Item 5. Fees and Compensation
Fees and Allocations. Gavilan’s clients and Fund investors are qualified purchasers. Therefore, information
on how Gavilan is compensated for its advisory services and its fee schedule are not included here. Gavilan’s
compensation is negotiable and varies, but is set forth generally in the applicable client agreement.
Asset-based fees typically are payable in quarterly installments at the beginning of each calendar quarter based
on the net market value of each client’s account on the date the fee accrues and becomes payable. Gavilan also
typically is allocated from each Fund investor a performance allocation equal to a portion of net profits
(including both realized and unrealized gains and losses) otherwise allocable to such Fund investor. Gavilan
charges similar performance fees to other clients, the amounts and calculations of which will be as specifically
negotiated by Gavilan and those clients. Performance allocations and fees are assessed in arrears on an annual
basis, and are only applied to the portion of profits that exceed the cumulative losses previously allocated to
or incurred by clients. Gavilan reserves the right to waive or reduce management fees and performance
allocations and fees, and has done so in the case of certain founder and strategic investors. Gavilan complies
with Rule 205-3 under the Investment Advisers Act of 1940, to the extent required by applicable law.
Performance allocations and fees may create an incentive for Gavilan to make more risky and speculative
investments than it would otherwise make.
Gavilan typically deducts management fees and performance allocations and fees directly from client accounts.
Gavilan 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 Gavilan’s compensation as “eligible indirect compensation” on the Schedule C of the plan’s
Form 5500 Annual Return/Report of Employee Benefit Plan.
Withdrawal and Termination Rights. Gavilan’s relationship with the Fund is terminable on expiration of the
Fund’s term, dissolution of the Fund or on Gavilan’s withdrawal as general partner.
Subject to certain limits and a one-time early withdrawal right on certain “key person” events described in the
Fund’s partnership agreement, a Fund investor generally may withdraw up to 1/4 of its capital account balance
as of the last day of any fiscal quarter, and more on consecutive withdrawal dates. As a result, it will take a
Fund investor 4 consecutive calendar quarters to fully withdraw from the fund. In addition, withdrawals by
certain Fund tranches are subject to a 2-6% withdrawal fee in the first three years. These withdrawal fees are
deducted from the capital account balance otherwise payable to such Fund investor, are included as income in
determining profits and losses of the remaining investors, and may be reduced or waived by Gavilan.
Except as may be otherwise negotiated in particular cases, the holder of an SMA may terminate the account
by giving 30 days’ prior written notice.
In all cases, expenses, the pro rata portion of the management fee and the performance allocation or fee through
the date of termination are charged to the account. All prepaid but unearned advisory fees are refunded on
termination of a client’s 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.
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. Gavilan 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 that execute
clients’ securities trades, as discussed in Item 12 below.