1.0 INTRODUCTION AND BACKGROUND. Canadian securities laws require Covista Capital Corp. (‘Covista’) to provide you with a disclosure document that describes our relationship with you; the services and products we offer; the fees and expenses we charge you; how we attempt to mitigate conflicts of interest, the risks that you should consider when making investments and frequently asked questions. If there are any material changes to the Relationship Disclosure Document, we will provide notice of its update. If you have any questions about this document, please contact Covista directly at:The Marine Building#915-355 Burrard St.Vancouver, BC V6C 2G8Phone: 604-661-4450Email: info@covistacapital.com
2.0 ABOUT COVISTA CAPITAL CORP. Covista Capital Corp. is a registered Portfolio Manager, Investment Fund Manager and Exempt Market Dealer in British Columbia and Ontario and is registered as a Portfolio Manager and Exempt Market Dealer in Alberta and Manitoba. Covista is the manager of the Covista Value Fund and the Skye Technology Fund (the ‘Funds’). The Covista Value Fund seeks to realize long-term capital appreciation by acquiring positions in companies trading below intrinsic value. The Skye Value Fund seeks to realize long term growth by investing in a diversified portfolio of assets, predominantly in North American public equity securities. Covista offers discretionary investment advisory services and direct investments in the Funds to high net worth individuals and families, as well as to corporations and trusts.
2.1 DESCRIPTION OF SERVICES. As a portfolio manager Covista provides discretionary advice as to the investments in the Account. As an exempt market dealer Covista distributes units of its Funds pursuant to the provisions of National Instrument 45-106 Prospectus Exemptions. Covista makes a determination that every investment decision it makes is suitable for its Clients, and which places the Client’s interests first. This suitability determination is made on the basis of the Client’s personal and financial circumstances, investment needs and objectives, risk profile, investment knowledge and investment time horizon.
3.0 INVESTING IN RELATED FUNDS. Covista invests in its own funds, the Covista Value Fund and the Skye Technology Fund, which are related and connected issuers to Covista Capital Corp., as an issuer. Covista has not evaluated the securities offered by Covista Capital Corp. relative to other similar offerings from arm’s length parties. Clients will be invested in investment funds managed by Covista and the client consents to such purchase. Covista will receive compensation from these related investment pools, primarily in the form of management and performance fees.
3.1 COVISTA’S DUTIES. Covista has an obligation at all times to assess whether a purchase or sale of a security in the Client account is suitable for the Client prior to executing a transaction on the Client’s behalf, and which places the client’s interests first. Covista shall review the Client’s personal and financial circumstances, investment needs and objectives, risk profile, investment knowledge and investment time horizon, and based upon the information provided by the Client (the “Client Information”), shall gain an understanding of the Client’s investment profile and the Client’s objectives in respect of the Account (and specified related accounts). For portfolio management clients, pending review of the Client Information, assets deposited into the Account may be invested in short term investments, provided that Covista may cause such assets to be invested in such other investments as it deems appropriate in its discretion. Upon completion of its review of the Client Information, Covista shall proceed to implement its investment plan unless the Client has otherwise instructed Covista in writing. For portfolio management clients, the specific risks relating to the investments held by the Client will be outlined in the Client’s Investment Policy Statement.
4.0 YOUR ROLE IN OUR RELATIONSHIP. The Client confirms the accuracy and completeness of the personal information disclosed to Covista and the Custodian from time to time and acknowledges that such information is material to and will be relied upon by Covista in providing its services to the Client. The Know-Your-Client (the “KYC Form”) provided to you documents your willingness and ability to assume risk and helps us establish your identity and review your investment needs and objectives, your personal and financial circumstances, your investment time horizon, your investment knowledge and your risk profile. You confirm that the information you provide us in the KYC Form and all other information you provide us verbally, in writing, electronically or by any other means is true and complete. You agree to notify us of any change in your investment needs and objectives, your personal and financial circumstances, your investment time horizon, your investment knowledge and your risk profile.
5.0 CUSTODIAN SERVICES. Your assets are held in Canada in a fully disclosed, segregated account at Aviso Financial Inc. (“AFI” or “the Custodian”), operating as Aviso Correspondent Partners (“ACP”). AFI is a wholly owned subsidiary of Aviso Wealth Inc (“AWI”). AWI is a wholly owned subsidiary of Aviso Wealth LP, which in turn is owned 50% by Desjardins Financial Holding Inc. and 50% by a limited partnership owned by five Provincial Credit Union Centrals and The CUMIS Group Limited which is part of Co-operators Group Limited. AFI’s offices are located at 800- 1111 West Georgia Street, Vancouver, British Columbia, V6E 4T6. AFI is a member of and regulated by the Canadian Investment Regulatory Organization (“CIRO”). AFI is a qualified Canadian Custodian under applicable securities laws. AFI and AWI are independent of Covista. The assets in your ACP account are never co-mingled with other clients’ assets. AFI is a member of the Canadian Investor Protection Fund (“CIPF”). CIPF, subject to conditions and limits, safeguards your assets from the insolvency or bankruptcy of an CIRO member firm. You can find more information regarding CIPF at https://www.cipf.ca/.Your assets are subject to a risk of loss: (i) if AFI becomes bankrupt or insolvent and CIPF coverage is insufficient to safeguard all your assets held by AFI; (ii) if there is a prolonged and/or unrecoverable breakdown in AFI’s information technology systems; and (iii) due to the fraud, willful or reckless misconduct, negligence or error of AFI. Covista has reviewed AFI’s reputation, financial stability, relevant internal controls and ability to deliver custodial services and has concluded that AFI’s system of controls and supervision is sufficient to manage risks of loss to your assets in accordance with prudent business practice.
6.0 ACCOUNT STATEMENTS AND REPORTING. You will receive a monthly statement from AFI in any month in which there is a transaction which shall contain the name, quantity and total market value of each security held in the Client custodial account, along with the total market value of all cash and securities held in the Client custodial account. If there were no transactions, you will only receive a quarterly report from AFI.For portfolio management clients, on an annual basis at the end of each calendar year, AFI and Covista will provide a summary of all compensation paid to AFI and Covista, respectively, regarding your Account(s) for the preceding year and Covista will provide a report on the investment performance within your Account. For exempt market dealer clients, Covista will provide a summary of all compensation paid to Covista regarding your Account(s) for the preceding year and Covista will provide a report on the investment performance within your Account.
7.0 FEES FOR PORTFOLIO MANAGEMENT SERVICES. In consideration of the services to be rendered by Covista, the Client shall pay or cause to be paid to Covista a Portfolio Management Fee, plus any applicable taxes, including GST or HST, calculated in accordance with the Fee Schedule attached as Schedule ‘B’ of your Portfolio Management Agreement (PMA) you have signed with Covista. The Client is also responsible for any trading commissions or account fees as may be charged by the Custodian, and which has been disclosed in the Custodian’s account opening documentation. The Client directs and authorizes the Portfolio Management Fees payable to Covista hereunder to be withdrawn, when due, from the Account or from any other account in respect of which the Client and Covista have entered into a Portfolio Management Agreement.
7.1 FEES FOR COVISTA POOLED FUNDS. The Covista Pooled Funds contain management and performance fees charged within the fund – generally at 2% annual management fee for the Covista Value Fund and 1% annual management fee for the Skye Technology Fund, and 20% incentive distribution, subject to a 5% hurdle. These fees are included in the net performance of the funds.
7.2 IMPACT OF FEES ON INVESTMENT RETURNS. Ongoing fees can reduce the value of your investment portfolio. This is particularly true over time, because not only is your investment balance reduced by the fee, but you also lose any return you would have earned on that fee. Over time, even ongoing fees that are small can have an impact on the value of your investment portfolio.
8.0 INVESTMENT RISKS TO CONSIDER WHEN MAKING AN INVESTMENT DECISION.8.1 LIQUIDITY. The Funds are each an exempt security and does not provide daily liquidity.
8.2 DERIVATIVES. Covista may from time-to-time employ the use of derivatives as part of its trading strategy. Derivative products are highly specialized instruments that require investment techniques and risk analyses which may differ from those associated with stocks and bonds. Derivatives are subject to a number of risks, such as interest rate risk and market risk. They also involve the risk of mispricing or improper valuation, the risk that changes in the value of the derivative may not correlate perfectly with the underlying reference security and the risk that the counterparty may not honour its obligation. Derivatives may be highly illiquid, and the use of derivatives could result in a loss of more than the principal amount invested.
8.3 LEVERAGING/BORROWING TO INVEST. Using borrowed money to finance the purchase of securities involves greater risk than a purchase using cash resources only. If you borrow money to purchase securities, your responsibility to repay the loan and pay interest as required by its terms remain the same even if the value of the securities purchased declines. Borrowing money to invest is risky. The client acknowledges borrowing to invest should only be considered if the client has stable income, is comfortable with taking risk, is comfortable taking on debt to buy investments that may go up or down in value and is investing for the long term. Conversely, the client acknowledges that borrowing to invest should not be considered if the client has a low tolerance for risk, is investing for a short period of time, intends to rely on income from investments to pay living expenses or repay the loan.
8.4 COVISTA POOLED FUNDS. The Funds are exempt securities, and they are by their nature investments that have a greater deal of risk than other investments. Investment in an Exempt Security is not guaranteed in any way. There is no market for the Exempt Securities offered by Covista and such Exempt Securities are subject to certain restrictions on re-sale, and you may be unable to dispose of such Exempt Securities.
8.5 RISKS ASSOCIATED WITH INVESTMENTS. See schedule ‘A’ for a list of risk factors associated with investments in Covista’s Funds and for investing in general.
9.0 USE OF BENCHMARKS. Covista does not currently provide benchmark comparisons in our individual client portfolios.
10.0 FAIRNESS IN ALLOCATIONS. Covista confirms that in the event that securities are purchased for the accounts of more than one client of Covista (a ‘block trade’) and an insufficient number of securities are available to satisfy the purchase order, the securities available will be allocated to the extent possible pro rata to the size of the clients’ accounts taking into consideration the Client Information.
11.0 BEST EXECUTION AND SOFT DOLLARS. Covista decides which dealers are allocated brokerage business based on the quality of research received, competitive commission costs and their ability to execute trades. We pay select dealers a gross commission to affect a transaction with the understanding that the dealer will pay themselves a commission and may apply the balance (i.e. soft dollars) towards research and order execution goods and services provided by the dealer or a third party. The majority of Covista’s trading is completed directly through the Funds’ Prime Broker TD Securities Inc. The research and order execution services include analyses and reports regarding various subject matter relating to investments (including portfolio strategy, economic analysis, and statistical data about capital markets and securities), trading software, market data as well as databases and software that support these goods and services for order execution support. Dealers and other third parties may provide the same or similar goods and services in the future. The names of such dealers and other third parties are available upon request.
12.0 PRIVACY. Covista will use its best efforts to ensure that it does not disclose to any third parties such confidential information. Covista uses Microsoft Office 365’s OneDrive Cloud service to store all electronic files. Your personal data may be stored at a secure location in Canada or the United States and may be subject to review by Canadian or United States regulators. For further information, please discuss with the Privacy Officer at info@covistacapital.com or by calling 604-661-4450. Covista’s privacy policy can be found on the website at: https://www.covistacapital.com/legal/
13.0 CONFLICTS OF INTEREST. From time-to-time Covista may be involved in matters where its interests are conflicted to the interests of its clients. Covista has developed policies and procedures in order to identify conflict and potential conflict of interest matters. Once a conflict has been identified Covista has developed guidelines that involve taking steps to remove the conflict, or, if not possible, to take steps to minimize the impact of the conflict and provide appropriate disclosure to all affected parties. See schedule B for the Conflicts of Interest Statement of Disclosure.
14.0 COMPLAINT HANDLING AND DISPUTE RESOLUTION. If the Client has a complaint or concern regarding Covista’s services, the Client is to forward these to the Covista Chief Compliance Officer. Covista will provide an initial response within 5 days of receipt, will advise you of the availability of the Ombudsman for Banking Services and Investments (“OBSI”), a free and independent dispute resolution service, and will provide you with a final decision or proposed resolution within 90 days of receipt. Should the Client not be satisfied with Covista’s decision or proposed resolution, Covista will then advise that the Client may be eligible to use OBSI. OBSI may be contacted by email at ombudsman@obsi.ca or by telephone at 1-888-451-4519. OBSI works confidentially, in an informal manner and a lawyer is not required. OBSI will investigate your matter and may interview the Client and representatives of Covista. Covista will cooperate with OBSI’s investigations. OBSI will then provide its recommendation which is not binding on Covista. For more information regarding OBSI, please view the OBSI website at www.obsi.ca.
15.0 TRUSTED CONTACT PERSON AND TEMPORARY HOLDS. By choosing to provide information about a trusted contact person, you authorize Covista to contact the trusted contact person and disclose information about your accounts to that person in the following circumstances: possible financial exploitation of yourself;concerns about your mental capacity as it relates to your financial decision making or lack of decision making;the name and contact information of any of the following:a legal guardian of yourself,an executor of an estate under which you are a beneficiary;a trustee of a trust under which you are a beneficiary, orany other personal or legal representative of yourself; oryour current contact information.
TEMPORARY HOLDS. A temporary hold means a hold that is placed by Covista on the purchase or sale of a security on your behalf or on the withdrawal or transfer of cash or securities from your account. Covista will only place a temporary hold on your accounts if we reasonably believe that:you are a vulnerable client;you have been financially exploited, financial exploitation is occurring, has been attempted or will be attempted; or we reasonably believe that you do not have the mental capacity to make decisions involving financial matters.Should a temporary hold be placed on your accounts we will provide you with notice of the temporary hold and the reasons for the temporary hold as soon as possible. We will continue to review the relevant facts on an ongoing basis in order to determine if continuing the hold is appropriate. Within 30 days of placing the temporary hold and, until the hold is revoked, we will update you on a monthly basis to inform you if we have revoked the temporary hold or provide you with notice of our decision to continue the hold, and the reasons for that decision.
SCHEDULE A - RISKS ASSOCIATED WITH INVESTMENTSYou could lose all the money you invest. Only investors who can reasonably afford the risk of loss of their entire investment should consider the purchase of units in the Covista Funds. Certain risks associated with the purchase of units are described below.
Risks Associated with an Investment in the Covista FundsInvestment riskAn investment in the Covista Funds may be deemed speculative and is not intended as a complete investment program. A subscription for units should be considered only by persons financially able to maintain their investment and who can bear the risk of loss associated with an investment in the Covista Funds. Investors should review closely the investment objective, strategies and guidelines to be utilized by the Covista Funds as outlined herein.
No assuranceThere is no guarantee that the Covista Funds will be able to achieve their investment objectives, or that the Covista Funds will earn a positive return.
Dependence on the Manager and key personsThe Covista Funds rely upon the good faith and expertise of the Manager in providing investment advice and other services to the Covista Funds. If for any reason the Manager is unable or unwilling to provide investment advice to the Covista Funds, there could be significant adverse consequences to the Covista Funds. The Manager will depend, to a great extent, on the services of a limited number of individuals in the administration of the Covista Funds’ activities. The loss of such individuals for any reason could impair the ability of the Manager to perform its management activities on behalf of the Covista Funds.
Valuation of the Covista Funds’ investmentsValuation of the portfolio securities and other investments of the Covista Funds may involve uncertainties and judgmental determinations and, if such valuations should prove to be incorrect, the net asset value of the Covista Funds and its units could be adversely affected. Independent pricing information may not at times be available regarding certain of the Covista Funds’ securities and other investments. Valuation determinations will be made in good faith in accordance with the valuation principles established by us from time to time.The Covista Funds may invest in securities that by their very nature may be difficult to value accurately. To the extent that the value assigned by us to any such investment differs from the actual value, the net asset value per unit may be understated or overstated, as the case may be. In light of the foregoing, there is a risk that if you redeem all or part of your units while the Covista Funds holds such investments, you will be paid an amount less than you might have been paid if the actual value of such investments is higher than the value designated by us. Similarly, there is a risk that an investor might, in effect, be overpaid if the actual value of the investor’s investments is lower than the value designated by us in respect of a redemption. In addition, there is risk that an investment in the Covista Funds by a new investor (or an additional investment by an existing unitholder) could dilute the value of your investment if the actual value of such investments is higher than the value designated by us. Further, there is risk that a new unitholder (or an existing unitholder who makes an additional investment) could pay more than it might otherwise if the actual value of such investments is lower than the value designated by us. We do not intend to adjust the net asset value of the Covista Funds retroactively.
Net asset valueThe net asset value of the Covista Funds will fluctuate with changes in the market value of the Covista Funds investments. These changes in market value may occur as the result of various factors, including general economic and market conditions, international currency fluctuations and international developments. Accordingly, the net asset value per unit at any valuation date may be more or less than your original purchase price.
Fees and expensesThe Covista Funds is obligated to pay a management fee and other expenses regardless of whether the Covista Funds realizes a profit. Under certain circumstances, the Covista Funds may be subject to significant indemnification obligations.
Absence of regulatory oversightAs the Covista Funds currently only offer units by way of private placement, its activities are not governed by National Instrument 81-102 of the Canadian Securities Administrators, which regulates the activities of mutual funds which have offered securities to the public pursuant to a prospectus.
No independent managementThe Covista Funds do not have independent management and will be relying on us, in our capacity as manager of the Covista Funds, for the day-to-day management and operations of the Covista Funds, and to advise on the purchase and sale of securities for the Covista Funds. We will have conflicts of interest in allocating management time, services and functions among the Covista Funds and any other funds and portfolios which we organize, or provide management services to, as well as other business ventures in which we are or may become involved. Further, the officers and directors of the Manager will devote only such time to the affairs of the Covista Funds as they, within their sole discretion, exercised in good faith, determine to be necessary to carry out their obligations to the Covista Funds. The individuals responsible for providing advice to the Covista Funds on our behalf will allocate their time between the Covista Funds and other clients as they see appropriate.
Potential conflicts of interestWe may from time-to-time act as the manager and portfolio adviser for other investment funds, and as the portfolio adviser for investment advisory clients. Situations may arise in which our activities on behalf of other clients may disadvantage the Covista Funds, such as an inability of the market to fully absorb orders for the purchase or sale of particular investments placed for the Covista Funds and other clients at prices and in quantities which would be obtainable if the same were being placed only for the Covista Funds.
Large unitholder riskAn investor, group of investors or another investment fund may hold a large portion of the outstanding units of the Covista Funds. If an investor, group of investors or another investment fund redeems units representing a large portion of the outstanding units of the Covista Funds, the Covista Funds may be required to change the composition of the portfolio significantly or sell a significant portion of its investments at unfavourable prices, which could affect the overall performance of the Covista Funds.
Personal tradingThe Manager and its directors and officers may personally invest in the same securities as those invested in by the Covista Funds. If this occurs, there may be a conflict between the Manager or the director or officer’s interests and the interests of the Covista Funds in terms of the timing of trades and the availability of investments. If such situations arise, the Manager and its directors and officers will be governed by the policies and procedures we adopt to manage the conflicts that arise in these circumstances.
Selection of dealersWe have pre-existing relationships with certain dealers. It is possible that we may be biased in our selection of dealers based on these past relationships, or by certain incentives offered by some dealers. This may result in the commissions paid by the Covista Funds being somewhat higher than those that might be charged by different dealers. However, we will endeavour to select dealers to execute trades on behalf of the Covista Funds based on their ability to execute trades, and will do so in accordance with the related policies and procedures we adopt from time to time.
Lack of independent experts representing limited partnersEach of the Covista Funds, the General Partner and the Manager have consulted with a single legal counsel regarding the formation and terms of the Covista Funds and the offering of units of the Covista Funds. The limited partners have not, however, been independently represented. Therefore, to the extent that the Covista Funds, the limited partners or the offering of units of Covista Funds could benefit by further independent review, such benefit will not be available.
Marketability and Liquidity of Covista Funds unitsThere is currently no market through which the units of the Covista Funds may be sold nor is one expected to develop. In certain circumstances, the General Partner will not permit redemptions.
LeverageThe Covista Funds may leverage its investment positions by borrowing funds. Leverage increases both the possibility for profit and the risk of loss on any investment position.
Redemptions may force early liquidation of investment positionsIn order to pay the redemption price for unitholders who redeem their units, we may be required to liquidate investments earlier than we might otherwise choose. These liquidations may cause the Covista Funds to incur losses and could substantially reduce the net asset value of the Covista Funds if numerous redemptions are made at the same time. Substantial redemptions by investors within a short period of time could have a material adverse effect on the Covista Funds. Such asset liquidation may also trigger tax consequences, such as the characterization of certain profits as ordinary income or losses rather than as capital gains or capital losses.
Repayment of certain distributionsIf the available assets of the Covista Funds are insufficient to discharge obligations to creditors the Covista Funds may have a claim against limited partners for the repayment of any distributions or return of contributions to the extent the obligations arose before the distributions or returns sought to be recovered by the Covista Funds. In the limited Covista Funds agreement, each limited partner agrees to repay to the Covista Funds any such amount for which such limited partner could be liable pursuant to applicable limited Covista Funds legislation upon the request of the General Partner. A limited partner that transfers its units of the Covista Funds remains liable to make such repayments, irrespective of whether its transferee becomes a substituted limited partner.
Loss of limited liabilityLimited partners may lose limited liability in certain circumstances, including as a result of taking part in the control of or management of the business of the Covista Funds or non-compliance with legislation governing limited Covista Funds in the jurisdictions where units of the Covista Funds are offered for sale or where the Covista Funds carries on business. In certain circumstances, limited partners may not have limited liability in jurisdictions where the Covista Funds carries on business and is not registered, to the extent that principles of conflicts of laws recognizing the limitation of liability have not been authoritatively established with respect to limited Covista Funds formed under the laws of one jurisdiction but carrying on business in another.
Profit allocationSince the General Partner and the Manager are affiliated entities, the distributions payable to the General Partner may create an incentive for the Manager to cause the Covista Funds to make investments that are riskier or more speculative than would be the case in the absence of distributions payable to the General Partner based on the performance of the Covista Funds; however, such investments will only be made in the context of a portfolio that meets the Covista Funds investment objective and risk tolerance and the Manager will always act in the Covista Funds best interest.
Class riskThe Covista Funds has different classes of units. If the Covista Funds cannot pay the fees and expenses attributable to one class of units using the proportionate share of the Covista Funds assets attributable to that class, the Covista Funds will be required to pay those fees and expenses out of one or more of the other proportionate share of the Covista Funds assets. This may reduce the value of an investor’s investment in the Covista Funds.
Lack of focus on ordinary incomeAny interest and dividends earned by the Covista Funds on its investments will be incidental to the accomplishment of its primary investment objective. All income and capital gains distributions will be reinvested. An investment in the Covista Funds is not suitable for unitholders seeking current returns for financial or tax-planning purposes, and should be considered only by persons who are financially able to maintain their investment in the Covista Funds over an extended period.
Changes in applicable lawLegal and other regulatory changes may occur that may adversely affect the Covista Funds.
Use of a prime brokerThe assets of the Covista Funds will be held by the prime broker in one or more margin accounts due to the fact that the Covista Funds may from time to time sell securities short. The margin accounts may provide less segregation of customer assets than would be the case with a more conventional custody arrangement. The prime broker may also lend, pledge or hypothecate the assets of the Covista Funds in such accounts, which may result in a potential loss of such assets. As a result, the assets of the Covista Funds could be frozen and inaccessible for withdrawal or subsequent trading for an extended period of time if the prime broker experiences financial difficulty. In such case, the Covista Funds may experience losses due to insufficient assets of the prime broker to satisfy the claims of its creditors. In addition, the possibility of adverse market movements while its positions cannot be traded could adversely affect the total return to the Covista Funds.
Tax related risksThe Covista Funds’s income or losses for a fiscal year will be allocated to persons who are limited partners at any time during the fiscal year regardless of whether distributions have been made to the limited partners.Furthermore, there can be no assurance that tax laws applicable to the Covista Funds, including the treatment of income, capital gains and losses, as well as GST or similar taxes payable in respect of fees paid by the Covista Funds, will not be changed in a manner which could adversely affect the Covista Funds.
Risks Associated with the Covista Funds Underlying InvestmentsEconomic and market conditionsReturns may be affected by general economic and market conditions, such as interest rates, availability of credit, inflation rates, economic uncertainty, changes in laws, and national and international political circumstances. These factors may affect the level and volatility of securities prices and the liquidity of the Covista Funds’s investments. Unexpected volatility or illiquidity could impair the Covista Funds’s profitability or result in losses.
Equity riskThe value of equity securities is affected by specific company developments, by stock market conditions and by general economic and financial conditions in those countries where the investments are listed for trading. Investment funds which invest in equities generally tend to be more volatile than fixed income investment funds, and the value of their units may vary more widely than fixed income investment funds.
Lack of portfolio diversificationA portfolio will not necessarily be widely diversified. As a consequence, the portfolio of the Covista Funds may be subject to more rapid change in value than if the Covista Funds were required to maintain a wide diversification among companies, securities and types of securities.
Liquidity riskA portfolio may include a significant number of securities that are not actively and widely traded, or which are subject to transfer restrictions or for which there is no market. Consequently, it may be relatively difficult for the Covista Funds to dispose of investments rapidly at favourable prices, in connection with redemption requests, adverse market developments or other factors. The sale of such investments may also be subject to delays and additional costs and may only be possible at substantial discounts.
Credit riskWhen investing in debt securities, such as bonds, it is essentially making a loan to the company or the government issuing the security. The financial condition of an issuer of a debt security may cause it to default or become unable to pay interest or principal due on the security. If an issuer defaults, the affected security could lose all of its value, be renegotiated at a lower interest rate or principal amount, or become illiquid. Furthermore, debt securities are often rated by organizations such as Standard & Poor’s, and if a security’s rating is downgraded because the rating service feels the issuer may not be able to pay investors back, the value of that investment may fall. Higher yielding debt securities of lower credit quality have greater credit risk than lower yielding securities with higher credit quality.
DerivativesDerivatives are types of investments the value of which is based on, or derived from, the value or performance of another investment, such as a security, a currency, a commodity or a market index. There are many types of derivatives, including options, futures and forward contracts.Investment funds often invest in derivatives to reduce the risks associated with other investments or to help offset losses on other investments. The use of derivatives in this way is referred to as “hedging”. Investment funds may also use derivatives for other reasons, including helping to achieve their investment objectives, increasing returns, reducing the transaction costs associated with direct investments and positioning the funds to profit from declining markets. Although the use of derivatives for hedging or other purposes can be effective, derivatives also have certain risks, including the risks set forth below.There is no guarantee that the use of derivatives for hedging will be effective.Hedging does not prevent changes in the market value of the investments in the Covista Funds’s portfolio or prevent losses if the market value of the investments falls.Hedging can prevent the Covista Funds from making a gain if the value of the underlying security, currency, commodity or market index rises, or if interest rates fall.The Covista Funds might not be able to place a hedge if other investors are expecting the same change.There is no guarantee that the Covista Funds will be able to buy or sell a derivative to make a profit or limit a loss.There is no guarantee that the other party to a derivative contract will meet its obligations.Derivatives traded on foreign markets may be less liquid and have greater credit risk than similar derivatives traded on North American markets.Exchanges set daily trading limits on options and futures contracts, and these limits could prevent the Covista Funds from completing a contract.The cost of a particular derivatives contract may increase.The price of a derivative may not accurately reflect the value of the underlying security or index.The Income Tax Act (Canada), or its interpretation, may change in respect of the tax treatment of derivatives.A large percentage of the assets of the Covista Funds may be placed on deposit with one or more counterparties which would expose the Covista Funds to the credit risk of those counterparties.
Foreign investment risksIncome or losses may be affected by fluctuations in the rates of exchange between the Canadian dollar and the foreign currencies of the countries in which the Covista Funds holds investments. We may or may not hedge the currency risks for significant investment transactions denominated in currencies other than Canadian dollars.The values of foreign investments are affected by changes in currency rates or exchange control regulations, application of foreign tax laws, including withholding taxes, changes in governmental administration or economic or monetary policy (in Canada or abroad) or changed circumstances in dealings between nations. Costs are incurred in connection with conversions between various currencies. In addition, foreign brokerage commissions are generally higher than in Canada, and foreign securities markets may be less liquid, more volatile and less subject to governmental supervision than in Canada. Investments in foreign countries could be affected by other factors not present in Canada, including expropriation, confiscatory taxation, lack of uniform accounting and auditing standards, and potential difficulties in enforcing contractual obligations, and could be subject to extended settlement periods. Furthermore, the value of securities that are issued by a company in a developing market may be lower, as they may be less liquid and more volatile than those issued by similar companies in North America. In general, investments in more developed markets, such as Western Europe, have lower foreign market risk, whereas investments in emerging markets, such as Southeast Asia or Latin America, have higher foreign market risk.
Political riskPolitical risk is the risk that a certain industry or company within that industry may be negatively impacted by legislative change. Relevant risk factors include the imposition of new taxes, regulatory or legal obligations or industry related restrictions.
Income trust riskIncome trusts commonly hold debt or equity securities in, or are entitled to receive royalties or distributions from, an underlying active business. Income trusts generally fall into four sectors: business trusts, utility trusts, resource trusts and real estate investment trusts. Investments in income trusts are subject to the same risks as other equity investments. Many of these risks are described above.Investments in income trusts will have varying degrees of risk depending on the sector and the underlying assets. They will also be subject to general risks associated with business cycles, commodity prices, interest rates and other economic factors.Returns on income trusts are neither fixed nor guaranteed. Typically, income trusts and other securities that are expected to distribute income are more volatile than fixed-income securities and preferred shares. The value of income trust units may decline significantly if they are unable to meet their distribution targets. To the extent that claims against an income trust are not satisfied by the trust, investors in the income trust (which include a fund that invests in the income trust), could be held responsible for such obligations.
SCHEDULE B – CONFLICTS OF INTERESTAt Covista Capital Corp. (Covista) our goal is to be acting in our clients’ best interests at all times and these new rules require us to provide enhanced disclosure so that you have greater visibility of our efforts to always act in your best interests. Covista Capital Corp. is a registered Portfolio Manager, Investment Fund Manager and Exempt Market Dealer in British Columbia and Ontario and is a Portfolio Manager and Exempt Market Dealer in Alberta and Manitoba. Conflicts of Interest: What exactly is a conflict of interest? A conflict of interest means that there is an influence which may affect the decision we, as your portfolio manager would make in the management of your account, or conversely it may affect the decision that you, as the client, would make regarding your account with us. How We Manage of Conflicts of Interest: In general, we deal with and manage relevant conflicts as follows: Avoidance: This includes avoiding conflicts that are prohibited by law as well as conflicts that cannot effectively be addressed. Control: We manage acceptable conflicts through means such as policies and procedures. Disclosure: By providing you with information about conflicts, you are able to assess their significance when evaluating our services. At Covista, we have adopted policies and procedures to assist in identifying conflicts of interest. Conflicts deemed too significant to be addressed through controls or disclosures will be avoided. If the conflict cannot be avoided, we will control the conflict with policies and processes, and where it will assist in managing the conflict, we will provide disclosure to you in order to explain how we manage the conflict in your best interests. This disclosure will assist you in helping to understand the nature of your relationship with Covista. Specific Material Conflicts of Interest: Our existing or reasonably foreseeable material conflicts of interest are described below. We are also disclosing those potential conflicts that we avoid, in order to better explain how we put the best interests of our clients first.
Conflicts Arising from Proprietary Products. It is an inherent conflict of interest for Covista to distribute its own proprietary products or utilize proprietary products within its managed accounts. Covista is the investment fund manager and portfolio manager of the Covista Value Fund and the Skye Technology Fund, which are related and connected issuers to Covista (the "Funds"). There is the potential that Covista will put its interests above Covista's clients’ interests when direct subscriptions are made in the Funds or when the Funds are utilized within managed accounts. Covista controls the COI by ensuring that the purchase of the Funds or the utilization of the funds within managed accounts are suitable for the client and which places the client's interest first. The Funds are utilized by its clients who generally have a high risk profile, a long-term investment time horizon, long-term objectives of capital appreciation and have a familiarity with investing. The nature of these risks and that Covista only distributes or utilizes its own Funds is disclosed in its RDI and the respective offering memorandum documents. The following disclosure is provided to clients: "The suitability determination conducted by Covista will not consider the larger market of non-proprietary products or whether those non-proprietary products would be better, worse, or equal in meeting the client’s investment needs and objectives”. Managed account clients consent to the purchase of the Funds within managed accounts. Covista periodically reviews the Funds to determine that the Funds are comparable to other investment funds with similar mandates available outside of Covista.
Conflicts Arising from Third-party Compensation. It is a conflict of interest for Covista to receive third-party compensation as it may influence the purchase of a particular security. From time to time, Covista may be compensated directly or indirectly by issuers and manufacturers. Covista manages this conflict by providing disclosure to our clients and by ensuring that the purchase of any securities are suitable for the client or the Funds, and which place the client or Funds interests first.
Conflicts arising from internal compensation arrangements and incentive practices for registrants and supervisors. While motivating registered individuals and firms to generate revenue or grow assets is normal practice, some compensation practices can result in behaviour that is not in the best interest of clients as a result of incentives to add clients, assets or revenue generated from clients, or by charging performance fees within its investment funds. Covista manages this conflict as there are no commissions paid to Covista on the sale of any of its Funds and there are no fees charged within managed accounts. Management fees and a performance fee are charged within the Funds. The portfolio managers at Covista are very seasoned industry veterans who take their fiduciary obligations seriously to manage the Funds within the investment objectives and strategies of each respective Fund and to not take undue risks in order to chase performance fees. The management and performance fees are disclosed to clients.
Fee arrangements make certain clients more profitable than others/different/multiple fee schedules. Where a client is charged more than other clients for the same or substantially similar products or services, there could be a breach of the registrant’s duty to treat clients fairly, honestly and in good faith. Covista manages this conflict as Covista's policy is that investors in the Value Fund subscribe for the class of units which provide for payment of 2 + 20 fees. There is an F class of units in the Value Fund which provide for 1 + 20 in fees which currently have only non-material legacy holders of this class. The Skye Technology Fund unitholders are generally subscribed in a class of units which provide for 1 + 20 in fees. The Value Fund requires a more involved investment process with a heavier research and analysis emphasis which is reflected in the 2 + 20 fee structure, all of which is disclosed to clients.
Conflicts Between Clients (Fair Allocation of Investment Opportunities). There can be competing interests among client accounts for allocation of trades in a fair manner, and that a registrant may have difficulty trying to address these conflicts in the best interest of all their clients simultaneously. Covista manages this conflict for portfolio management clients as it discloses to its clients that services are not exclusive at the time of account opening as well as being provided disclosure of our Fairness in the Allocations policy.
Conflicts Related to Referral Arrangements. Paid referral arrangements are almost always an inherent conflicts of interest which are almost always material conflicts of interest. Covista avoids this conflict as does not have any referral arrangements.
Conflicts Arising from Having Full Control or Authority Over the Financial Affairs of a Client or Purchasing Assets of a Client. Having full control or authority over the financial affairs of a client or purchasing assets from a client are inherent conflicts of interest. Covista avoids these conflicts as it does not have any individuals who have full control or authority over the financial affairs of a client, and would not permit this situation to occur, and Covista does not permit the purchase of assets from clients.
Conflicts Arising from Individuals Who Serve on Public Boards and Outside Business Activities: Material conflicts of interest arise if an individual acts as a director of a non-affiliated firm or acts as a director of a reporting issuer. Covista avoids the conflict of interest where an individual serves on the board of a public company as no employees of Covista currently serve on any public boards and Covista does not accept directorships. A conflict of interest may arise as a result of a Covista employee's outside activities (OA). A conflict may arise from activities due to time commitment, their position or any compensation received. The OA may hinder their ability to perform their duties, may give rise to confusion as to which entity the individual is representing or the employee may be in a position of influence. Covista manages this conflict as all outside business-related roles or relationships, such as directorships or trusteeships of any kind, or paid or unpaid roles with charitable organizations, must be approved by Covista. Where such relationship may give rise to a situation where our clients should be made aware of the outside business activity, clients will be provided with disclosure of the outside business activity.
Allocating Expenses amongst fund/in a fund. There is a conflict of interest between the interests of the Manager and its clients and Funds in relation to the allocation of expenses amongst the Funds. This conflict creates a risk that the Manager may allocate expenses to the Funds that are not appropriate, or may allocate expenses disproportionately to a Fund that is not fair and equitable to all clients and funds and may negatively impact the Fund and the Fund's performance. Covista manages this conflict as Covista's fund expense policy provides that each Fund pays its own operating expenses and fees of third-party service providers. Covista has established policies and procedures so that expenses charged to each Funds are reasonable and appropriate and the method of allocating such expenses is fair and equitable.
Large Unitholders. Allowing a large unitholder to invest in a fund may constitute a conflict of interest because Covista will earn revenues, or gain other benefits, from the assets invested by the large unitholder, while there is the possibility that the trading activities of the unitholder could adversely affect the remaining unitholders of a Fund. Additionally, the redemption of a large unitholder could pose a liquidity risk to the Fund. Covista controls this conflict as it monitors unitholder concentration and should there be may a special distribution within the Fund when there is an exit of a large unitholder.
Trade Execution. There is a potential conflict that could arise in relation to the decision made with respect to the to the execution of trades for the Funds. This conflict creates a risk that Covista will deal with third party brokers for relationship or other reasons and pay higher commissions or other fees than those that may be charged by other brokers or otherwise do not obtain best execution. Covista manages this conflict as Covista has written policies for best execution. Covista seeks the best overall price and execution available and its goal is to execute transactions at a reasonable and efficient manner.
Soft Dollar Arrangements. Brokerage commissions used to generate soft dollars are an asset of Covista’s clients and the Funds and the use by Covista of such brokerage commissions to generate soft dollars may create a conflict of interest. Covista manages this conflict by having policies in place that monitors the soft dollar benefits received and provides disclosure to clients regarding its use of soft dollars.
Cross Trades. Where securities are purchased by a Fund or an account of a responsible person at a time when the other Fund or account of a responsible person is a seller of such securities, it is an inherent conflict of interest because of the potential benefit to the respective Fund or account of a responsible person. Covista's avoids this conflict as Covista's policy is to not allow cross trades between the Funds.
Trading and Pricing Errors. Covista may have a potential conflict of interest when dealing with a trade error or pricing error in a Fund. There is a risk that Covista may not to take steps to correct or otherwise address the error due to the cost or other implications to Covista. Covista controls this conflict by having a policy of when there is an instance of a material trading or pricing error caused by an employee of Covista, and where a client or the Fund has been negatively impacted, the client or the Fund is made whole, in accordance with industry guidance.
Valuation of portfolios or funds. As Covista's revenue is based on a percentage of the market value of a client account or a Fund, Covista may have a conflict of interest in those instances where Covista is responsible for valuing portfolio securities. There is a conflict as the valuation will impact the fees earned by the firm and the performance reported to clients as well as marketed. Covista manages this conflict as Covista's valuation policy provides that valuations of client holdings are determined by third parties and from publicly available market data.
Personal Trading, Use of Inside Information for Personal Gain and Gifts and Entertainment. Individuals may find themselves in situations where their personal interests are in conflict with those of a client. When individuals at Covista invest in the same securities clients of Covista, or has access to inside information, there is a perceived or potential conflict of interest that such individuals at Covista may benefit from opportunities at the expense of Covista’s clients. Covista manages this conflict as Covista has a Code of Ethics that prohibits the use of inside of information and has established personal trading policies and procedures to monitor personal trades. The Code requires pre-clearance and reporting of personal securities transaction and employees provide an annual acknowledgement of compliance with the Code. Covista has a Gift and Entertainment Policy to place limits on gift and entertainment giving and provide guidelines on gift and entertainment acceptance which requires all gifts or entertainment above $1,000 to be formally approved.
Marketing. Covista has a potential conflict of interest in showing good performance to attract more clients which may conflict with Covista’s fiduciary responsibility to its clients and prospective clients to provide accurate performance reporting.
Complaints. There is a potential conflict of interest if a complaint is received and not responded to as it may adversely affect an individual or Covista. Covista manages this conflict as it has policies regarding reporting complaints, along with reporting requirements.
