P&A Fund Management Inc

Fees and Compensation
GENERAL INFORMATION ON OUR FEES

The General Partner receives management fees and in the case of certain Funds, an incentive allocation of
net profits in each applicable Fund. The General Partner also receives fees from the separately managed
account. The General Partner shares all or a portion of this compensation with us for the investment
advisory services that we provide to the Clients. Unless otherwise specified, references to “us” or “we” in
this “Fees and Compensation” section or in the following “Performance-Based Fees and Side-By-Side
Management” section shall refer to both us and the General Partner.

MANAGEMENT FEES FOR FUNDS

Unless otherwise noted, fees are calculated monthly and paid quarterly in arrears based upon the net asset
value of each Investor’s capital account as of the end of each quarter in each Fund and such fees are
deducted from Client assets.

        Fund                             Management Fee
        DMF                              1.00%
        MSF Class A                      1.00%
        MSF Class B                      1.50%
        SSF                              2.00%
        BAL                              1.75% (up to $2,000,000)
                                         1.50% (over $2,000,000 up to $4,000,000)
                                         1.25% (over $4,000,000)
        MSF II Class A                   1.00%
        MSF II Class B                   1.50%
        DMOF Class A                     1.75%
        DMOF Class B                     1.50%
        DMOF Class C                     1.25%
        AGL                              1.75%

OTHER INFORMATION ON FEES AND EXPENSES OF FUNDS

We may advise other funds in the future that have higher or lower fees than described above or that have
a different fee structure altogether. We reserve the right to reduce or waive our fees with respect to any
Investor without any obligation to provide notice to or obtain the consent of any other Investor.

The Portfolio Managers also charge fees and expenses. Each Fund must bear a pro-rata share of these
fees and expenses. In general, these fees are a 1.5% - 2.0% management fee and a 15% to 20% incentive
fee or allocation. Even if a Fund may not be profitable as a whole, it still may have to pay incentive fees
or allocations to a Portfolio Manager with which it invests. This layering of fees reduces the rate of return
Clients (and indirectly, Investors) derive from an investment in a Fund and the fees paid may be higher
than other investment alternatives.

To the extent AGL invests in any of the Funds, it pays a pro-rata share of the expenses of each Fund.
However, in this scenario, we waive any management fees and/or performance allocations/fees payable
regarding assets of AGL invested in such other Funds.

Each Fund bears additional expenses related to its ongoing operations and sale of interests or shares.
These costs include the costs for the periodic updating of the memorandum and other offering documents,
legal and accounting fees, tax preparation and audit fees, fees to each Fund’s administrator, expenses of
printing and mailing and costs of regulatory compliance. We also provide each Fund, at no charge, office
space and staff. Each Fund also bears its own investment and business-related expenses, including
management fees and their pro-rata share of all expenses incurred by Portfolio Managers. Fees of the
Portfolio Managers can include their respective management fees and performance fees or allocations,
interest expenses, brokerage commissions, custodial fees, taxes, legal and accounting expenses, and other
similar expenses. Brokerage commissions are further discussed below under “Brokerage Practices”.

FEES FOR SEPARATELY MANAGED ACCOUNT

We charge our AGL separately managed account a management fee of 1.75% per annum based on assets
under management. We allocate 0.50% of this fee to AIG American General Life Insurance to offset
administration and other fees.

           Performance-Based Fees and Side-By-Side
                        Management
We receive performance-based compensation (also known as the “Incentive Allocation”) calculated as a
share of the capital appreciation of some of the Funds noted below. We only receive performance-based
compensation that complies with Rule 205-3 of the Investment Advisers Act of 1940, as amended
(“Advisers Act”). We do not charge performance-based compensation on our separately managed
account. Performance-based compensation is calculated and accrued monthly, but paid annually.

        Fund                            Incentive Allocation
        DMF                             2.50%
        MSF Class A                     10.00%
        MSF II Class A                  10.00%

Performance-based compensation, in a given year, for Investors holding Class A interests of MSF and
MSF II is subject to a ten percent (10%) priority return to Investors and to a high water mark.
Consequently, the Incentive Allocations for MSF (Class A) and MSF II (Class A) shown above apply
only to returns in excess of the 10% priority return. A high water mark means the Incentive Allocation
only applies to returns above the highest peak in value of investment returns for the investment.

As noted above, the Portfolio Managers also charge incentive fees or allocations, which are generally
around 15% to 20%.

The payment of performance-based compensation creates a conflict of interest since it may cause us and
the Portfolio Managers to make investments that are more speculative than might be the case in the
absence of such fee arrangements.

In addition, we serve as the investment manager or sub-advisor of several different Funds and a separately
managed account as set forth above and may serve as investment manager of other funds organized in the
future. Although the investment strategies of these Clients differ from each other, there may be
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Types of Clients
Our only clients are the Funds and the separately managed account. Interests or shares in the Funds are
appropriate only for Investors who are “accredited investors,” as defined under Regulation D of the
Securities Act of 1933, as amended (“Securities Act”), and “qualified clients,” as defined in Rule 205-3
under the Advisers Act. In addition, only investors who are also “qualified purchasers,” as defined in the
Investment Company Act, may invest in MSF and DMOF.

A purchase of an interest or shares in a Fund does not constitute a complete investment program and is
only intended for those Investors that fully understand and are willing to assume the risks involved in the
investment program of a Fund.

The Funds offer interests or shares subject to our right to reject, in our sole discretion, any subscription to
purchase, in whole or in part. The minimum investment amount in any of our Funds is $500,000, subject
to our discretion to accept contributions of lesser amounts.

Generally, we offer interests or shares in the Funds to high net worth individuals and families, including
family estate planning vehicles, as well as endowments, trusts, foundations, pension plans and insurance
companies.

  Methods of Analysis, Investment Strategies and Risk
                        of Loss
Our affiliate, P&A Capital Advisors identifies, evaluates and monitors the Portfolio Managers and
Underlying Funds in which the Funds invest, and we approve investments in and withdrawals from such
Portfolio Managers and Underlying Funds. P&A Capital Advisors identifies Portfolio Managers through
referrals, word of mouth, review of industry publications, conferences and similar sources. P&A Capital
Advisors conducts detailed due diligence on each Portfolio Manager and the Underlying Fund(s) that they
manage, including an in-depth review of a Portfolio Manager’s performance results, infrastructure,
research capabilities, money under management, investment strategy, operations and similar factors. The
Portfolio Managers with whom the Funds may invest employ a variety of strategies (including, but not
limited to, long/short trading of U.S. equities, credit, short term trading, growth and value investing,
convertible securities and macro funds) which focus on a variety of industries (including, but not limited
to, technology and healthcare).

Any investment or investment strategy involves some risk of loss that Clients (and indirectly, Investors)
should be prepared to bear. Examples of risks Clients (and indirectly, Investors) could face are:

•   Investing in the Underlying Funds: The investments of the Funds are concentrated in the
    Underlying Funds, and a Fund’s investment performance is directly related to the investment
    performance of the Underlying Funds it holds. The ability of a Fund to meet its investment
    objective is directly related to the ability of the Portfolio Managers of the Underlying Funds to
    meet their objectives as well as to the allocation among Underlying Funds by our firm. Because
    the Funds invest in Underlying Funds, Investors will be affected by the investment policies and
    practices of the Portfolio Managers of those Underlying Funds in direct proportion to the amount
    of assets the Funds allocate to those Underlying Funds.
•   Interest-rate Risk: Fluctuations in interest rates may cause investment prices to fluctuate. For
    example, market values of bonds decline when interest rates rise because the rising rate makes the
    existing bond yields less attractive.
•   Market Risk: External factors independent of a security’s particular underlying circumstances
    may impact its price. The price of a security may drop in reaction to tangible and intangible
    events and conditions such as a political or a social event or an economic condition.
•   Inflation Risk: Inflation means a dollar today will not buy as much as a dollar in the future. When
    any type of inflation is present purchasing power decreases at the rate of inflation.
•   Currency Risk: Overseas investments are subject to fluctuations in the value of the dollar against
    the currency of the investment’s originating country. This is also known as exchange rate risk.
•   Reinvestment Risk: The risk that future proceeds from investments may be reinvested at a
    potentially lower rate of return is reinvestment risk. This risk primarily relates to fixed income
    securities.
•   Liquidity Risk: Liquidity means the ability to readily convert an investment into cash. For
    example, Treasury Bills are highly liquid, while real estate properties are not. Withdrawal of any
    amount of an Investor’s interest in a Fund is restricted as described in each Fund’s offering
    documents. Moreover, the Underlying Funds may have withdrawal limitations which are
    comparable or more restrictive than those of a Fund. Such restrictions may impose additional
    limitations on the liquidity of an investment in a Fund.
•   Financing Risk: The Underlying Funds may invest in the equity securities of issuers that utilize
    borrowing to finance business operations. Such issuers may experience a significant decline in
    profitability if, as a result of financial stress in the marketplace or other factors, the issuer is
    unable to service its debt obligations. In turn this may affect the perceived creditworthiness of
    the issuer and liquidity of its securities, and cause the Underlying Funds to sell such securities at
    an inopportune time.
•   Derivatives Risk: There is a risk that loss may result from an Underlying Fund’s investment in
    options, futures, swaps, options on swaps, structured securities and other derivative instruments.
    These instruments may be leveraged so that small changes may produce disproportionate losses
    to the Underlying Fund and, therefore, a Fund invested in such Underlying Fund. Derivatives are
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