Item 5. Fees & Compensation
A. We charge each investor in the Fund a quarterly management fee equal to 0.375% of
the balance in each investor’s capital account as of the first day of each calendar
quarter. This equates to an annual management fee of 1.5%.
We charge separate accounts a monthly management fee of 0.125% of the value of
the account as of the first day of each calendar month. This equates to an annual
management fee of 1.5%.
In addition to the management fee, we typically charge a performance-based fee to
each investor in the Fund and each separate account equal to 20% of the annual net
capital appreciation of the investor or separate account, including both realized and
unrealized gains and losses. The performance-based fee is only charged to the extent
that the annual net capital appreciation exceeds cumulative losses previously
allocated to the investor or separate account for earlier periods that have not been
recovered (the “High Water Mark”).
The performance-based fee is calculated as of December 31 of each year and at any
time there is a withdrawal of capital. Please see Item 6 for additional information
about performance-based fees.
While the fees described above are our standard fees, we have full authority to
modify the fees for certain investors in the Fund, including employees. Our
employees do not currently pay fees on their investments in the Fund.
Investors in the Fund should refer to the Private Placement Memorandum for a full
description of the fees charged. Separate account clients should refer to their
respective investment advisory agreement for a full description of the fees charged.
Lower fees for comparable services may be available from other sources.
B. The management fee for investors in the Fund is deducted directly from each
investor’s capital account at the start of each quarter. The management fee for
separate account clients is invoiced at the start of each month and deducted directly
from the client’s account following approval by the client.
Performance-based fees charged to investors in the Fund are deducted from each
investor’s capital account on December 31 each year and on the last day of any month
following a withdrawal of capital. The performance-based fee for separate account
clients is invoiced in January each year and in any month following a withdrawal of
capital and is deducted directly from the client’s account following approval by the
client.
C. In addition to management and performance-based fees, clients will incur broker
commissions, interest charges, transaction fees, research expenses and other expenses
related to the investment activities of their account. The Fund will incur the cost of an
annual audit, fund administration fees, legal fees incurred in connection with the
organization and ongoing operations of the Fund, annual filing fees, and bank fees.
The Fund does not typically pay separate custodial fees. It obtains custodial, clearing,
and related services through what is known as a “prime brokerage” arrangement.
Under this arrangement, a brokerage firm (the “Prime Broker”), among other things:
(i) arranges for the receipt and delivery of securities bought, sold, borrowed and lent;
(ii) makes and receives payments for securities purchased or sold; (iii) maintains
custody of the Fund’s cash and securities; (iv) tenders securities in connection with
tender offers, exchange offers, mergers or other corporate reorganizations; and (v)
provides detailed portfolio and accounting reports. The Prime Broker allows us to use
other broker-dealers to execute transactions. This permits us to seek valuable research
and to compare execution quality and commission rates from other broker-dealers,
while maintaining only one custodial relationship. By using a Prime Broker, the Fund
avoids paying custodial fees that banks charge other institutional investors. The Prime
Broker is compensated through commissions, net interest income on cash balances,
and stock loan fees, all of which are paid by the Fund.
Wells Fargo Securities, LLC currently serves as the Prime Broker for the Fund.
Separate accounts may use the services of custodians other than Wells Fargo.
Please refer to Item 12 for additional discussion of our brokerage arrangements.
D. Upon termination of any contract or account, any pre-paid management fee will be
promptly refunded to the client via ACH payment or check. The amount of the refund
will be calculated on a pro rata basis based on the number of days remaining in the
month following the date of termination.
E. Neither Spitfire nor any of its supervised persons accept compensation for the sale of
securities or other investment products, including asset-based sales charges or service
fees from the sale of mutual funds.