Proprietary Capital LLC

Item 5        Fees and Compensation
A.       Advisory Fees and Compensation

Hedge Funds

Fee arrangements for Hedge Funds include a combination of a management fee and
performance-based compensation (i.e., an “incentive fee”). The standard management fee for
Hedge Funds is calculated at an annual rate of 0.85% of assets under management. Incentive
fees on the Hedge Funds range from 10% to 30% of the net profits above a "high water mark".
To the extent that the amount of an investor’s account’s net profits is less than the high-water
mark, there is a loss carryforward allocation that must be recouped before Proprietary Capital is
entitled to an Incentive Fee.

Debt Funds

Fee arrangements for Debt Funds include a combination of a management fee and performance-
based compensation (i.e., “carried interest distributions”). The standard management fee for
commingled Debt Funds is calculated at an annual rate of 1%-1.5% of assets under
management. Carried interest distributions represent a share of distributions to be received by

an investor in a Debt Fund in excess of the relevant investor’s invested capital, and allocable
fees and expenses. Carried interest distributions may be applied each time an investment is
realized or on an annual basis with respect to certain investors in the Debt Funds. Carried
interest distributions are subject to certain preferred return hurdles, catch-up allocations and
clawback provisions. The manner of calculation and application of carried interest distributions
are provided for in the Governing Documents for each applicable Debt Fund. For more
information, please see “Performance-Based Fees and Side-By-Side Management” (Item 6).

Fees for each Fund are determined in accordance with such Fund’s Governing Documents.
Fees payable by investors in the Funds are generally not negotiable. However, Proprietary
Capital reserves the right to waive any fees or compensation payable to it by an investor in a
Fund at any time, in accordance with the terms of the Governing Documents of the respective
Fund. Any variation or waiver in fees will generally require the approval of a Fund’s board of
directors (or similar oversight board).

Fee arrangements for Institutional Accounts include a management fee and may also include an
incentive fee as described in the Institutional Account’s Governing Documents. The incentive fee
is generally similar in structure to the incentive fees charged by the Hedge Funds but will be
negotiated with the Institutional Account at the time the parties enter into an IMA.

Relationship Accounts will not be charged a management fee or an incentive fee. However, to
the extent that any Relationship Account invests in a Fund, the beneficial owner of such account
will pay to the Fund management and performance-based compensation attributable to the
beneficial owner’s investment in the Fund.

Management fees are based on the value of assets of a Client. With respect to the Funds, the
value of assets in each Fund is determined pursuant to that Fund’s written valuation policy. For
liquid investments with readily available prices, those prices are used. When readily available
prices are not available, the Firm uses a variety of methods to accurately value the investments.

Proprietary Capital faces a conflict of interest in valuing the assets that lack a readily available
market value because the assigned value generally affects the fees payable to Proprietary
Capital, as well as reported investment performance. With respect to these investments,
Proprietary Capital uses various valuation methodologies that are based on the nature of the
assets, as set forth in the applicable written valuation policies. While consistency is sought,
these methodologies are inherently subjective and often produce a range of values that may be
considered reasonable. Values assigned by the Firm in its judgment may be different from the
values that others would assign. To help increase the level of independence applied to the
valuation process, the Hedge Funds have adopted written valuation policies that require a Hedge
Fund’s administrator to review the values assigned by Proprietary Capital. A Hedge Fund’s
administrator uses independent pricing information to confirm that the value assigned to each
holding is within an acceptable tolerance range.

There is no assurance that the valuations determined by Proprietary Capital represent values
that can or will be realized in a sale or exchange of investments. On a quarterly basis the Firm’s
Pricing and Allocation Committee, composed of certain Proprietary Capital employees, reviews
the Firm’s compliance with the applicable valuation policies. Deviations from, or material
amendments to, each Fund’s valuation policy, require the approval of the respective board of
directors (or similar oversight board) of the Fund.

With respect to each Separately Managed Account, the final value and performance of assets is
determined by the Managed Account’s administrator or custodian, as applicable.

B.     Payment of Fees

For the Funds, all fees are deducted directly from the assets in each Fund. Institutional Accounts
pay Proprietary Capital outside of the account after receipt of an invoice.

Management fees on Institutional Accounts are payable quarterly in arrears and are generally
calculated based on the value of assets in the account (as of the beginning of each month or
quarter, as appropriate). If an investor in a Hedge Fund subscribes for additional interests during
a billing period, the management fee on the amount of that subscription will be prorated.

A Separately Managed Account IMA may be canceled by either party for any reason upon receipt
of written notice in accordance with the terms of the respective IMA. Institutional Accounts that
terminate their IMA’s prior to the end of a fiscal year will be charged an incentive fee, if applicable,
...

Item 7      Types of Clients

Proprietary Capital provides investment advice to private funds (i.e., the Hedge Funds and Debt
Funds) and to the Separately Managed Accounts whose beneficial owners may be, for example,
pension plans, trusts or other types of institutions.
The minimum initial investment in a Hedge Fund range from $500,000 to $1,000,000 and such
minimum in a Debt Fund $500,000 - $1,000,000, subject to waiver, reduction, or increase by the
Firm or by a Fund’s board of the directors (or oversight board), as the case may be. Potential
investors must meet the specific requirements set forth in the respective Fund’s subscription
document in order to invest in the Fund. Proprietary Capital may negotiate separate agreements,

commonly referred to as “side letters,” with individual Fund investors. The side letter provisions,
which are not found in the Fund’s governing documents, may entitle these investors to different
terms and conditions related to minimum investment, fees, reporting, liquidity, and/or
notifications, among other terms.
Generally, a significant initial investment is required for an Institutional Account. No investment
minimum is required for Relationship Accounts.