Item 5. Fees and Compensation
Quarterly and Annual Fees.
Sword Partners’ compensation is negotiable and varies, but typically, it charges an annual fee of
1.5% of assets under management, which amount is payable in quarterly installments at the
beginning or end (depending on the provisions of each client’s partnership or other account
agreement) of each calendar quarter based on the net market value of each client’s account on the
date the fee accrues and becomes payable. Sword Partners also typically is allocated from each
limited partner in an investment limited partnership a performance allocation equal to 20% of the
net profits (including realized and unrealized gains and losses) otherwise allocable to that limited
partner, and receives from each other client a performance fee equal to 20% of the net profits of
the account (including both realized and unrealized gains and losses). The special profit allocation
and performance fee are assessed in arrears annually (and on withdrawals or redemptions during
the year with respect to the amount withdrawn or redeemed) and are applied only to profits that
exceed the cumulative losses previously incurred by or allocated to the clients. Sword Partners
complies with Rule 205-3 under the Investment Advisers Act of 1940, if applicable. Performance
allocations and fees may create an incentive for Sword Partners to make more risky and speculative
investments than it would otherwise make.
Sword Partners typically deducts management fees and performance compensation directly from
client accounts.
Accounts that invest in mutual funds also pay, indirectly, investment advisory fees to the managers
of those funds.
Sword Partners believes that its fees are competitive with fees charged by other investment
advisers for comparable services, but comparable services may be available from other sources for
lower fees than Sword Partners charges.
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 a fund of which
Sword Partners is the investment adviser, to use the “alternative reporting option” to report Sword
Partners’ 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 Withdrawals
Relationships with Sword Partners’ investment fund clients are terminable on expiration of the
fund’s term, dissolution of the fund or on Sword Partners’ withdrawal or other termination as
general partner or investment adviser of the fund. Each investor may withdraw or redeem from a
fund, on specified prior written notice, on the last day of any calendar quarter.
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 or redeems from
a fund on a date other than the last day of a quarter, however, does not receive a refund of the
management fee previously paid.
Expenses.
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, tax accounting and bookkeeping fees and expenses, and the fees and
expenses charged by any fund administrator for its accounting, bookkeeping and other services.
Sword Partners 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.