Item 5 – Fees and Compensation
Certain fees described herein are subject to negotiation with investors.
Management Fees
The Limited Partners paid a management fee ranging from 0.75% to 2.0% based on invested
capital to the Adviser or a related person of the Adviser. The management fee was paid quarterly
(annually in the case of certain large investors) in arrears (see also “Co-Investments” below for
additional information on the fees and expenses relating to co-investments). Effective May 31,
2017, the Adviser ceased charging management fees to the Limited Partners.
Upfront Placement Fees
Broker-dealers who are affiliates of the Adviser acted as placement agents to assist in the
placement of the Fund’s interests. Any placement fee not payable by the Adviser was in addition
to a Limited Partner’s capital commitment. The amount of any placement fee is described in the
placement agent’s point of sale letter. However, any of the placement agents or distributors may,
in their sole discretion, waive the placement fees paid by a Limited Partner, including a Limited
Partner that is an employee or affiliate of the general partner of the Fund and/or Morgan Stanley.
The prospect of receiving, or the receipt of upfront placement fees as described above by
affiliates of the general partner may have provided such affiliates with an incentive to favor
subscriptions for interests in the Fund over subscriptions for, or sales of, interests in funds (or
other fund investments) with respect to which such affiliates do not receive such compensation
or receive lower levels of compensation, creating a potential conflict of interest for such
affiliates.
Referral Fees
Affiliates of the Adviser may have referred or introduced a counterparty to the Fund in respect of
certain transactions. Such affiliates may have received compensation (e.g., finder’s fee) from the
Fund as opposed to the counterparty.
Acquisition Fees
With respect to the Fund, the Adviser or a related person of the Adviser is entitled to receive an
acquisition fee payable by the Fund with respect to any acquisition in an amount equal to 1.0%
of the gross value of the consideration paid (or obligated to be paid) for each investment;
provided that such fees shall not exceed 5.0% of the Limited Partners’ capital contributions
funded (or obligated to be funded) in respect of the relevant investment.
Acquisition fees are generally payable on the date of closing of the acquisition to which such
acquisition fee relates.
Carried Interest
Save as indicated below, with respect to the Fund, the general partner of the Fund will also be
entitled to a distribution of up to 20% of a Limited Partner’s gain from an investment, which fee
complies with the provisions of Rule 205-3 under the Advisers Act; provided that the remaining
allocations to the Limited Partner are sufficient to give the Limited Partner a 9% annual
compounded internal rate of return on that investment. In addition, the Fund has a specific fund
designed to admit only Morgan Stanley current and former employees (and certain other
permissible related investors) (each, an “Employee Fund”). With respect to each Employee
Fund, absent certain circumstances relating to the termination of employment of a Limited
Partner with Morgan Stanley, the general partner’s distribution entitlement is generally
calculated at 10% instead of 20%.
Specific Limited Partners are entitled to a clawback of all or a portion of the general partner’s
carried interest in certain circumstances (see also “Co-Investments” below for additional
information on the fees and expenses relating to co-investments).
Expenses
The Fund may also bear certain out-of-pocket expenses incurred by the Adviser and/or its
affiliates in connection with the services provided to the Fund. The payment of such expenses by
the Fund does not represent a source of profit for the Adviser, but rather is a reimbursement of
actual costs initially paid by the Adviser (or its affiliates) and subsequently passed through to the
Fund. The most common expenses include (i) expenses incurred in connection with identifying,
evaluating, structuring and negotiating any potential Fund investment (including reverse break-
up, termination and other similar fees payable by the Fund, deposits and commitment fees) and
the acquisition, holding, sale, proposed sale or valuation of any Fund investments; and (ii)
ordinary administrative expenses, including fees of auditors, attorneys, appraisers and other
professionals. The Adviser and its affiliates may provide the Fund with certain accounting, data
processing, legal or insurance purchasing or administrative services which would otherwise be
performed for the Fund by third parties and, in such event, the Adviser and its affiliates may be
reimbursed by the Fund at the lesser of (i) the cost of providing such services (including
reasonable employment costs and related overhead allocable thereto) and (ii) the amount that
would be payable by the Fund if services of equal quality were provided by third parties on an
arm’s-length basis, except that such reimbursements will not be permitted with respect to
appraisal or valuation services.
Co-Investments
The terms of a co-investment applicable to one co-investor may be different than the terms
applicable to another co-investor, including that certain co-investors may be required to pay a
carried interest and/or management fees while other co-investors (including affiliates of Morgan
Stanley) may not be required to pay such amounts. The Adviser or the general partner may or
may not charge management fees, one time funding fees and/or carried interest in respect of co-
investments, subject to the terms of any applicable agreements with investors. The allocation of
any co-investment opportunities may directly or indirectly benefit the Adviser or general partner
as a result of, among other things, the receipt of any such fees or carried interest, capital
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