Item 5 – Fees and Compensation
The fees generally applicable to each Fund are set forth in detail in each Fund’s Governing
Documents. Converium charges a management fee (the “Management Fee”) equal to an
annual percentage of the net assets of each Fund, which is paid monthly either in advance or in
arrears depending on the Governing Documents, and is entitled to receive a performance
allocation (or charge a performance fee) equal to a percentage of the amount by which (i) the
net asset value of each investor’s holding in a Fund as of the end of each performance period,
exceeds (ii) the net asset value of such investor’s holding as of the beginning of such
performance period, subject to a “high-water mark” (the “Performance Allocation”). The
Performance Allocation is usually paid annually and may be allocated to one or more affiliates
of Converium.
Converium may, in its discretion, reduce, waive or calculate differently the Management Fee or
the Performance Allocation with respect to certain clients or investors in Funds, including
members, officers, affiliates or employees of Converium or its affiliates, or such person’s family
members and trusts or other entities established for the benefit of any such person or his or
her family.
Converium may also enter into side letters or similar agreements with certain investors in the
Funds, granting such investors specific rights, benefits, or privileges that are not made available
to investors generally.
The fees applicable to clients other than the Funds will be negotiated directly with such clients
and will be reflected in the investment advisory agreement between each client and
Converium.
The specific manner in which fees are charged and deducted is set forth in each client’s written
agreement with Converium, which may include payment of fees in advance. Converium
generally accrues fees monthly and the account administrator deducts them directly from each
client account when they become payable. Clients may also elect to be billed separately. Upon
termination of any client account, any prepaid, unearned fees will be promptly refunded, and
any earned, unpaid fees will be due and payable. Refunds of fees paid in advance are generally
calculated on a pro rata basis based on the remaining portion of the relevant period to which
the applicable fee relates.
Clients of Converium also generally pay all costs and expenses incurred in connection with the
investments in their accounts, including but not limited to brokerage expenses, commissions,
dealing and spread costs (which vary depending on a number of factors, including, without
limitation, the bank, broker or dealing counterparty utilized for the transaction, the particular
instrument traded, and the volume and size of the transaction), execution, give-up, exchange,
clearing and settlement charges, initial and variation margin, regulatory commissions and fees,
delivery fees, custodial fees, escrow expenses, insurance costs, third-party research, interest
and borrowing charges on margin accounts and other indebtedness, expenses related to short
sales, option premiums, bank, broker and dealer service fees, interest expenses, risk reporting
and valuation quotation services, trade management systems (including, without limitation,
order management systems, portfolio management systems, risk management systems,
execution management systems, reconciliation tools and related technology, data management
and data aggregation technology, as well as third party service providers used for
implementation, custom reporting, updates, consultations, support, maintenance, monitoring
and data extracts), research-related expenses (including, without limitation, research-related
data feeds and research-related travel expenses), software and databases (including, without
limitation, the costs of computer terminals and other equipment used primarily for research,
investment monitoring, execution and pricing), advisory, investment banking and other
professional fees (including, without limitation, expenses relating to consultants, attorneys and
other professionals or advisors who provide research, advice or due diligence services with
regard to investments), all costs and expenses incurred in attempting to protect and enhance
the value of investments (including, without limitation, any fees and expenses associated with
any pending or threatened litigation, audit, investigation, administrative or other proceeding, as
well as any settlement costs), fees and expenses related to any activist-related activities, fees
paid to proxy and securities class action advisory firms, all investment-related travel expenses,
broken deal expenses, as described in greater detail in the Governing Documents for each Fund
or in the investment management agreement between Converium and the client, as applicable.
Item 12 below further describes the factors that Converium considers in selecting or
recommending broker-dealers for client transactions and determining the reasonableness of
their compensation (e.g., commissions).