ITEM 5 – FEES AND COMPENSATION
Item 5.A Describe how you are compensated for your advisory services. Provide your fee
schedule. Disclose whether the fees are negotiable.
Arcem will receive a management fee from the Master Fund, calculated and
payable quarterly in advance, equal to either 0.35% (1.4% annually) (for certain
investors investing in the Master Fund via the Domestic Feeder or Offshore
Feeder in the initial months following launch) (“Founder Investors”) or 0.5%
(2.0% annually) of the aggregate net asset value of each investor’s investment as
of the beginning of such quarter. In addition, certain other Founder Investors are
subject to management fees determined according to a schedule based on
Arcem’s assets under management. Arcem may, in its sole and absolute
discretion, reduce or waive the management fee imposed on certain investors,
including, but not limited to, its employees, affiliates, family members of its
employees or affiliates and/or any other investor, without entitling any other
investor to a waiver or reduction and without notice to or the consent of any other
investor.
Arcem will receive an annual incentive allocation equal to 20% of the increase in
the net asset value of each Master Fund investor’s investment during such year
(calculated net of accruals and payments of fees and expenses, and gross of any
accruals of the incentive fee/allocation), subject to a standard loss carryforward
(or “high water mark”) provision. The incentive allocation applicable to certain
classes of ownership interests held by certain Founder Investors is subject to a
“hurdle rate,” such that the incentive allocation will be equal to 20% of the
increase in the net asset value of each Master Fund’s investor’s investment during
such year above a specified rate, such as, for example, the average monthly 30-
Day U.S. Treasury Bill Rate.
Arcem may, in its sole and absolute discretion, reduce or waive the incentive
allocation imposed on certain investors, including, but not limited to, its
employees, affiliates, family members of its employees or affiliates and/or any
other investor, without entitling any other investor to a waiver or reduction and
without notice to or the consent of any other investor.
It is critical that investors and the account holders refer to the relevant confidential
private offering memorandum, separately managed account agreements, and
other governing documents for a complete understanding of how Arcem is
compensated for its advisory services and the fees they will pay. The information
contained herein is a summary only and is qualified in its entirety by the relevant
governing documents. The fees Arcem receives from the unaffiliated investment
adviser in connection with the sub-advisory services it provides to such
unaffiliated investment adviser in relation to the Crown Arcem Separate Account
are negotiated between Arcem and the unaffiliated investment adviser and set
forth in the sub-advisory agreement addressing the terms and conditions
governing the foregoing services.
Item 5.B Describe whether you deduct fees from clients’ assets or bill clients for fees
incurred. If clients may select either method, disclose this fact. Explain how often
you bill clients or deduct your fees.
The Fund’s administrator deducts fees from Fund’s assets in accordance with the
investment management agreements between Arcem and the Fund. In general,
Arcem receives a management fee based on each Fund’s net assets, payable
quarterly in advance, on the first day of each calendar quarter. The management
fee is prorated with respect to any investors that do not participate in the Fund for
the entire quarter.
Arcem will receive an incentive allocation that is based on each of the Fund’s net
profits, subject to a standard loss carryforward (or “high water mark”) provision.
Under the high water mark provision, generally no incentive allocation will be
made with respect to an investor until any net loss previously allocated to such
investor’s capital account/shares has been offset by subsequent net profits. For
investors in a class for which the incentive allocation is subject to a hurdle rate,
the net profits applicable to each investor in such classes must exceed the
applicable hurdle rate over the relevant measurement period, and if so, an
incentive allocation will be taken on the amount of net profits in excess of the
amount such investor would have earned had such investor’s investment at the
start of the measurement period earned a return equal to the hurdle rate.
The incentive allocation is calculated and charged at the end of each fiscal year
and in the event of an investor withdrawal/redemption, but only with respect to
the withdrawn/redeemed amount. In addition, if an investor makes a
withdrawal/redemption, its high water mark level is ratably reduced to reflect
such withdrawal/redemption. In addition, because the incentive allocation is
calculated on a series-by-series or investment-by-investment basis with respect
to each class of ownership interests in the Fund, an investor that makes
investments in the Fund at different times may be subject to an incentive
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