ITEM 5. FEES AND COMPENSATION
Diverse may charge each client an investment management fee based on the value of client’s
assets under management. The investment management fees charged to the Funds are generally
2.0% per annum. Diverse may charge a management fee to its other clients, determined on a
case-by-case basis.
Management fees to the Funds are charged quarterly in advance based upon the value of total
market value of the assets in the client account as of the first business day of each calendar
quarter. If a new client account is established during a quarter or a client makes an addition to
its account during a quarter, the investment management fee will be charged as of the effective
date of the investment management agreement or the date of the additional contribution based
on the value of the assets as of the applicable date and will be prorated for the number of days
remaining in the quarter. To the extent withdrawals are made from a client account during a
calendar quarter, a pro rata portion of the management fee paid in advance will be refunded,
based on the number of days remaining in the quarter.
Management fees may be modified or waived for certain investors in the Funds, including but
not limited to members, employees or affiliates of Diverse or Diverse Capital Partners, LLC,
relatives of such persons and for certain large or strategic investors.
Management fees are deducted from the Funds by the Funds’ administrator pursuant to
instructions from Diverse.
Diverse or its affiliate, Diverse Capital Partners, LLC, is entitled to receive annual performance-
based compensation, which is compensation that is based on a share of net capital appreciation
of the assets of a client. The performance-based compensation charged to the Funds is 20% of
the net capital appreciation and will be subject to a loss carryforward. Performance-based
compensation generally will be allocated as of the end of each fiscal year and upon an intra-year
withdrawal from a client account. Diverse’s performance-based compensation is calculated
taking into account both realized and unrealized gains. Diverse may charge performance-based
compensation to its other clients, determined on a case-by-case basis.
The performance-based compensation may be reduced or waived for certain investors in the
Funds, including but not limited to members, employees or affiliates of Diverse or Diverse Capital
Partners, LLC, relatives of such persons and for certain large or strategic investors.
More detailed information about the fees and allocations paid by investors in the Funds may be
found in the Funds’ offering documents.
In addition to paying investment management fees and, if applicable, performance-based
compensation, the Funds will also be subject to other expenses such as legal, fund-related
compliance, administrator, audit and accounting expenses (including third party accounting
expenses); organizational expenses; investment expenses such as commissions, research fees
and expenses; interest on margin accounts and other indebtedness; borrowing charges on
securities sold short; custodial fees; bank service fees; insurance costs (including D&O and E&O
insurance); expenses of regulatory compliance, filings and reporting (including but not limited to
blue sky filing fees); and any other expenses reasonably related to the purchase, sale or
transmittal of fund assets. Separately managed account clients are only charged investment
management fees and, if applicable, performance-based compensation. Client assets may be
invested in ETFs or other registered investment companies. In these cases, the client will bear its
pro rata share of the investment management fee and other fees of such funds, which are in
addition to the investment management fee paid to Diverse.
Common expenses may be incurred on behalf of the Funds and one or more client accounts.
Diverse will seek to allocate those common expenses among the Funds and the client accounts
in a manner that is fair and reasonable and consistent with the Memoranda and arrangements
with other clients (e.g., investment management agreements, limited partnership agreements).
However, expense allocation decisions will involve potential conflicts of interest (e.g., an
incentive to favor accounts that pay higher incentive compensation, or conflicts relating to
different expense arrangements with certain clients). Under its current expense allocation policy,
Diverse generally expects to allocate common expenses among its clients pro rata based on the
client’s assets under management at the time the expense is incurred. Diverse may, however,
deviate from pro rata allocations with respect to expenses that, in Diverse’s view,
disproportionately benefit a particular client or group of clients. When considering whether to
allocate an expense other than pro rata, Diverse may consider the transaction-related expenses
and frequency of trading, among other factors. Where Diverse determines that an expense
disproportionately benefits a particular client, Diverse may charge all or part of the expense to
that client, such that the allocation of the expense is fair and equitable. Nonetheless, the portion
of a common expense that Diverse allocates to the Funds for a particular product or service, may
not reflect the relative benefit derived by the Funds from that product or service in any particular
instance. Diverse’s expense allocations often will depend on inherently subjective
determinations and, accordingly, expense allocations made by Diverse in good faith will be final
and binding on the Funds.
Please refer to Item 12 of this Brochure for a discussion of Diverse’s brokerage practices.