Palo Alto Investors LP

Item 5.        Fees and Compensation

PAI’s compensation is negotiable and varies, and the investment advisory compensation
applicable to each Fund is set forth in detail in that Fund’s offering documents, except as otherwise
noted below with respect to the Sub-Advised Fund. A brief summary of those fees is described
below and typically consists of the following components:

                       First, PAI typically charges investors an annual fee of 1-1.5% of their assets
                   under management, depending on the fund in which they invest. Some current
                   investors who invested prior to May 1, 2008, pay an annual fee of 1.0%,
                   regardless of the Fund in which they invest. The management fee with respect
                   to each investor in a Fund is payable in advance in quarterly installments at the

                   beginning of each calendar quarter based on the net market value of the
                   investor’s assets on that date.

                       Second, PAI typically is allocated from each investor a performance
                   allocation equal to 20% of net profits (including both realized and unrealized
                   gains and losses) otherwise allocable to that investor.

Performance allocations are assessed in arrears on an annual basis (and on
withdrawals/redemptions) and are only applied to the portion of profits that exceed the cumulative
losses previously incurred by investors. Limited partners who joined a Fund before 1995 are
typically assessed a 15% performance allocation. PAI complies with Rule 205-3 under the
Investment Advisers Act of 1940, to the extent required by applicable law. Performance
allocations may create an incentive for PAI to make more risky and speculative investments than
it would otherwise make.

PAI typically deducts management fees and performance allocations directly from investor
accounts. Funds that invest in mutual funds or ETFs also pay, indirectly, investment advisory fees
to the managers of those funds.

PAI believes that its fees are competitive with fees charged by other investment advisers for
comparable services. Comparable services may be available, however, from other sources for
lower fees.

The disclosure in this Item 5, together with the disclosure in Item 12, allow a plan that is subject
to the Employee Retirement Income Security Act of 1974 and that invests in a Fund to use the
“alternative reporting option” to report PAI’s compensation as “eligible indirect compensation”
on Schedule C of the plan’s Form 5500 Annual Return/Report of Employee Benefit Plan.

An investor may withdraw part of its assets from most Funds as of any March 31 or September 30,
subject to a typical lockup of one to three years, as provided in the Fund’s partnership or investment
agreement. On any permitted withdrawal date for most PAI Funds, no more than 50% of an
investor’s assets may be withdrawn and the remainder may be withdrawn on the next permitted
withdrawal date, but if the remainder is not so withdrawn, then the withdrawal rights revert back
to the restriction that the next time a withdrawal occurs, no more than 50% of those assets may be
withdrawn and the remainder may be withdrawn on the next permitted withdrawal date.

An investor who withdraws from a Fund on a date other than the end of any quarter, as the case
may be, does not receive a refund of the management fee previously paid.

Each Fund is responsible for its own organizational, operational and investment costs and expenses,
as described in each Fund’s offering documents. PAI bears its own operating, general,
administrative and overhead costs and expenses. All or part of these costs and expenses may be
paid, however, by securities brokers that execute the Funds’ securities trades, as discussed in Item
12 below.

PAI also sub-advises a series of an unaffiliated Fund (the “Sub-Advised Fund”). The Sub-Advised
Fund is not charged a management fee but is subject to a 10% performance fee. PAI does not

deduct its fees from the Sub-Advised Fund’s account but instead the Sub-Advisor provides a
written payment notice to that Fund’s program manager. The Sub-Advised Fund can be terminated
on 60 days’ notice or sooner on certain “cause” events. The Sub-Advised Fund can withdraw from
its account at any time, although it is required to use its best efforts to notify PAI at least 30 days
before a withdrawal. Funds other than the Sub-Advised Fund are referred to in this brochure as
“PAI Funds.”

The Sub-Advised Fund is managed independently from PAI Funds and may have different
holdings, custodians, executing brokers, among other factors.

Item 7.        Types of Clients

PAI provides investment advice to private pooled investment vehicles that are offered to investors
on a private placement basis. Investors in most PAI Funds generally are required to invest a
minimum of up to $1,000,000 depending on the Fund, but PAI may waive this minimum. Some
PAI Funds require a minimum investment of $250,000 or $5,000,000, but again, PAI may waive
this minimum.