Item 5. Fees and Compensation
Asset-Based Compensation. The Funds pay the Adviser an asset-based investment management fee each
quarter in advance in an amount ranging from 1.5% to 1.75% per annum based on the value of the net
assets of the respective Fund on the first day of the quarter (the "Management Fee"). If an investor invests
during a quarter or makes an additional subscription during a quarter, the Management Fee is charged as
of the effective date of such subscription based on the value of the assets as of the applicable date and is
prorated for the number of days remaining in the quarter. The Adviser may waive or modify the Management
Fee for investors that are members, employees or affiliates of the Adviser or Montrock48 GP LLC, an affiliate
of the Adviser (the “General Partner”), relatives of such persons, and for certain large or strategic investors.
The SMA should consult with its investment management agreement with the Adviser for details on the
calculation of the management fee.
Performance-Based Compensation. The Adviser (or the General Partner) is entitled to receive annual
performance-based compensation (the “Incentive Allocation”) from the Funds, which is compensation that is
based on a share of net capital appreciation of the assets of a Fund. The Incentive Allocation rate ranges from
15% to 20% and is subject to a loss carryforward provision. The Adviser (or the General Partner) may waive
or modify the Incentive Allocation for investors that are members, employees or affiliates of the Adviser or the
General Partner, relatives of such persons, and for certain large or strategic investors. The Adviser will receive
Incentive Allocation from the SMA. The SMA should consult with its investment management agreement with
the Adviser for details on the calculation of the Incentive Allocation.
The Management Fee for the Funds are paid pursuant to instructions to the Master Fund’s custodian to deduct
it from the Master Fund’s account. These fees will not be negotiable. The Master Fund has one Strategic
Investor that receives enhanced rights that are not ordinarily available to investors. Specifically, the
Strategic Investor receives periodic performance reporting, waive or reduction of certain fees, and receives
a share of the Adviser’s revenue. The Strategic Investor does not have any control (directly or indirectly) of
the Adviser or the Master Fund.
The Master Fund, the Offshore Fund, the General Partner, and the Adviser have entered into an
arrangement with a strategic investor (the “Strategic Investor”) whereby the Strategic Investor has made a
substantial investment in the Offshore Fund. In consideration for such capital contribution, the Strategic
Investor has been granted certain rights that are in addition to, and more favorable than, the rights, terms
and conditions established in favor of other shareholders in the Fund and limited partners in the Master
Fund. Specifically, the Strategic Investor receives periodic performance reporting, waive or reduction of
certain fees, and receives a share of the Adviser’s revenue. The Strategic Investor does not have any equity
stake in the Adviser and has no rights with respect to the day-to-day operation of the Adviser or the General
Partner or in the management of the Master Fund and therefore does not control or monitor the activities
of the Adviser or the General Partner and has no role in and will not be responsible for the investment
decisions or other decisions made for the Master Fund.
The SMA receives an invoice for fees from Adviser on a quarterly basis.
In addition to bearing the Management Fee and Incentive Allocation, if any, the Funds are subject to other
investment expenses such as legal, compliance, administrator (including middle and back office fees and
expenses), audit and accounting expenses (including third party accounting services); shareholder proxy
voting services; organizational expenses; investment expenses such as commissions, research fees and
expenses (including Bloomberg and similar subscriptions and data services and research related travel);
interest on margin accounts and other indebtedness; borrowing charges on securities sold short; custodial
fees; bank service fees; Fund-related insurance costs (including D&O and E&O insurance for the Adviser,
the General Partner and outside directorship and Review Committee liability); independent Master Fund
Review Committee members’ fees and expenses; expenses of regulatory compliance (including
compliance with AIFMD), filings and reporting (including but not limited to Section 13, Section 16 and Form
PF filings); pricing service fees; portfolio valuation expenses (including data fees and third-party valuation
agents); Directors' fees and expenses; and any other expenses related to the purchase, sale or transmittal
of Fund assets. In addition to the fees charged by the Adviser, the SMA may be responsible for additional
expenses, such as brokerage fees, commissions, mark-ups and mark-downs, custody fees, and fees and
expenses charged by unaffiliated custodians.
The allocation of expenses by the Adviser between it and any Advisory Client and among Advisory Clients
represents a conflict of interest for the Adviser. The Adviser has adopted an expense allocation policy that
is designed to address this conflict. The Adviser will allocate expenses to each Advisory Client in
accordance with the Advisory Client’s arrangements with the Adviser (including applicable Advisory Client
disclosures). The Adviser seeks to allocate shared expenses for products and services benefitting the
Adviser and the Advisory Client and not covered in the Advisory Client’s arrangements in a fair and
reasonable manner. The Adviser allocates common Advisory Client expenses among multiple Advisory
Client pro rata based on gross assets under management as of the beginning of each semi-annual period
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