ITEM 5: FEES AND COMPENSATION
Long/Short Accounts
Typically, we receive both an asset-based fee and a performance-based fee. The asset-based
fee is 2% per year, billed in advance on a quarterly basis. The fee is based on the net value of
the assets under management as of the last day of the previous calendar quarter.
The performance-based fee is calculated as of December 31 each year. When profits for the
current period exceed the unrecouped net losses for prior periods, we will receive a performance-
based fee of 20% of the profits generated. Solely for purposes of computing this fee, net profits
and net losses include unrealized gains and losses. If you withdraw capital from your account,
the performance-based fee for the amount withdrawn will be calculated as of the withdrawal date.
Our fees may be negotiable with an Investor based on the size of the investment, length of
commitment and special needs or restrictions.
In order to pay a performance-based fee you must meet certain requirements. New Investors
must meet one of the following criteria:
• Have a net worth (or together with spouse have a net worth) of at least $2.2 million,
excluding primary residence,
• Have at least $1,100,000 invested with us.
Our Investor agreement provides additional qualification standards.
All performance-based fees will be charged in a manner that complies with Rule 205-3 of the
Investment Advisers Act of 1940, as amended from time to time.
Our Long/Short Fund clients are the Fourthstone Master Opportunity Fund Ltd (the “Master
Fund”), and the Fourthstone QP Opportunity Fund LP (the “QP Fund”). The Master Fund has one
domestic feeder fund which is Fourthstone Opportunity Fund LP, and one off-shore Feeder Fund
which is Fourthstone Offshore Opportunity Fund Ltd. (collectively referred to as the “Feeder
Funds”).
The Feeder and QP Funds’ regular compensation is as described above. The QP Fund and the
Feeder Funds have the authority to negotiate and accept the compensation paid by individual
Investors based on the size of the investment, the length of the initial commitment, and
relationships with associated persons. Fourthstone will receive the compensation paid by all
investors, either as a fee or an allocation, as decided at its sole discretion.
Long Accounts
Typically, we receive both an asset-based fee and a performance-based fee. The asset-based
fee is 1.25% per year, billed in advance on a quarterly basis. The fee is based on the net value
of the assets under management as of the last day of the previous calendar quarter.
The performance-based fee is calculated as of December 31 each year. When profits for the
current period exceed the unrecouped net losses for prior periods, we will receive a performance-
based fee of 12.5% of the profits generated. Solely for purposes of computing this fee, net profits
and net losses include unrealized gains and losses. If you withdraw capital from your account,
the performance-based fee for the amount withdrawn will be calculated as of the withdrawal date.
Our Long Fund client is the Fourthstone Small-Cap Financials Fund (the “Small-Cap Fund”). The
Small-Cap Funds regular compensation is as described above. The Small-Cap Fund has the
authority to negotiate and accept the compensation paid by individual Investors based on the size
of the investment, the length of the commitment, and relationships with associated persons.
Fourthstone will receive the compensation paid by all Investors, either as a fee or an allocation,
as decided at its sole discretion.
Incentive allocation and performance-based fee arrangements could create an incentive for us
to make investments that are riskier or more speculative than would be the case in the absence
of the arrangement. In some circumstances, we may receive increased compensation as a result
of unrealized appreciation as well as realized gains.
Investors may withdrawal all or a portion of their investments in the Funds by providing written
notice. The required notice period varies by Fund, consult the relevant Fund’s governing
documents for further detail on required notice periods. As the Funds allow redemptions on a
quarterly basis, situations will not arise where Investors will require a repayment of pre-paid
fees.
In addition, all Clients will incur brokerage and other transaction costs. Current and prospective
investors should review Item 12 of this Brochure for further discussion of our brokerage
practices.