National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- exemption granted to the manager of the portfolios from prospectus disclosure requirements pursuant to subsection 8.2(1) and (2) of National Instrument 81-105 Mutual Fund Sales Practices (NI 81-105); and, an exemption from the point of sale requirements and the consent requirements pursuant to subsections 8.2(3) and (4) of NI 81-105 -- relief granted on basis that alternate disclosure would be made to purchasers in the prospectuses of mutual funds and in a disclosure document given to purchasers.
Applicable Legislative Provisions
National Instrument 81-105 Mutual Fund Sales Practices, s. 8.2.
Citation: Titan Funds Incorporated, Re, 2010 ABASC 146
April 9, 2010
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
ALBERTA AND ONTARIO
IN THE MATTER OF
THE PROCESS FOR EXEMPTIVE RELIEF
APPLICATIONS IN MULTIPLE JURISDICTIONS
IN THE MATTER OF
TITAN FUNDS INCORPORATED
(the Filer or Titan)
TITAN MONEY MARKET FUND
(formerly, Titan Conservative Portfolio),
TITAN BALANCED INCOME PORTFOLIO,
TITAN BALANCED PORTFOLIO,
TITAN BALANCED GROWTH PORTFOLIO,
TITAN GROWTH PORTFOLIO,
TITAN AGGRESSIVE EQUITY PORTFOLIO
(collectively, the Existing Portfolios)
AND SUCH OTHER MUTUAL FUNDS AS THE
FILER MAY FROM TIME TO TIME ESTABLISH
(the Future Portfolios and together with the
Existing Portfolios, the Portfolios)
The securities regulatory authority or regulator in each of the Jurisdictions (the Decision Maker) has received an application from the Filer for a decision under the securities legislation of the Jurisdictions (the Legislation) for the following:
(a) an exemption from the prospectus disclosure requirements pursuant to subsection 8.2(1) and (2) of National Instrument 81-105 Mutual Fund Sales Practices (NI 81-105) on its own behalf, as manager of the Portfolios; and
(b) an exemption from the point of sale requirements and the consent requirements pursuant to subsections 8.2(3) and (4) of NI 81-105 on behalf of entities that are dealers that are not affiliates of Titan (Dealers) and sales representatives of the Dealers (Sales Representatives) in any of the Jurisdictions.
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a dual application):
(a) the Alberta Securities Commission (the Commission) is the principal regulator for this application;
(b) the Filer has provided notice that section 4.7 of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in British Columbia, Saskatchewan, Manitoba, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, Northwest Territories, Yukon and Nunavut; and
(c) the decision is the decision of the principal regulator and evidences the decision of the securities regulatory authority or regulator in Ontario.
Terms defined in NI 81-105, MI 11-102 and National Instrument 14-101 Definitions have the same meaning in this decision, unless they are defined in this decision.
This decision is based on the following facts represented by the Filer:
1. Titan is a corporation incorporated under the laws of Ontario and is the manager of the Portfolios. Titan's head office is located in Calgary, Alberta.
2. Titan is a majority-owned subsidiary of Domaco Wealth Management Ltd. (Domaco) with Domaco holding 100 percent of the issued and outstanding Class A voting shares of Titan. Domaco, in turn, is a wholly-owned subsidiary of Interborder Holdings Ltd.
3. Titan has arranged for RBC Dexia Investor Services Trust to act as trustee, custodian and record keeper for the Portfolios. Titan has also arranged for Connor, Clark & Lunn Private Capital Ltd. (CC&L) to provide investment management services to the Portfolios, other than the Titan Money Market Fund, and for Baker Gilmore & Associates Inc. to provide investment management services for the Titan Money Market Fund.
4. Partners In Planning Financial Services Ltd. (PIPFS) is the principal distributor of the securities of the Existing Portfolios pursuant to the terms of an amended and restated distribution agreement between Titan and PIPFS dated March 31, 2009. PIPFS is an affiliate of Titan.
5. No member of the organization of the Portfolios is a reporting issuer under the securities laws of any province or territory of Canada.
6. Securities of the Existing Portfolios are distributed pursuant to a simplified prospectus dated June 10, 2009 as amended by amendment No. 1 on July 31, 2009 (the Simplified Prospectus) and annual information form dated June 10, 2009 as amended by amendment No. 1 on July 31, 2009 (the Annual Information Form), filed with the securities regulators in each province and territory of Canada, other than Québec.
7. As disclosed in the simplified prospectus and as of the date of the simplified prospectus, representatives of PIPFS and their associates hold 1,952,939 Class B non-voting shares of Titan (Class B Non-Voting Shares). Representatives of PIPFS have also acquired warrants to acquire 605,633 additional Class B Non-Voting Shares of Titan. Other than Michael Wolfond who owns 5.9% of the Class B Non-Voting Shares, no representative of PIPFS currently owns more than five percent of the outstanding Class B Non-Voting Shares of Titan. Michael Wolfond currently owns 2.4% of the outstanding equity interests of Titan.
8. Titan is planning to enter into dealer agreements with the Dealers with respect to the sale and distribution of units of the Portfolios. Titan is also planning to issue Class B Non-Voting Shares to Sales Representatives who wish to purchase equity securities of Titan. These Sales Representatives will become equity representatives (Equity Representatives) once they purchase such equity securities. The Class B Non-Voting Shares will be issued pursuant to exemptions from the prospectus and registration requirements of applicable Canadian securities laws. Titan believes that ownership of non-voting equity securities of Titan by an Equity Representative will serve to better align the interests of the Equity Representative with the interests of his or her client, being the investor in the Portfolios. As of the date of this application, Titan expects that the Equity Representatives, in aggregate, will hold no more than 20 percent of the outstanding equity interests of Titan. In addition, no Equity Representative will hold more than five percent of the outstanding equity interests of Titan.
9. Should any equity interests of Titan be issued to Dealers, the Dealer (and its representatives) will comply with all disclosure obligations required under NI 81-105. The relief requested herein will not apply to any Dealers (and their representatives) who may own equity interests of Titan.
10. Unless the exemption applied for herein is granted, section 8.2 of NI 81-105 will require the following:
(a) pursuant to sections 8.2(1) and 8.2(2), the simplified prospectus of the Portfolios must disclose:
(i) the aggregate number of Class B Non-Voting Shares held by a Dealer and associates of the Dealer;
(ii) the aggregate number of Class B Non-Voting Shares held by all Equity Representatives of a Dealer and associates of those Equity Representatives; and
(iii) the aggregate number of Class B Non-Voting Shares held by any Equity Representative and his or her associates, where such Equity Representative and his or her associates holds more than five percent of the Class B Non-Voting Shares,
(b) pursuant to section 8.2(3), if a unit of one of the Portfolios is traded by any Sales Representative, the Dealer must deliver to the purchaser of that unit, a document that discloses the number of Class B Non-Voting Shares owned by:
(i) the Dealer and its associates, in aggregate;
(ii) the Equity Representatives of that Dealer and their associates, in aggregate; and
(iii) the Sales Representative of that Dealer and his or her associates, in aggregate, who is acting on the trade,
(c) pursuant to section 8.2(4), if a Dealer is required to give the disclosure document described above to a purchaser of units of one of the Portfolios, then the purchaser must consent in writing to the trade after he or she receives the disclosure document before the trade can be completed; and
(d) pursuant to section 8.2(5), a Dealer is not required to deliver the disclosure document or obtain the consent of a purchaser of units of one of the Portfolios if that purchaser has previously acquired such units and received a disclosure document, if the information contained in that disclosure document has not changed.
Each of the Decision Makers is satisfied that the decision meets the test set out in the Legislation for the Decision Maker to make the decision.
The decision of the Decision Maker under the Legislation is that the Exemption Sought is granted provided that:
1. In substitution for the disclosure requirements of sections 8.2(1) and 8.2(2) of NI 81-105 that apply to prospectuses of mutual funds, the Portfolios will include the following disclosure in its simplified prospectus that describes, as of a date that is within 30 days of the date of the simplified prospectus:
(a) That up to a maximum of 20 percent of the outstanding equity interests of Titan may be held by Equity Representatives;
(b) The names of any Dealer who has Equity Representatives and the aggregate amount held by those Equity Representatives and the fact that up-to-date information can be obtained from Titan's website, which will be updated on a monthly basis, or by calling a specified toll-free number, as Class B Non-Voting Shares of Titan are issued;
(c) That no Equity Representative will hold more than five percent of the outstanding equity interests of Titan;
(d) That as a shareholder of Titan, an Equity Representative will stand to benefit from the inflow of client money to the Portfolios;
(e) That if an investor's Sales Representative is an Equity Representative, then that investor will receive a disclosure statement describing the equity interest held by that Equity Representative before he or she invests in the Portfolios and that he or she must consent to the trade of units of the Portfolios; and
(f) That if the branch manager or other supervisor of the investor's Sales Representative is an Equity Representative, the investor will also receive a disclosure statement describing the equity interest that the branch manager or supervisor holds before he or she invests in the Portfolios and that he or she must consent to the trade of units of the Portfolios.
2. In substitution for the point of sale disclosure and consent requirements of sections 8.2(3), 8.2(4) and 8.2(5) of NI 81-105 that would otherwise apply to Dealers and Sales Representatives, the following procedures will apply to each trade of a unit of a Portfolio to a client of an Equity Representative, or a client of a Sales Representative whose branch manager or other supervisor is an Equity Representative:
(a) the Dealer will deliver to the purchaser a disclosure document that discloses:
(i) that Equity Representatives of the Dealer and their associates hold, in aggregate, no more than a stated percentage of the equity interests of Titan;
(ii) that the Equity Representative of the Dealer acting on the trade and the associates of the Equity Representative, in aggregate, hold no more than a stated percentage of the equity interests of Titan; and
(iii) that the client may go to Titan's website or call a specified toll-free number, which will be disclosed in such disclosure document, to obtain additional information about the holdings of the Dealer and its Equity Representatives in Titan,
(b) the stated percentage that must be disclosed pursuant to (a)(i) above, will be that number determined by the Dealer that reasonably and accurately represents the maximum amount that it expects its Equity Representatives will from time to time hold in Titan. The stated percentage that must be disclosed pursuant to (a)(ii) above, will be that number determined by the Equity Representative that reasonably and accurately represents the maximum amount that he or she expects to hold from time to time in Titan and shall not be more than five percent;
(c) the Dealer will, following the delivery of the disclosure document described above, comply with the requirements of section 8.2(4) of NI 81-105 unless section 8.2(5) of NI 81-105 applies in respect of that trade; and
(d) in the event an Equity Representative assumes a position of authority or supervision over other Sales Representatives of the Dealer, before completing a trade in a unit of a Portfolio that is acted on by one of those other Sales Representatives, the Dealer and the other Sales Representatives will comply with the requirements of 2(a), (b) and (c) above, to disclose the amount held by the specific Equity Representative in that position of authority.
3. The Dealer will not be required to comply with the requirements described in condition 2 if the Dealer has already delivered the disclosure document and obtained the purchaser's consent on a previous trade and the Dealer is satisfied that the equity interests held by the Equity Representatives at the time of the trade have not increased above the maximum amounts disclosed in the previously delivered disclosure document.
4. Titan will update its website to provide the aggregate interests held by Equity Representatives and the names of the applicable Dealers on a monthly basis as Class B Non-Voting Shares are issued to Equity Representatives.
5. Prior to a Dealer relying on this Exemption Sought, Titan will provide the Dealer with a copy of this decision together with a disclosure statement informing the Dealer of the ramifications of the Exemption Sought.
6. Any Dealer wishing to rely on this Exemption Sought, will:
(a) send a written consent to Titan agreeing to comply with the conditions of this decision as it relates to the Dealer and its Equity Representatives; and
(b) have in place written policies and procedures to ensure that there is compliance with the conditions of this decision.