ITEM 5 – FEES AND COMPENSATION
Fees
As further described below, Capstone is generally compensated for advisory services through
asset-based management fees (the “Management Fee”). In addition, Capstone or its affiliates
may receive performance-based compensation or incentive interests. The specific terms
relating to the fees paid by the Advisory Clients are summarized below.
The Offshore Fund issues shares in separate classes. The Offshore Fund is currently issuing one
class of shares pursuant to the Master Fund’s offering memorandum (“Class A Shares”). The
Company is also offering Class F Shares (the “Class F Shares”) and Class I shares (the “Class I
Shares” and collectively with the Class A Shares and the Class F Shares, the “Shares”) that are
subject to different terms as described in the offering documents.
From time to time, the Master Fund may acquire assets or securities which Capstone believes
either lack a readily assessable market value or should be held until the resolution of a special
event or circumstance. Such securities will be designated as illiquid investments and be carried
in a separate class of shares (“Side Pocket Class Shares”). The cost of the Illiquid Investments is
not expected to comprise more than 30% of the Company's net assets (determined at the time
that any such investment is made or, if an existing investment is designated as an Illiquid
Investment, at the time of such designation).
The Management Fee is paid to Capstone on a quarterly basis in arrears. The Feeder Funds
pay a Management Fee equal to 0.5% per quarter (2.0 annualized) based on the net asset value
of each Series of Class A Shares and Side Pocket Class Shares for the quarter.
For each capital account established for Class F Shares in the U.S. Fund, the Management Fee
will be, 0.375% per quarter (1.50% annualized) on the balance in such Investor’s account and
Side Pocket accounts maintained in the U.S. Fund as of the end of each fiscal quarter. The
Management Fee applicable to Class I Limited Partners will be equal to 0.25% (approximately
1.0% per annum) on the balance in such Class I Limited Partner’s capital account and side pocket
account maintained in the Partnership as of the end of each fiscal quarter (computed prior to the
payment or accrual of any Incentive Allocation).
Capstone deducts fees directly from the Advisory Client’s assets. Investors do not have the
ability to choose to be billed directly for fees incurred. To the extent a capital contribution or
withdrawal is made as of any day that is not the first day of a fiscal quarter, the
Management Fee is prorated.
In addition to the Management Fees set forth above, Capstone may be eligible to receive
performance based compensation in the form of allocations (the "Incentive Allocation”) from the
Funds based on net profits (including both realized and unrealized gains and losses) allocated to
each Investor. The Incentive Allocation is allocated annually to Capstone at a rate of 20% of the
net capital o f e a c h s e r i e s o f C l a s s A S h ar e s allocated to each Investor account of the
Master Fund for such fiscal year, and a rate of 15% of the net capital appreciation to each
Investor account each series of Class F Shares and Class I Shares of the U.S. Fund for such
fiscal year (after reducing net capital appreciation for the Management Fee debited to such
Investor’s capital account) provided however that if a Class I Limited Partner has made capital
contributions (net of any withdrawals) equal to or greater than $25,000,000, the Specified
Percentage will be 12.5%.
With respect to the Segregated Portfolio, Management Fees are invoiced monthly in arrears and
the incentive fees are invoiced annually.
The Incentive Allocations for both Funds are subject to loss carryforward provision and the
Funds will maintain a memorandum loss recovery account for each Investor. Generally
Capstone will not be allocated any Incentive Allocation until any net loss previously
allocated to such Investor has been offset by subsequent net profits (taking into account
interim withdrawals and distributions).
Capstone, in its sole discretion, may waive, reduce or calculate differently the Management Fee
for certain Investors including but not limited to any of Capstone’s employees, their family
members, affiliates, and certain strategic investors.
It is critical that Investors and prospective Investors refer to the Fund’s Governing
Documents for a complete understanding of how Capstone is compensated for advisory
services. The information contained herein is a summary only and is qualified in its
entirety by the Advisory Client’s Governing Documents.
Fund Expenses
Each Advisory Client bears its own administrative and operational expenses, including but not
limited to, the Management Fee and any investment-related expenses (e.g., brokerage
commissions, clearing and settlement charges, custodial fees, initial and variation margin,
interest expense, stock borrowing fees, front-end trading system expenses, proxy solicitation
expenses and consulting, advisory, investment banking and other professional fees relating to
particular investments or contemplated investments), investment-related travel and lodging
expenses, costs and expenses of research and research-related services, legal expenses, audit and
tax preparation expenses, expenses of external, investor-based risk reporting and risk aggregating
service providers, corporate licensing fees, indemnification expenses, entity-level taxes,
regulatory and filing fees incurred by Capstone on behalf of the Advisory Clients,
organizational expenses, expenses relating to the offer and sale of the Interests, expenses relating
to obtaining insurance for Capstone and their affiliates, certain administrative and accounting
services fees, extraordinary expenses and other similar expenses related to the Advisory
Clients. Such expenses are shared on a pro rata basis by all of the Investors of the Advisory
...