Item 5: Fees and Compensation
Management Fees and Pass-Through Expenses
In consideration of the investment advisory services it provides to the Clients, the Firm receives
from CIM a service fee comprised of a portion of the management fees, the PTE (as defined
below), and performance-based fees payable by the Clients as described below.
The service fee is paid to the Firm as follows: (a) with respect to each Fund (except the MS
Fund), (i) the Fund pays management fees and performance-based fees to CML, as the
manager of such Fund (except that, in the case of one of the feeder funds of the GRV Master
Fund (the “GRV LP Feeder”) that is a Cayman limited partnership, and TRF III Feeder, such
fees are paid to Capula General Partner Limited (“CGPL”), as the general partner of the GRV
LP Feeder and TRF III Feeder, and CGPL passes the management and performance-based
fees it receives from the GRV LP Feeder and the TRF III Feeder to CML), (ii) CML passes the
management and performance-based fees it receives from the Funds and CGPL to CIM, and
(iii) CIM then pays a portion of the management and performance-based fees received from
CML to the Firm as service fees, (b) with respect to the MS Fund, (i) the MS Fund pays (x)
performance-based fees to CML, as the manager of the MS Fund, and (y) pass-through
expenses (the “PTE”) incurred by CIM and/or its affiliates in respect of the feeder funds of the
MS Master Fund, the MS Master Fund or the MS Master Fund’s direct or indirect holdings in
other Capula Funds (the “Strategy Funds”) to CIM; (ii) CML passes performance-based fees it
receives from the MS Fund to CIM; and (iii) CIM then pays a portion of the PTE received from
the MS Fund and a portion of the performance-based fees received from CML to the Firm as
service fees, and (c) with respect to the SMA, (i) the SMA pays management fees and
performance-based fees to CIM, and (ii) CIM then pays a portion of the management and
performance-based fees received from the SMA to the Firm as service fees. Investors in the
Funds and the beneficial owner of the SMA are not separately charged for the service fees paid
by CIM to the Firm.
Management fees paid by each Fund (the “Fund Management Fees”) are based upon the Net
Asset Value (NAV) of the relevant class of the Fund during a specified calculation period, except
the MS Fund does not pay any management fees (though it does bear the PTE). Management
fees paid by the SMA (the “SMA Management Fees”) are based on a target notional of the SMA,
not a NAV during a specified period. Service fees paid by CIM to the Firm are calculated in
accordance with Capula group’s transfer pricing policy, taking into consideration the average
value of the Client Accounts managed by the Firm during a specified calculation period, the
appreciation of the asset value of the Client Accounts during such calculation period and the
Firm’s operating expenses. As more fully described in the offering documents of the relevant
Fund, Fund Management Fees are calculated and deducted automatically from the Fund’s
assets by the Fund’s external administrator, and, as more fully described in the SMA IMA, SMA
Management Fees are calculated by CIM, and reviewed and approved by the beneficial owner
of the SMA. Upon such approval, the SMA Management Fees are paid from the SMA’s assets
by the SMA’s external custodian.
Capula group’s staff and certain other related parties are not subject to management fees (but
are subject to the PTE in the case of the MS Fund and a certain class of the GRV Fund) in
connection with any investments they may have in the Funds’ management classes of interests.
As more fully described in the offering documents of the relevant Fund, the Fund Management
Fees in respect of the Fund range from 0% to 2% per annum depending on the terms of a
particular class of interests for which an investor subscribes and are not negotiable. The Fund
Management Fees are generally paid in arrears on a monthly basis.
The SMA Management Fees are calculated in accordance with the methodology and at a rate
agreed to by CIM and the beneficial owner of the SMA in the SMA IMA. The SMA Management
Fees are generally paid by the SMA in arrears on a quarterly basis.
The calculation and allocation of the PTE in respect of the MS Fund is determined by CIM’s
expense committee in accordance with CIM’s accounting and other relevant policies
established from time to time. For the allocation of PTE to the relevant Funds, CIM reserves the
Capula Investment US LP Form ADV Part 2A
right in its discretion, acting reasonably to apply an allocation methodology that it determines to
be the most appropriate. CIM may change the methodology and/or to allocate certain expenses
using a different methodology if deemed more appropriate to reflect the consumption of the
Capula group resources by the relevant Funds. CIM may use a number of factors to determine
the method of allocating PTE between the relevant Funds, including, but not limited to the
management fee and NAV of the relevant Funds, allocated risk capital within a fund, and
identifiable staff time allocations in support of a Fund. The PTE allocation process involves
certain subjective determinations, which may involve conflicts of interest.
Certain Strategy Funds, including the MS Master Fund, may invest in other Strategy Funds
managed by the Adviser or its affiliates. This may create conflicts of interest and could result in
fees and expenses at multiple levels. The Adviser has implemented structural measures,
including the use of fee-free share classes and allocation methodologies, designed to mitigate
duplicative fees and expenses; however, such arrangements involve may not eliminate such
conflicts.
PTE includes certain fixed and variable personnel compensation expenses and other general
business expenses of the Firm and other members of the Capula group (including, without
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