Disclosures

Last update: March 16, 2018

Introduction 

This Relationship Disclosure Document contains important information concerning our relationship with you as an Investor Client. It contains information about us, the services we provide, risks associated with the investments you might purchase from us, description of your account and how it will operate and the associated fees, how we assess the suitability of a potential investment, the account reports we provide, conflicts of interest, privacy policy, and complaint handling procedures. This document will be provided to you at the time you open your Account with us or before we begin providing advice or services to you. If there is a significant change to the information contained in this document, we will provide you with updated information in writing for by email (if you have consented to electronic delivery) as soon as reasonably possible.

Who We Are

Terra Fund Management Ltd. (“Terra”) is an investment fund manager registered with the Ontario Securities Commission, its primary regulator.

Linden Mills Investments Inc. (“LMI”) is an exempt market dealer registered with the Ontario Securities Commission (its primary regulator) and other Canadian securities regulatory authorities including British Columbia, Alberta, Saskatchewan, Manitoba, Québec and Nova Scotia. 

You can confirm our registration in the provinces mentioned above by visiting the Canadian Securities Administrators’ website at www.aretheyregistered.ca.

Terra and LMI are related parties (see Sale of Related Party Securities) and their primary offices are located in Toronto, Ontario.

Investment Philosophy

Terra offers tax-smart investments that help investors pay less tax through funds offering low fees, expert management, small investment minimums and early liquidity.

Products and Services Offered

Terra offers flow-through limited partnerships and corporate class mutual funds (the “Fund” or “Funds”) that invest primarily in publicly traded companies. Terra flow-through limited partnerships are available directly to client directed accounts or through major brokers, discount brokers, exempt market dealers and financial planners with a minimum initial purchase of $1,000 per partnership. Terra mutual funds are currently not available for purchase.

Client directed accounts for the purchase of a Fund may be opened through LMI and are for individual investors who wish to manage their own investments. Direct clients receive this relationship disclosure document, offering memorandum and subscription agreement for the Fund(s), detailed quarterly or monthly reporting as well as Terra’s quarterly Investment Update which provides market commentary and analysis for the past quarter.

Sale of Related Party Securities

The Funds are considered to be a connected issuer and related issuer of LMI., because each of LMI, Terra and Terra Flow-Through GP Management Ltd. (the “General Partner”) are owned by John Jacobi. Mr. Jacobi is also a Director of TerraTundra Foundation, a non-profit charitable corporation registered as a public foundation.

As dealer, LMI sells securities of certain Funds for which Terra acts as manager. A conflict may arise in these circumstances, as the fees Terra receives from these Funds are dependent on the NAV of the funds. LMI has policies and procedures to ensure that it only sells securities of the funds to clients for which the investment is deemed to be suitable. See “Conflicts of Interest” for more information.

Custodian

Client accounts are held by National Bank Corespondent Network (“NBCN”) at the following address:
130 King Street West, Suite 3000
Toronto, Ontario M5X 1J9

All client accounts held directly with NBCN, must be non-registered, cash accounts, as Terra does not have the facilities to offer any form of registered accounts or those with margin facilities.

Your Fund Account

When you open an Account with LMI to purchase units of a Fund, the Account is a non-discretionary trading account. We may make recommendations to you in respect of your Account, but we will only execute trades in the Funds for your Account in accordance with your instructions and authorization. All transactions must be discussed with you prior to execution.

When you open an Account with us you will be required to enter into a Subscription Agreement or similar document, which, among other things, outlines your investment needs and objectives, financial circumstances and risk tolerance, and any amendments thereto that have been acknowledged in writing by both parties.

Terra collects this information from you upon Account opening to fulfill our “know-your-client” obligations under securities laws. In addition, we use the information provided by you in your Account documentation to establish your identity and to identify and assess areas of potential conflicts of interest. We continuously update this “know-your-client” information to ensure that we have current information regarding your investment needs and objectives, and  financial circumstances and tolerance for risk, to assist us in determining whether the purchase of a particular Fund is suitable for you prior to a transaction being executed. We are required to assess each purchase and sale made in your Account prior to executing the trade to ensure it is compliant with your stated investment objectives.

Account Statements

Once you open a client directed account opened through LMI  you will receive a quarterly statement of account (or monthly if you have requested statements on a monthly basis) containing certain information about the status of your Account, including details about each transaction/activity conducted in your Account during the time period covered by the statement, information about each security you own (including the market value and original or book cost) and the cash balance, if any, in the Account at the end of the period covered by the statement. In addition each statement will include the performance of your investments including the change in market value in the account and fees and charges to the account including fixed administration fee, trailing fees and referral fees, if any.

Use of Benchmarks

You may assess the performance of your investments by comparing them to an investment performance benchmark. Benchmarks show the performance over time of a select group of securities. There are many different types of benchmarks. When selecting a benchmark, care must be taken to choose a benchmark that reflects your investments. Terra does not provide performance benchmarks.

Fees, Fund Operating Expenses and Management Fees

As an investor in a Fund, you will bear a portion of the ongoing fees and operating expenses paid by the individual Funds that you own, including the management fees Terra receives for our role as manager of the Funds. In addition, your purchase of an individual Fund may be subject to certain sales charges. A description of fees and expenses associated with an investment in the Funds is described in detail in the offering document of each Fund.

We do not charge additional fees to open, operate or maintain an Account with us. We will provide you with at least 60 days written notice before we impose any new or increased charge associated with the operation, transfer or termination of your Account. However, certain actions in relation to the purchase and redemption of your investment in an individual Fund may be subject to a short-term trading fee. A full description of this fee can be found in the offering document for each Fund.

If your Account is held at a custodian, you may also be charged certain fees or expenses by third parties who provide services in relation to your Account, including any custodian that holds securities for the Account and the brokers or dealers who execute securities transactions for your Account. The fees and expenses charged to you by these parties will vary from time to time and may be deducted from your Account. Additionally, if you are working with a financial planner or investment advisor to manage your wealth, you may be charged a fee for these services in relation to your Account at Terra. The fees and expenses charged by these parties will vary from time to time and will be deducted from your Account if authorized by you.

Pre-Trade Disclosure of Charges

Before we accept an instruction from you to purchase a Fund in your Account, we will provide you with an offering document for the Fund, which provides information about the charges that you may have to pay in connection with the transaction.

Reporting

Terra will make available to each investor in the Funds, within 120 days after the end of each fiscal year, audited financial statements of the Funds, a report on allocations and distributions to Canadian investors in the funds and the estimated NAV of the Funds. We will update the NAVs for all Funds on a monthly basis and post these values to the website for Terra Fund Management Ltd. (www.terrafunds.ca).

Your Protection as an Investor

Our Funds are not “deposits” within the meaning of the Canada Deposit Insurance Act, and are not covered by the Canadian Deposit Insurance Corporation, the Canadian Investor Protection Fund or by any other government insurance agency.

Your Role in our Relationship

It is important that you actively participate in our relationship with you. In particular, you are responsible for the following:

  • Keeping us fully and accurately informed regarding your personal circumstances, and promptly advising us of any change to information that could reasonably result in a change to the types of investments appropriate for you, such as a change to your income, investment objectives, risk tolerance, time horizon or financial circumstances.
  • Reviewing the documentation and other information we provide to you regarding your Account, transactions conducted in your Account and the holdings in your Account.
  • Asking questions of and requesting information from us to address any questions you have about your Account, transactions conducted in your Account or the holdings in your Account, or your relationship with us or anyone acting on our behalf.

Providing us with this information is important when we are acting as your Dealer, as we have an obligation to assess whether a purchase or sale of a security is suitable for you prior to executing the transaction or at any other time.

Where there has been a material change in your circumstances or should a situation arise where you have questions with respect to your account with LMI, please contact us by telephone at 416-203-2477 or 1-800-449-4646, or via email at info@terrafunds.ca.

Risks associated with making an Investment

Securities laws require us to provide you with a description of risks that you should consider when making an investment decision. A description of the specific risks associated with an investment in each Fund are set out in the offering document of each Fund and we encourage you to read those risks carefully prior to an investment in any Fund.

Before making any investment decision, it is important to consider your investment goals, your level of risk tolerance and the risks associated with the investment you are considering. Generally, there is a strong relationship between the amount of risk associated with a particular investment and its potential to increase in value in the long term. However, investment risks vary depending on the type of investment.

A summary of the nature and risks associated with investing in a Fund or the Funds is set out below. This information is not intended to constitute a comprehensive statement of all the risks to which investors might be exposed and there may be others that exist now or which may arise in the future.

The main general risks associated with investing are as follows:

  • Past performance is not an indicator of future performance;
  • The value of investments is not guaranteed and may go down as well as up;
  • You are not certain to make a profit. You may make a loss. You may lose your entire investment;
  • The price or value of investments may fluctuate significantly;
  • If there are income distributions, they may also fluctuate significantly.
  • Market conditions may limit the ability for the investment manager to trade and/or adversely affect the price of an asset;
  • Investments in foreign markets, if any, are subject to exchange rate fluctuations.

Investment risks associated with the Funds include:

  • Capital risk – the risk that the value of an investment (like stocks or shares, mutual funds and limited partnerships) at the time of disposal may be significantly lower than the amount invested.
  • Interest Rate Risk - the risk to the earnings or market value of a portfolio due to uncertain future interest rates.
  • Credit Risk - an issuer of fixed income securities may not be able to meet its financial obligations, including making interest and principal payments.
  • Liquidity risk – the risk that your investment may not be readily saleable.
  • Borrowing risk – the additional risk in using borrowed money to finance the purchase of securities.  An investor is responsible for ensuring that all principal and interest owed by the investor in respect of any such loan is paid in full when due even if the value of the securities purchased declines.
  • Commodity risk – the risk that exposures to certain commodities, or to companies whose business is dependent on commodities, may be directly affected by movements in the price of the commodities.
  • Concentration risk – the risk that the Funds are invested in relatively few securities, industries, or market capitalization range, which can result in a lack of diversification across all sectors, regions or countries and may result in higher volatility of the Fund’s performance.
  • Currency risk – the risk that securities denominated in a currency other than Canadian dollars will be affected by changes in the value of the Canadian dollar in relation to the value of the currency in which the security is denominated.
  • Regulatory Risk - the risk that revenue for a company is subject to the laws, regulations and policies of regulatory agencies.
  • Tax Risk - the risk associated with tax laws applicable to the Funds, including the treatment of certain gains and losses as capital gains and losses, will not be changed in a manner which could adversely affect the Funds or the Funds’ shareholders.

Investors should review the Risk Factors section of the offering memorandum for a Fund, which contain a detailed discussion of the material risks that each investor should consider before investing in a Fund. Investors should consult with their own professional advisors to assess the tax and other aspects of an investment prior to investing.

Using Borrowed Money to Make Investments

If you are considering borrowing money to make investments, or considering providing Terra with borrowed money to make investments on your behalf, you should be aware that the use of borrowed money to purchase securities involves greater risk than a purchase made using cash resources only. If you borrow money to purchase securities including the Funds, your responsibility to repay the loan and pay interest as required by its terms remains the same, even if the value of the securities purchased declines. As a result, your losses would be larger than had you invested using your own money.

Suitability and Know Your Client

If LMI acts as your dealer, it has an obligation to assess whether a purchase or sale of a Fund is suitable for you prior to making a recommendation to or accepting trade instructions from you. To meet this suitability obligation, LMI is obligated to obtain and maintain current client information to ensure compliance with the “Know Your Client” (“KYC”) obligations as well as legislation governing identity verification and anti-money laundering. In this regard, LMI must (i) establish, verify and document the identity of all clients, (ii) determine whether the client is an insider of a publicly traded issuer, and (iii) obtain sufficient personal and financial information to make a determination of the suitability of a particular security or Fund prior to executing the transaction.

Should LMI become aware or have reason to believe that an investor is engaged in money laundering, it is our duty to report this to the Financial Transactions and Reports Analysis Centre of Canada (“FINTRAC”). This reporting will not be deemed a breach of our privacy policy or any other prohibition that is imposed by law or otherwise.

Conflicts of Interest

In the course of providing services to you, there may be situations where a conflict arises between our interests and yours. We believe it is important that you are fully informed regarding these conflicts. Canadian securities laws require Terra and LMI to take reasonable steps to identify and respond to existing and potential material conflicts of interest, and in certain circumstances, to provide you with certain information regarding these conflicts and also to obtain your prior consent before we engage in certain types of transactions. This section contains important information regarding conflicts of interest that we have identified. Please read it carefully.

Terra is the investment fund manager of the Funds and may, in the future, be the investment fund manager of other mutual funds, limited partnerships, unit trusts or investment funds managed, administered or promoted by us (the “Related Funds”). We may from time to time make recommendations regarding the securities of these Related Funds to you and assist you with the purchase and redemption of units of the Related Funds for your Account. We will only engage in these types of transactions where they are permitted under applicable securities laws and where we believe they are in your best interests in the applicable circumstances.

In most cases, our connection to these Related Funds will be obvious to you because the names of the Related Funds will be sufficiently similar to our name. For example, in most cases the names of the Related Funds will include the word “Terra.” If we believe that the name of any Related Fund is not similar enough to convey the fund’s relationship to us, we will provide you with specific disclosure regarding that relationship at the appropriate time.

As the investment fund manager, Terra will adhere to its respective policies and procedures and place the interests of a fund ahead of its own. Further, all other employees are also subject to our Personal Trading Policy which requires all trades in non-exempt securities to be reviewed and approved by Terra’s and LMI’s compliance team prior to execution. If any proposed trades could potentially be a conflict with our clients, the client’s interest will take priority.

Terra, LMI and its employees are required by securities legislation to disclose Outside Business Activities (OBAs) and  will monitor and supervise OBAs and consider the potential for a conflict of interest that could arise.

Terra’s portfolio manager, Cypress Capital Management Ltd. (“CCM”) has adopted policies which are designed to ensure fair allocation of securities among all applicable funds on a pro-rata basis. When placing orders for or on behalf of its funds, CCM and its sub-advisors, if any, will comply with applicable regulatory requirements regarding the use of client brokerage commissions, which are designed to ensure that the Funds receive reasonable benefit from such transactions.

Terra does not receive compensation or commission for the sale of a Fund to investors. Terra, or an affiliate of Terra (such as the General Partner for the various limited partnerships), however, will receive a management fee and investors will bear a portion of the ongoing fees and fixed operating expenses paid by the Fund(s) they own. In addition, a Fund may be subject to a redemption or short-term trading fee. In some cases Terra also charges its Funds a performance fee, which is calculated on the basis of NAV of the Fund’s portfolios.

Terra may have a potential conflict of interest when determining a pricing error or other type of investor account error, due to the time, processing cost and size of reimbursement involved. Terra has adopted an error correction policy that establishes standards for the correction of errors in the calculation of a fund’s NAV in a manner consistent with industry guidelines. In general, Terra will determine that an error has been made when there is an incorrect calculation in the NAV of a fund that is the result of a breach of Terra’s standard of care owed to the fund. Terra will make a Fund whole if the error is 0.5% or more of the Fund’s NAV, and will also adjust investor accounts, unless the total impact on an individual account is less than $50.

Valuation of Infrequently Traded Securities

We have outsourced the valuation of the Funds to a third party for determining the net asset value of their portfolios, which in turn will determine the amount of management and performance fees (if applicable) payable by a Fund and other expenses including the fixed administration fee. The methodology for valuing securities in the Funds is noted in the offering documents of each Fund. In most cases, the Funds trade in marketable securities which are valued based on the latest available market price. If, in our opinion or that of the Fund’s valuation agent, (i) the above valuation principles cannot be applied (whether because price or yield equivalent quotations are not available or for any other reason) to determine the value of any securities or other property or (ii) the value of any security or other property determined using the above valuation principles does not represent the fair value of the security or other property, we, or our agent, will determine the fair value of the security or other property. We periodically review the accuracy of fair value pricing.

Referral Arrangements

LMI may enter into referral arrangements from time to time with third parties who wish to sell our Funds. The details of these referral arrangements, including the parties to the referral arrangement, the manner in which the referral fee for services is calculated, and the party to whom it is paid will be provided to you in a separate document.

Privacy Policy

At the time of account opening and on an ongoing basis there may be instances where clients disclose personal and confidential information to Terra, including personal identification and financial information. Terra and LMI personnel will comply with all legislation and each entity’s privacy policy in connection with the use and protection of such information. You can find our Privacy Policy by following the link on our website at www.terrafunds.ca/privacy-policy/.

Canadian Anti-Spam Legislation

Under Canada’s new anti-spam legislation that came into effect July 1, 2014, we are required to obtain your consent to send you emails and other electronic messages. We will typically seek this consent from you at the time you open your Account. You may withdraw your consent at any time by selecting the unsubscribe link within the email.