Item 5. Fees and Compensation
Quarterly and Annual Fees
Balch Hill’s compensation is negotiable and varies, but typically, it charges an annual fee of 1%
of assets under management, which amount is payable on the first day of each calendar quarter
based on the net market value of each investor’s capital account balance in the Fund on that date.
Balch Hill also is allocated from each investor in the Fund a performance allocation equal to 18%
of net profits (including both realized and unrealized gains and losses) otherwise allocable to that
investor. Performance allocations are assessed in arrears quarterly (and on withdrawals from the
Fund during the year with respect to the amount withdrawn) and are only applied to the portion of
profits that exceed the cumulative losses previously allocated to investors. Limited partner
interests in the Fund held by Balch Hill, Mr. Michael and their affiliates or family members do not
pay annual fees or performance allocations.
Balch Hill complies with Rule 205-3 under the Investment Advisers Act of 1940. Performance
allocations create an incentive for Balch Hill to make more risky and speculative investments than
it would otherwise make.
Balch Hill deducts management fees and performance allocations directly from the Fund.
To the extent that the Fund invests in mutual funds, investors also pay, indirectly, investment
advisory fees to the managers of those funds.
Balch Hill believes that its fees are competitive with fees charged by other investment advisers for
comparable services. Comparable services may be available, however, from other sources for
lower fees.
The disclosure in this Item 5, together with the disclosure in Item 12, allow a plan that is subject
to the Employee Retirement Income Security Act of 1974 and that invests in the Fund to use the
“alternative reporting option” to report Balch Hill’s compensation as “eligible indirect
compensation” on the Schedule C of the plan’s Form 5500 Annual Return/Report of Employee
Benefit Plan.
Fees Relating to Withdrawals
Balch Hill’s relationship with the Fund will terminate on the Fund’s dissolution or on Balch Hill’s
withdrawal as general partner. Each investor may withdraw from the Fund, on 30 days’ written
notice, on the last day of any calendar quarter (subject to Balch Hill’s right to suspend withdrawals
or redemptions in certain unusual circumstances). In all cases, investors’ accounts bear expenses,
the pro rata portion of the management fee and the performance allocation through the date of
termination or withdrawal. The Fund does not refund any management fee previously paid by an
investor that withdraws on a date other than the last day of a quarter.
Expenses
The Fund may pay or reimburse Balch Hill for costs and expenses incurred by or on behalf of both
Balch Hill and the Fund. Thus, the Fund may pay expenses of Balch Hill’s investment advisory
business and the Fund’s own expenses. These expenses may include, for example, brokerage
commissions, expenses related to short sales, and clearing and settlement charges), all ongoing
legal, accounting, tax, bookkeeping, professional, expert and consulting fees and expenses
(including the fees and expenses of attorneys for Balch Hill and its principal, research consultants,
research related fees and expenses, portfolio and risk management systems, and quotation services
and related equipment), and all of Balch Hill’s operating expenses. Some of these costs and
expenses may be paid by securities brokerage firms and futures commission merchants (“FCMs”)
that execute trades for the Fund, as discussed in Item 12.