Item 5. Fees and Compensation
Clayton Capital Appreciation Fund, L.P. (the “Fund”)
Clayton typically charges the Fund an annual fee of 1% of each limited partner’s capital account
balance, which amount is payable in quarterly installments at the beginning of each calendar
quarter based on the opening net market value of each limited partner’s account on the first day
of that quarter. Clayton also typically is allocated from each limited partner in the Fund a
performance allocation equal to 20% of net profits (including both realized and unrealized gains
and losses) otherwise allocable to such limited partner. Performance allocations are assessed in
arrears on an annual basis and are only applied to profits that exceed the cumulative losses
previously allocated to those limited partners “highwater mark”. Clayton complies with Rule
205-3 under the Investment Advisers Act of 1940, to the extent required by applicable law.
Performance allocations may create an incentive for Clayton to make more risky and speculative
investments than it would otherwise make. Clayton may waive or reduce the management fee or
performance allocation for any particular limited partner.
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 Clayton’s compensation as “eligible indirect
compensation” on the Schedule C of the plan’s Form 5500 Annual Return/Report of Employee
Benefit Plan.
Clayton’s relationship with the Fund is terminable on expiration of the Fund’s term, dissolution
of the Fund or on Clayton’s withdrawal as general partner. Each limited partner may withdraw
from the Fund, on 60 days' prior written notice, on the last day of any calendar quarter that
occurs either on or after the day preceding the (i) six-month anniversary of such limited partner’s
admission to the Fund if such admission occurred before April 1, 2013, or (ii) the one year
anniversary of such limited partner’s admission to the Fund if such admission occurred on or
after April 1, 2013. In all cases, expenses, the pro rata portion of the management fee and any
performance allocation through the date of termination are charged to the account. An investor
who withdraws from the Fund on a date other than the last day of a quarter, however, does not
receive a refund of the management fee previously paid.
Separate Accounts
Clayton offers Separate Accounts employing its “Long Only Strategy” or “Decarbonization
Strategy (CPDS)” (both discussed in more detail in Item 8 below). Clayton’s standard fee
schedule for Separate Account clients is:
Assets under Management Fee (as % of Assets under Management)
0 - $500,000 1.8% per year (0.45% per quarter)
$500,000 - $1,500,000 1.4% per year (0.35% per quarter)
$1,500,000 - $3,000,000 1.0% per year (0.25% per quarter)
Over $3,000,000 .70% per year (0.175% per quarter)
Notes:
(1) The fee schedule applies incrementally to funds managed, i.e., the first $500,000
is charged 1.8% per year, the next $1,000,000 is charged 1.4%, and so on, with the maximum
blended fee not to exceed 1.4%
(2) Family accounts which are lineal (grandparents, children and grandchildren) are
combined to take advantage of the fee schedule.
(3) Fees which differ from the standard fee schedule are negotiable.
The fee is payable at the beginning of each calendar quarter based on a Separate Account
portfolio’s asset under management on the first day of that quarter. Funds contributed or
withdrawn during a quarter are subject to prorated fees for the period of time they are in the
account. For example, if a client contributes assets during a quarter, fees will accrue from the
contribution date and be added to the fees paid in the following quarter. Conversely, if a client
withdraws assets during a quarter, fees will stop accruing on the withdrawal date and be
deducted from fees due in the following quarter. Separate Account clients are responsible for
verifying the accuracy of the custodial fees and transaction costs charged by the custodian and/or
Clayton.
Except as may be otherwise negotiated in particular cases, a Separate Account client may
terminate the account by giving 15 days’ prior written notice. On any termination, the Separate
Account is responsible for any expenses and the pro rata portion of the management fee through
the termination date.
General Disclosure
Clayton typically deducts fees and allocations directly from client accounts but may bill a client
for such amounts on request.
Accounts that invest in mutual funds also pay, indirectly, investment advisory fees to the
managers of those funds.
Clayton 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.
Each account is responsible for its own costs and expenses, including trading costs and expenses
(such as brokerage commissions, expenses related to short sales, and clearing and settlement
charges), ongoing legal, accounting and bookkeeping fees and expenses, and the fees and
expenses charged by any fund administrator for its accounting, bookkeeping and other services.
Clayton bears its own operating, general, administrative and overhead costs and expenses, other
than the expenses described above. All or part of these costs and expenses may be paid, however,
by securities brokerage firms and futures commission merchants ("FCMs") that execute clients’
securities trades, as discussed in Item 12 below.