Item 5 – Fees and Compensation
All fees are subject to negotiation and all fee arrangements will comply with Section 205 of the
Advisers Act. The specific manner in which we charge fees for Separately Managed Account
(“SMA”) clients is established by the Agreement. The Agreement and/or a separate agreement
with a financial institution(s) or client will authorize 440 through the financial institution(s) to
debit a client’s account for the amount of the fee and to directly remit that management fee in
accordance with applicable custody rules, or alternatively, to bill the client for the fees incurred.
The financial institution(s) utilized by 440 have agreed to send a statement to the client, at least
quarterly, indicating all amounts disbursed from the account including the amount of
management fees paid directly to us.
Asset-based Compensation
We will generally bill our fees in advance on a quarterly basis based upon either the notional
value or market value of assets under management on the last day of the previous quarter
(including margin release, net unrealized appreciation or depreciation of investments of cash,
cash equivalents and accrued interest) depending on the strategy and Agreement in place. 440
will sometimes waive or reduce the fees applicable to certain clients. Fees applicable to the
account are negotiated on a case-by-case basis.
For the initial quarter of investment management services, the first quarter’s fees shall be
calculated on a pro rata basis. The Agreement between 440 and the client will continue in effect
until terminated by either party pursuant to the terms of the Agreement. Our annual fee shall be
prorated through the date of termination and any remaining balance shall be charged or refunded
to the client, as appropriate, in a timely manner.
Additions may be in cash or securities provided that we reserve the right to liquidate any
transferred securities, or decline to accept particular securities into a client’s account. We may
consult with our clients about the options and ramifications of transferring securities. However,
clients are advised that when transferred securities are liquidated, they are subject to transaction
fees, fees assessed at the mutual fund level (i.e. contingent deferred sales charge) and/or tax
ramifications.
Performance-based Compensation
For certain strategies, 440 will also be paid a performance-based fee, which is compensation that
is based on a share of capital gains or capital appreciation of the assets of a client, as defined in
the Agreement. The performance fee is equal to 15% of the annual net gains achieved in a
client’s account, subject to a perpetual high water mark. The performance fee is charged annually
in arrears, based upon the net portfolio gains achieved on a calendar year basis. Typically, the
performance-based fee is not negotiable. However, 440 reserves the right to waive, reduce or
require different fees from clients. Performance fees are further detailed in Item 6.
Other Expenses
Our fees are exclusive of brokerage commissions, transaction fees, and other related costs and
expenses which shall be incurred by our clients. Clients will incur certain charges imposed by
custodians, brokers, and other third parties such as custodial fees, deferred sales charges, odd-lot
differentials, transfer taxes, wire transfer and electronic fund fees, and other fees and taxes on
brokerage accounts and securities transactions. Such charges, fees and commissions are
exclusive of and in addition to our fee. Item 12 further describes our brokerage practices.