Item 5. Fees and Compensation
Compensation for Advisory Services.
Foundation’s fee schedule is omitted because this brochure is only being delivered to qualified
purchasers as defined in the Investment Company Act of 1940.
Deduction of Fees.
Investors in the Funds will be subject to management fees paid quarterly in advance and incentive
allocations made annually in arrears as of each year-end. All management fees will be received
by Foundation and will be deducted directly from the Funds at the Master Fund level. All incentive
allocations will be received by Foundation GP (as a special shareholder in the Master Fund). The
incentive allocation takes the form of a reallocation of profits to Foundation GP’s capital account
at the Master Fund level.
The Master Fund will make an annual incentive allocation to Foundation GP equal to a percentage
of the net profits attributable to each investor’s interest in a particular class of securities in the U.S.
Fund or the Offshore Fund. This annual incentive allocation will be subject to a loss carryforward
provision. If an investment has a loss chargeable to it during any fiscal year, and during a
subsequent fiscal year there is a profit allocable to the investment, no incentive allocation will be
paid until the amount of the loss previously allocated to such investment has been recouped. This
loss carryforward is subject to a pro rata reduction to reflect redemptions made by an investor.
For a certain class of the Funds, any incentive allocations earned during a three-year period will
be subject to a rolling “clawback” provision where the incentive allocations may be subject to
reversal, less any tax distributions made over the period. Also, a certain class of securities is
subject to an annual incentive allocation based on “alpha” and include provisions for a
“management fee offset,” and a “management fee carryforward.” These interests are referred to
as the “Alpha Class.” Alpha is calculated as the excess return over a benchmark which is
comprised of an index multiplied by a representative beta of the Funds to such index. The
management fee for investors in the Alpha Class is treated as an advance on future incentive
allocations made to Foundation GP. At the end of the incentive allocation period, Foundation GP
receives an incentive allocation equal to a percent of the excess, if any, of the Funds return over
the beta adjusted benchmark after deducting the current year management fees paid (the
management fee offset). If the management fees paid with respect to the Alpha Class interests
during an incentive allocation period exceed the incentive allocation accrued for the period, then
the excess will be carried forward and credited against any future incentive allocations and is
referred to above as the management fee carryforward.
For additional information on performance-based compensation, see Item 6 of this brochure,
“Performance-Based Fees and Side-by-Side Management.”
Operating Expenses.
In addition to compensation payable to Foundation or Foundation GP, the Funds bear all of their
ongoing direct and indirect offering, investment, administrative and operating expenses. These
expenses may include, without limitation: (i) legal, compliance (including compliance programs,
surveillance and systems in connection with regulatory compliance and examinations),
administrator, audit and accounting expenses (including third party accounting services), tax
preparation expenses; (ii) shareholder proxy voting services; (iii) organizational expenses; (iv)
investment expenses such as brokerage commissions, research fees and expenses; (v) interest on
margin accounts and other indebtedness; (vi) borrowing charges on securities sold short; (vi)
custodial fees; (vii) bank services fees; (viii) insurance costs related to the Funds (including D&O
and E&O insurance for Foundation, Foundation GP and outside directorship liability); (ix)
directors’ fees and expenses; (x) any other expenses reasonably related to the purchase, sale or
transmittal of assets of the Funds; and (xi) with respect to the U.S. Fund and the Offshore Fund,
their pro rata share of the operating expenses of the Master Fund.
For a discussion of the brokerage arrangements that Foundation enters into on behalf of the Funds,
see Item 12 of this brochure entitled “Brokerage Practices,” which further describes the factors
that Foundation will consider in selecting broker-dealers to be used for securities transaction for
the Funds.
Negotiation of Fees; Waivers.
Compensation payable to Foundation or Foundation GP will not generally be negotiable.
Foundation or Foundation GP, as applicable, may waive or modify its management fees or
incentive allocations for investors that are members, employees or affiliates of Foundation or
Foundation GP, relatives of these persons, and for certain large or strategic investors.
Pre-Payment of Fees.
For securities that may be redeemed during a quarter, management fees will be refunded on a pro
rata basis if an investor redeems before the end of the quarter.