Item 5 Fees and Compensation
Management Fees and Performance Fees. The Firm generally receives a management fee of 1%
of assets under management and a performance fee of 10% of annual appreciation under its
investment advisory contracts. However, under some investment advisory contracts the Firm
may receive only a management fee, and some Firm clients may not pay any fees. Generally,
management fees are calculated and payable monthly in advance as a percentage of the net asset
value (“NAV”) of the Fund or Managed Account. Performance fees are generally calculated
annually as a percentage of the appreciation of the NAV during the calendar year, subject to a
high-water mark.
Unearned fees are returned. Generally, the Firm enters into investment advisory agreements that
do not provide for the prepayment of management or performance fees beyond the first available
redemption date of a Fund or termination date of an investment advisory contract.
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Notwithstanding, in the case of the redemption of any investment in a Fund or the termination of
any investment advisory agreement, any fees charged, but not earned, will be rebated upon
redemption or termination.
The client funds are responsible for all custodial and securities execution fees charged by the
custodian and, if applicable, executing broker-dealer. All client assets are held by a non-related
custodian. At no time will the Firm accept or maintain custody of a client’s funds or securities
except for authorized fee deduction. The Firm’s management and performance fees are separate
and distinct from the custodian and execution fees.
Blue’s management fee is generally payable monthly in advance. Upon termination, any fees
paid in advance will be prorated to the date of termination and any excess will be refunded to the
client.
Neither Blue nor its supervised persons accept compensation for the sale of securities or other
investment products.
Blue receives $1,000 per year for serving as collateral manager for one series trust. Blue does
not receive compensation for serving as investment/asset manager for any of the reinsurance
trusts. These series and reinsurance trusts may directly or indirectly invest in investment
products for which the Firm serves as investment advisor.
Expenses. Each of the Firm’s private fund clients generally bear all expenses incurred in
connection with its ongoing operations. Such expenses include, but are not limited to, the fees
paid to the Firm, a fund’s administrator, any fees paid to money managers, director’s fees, legal,
internal and external accounting, auditing and other professional expenses, investment expenses
such as commissions, research expenses, travel and other related expenses, interest on margin
accounts, and other indebtedness, custodial fees, bank service fees and other reasonable expenses
related to the purchase, sale or transmittal of fund assets and any extraordinary expenses. In
addition to a fund's direct expenses, where a fund is an investor in other investment entities, such
fund will indirectly bear its pro rata share of the expenses of those investment entities. These
indirect expenses include a fund's pro rata share of an investment entity's investment expenses
(such as custodial fees and brokerage commissions) and may include overhead expenses (such as
rent, personnel expenses, equipment, supplies, management and consulting fees and similar
expenses). When a fund invests in other investment vehicles sponsored by money managers, the
money manager may charge (i) a fixed basic fee and (ii) a performance fee or allocation based
upon a percentage of any profits of the investment entity. These fees and allocations decrease a
fund's profits with respect to its investment in such entities.
Additionally, at the beginning of each month each fund pays to the Firm an expense
reimbursement for expenses to be incurred by the Firm in connection with the management of
the Fund and for the provision of certain “back office” services provided by or procured by the
Firm on behalf of the fund equal to 0.02% (two basis points) per month of the net assets of the
fund as of the beginning of such month. The expense reimbursement may be used by the Firm
and its affiliates to pay for any expenses incurred in connection with the management of the
fund, including, but not limited to: (i) salaries of employees (other than Mr. Graham); (ii)
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research expenses relating to the selection of portfolio investments and money managers for the
fund; (iii) rent of the fund and/or the Firm; (iv) office supplies; (v) costs of computer hardware
and software used in connection with the fund’s business; and (vi) travel expenses.
Aside from the foregoing, the Firm renders the services set forth in the investment management
agreement at its own expense, including the salaries of employees necessary to render such
services, all general overhead expenses attributable to its employees and other expenses
incidental to the rendering of such services.