Guardian Capital LP (Re), 2022 CanLII 87884

August 30, 2022

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 GUARDPATH™ MODERN TONTINE 2042 TRUST GUARDPATH™ MANAGED DECUMULATION 2042 FUND (the Funds)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filer on behalf of the Funds for a decision under the securities legislation of the Jurisdiction (the Legislation) granting the Funds relief from:

(a) in respect of the GuardPath™ Modern Tontine 2042 Trust (the Tontine Trust) only, subsection 10.3(1) of National Instrument 81-102 – Investment Funds (NI 81-102), to permit the redemption price of a security of a series of the Tontine Trust to which a redemption order pertains to be less than the net asset value (NAV) per security of that series next determined after the receipt by the Tontine Trust of the order (the Redemption Price Relief);

(b) in respect of both Funds, subsection 2.1(1) and paragraphs 4.1(3)(a) and 4.1(3)(d) of National Instrument 81-101 – Mutual Fund Prospectus Disclosure, to permit the Funds to prepare and file a fund facts document (the Fund Facts) for each of its series of securities that includes Fund-Specific Disclosure (as defined below) which is not specifically required or permitted to be in Form 81-101F3 Contents of Fund Facts Document (the Fund Facts Disclosure Relief); and

(c) in respect of the GuardPath™ Managed Decumulation 2042 Fund (the Decumulation Fund) only, paragraphs 3B.2(2)(a) and (d) and section 3B.3 of National Instrument 41-101 – General Prospectus Requirements, to permit the Decumulation Fund to prepare an ETF facts document (the ETF Facts) for a series of exchange-traded securities that includes Fund-Specific Disclosure which is not specifically required or permitted to be in Form 41-101F4 Information Required in an ETF Facts Document (the ETF Facts Disclosure Relief),

(collectively, the Requested Relief).

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

(i) the Ontario Securities Commission is the principal regulator for this application; and

(ii) the Filer has provided notice that subsection 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 Jurisdictions).

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.

1The Filer is an Ontario limited partnership, which is wholly-owned by Guardian Capital Group Limited. The general partner of the Filer is Guardian Capital Inc., an Ontario corporation wholly-owned by Guardian Capital Group Limited, with its head office in Toronto, Ontario.

2The Filer is registered as (i) a portfolio manager in all of the provinces of Canada; (ii) an exempt market dealer in all of the provinces of Canada; (iii) an investment fund manager in Ontario, Québec and Newfoundland and Labrador; (iv) commodity trading counsel in Ontario; and (v) a commodity trading manager in Ontario.

3The Filer is, or will be, the trustee, investment fund manager and portfolio manager of the Funds.

4The Filer is not in default of securities legislation in any of the Jurisdictions.

5The Funds, to be established as trusts, will be mutual funds created under the laws of the Province of Ontario and will be governed by the provisions of NI 81-102, subject to any relief therefrom granted by the securities regulatory authorities.

6The Funds intend to commence distributing units of the Funds (the Units) pursuant to a long form prospectus (the Prospectus), and accordingly, will file a preliminary Prospectus and ETF Facts and Fund Facts, as applicable, in all of the Jurisdictions where the Requested Relief is relied upon and, accordingly, upon the issuance of a receipt for the final Prospectus, each Fund will become a reporting issuer in each of the Jurisdictions where the Requested Relief is relied upon. Each of the Funds will have a life of twenty (20) years, with a scheduled termination date of December 31, 2042 (the Termination Date).

7The Tontine Trust will initially be divided into two series of Units and the Decumulation Fund will initially be divided into five series of Units (each a Series). The ETF, Series A and Series F Units of the Decumulation Fund will be open for purchase by all individuals. Each of the Hybrid Tontine Series A and Hybrid Tontine Series F Units of the Decumulation Fund and the Series A and Series F Units of the Tontine Trust will be open for purchase by individuals born before a prescribed year.

8The Prospectus will include targeted returns based on certain assumptions, including the mortality experience anticipated for holders of Units of the Tontine Trust based on mortality calculations prepared by the Filer and targeted payment amounts for holders of Units of the Decumulation Fund.

9The investment objective for the Tontine Trust will be to provide long term capital appreciation by investing the Tontine Trust’s assets in equities and fixed income securities. The Tontine Trust will, for the final four quarters of its operation, commencing with the quarter ended March 31, 2042 and ending with the quarter ended December 31, 2042, redeem one-quarter (25%) of each unitholder’s Units outstanding as of the applicable quarter end (the Tontine Payout). The Tontine Trust will seek to achieve its investment objective by following a “glidepath” approach to asset allocation, investing in a portfolio of securities, either directly or indirectly, that provides diversified exposure to different asset classes, geographies and strategies, providing different sources of returns, while mitigating risk measured by overall volatility of portfolio returns. As the Termination Date approaches, the Tontine Trust will seek to reduce volatility of returns by gradually shifting its asset mix to increase the percentage of its assets allocated to fixed income securities and/or money market investments, and add derivative strategies designed to preserve asset value.

10The investment objective for the Decumulation Fund will be to make consistent, high monthly distributions over a twenty (20) year period, by investing the Decumulation Fund’s assets in a well-diversified portfolio of assets selected to achieve income generation and preservation of capital while minimizing overall volatility of returns. The Decumulation Fund will seek to achieve its investment objective by investing in a portfolio of securities, either directly or indirectly, that provides diversified exposure to different asset classes, geographies and strategies, providing different sources of returns, while mitigating risk measured by overall volatility of portfolio returns.

11Units of each Series of the Funds may be purchased on a daily basis at a price equal to the NAV per Unit of that Series.

12Units of the Tontine Trust may be redeemed on a daily basis either at the election of a unitholder or by the Filer upon the Tontine Trust being notified of a unitholder’s death.

13In respect of the Tontine Trust, the amount that unitholders will receive upon death or voluntary redemption will be an amount equal to the percentage of the then current NAV per Unit for their Units as specified below (the Redemption Price), less any costs associated with the redemption, including commissions, wire transfer fees and such other costs charged to the Tontine Trust by third parties (collectively, “Costs”):

2022

2023

2024

2025

2026

2027

2028

2029

2030

2031

2032

95%

95%

95%

95%

90%

85%

80%

75%

70%

60%

50%

For each subsequent year until December 31, 2042, a redeeming or redeemed unitholder of the Tontine Trust will receive a Redemption Price equal to 50% of the then current NAV per Unit for their Units of the Tontine Trust, less any Costs.

14Units of the Decumulation Fund may be redeemed on a daily basis at the NAV per Unit of the Series of Units so redeemed as of such redemption date, less any costs associated with the redemption, including commissions, wire transfer fees and such other costs charged to the Decumulation Fund by third parties.

15Subsection 10.3(1) of NI 81-102 provides that the redemption price of a security of a mutual fund to which a redemption order pertains shall be the NAV of a security of that class, or series of a class, next determined after the receipt by the mutual fund of the order.

16The calculation of the Redemption Price is an essential feature of the Tontine Trust and fundamental to the understanding of how returns on the Units are, in part, generated. Absent the Redemption Price Relief, the Tontine Trust would not be able to achieve its objective of providing the Tontine Payout to unitholders. To ensure that the departure from conventional redemption pricing is appropriately disclosed, the description of the method by which the Redemption Price will be determined will appear in bold face, text box disclosure on the face page of the Prospectus and Fund Facts. The Filer will additionally include disclosure in the text box in the Fund Facts and ETF Facts, as applicable, of each Series of the Funds describing certain distinctive features of the Funds, including the type of investors for which Units may be suitable, distribution and redemption features, and clarifying that the Units are not insurance contracts or annuity contracts and the Funds are not insurance companies.

17The Fund Facts and ETF Facts, as applicable, of each Series of the Funds will also include under the heading “How Has the Fund Performed?” charts showing indicative returns, reinvested distributions and cumulative cash received (before fees) upon redemption of Units, and a description of the related assumptions underlying the charts (the Fund-Specific Disclosure).

18In addition to its inclusion in the Fund Facts and ETF Facts, the Filer proposes to include the Fund-Specific Disclosure in the Prospectus as part of the discussion of risks associated with an investment in the Funds.

19Absent the Fund Facts Disclosure Relief and the ETF Facts Disclosure Relief, it would not be permissible for the Funds to include the Fund-Specific Disclosure in their Fund Facts or ETF Facts, as applicable.

20The Filer submits that the Fund-Specific Disclosure is essential information for investors because it will assist investors in understanding the risks associated with an investment in the Funds and determining if Units are a suitable investment based on their investment objectives.

21The Filer submits that investors will not be misled if the Fund-Specific Disclosure is included in the Fund Facts or ETF Facts, as applicable.

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, in the case of the Redemption Price Relief, the Tontine Trust pays the Redemption Price as described in paragraph 13 of the decision and includes on the cover page of the Prospectus, Fund Facts and ETF Facts, as applicable, bold text box disclosure stating:

(i) the method by which the Redemption Price will be determined,

(ii) that the amount that a unitholder of the Tontine Trust will receive upon death or voluntary redemption will be an amount equal to the percentage of the then current NAV per Unit of their Units as set out in the paragraph 13 of the decision; and

(iii) that the current NAV of the Tontine Trust will be affected by both the investment returns on its portfolio securities and the level of redemptions (voluntary and due to death).