Item 5. Fees and Compensation
Management Fees. Fund investors pay PVA a management fee. The management fee for
Parallax Core is equal to 1.65% per year and it is paid monthly. This management fee is
allocated to the respective investors of each feeder fund (other than investors for whom PVA
has waived the management fee) proportionately based on their respective investment.
The management fee is paid to PVA on the first day of each calendar month, based on the
net market values of Fund investors’ capital accounts on that date.
Performance Allocation. Additionally, Fund investors bear a performance allocation. Fund
investors have two performance allocation options, a standard option and a hurdle option.
The performance allocation options also have different lockups, as described below under
“Fees Relating to Terminations, Withdrawals and Redemptions.”
Parallax Core standard option allocates to Parallax Partners from each Fund investor a
performance allocation equal to 25% of net profits (including both realized and unrealized
gains and losses) that the Funds would otherwise allocate to such investor. These
performance allocations only apply to the portion of profits that exceed the cumulative losses
previously incurred by Fund investors, otherwise known as a high water mark.
Parallax Core hurdle option investors bear a performance allocation equal to 35% of net
profits (including both realized and unrealized gains and losses) that exceed the hurdle
amount. The hurdle amount is the balance of the account at the beginning of the
measurement period, multiplied by the average daily hurdle rate over that measurement
period. The hurdle rate is the Standard Overnight Financing Rate, administered by the
Federal Reserve Bank of New York. This hurdle option does not include the high water mark
described in the standard option above.
All performance allocations are assessed in arrears on an annual basis, on the last day of each
fiscal year (December 31), and also upon a Fund investor’s withdrawal or redemption of
capital during the year, with respect to the amount withdrawn or redeemed.
PVA complies with Rule 205-3 under the Investment Advisers Act of 1940, as amended (the
“Advisers Act”), to the extent applicable. Performance allocations may create an incentive
for PVA to make more risky and speculative investments than it would otherwise make.
General. If PVA deems it appropriate for the Master Fund to invest in certain investment
companies or funds such as mutual funds, exchange traded funds (ETFs), or money market
funds, the investment advisory fees to the managers of those investment companies or
funds are borne by the Funds that participate in such investment.
PVA believes that its fees and performance allocations are competitive with fees charged
by other investment advisers for comparable services. However, comparable services may
be available from other sources for lower fees. Fees are generally non-negotiable, but the
Funds may waive fees and performance allocations for certain Fund investors such as PVA
employees and limited partners, and their family members and friends.
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 (“ERISA”) and that
invests in a Fund to use the “alternative reporting option” to report PVA’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 Terminations, Withdrawals and Redemptions. PVA’s relationship with
each Fund will terminate on expiration of the Fund’s term, dissolution of that Fund or on
PVA’s withdrawal or other termination as investment adviser of that Fund. An investor
may withdraw or redeem on the last day of any calendar month (subject to PVA’s right to
suspend withdrawals or redemptions in certain unusual circumstances and the 25% gate
limitation described below) by giving the respective Fund at least 60 days advance notice.
If a Parallax Core standard option investor makes a withdrawal or redemption within the
first year of the investor’s investment in that Parallax Core Fund, in most cases that investor
must pay the respective Fund a fee of up to 2% of the amount withdrawn or redeemed, and
if a Parallax Core hurdle option investor makes a withdrawal or redemption relating to an
investment within two years of making that particular investment, in most cases that
investor must pay Parallax Partners or PVA a fee of up to 2% of the amount withdrawn or
redeemed.
The Parallax Core Funds may limit investor withdrawals and redemptions over any period
of 3 consecutive months to 25% of the aggregate net assets of the Parallax Core Funds
(excluding certain assets), except that a Fund will not apply this restriction to any investor
on a month end if that investor’s withdrawal or redemption requests on any 2 of the
immediately preceding 6 consecutive permitted withdrawal/redemption dates were not
fully satisfied.
In all cases for all Funds, investors bear expenses, the management fee and the performance
allocations through the date of termination, withdrawal, or redemption.
Expenses. Each Fund is responsible for its own costs and expenses, as described in the
respective Funds’ offering materials. Because of Parallax Core’s unique strategy, its
operating expenses typically are much higher, as a proportion of Parallax Core’s assets,
than other investment funds. The Funds bear many operational expenses, such as quotation
equipment, computer and data systems, risk systems and reporting, trading execution
systems, market data licenses, trade reconciliation tools and software, data storage relating
to trades and other trade-related ongoing expenses that other investment advisers may bear
instead of passing such expenses through to their clients (including licenses with PVA
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