Item 5 Fees and Compensation
We are paid two forms of compensation in connection with providing investment advisory services to the
Funds. Conatus Capital is paid a “Management Fee” that is based on the total value of the assets of each of
CCP, CCP II, the LS Master Fund, the LO Master Fund and the LO SMA (less those assets attributable to
investors that are not subject to the Management Fee, as discussed below). CCA receives an “Incentive
Allocation” that is based on the net income, if any, earned by CCP, CCP II, the LS Master Fund and the LO
Master Fund. In the case of the LS Funds, the Incentive Allocation is subject to what is known as a “modified
high-water mark” which is discussed in more detail below; in the case of the LO Private Funds, the Incentive
Allocation is earned only to the extent net income exceeds a benchmark amount (also known as a hurdle rate)
and is subject to an underperformance recovery mechanism, all of which is discussed in more detail below.
The Incentive Allocation is generally taken at the end of each fiscal year of a Fund and is also taken when an
investor redeems from a Fund prior to year-end.
Management Fee and Incentive Allocation - LS Funds:
The Management Fee rates for the LS Funds generally range from 1.25% to 1.5% per year depending on the
investment share class and aggregate capital contribution amount. The Incentive Allocation rates for the LS
Funds generally range from 15% to 20% depending on the investment share class.
If an Incentive Allocation is to be taken at a time when an LS Fund has an “unrecovered loss,” the applicable
rates will be reduced by half. For purposes of calculating whether an LS Fund has an “unrecovered loss,” each
LS Fund tracks the net capital depreciation that has been allocated to an investor. An investor in an LS Fund
must recover an amount equal to two times the amount of the net capital depreciation that it was allocated as of
a fiscal year-end (i.e., 200%) before it will be charged the standard applicable incentive rate.
Investors in the LS Funds have the option to invest in different share classes, each of which are subject to various
lock-up periods and fee schedules as described in each Fund’s Memorandum.
Management Fee and Incentive Allocation - LO Funds:
The Management Fee for the LO Funds generally ranges from 0.75% to 1.5% per year depending on the
investment share class and aggregate capital contribution amount. The Incentive Allocation rates generally
range from 0% to 20% over a benchmark, as applicable.
The applicable Incentive Allocation in the LO Feeder Funds is taken at the LO Master Fund level on the gross
return above a designated benchmark amount (or hurdle rate). Because such Incentive Allocation is determined
based on the outperformance above a benchmark, it is possible that an Incentive Allocation will become due
even though the relevant interest has depreciated in value during the period for which an Incentive Allocation
is being calculated (e.g., the benchmark loses 10.0% of its value but the relevant interest only depreciates in
value by 5.0%). In addition, it is possible that such an Incentive Allocation will exceed the net capital
appreciation allocated to an interest during the period for which an Incentive Allocation is being calculated
(e.g., the benchmark loses 20.0% of its value and the relevant interest appreciates by 1.0%). Under such
circumstances, an Incentive Allocation will only be reallocated to CCA to the extent net capital appreciation is
allocated to such interest for the applicable period. To the extent that all or any portion of an Incentive
Allocation is not reallocated to CCA because of insufficient net capital appreciation with respect to such
interest during the applicable period (such amount, the “Carry Forward Amount”), the Carry Forward Amount
generally will be reallocated to CCA as of the end of the next fiscal year (and/or, as necessary, any subsequent
fiscal years) to the extent there is net capital appreciation (a “Catch-Up Incentive Allocation”), even if no
Incentive Allocation is otherwise allocable in any such subsequent fiscal year because of failure to outperform
the benchmark in such fiscal year. Notwithstanding the foregoing, in the event that an investor redeems all of
its interests while there is an Incentive Allocation due or a Carry Forward Amount outstanding with respect to
such interests, any such Incentive Allocation or Catch-Up Incentive Allocation will be reallocated to CCA to
the extent there is gross capital appreciation credited to such interest as of the end of the period in which the
investor redeems.
Rather than the modified high water mark concept employed by the LS Funds, the LO Master Fund maintains
a memorandum underperformance recovery account applicable to the Incentive Allocation-bearing Classes of
interest in the LO Feeder Funds. Such account tracks the extent to which the LO Master Fund fails to exceed
the benchmark amount for each fiscal year or other relevant period. Subject to adjustments for redemptions
and certain other items, an investor in such Classes of an LO Feeder Fund must recover the amount by which
the LO Master Fund trailed the benchmark amount for a prior period before it will be charged the applicable
Incentive Percentage Rate on net returns above the benchmark amount for a relevant period.
The Class D interests represent a “socially responsible investment” class. Such interests have the same rights,
privileges and limitations as the Class A interests, except they do not participate in certain investments that are
deemed inconsistent with certain socially responsible criteria or in “new issues.”
Additional Information Regarding Management Fees and Incentive Allocation:
The Management Fees are paid out of the assets of the relevant Funds and the Incentive Allocation takes the
form of a reallocation to the capital account of CCA, rather than a payment. Neither the amount of such
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