ITEM 5 FEES AND COMPENSATION
Compensation received by Chesapeake Partners consists of fees based on a percentage of
assets under management and performance-based amounts, as more fully described
below. Chesapeake Partners does not manage any accounts/funds that pay only an asset-
based fee.
Compensation
Chesapeake Partners receives a management fee, in advance and on a quarterly basis,
equal to 1.0% per annum with respect to each capital account in the Domestic Fund.
Chesapeake Partners also receives a management fee, in advance and on a quarterly
basis, equal to 1.0% per annum with respect to the International Fund’s shares.
Chesapeake Partners, in its sole discretion, may waive or reduce the Domestic Fund
management fee and the International Fund management fee with respect to any investor
or permit any investor to pay the management fee directly to Chesapeake Partners.
Chesapeake Partners receives the management fee at the Master Fund level instead of at
the International Fund level. As such, no management fee is assessed at the International
Fund level and the Master Fund pays a management fee to Chesapeake Partners in the
same manner as set forth above with respect to the International Fund.
Chesapeake Partners and its affiliate may receive a performance-based allocation, in the
aggregate, equal to 20% of net profits (as described in the Domestic Fund’s limited
partnership agreement) from each Domestic Fund limited partner at the end of each fiscal
year and upon withdrawal, subject to high water marks. An affiliate of CPMC may also
receive an annual performance-based allocation from the Master Fund equal to 20% of
the increase in the net asset value (as described in the International Fund’s offering
memorandum) attributable to each Master Fund Sub-Series of shares held by the
CHESAPEAKE PARTNERS®
International Fund (which generally correspond to those Sub-Series of shares issued by
the International Fund), subject to high water marks and aggregation of multiple Sub-
Series of shares owned by a single International Fund shareholder to ensure such
shareholder is not subject to a performance allocation if its overall investment in the
International Fund is subject to a high water mark. International Fund intra-year partial
redemptions will be subject to a Master Fund level performance allocation as though it
were being made at the end of a fiscal year and the high water mark for the Master Fund
Sub-Series of shares will be reduced in proportion to the percentage of shares redeemed.
With respect to the International Fund, if the advisory agreement is terminated at any
time other than at the end of a fiscal year, the management fee will be prorated and paid
for the period from the end of the preceding quarter to the termination of the advisory
agreement in accordance with the number of days in the period. It is the policy of
Chesapeake Partners that upon a winding up of the Domestic Fund, the management fee
for the Domestic Fund’s last quarter will be prorated and paid for the period from the end
of the preceding quarter to the termination of the limited partnership agreement in
accordance with the number of days in the period.
Additional Fees and Expenses Paid In Connection with Advisory Services
The Domestic Fund and the International Fund will each bear its own operating and other
expenses, including but not limited to, taxes, offering and investment expenses (e.g.,
expenses related to the investment of assets, such as brokerage commissions),
administrative expenses, director’s fees (if applicable), legal expenses, external
accounting, audit and tax preparation expenses, corporate licensing, interest, custodial
fees, expenses related to obtaining certain insurance coverage and other expenses
associated with its operation. In the case of the International Fund, the International Fund
will also bear its pro rata share of the Master Fund’s operating and other expenses.
Please also see “Brokerage Practices” in Item 12 below.
From time to time, the Funds may invest in securities of investment companies that are
not managed by Chesapeake Partners, such as exchange traded funds, as part of the
Funds’ investment strategy. To the extent that the Funds invest in such securities, the
Funds incur layered fees; that is, it not only pays fees directly to Chesapeake Partners but
also pays fees charged by the entities that manage the investment company’s securities.
Such fees may include custodial fees, management fees, early termination fees and other
fees and expenses assessed by the sponsor, custodian, transfer agent or other service
providers of an investment company.
Expenses incurred by Chesapeake Partners in the operation of its business (e.g., salaries,
office space, utilities, telephone, and computer equipment) are borne by Chesapeake
Partners.
CHESAPEAKE PARTNERS®