Item 5 − Fees and Compensation; Expenses
We receive a management fee of 1% of the net asset value of the Elkhorn Partners fund as of
each January 1. This compensation is paid in twelve equal monthly installments. The
management fee is treated as an expense of the Elkhorn Partners fund, and is paid whether or
not the net asset value of the fund increases during the year.
We are not entitled to receive any additional remuneration from the Elkhorn Partners fund,
unless the fund realizes specific return standards. If the Elkhorn Partners fund earns in excess
of 6% per year, 20% of the excess will be allocated to us and 80% of the excess will be
allocated to all partners in the fund. However, if any partner's capital investment does not earn
6% for any particular year, such deficiency will be carried forward and made up with interest
before we will be entitled to allocation of any excess earnings for any subsequent year.
A detailed explanation of the performance-based component of our compensation follows. At the
beginning and end of each year (a period from January 1 to the following December 31) of the
Elkhorn Partners fund, the total value of the capital accounts of the fund, at market value, will be
determined and the difference computed. For purposes of determining allocations, an amount
equal to 6% of year-beginning market value will first be allocated to the partners and year-
ending market value will be reduced by such amount in determining the "difference" in such
market values. The "difference" in market value, whether arising through realized or unrealized
gains or losses or a combination thereof, will be allocated among the partners' capital accounts
as follows:
(a) If the market value of the Elkhorn Partners fund at the end of the year is less than
the market value of the fund at the beginning of the year, such difference will be
allocated among all partners’ capital accounts in proportion to their capital
accounts, at market value, on the first day of the year.
(b) If the market value of the Elkhorn Partners fund at the end of the year is greater
than the market value of the fund at the beginning of the year, and if no partners'
capital investment has been and remains reduced through prior application of
paragraph (a) above, the difference will be allocated as follows: 20% to us; and
80% to all partners in proportion to their capital accounts, at market value, on the
first day of the year.
(c) If the market value of the Elkhorn Partners fund at the end of the year is greater
than the market value of the fund at the beginning of the year, and if the capital
investment of some or all of the partners has been and remains reduced through
the prior application of paragraph (a) above, the difference will be allocated
among the partners' capital accounts as follows:
• To those partners, if any, whose capital investment has not been, or does
not remain, reduced through prior application of paragraph (a) above, the
difference will be allocated under the provisions of paragraph (b) above.
• To the extent any partner's capital investment has been and remains
reduced through prior application of paragraph (a) above, the difference,
to the extent available, will be allocated under the provisions of paragraph
(a) above and after the reduction, plus interest at the rate of 6% per
annum on the amount of the reduction, has been recovered through each
allocation, the balance of the difference, if any, will be allocated under the
provisions of paragraph (b) above.
In all allocations under paragraph (c) above, realized gain will be allocated first, before allocating
any unrealized gain or loss.
All expenses of operating the Elkhorn Partners fund, and of buying and selling securities and
related investments of the Elkhorn Partners fund, shall be borne by the Elkhorn Partners fund.
We have only one client, the Elkhorn Partners fund, and consequently most of our expenses are
expenses necessary to operate the Elkhorn Partners fund. Operating expenses include, but are
not limited to: fees and compensation paid to the us; fees, costs and expenses incurred by the
Elkhorn Partners fund or us and paid to administrators, custodians and brokers which are
directly related to the business of the Elkhorn Partners fund; fees, costs and expenses incurred
by the Elkhorn Partners fund or us and paid for research and professional services (e.g., legal,
accounting, audit, tax preparation, registrations and licensing) which are directly related to the
business of the Elkhorn Partners fund; compensation and benefits for employees of the Elkhorn
Partners fund and us (to the extent directly related to the business of the Elkhorn Partners fund);
costs and expenses incurred by the Elkhorn Partners fund or us for utilities, insurance, office
supplies and similar costs and expenses which are directly related to the business of the
Elkhorn Partners fund; and reasonable travel and entertainment costs and expenses incurred by
the Elkhorn Partners fund or us which are directly related to the business of the Elkhorn Partners
fund.