Item 5. Fees and Compensation
Fees and Allocations Generally. The Funds, the investors in the Funds, and each managed account
client are “qualified purchasers” as defined in ICA section 2(a)(51)(A). Therefore, information on
how Blue Sparrow is compensated for its advisory services and its fee schedule isnot included
here. Blue Sparrow’s compensation is negotiable and varies, and is disclosed in each Fund’s
confidential offering circular or private offering memorandum or in each account agreement with
managed accounts.
Funds. Blue Sparrow GP serves as the general partner of the Master Fund and the Offshore Feeder.
As general partner, Blue Sparrow GP deducts directly from the Master Fund management fees,
which it has assigned to Blue Sparrow, and is allocated management allocations and performance-
based profits allocations. Investors pay these management fees,
management allocations and performance allocations directly and indirectly through their
investments in the Master Fund and the Offshore Feeder.
Management fees are deducted in advance on the first day of each fiscal quarter. Management
allocations are made as of the last day of each fiscal quarter or at the time of an investor’s
withdrawal or redemption. Performance allocations are allocated at the end of each fiscal year or
at the time of an investor’s withdrawal or redemption. Generally, if a Fund terminates or an
investor withdraws or redeems, the investor (through the Master Fund) bears expenses, the
management fees, management allocations and performance allocations through the date of
termination or withdrawal or redemption. If an investor withdraws or redeems from a Fund on a
date other than the last day of a fiscal quarter, however, there is no refund to that investor of any
management fee that it previously paid for the applicable fiscal quarter.
Managed Accounts. Blue Sparrow’s managed account compensation is negotiable and varies, but
typically, it charges an annual fee based on a percentage of assets under management, which
amount is typically payable in quarterly installments at the beginning (depending on the provisions
of each client’s 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. Blue Sparrow also typically
receives from each managed account a performance fee based on a percentage of net profits of the
account (including both realized and unrealized gains and losses). Performancefees are assessed
in arrears on a periodic basis (generally annually, but as defined in the applicable account
agreement), and are only applied to the portion of profits that exceed the cumulative losses
previously incurred by clients
Blue Sparrow typically deducts management fees and performance fees directly from client
accounts, but may bill a client for such amounts on request as described in the applicable account
agreement.
Other Fee Provisions. Blue Sparrow provides certain investors or clients special fee and allocation
arrangements that it does not provide to other investors or clients. Blue Sparrow may waive all or
any portion of the management fees or performance fees or allocations with respect to any investor
or client.
Blue Sparrow complies with Rule 205-3 under the Investment Advisers Act of 1940, if required.
Performance allocations rules may create an incentive for Blue Sparrow to make more risky and
speculative investments than it would otherwise make.
Blue Sparrow believes that its fees are competitive with fees charged by other investment
advisers for comparable services. Comparable services may be available, however, from other
sources for lower fees.
Expenses. Each client 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), and, if applicable with respect to the particular type of client, ongoing legal,
accounting, bookkeeping, professional, expert and consulting fees and expenses, and, the fees
and expenses charged by the client’s administrator for its accounting, bookkeeping and other
services. Blue Sparrow and Blue Sparrow GP each bears its own operating, general,
administrative and overhead costs and expenses, other than the expenses described above.
Securities brokerage firms and futures commission merchants (“FCMs”) that execute securities
trades for the accounts, however, may pay part of these costs and expenses, as discussed in Item
12 below.