance data for the period commencing after the date on which the 2013 New Fund commences distributing securities under a prospectus.

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

15. The Filer proposes to include in the fund facts for the Series I Units of each Fund past performance data in the bar chart required by Item 4(3) of Form 81-101F3 under the sub-heading "Year-by-year returns" related to a period prior to the Fund being a reporting issuer.

16. Without the Requested Relief, the fund facts of each 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, 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) in accordance with NI 81-106.

18. 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 the Series I Units of the Fund that relate to a period prior to its becoming a reporting issuer.

19. 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 was a reporting issuer discloses:

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

(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;

(b) a Fund will only include performance data relating to a period prior to when the Fund was a reporting issuer in any sales communication and fund facts of the Fund once the Fund has been in existence for at least one year;

(c) the information provided under the heading "Fund Expenses Indirectly Borne by Investors" in Part B of the simplified prospectus of the 2013 New Funds based on the management expense ratio for the Series I Units for the 2013 New Funds' financial year ended December 31, 2013 be accompanied by disclosure that:

(i) the information is based on the MER of each 2013 New Fund for its last completed financial year when its Series I Units were offered privately during a period of time in such financial year; and

(ii) the MER of each 2013 New Fund may increase as a result of each 2013 New Fund offering its Series I Units under the simplified prospectus; and

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

"Vera Nunes"
Manager, Investment Funds
Ontario Securities Commission