FEES AND COMPENSATION
A. Advisory Fees and Compensation.
The fees applicable to each Diversified Alpha Fund are set forth in detail in such
Diversified Alpha Fund's offering documents. A brief summary of such fees is provided below.
The Diversified Alpha Master Fund will pay to the Investment Adviser quarterly
in advance a management fee equal to 0.5% (2% annualized) of the net asset value of each
series of shares of the Diversified Alpha Master Fund, without regard to any accrual of unpaid
Incentive Allocation, as defined below, determined as of the beginning of the respective quarter
or, if a series of shares was purchased other than at the beginning of a calendar quarter, the date
on which such shares were purchased. Such management fees may be reduced for investors of
significant size. The management fees paid by the Diversified Alpha Master Fund are referred
to as the "Management Fee." The Investment Adviser may, in its sole discretion, choose to
reduce, waive, or calculate differently the Management Fee payable by the Diversified Alpha
Master Fund as may be agreed with any investor (including any investor that is an affiliate of
the Investment Adviser).
In addition, the Diversified Alpha Master Fund will allocate to an Affiliate of
the Investment Adviser an incentive allocation (an "Incentive Allocation") equal to a
percentage of the net realized and unrealized appreciation in the Adjusted NAV, as defined
below, of each series of shares of the Diversified Alpha Master Fund during the applicable
period for which the Incentive Allocation is calculated. The “Adjusted NAV” for each series
of shares is the net asset value of such shares during the applicable period for which the
Inventive Allocation is calculated (adjusted for any redemptions of shares in that series made
during such period and reduced by any expenses incurred or accrued with respect to the shares).
Notwithstanding the foregoing, the Incentive Allocation will be made only if the Adjusted NAV
of a series of such shares as of the date of determination of the amount of the Incentive
Allocation is in excess of the Prior High NAV (as defined below) of that series. The “Prior
High NAV” of each series of shares is the net asset value of that series as of the first day
following the date as of which the last Incentive Allocation with respect to such series was
made (or if no Incentive Allocation has been made with respect to such series, the net asset
value of such series immediately following its initial issuance. The Adjusted NAV is generally
calculated net of the additional fees, expenses and incentive amounts described in Part C of this
Item 5 below, subject, in certain instances, to a cap on such amounts. The Incentive Allocation,
which is generally allocated on a semi-annual basis (and in connection with any redemption,
withdrawal or certain transfers), will equal in the aggregate, based on the investor's selection,
either (a) 15%; or (b) the "Progressive Incentive Allocation Percentage," which ranges from
5% to 20% depending on the net annualized rate of return for the incentive allocation period in
question. The Investment Adviser may, in its sole discretion, choose to reduce, waive, or
calculate differently the Incentive Allocation as may be agreed with any Investor (including
any investor that is an affiliate of the Investment Adviser).
Finally, the Diversified Alpha Fund investors bear the cost of compensating
each PM Company Personnel employed by the PM Company with respect to the Diversified
Alpha Fund.
Pursuant to an agreement with a strategic investor (the "Strategic Investor"),
such investor is entitled (in addition to other rights described in the offering documents) to an
allocation on a semi-annual basis of certain profits of the Diversified Alpha Master Fund, which
will not increase the amount of the Incentive Allocation and Management Fee otherwise borne
by investors, but will reduce the amount of the Incentive Allocation allocated to an Affiliate of
the Investment Adviser.
B. Payment of Fees.
Fees and compensation paid to the Investment Adviser or its Affiliates by the
Diversified Alpha Funds are generally deducted from the assets of such clients. As discussed
above, Management Fees are generally deducted on a quarterly basis (and the Incentive
Allocation is generally deducted on a semi-annual basis and upon a redemption, withdrawal or
certain transfers).
C. Additional Fees and Expenses.
The Diversified Alpha Master Fund bears its own operating and other expenses
(including, without limitation, its pro rata share of the operating and other expenses of its
subsidiaries, including the subsidiaries through which it executes one or more Strategies (as
defined in Item 8 of this Brochure) (each, a "Sub-Fund", and collectively, the "Sub-Funds")
(because the Sub-Funds are generally wholly-owned by the Diversified Alpha Master Fund,
such pro rata share is generally 100%)). The Diversified Alpha Master Fund also bears certain
of the Diversified Alpha Offshore Fund's and the Diversified Alpha Domestic Fund's expenses.
In consideration for such expenses being borne by the Diversified Alpha Master Fund, the net
asset values of the Diversified Alpha Offshore Fund's shares and the Diversified Alpha
Domestic Fund's shares (as the case may be) in the Diversified Alpha Master Fund will be
reduced by the amount of such expenses. The expenses payable (directly or indirectly,
including through reimbursement of the Investment Adviser or the PM Company) by the
Diversified Alpha Master Fund (and, therefore, indirectly by the investors in the Diversified
Alpha Feeder Funds) include, without limitation:
(a) Investment and trading-related expenses (these are expenses directly related to
the Diversified Alpha Master Fund's investment program and include, without
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