Item 5. Fees and Compensation.
Compensation earned by HA from its Client is comprised generally of negotiated performance-based
amounts (see the discussion regarding the Incentive Allocation below), and a fixed monthly advisory
fee (the “Advisory Fee”) which is equal to $1,500, subject to the terms and conditions set forth in the
Client’s governing documentation. An incentive allocation (the “Incentive Allocation”) equal to 20%
of the net realized gains on closed positions (“Net Gains”) earned by the Client accrues and is
payable monthly, subject to a high water mark clause in which any net realized loss by the Client in
any month is made up “dollar for dollar” before the Incentive Allocation is paid again on Net Gains.
The Advisory Fee is included in the Incentive Allocation, and if no Incentive Allocation is earned and
charged during a given month, then no Advisory Fee would be charged. For clarification, all
references to the Incentive Allocation or similar references are defined to mean fees paid only on
net realized gains on closed positions.
Provided, however, as further described in Item 9. “Disciplinary Information”, pursuant to an interim
order entered by federal court, no Incentive Allocation will be paid by HI until HI has exceeded a
specified high water mark based on the net asset value of realized and unrealized positions.
The Client has issued different classes of interests in the pooled investment vehicles. Such classes
may enjoy different fee structures, including make whole or high water marks, expense allocations,
liquidity and voting rights. The details of the membership interests are described in the Client’s
governing documentation.
Subject to the terms of the Client’s governing documents, the Client is responsible for certain out of
pocket expenses that HA incurs in performing its obligations under such governing documents.
Such expenses generally include fees and expenses associated with investments, attorney fees and
disbursements, accounting and auditing fees, and other miscellaneous expenses, including
indemnification and insurance and, where disclosed to investors, matching payroll taxes for the
salaries that HA pays its traders. There are also certain fees and commissions paid to TD
Ameritrade, the trading account, which are paid by the Client at the time of the trade.
Each month, individual investors in the Client receive reports that outline specifically all realized Net
Gains and losses on closed positions (and unrealized net gains and losses as required by the CFTC)
on trades and any Incentive Allocations on those trades.