ITEM 5: FEES AND COMPENSATION
Compensation
Compensation received by Sheffield from the Fund consist of fees based on a percentage of assets
under management. In addition, performance-based amounts, as more fully described below, are
received from the Fund.
Sheffield receives a management fee from the Fund, in advance and on a quarterly basis, at a rate
equivalent to an annual rate ranging from 1.0% to 2.0% of the net asset value of an investor’s interest
in the Fund. The management fee rate for the Fund generally differs based on the liquidity associated
with the relevant interest, with interests having less liquidity being subject to a lower management
fee.
Sheffield receives an annual performance-based allocation of between 17.5% and 20% of “new
profit,” i.e., profit in a particular year in excess of the “high water mark” attributable to a particular
“tranche” of interests in the Fund. A “tranche” is a group of interests in the same series of a Fund held
by the same investor and with the same date of investment. For example, an investor who invests in
a particular series of interests in a Fund on two different dates will have two separate tranches of
interests. The high water mark for a tranche is equal to the highest cumulative profit attributable to
the tranche as of the end of any previous year, or $0 if there have not been profits attributable to the
tranche as of the end of any previous year. This performance-based fee is designed to align Sheffield’s
interests with those of its investors. The percentage of profits allocated or paid to Sheffield as
performance-based compensation differs based on the liquidity associated with the relevant interest,
with interests having less liquidity paying a lower amount. In addition, the offering documents for
the Fund includes a discount mechanism for investor relationships over $100 million.
Method of Payment of Fees
All fees or allocations received from the Fund by Sheffield are deducted from the Fund or investor
accounts.
Operating Expenses, Including Brokerage and Other Transaction Costs
In addition to the compensation payable to Sheffield, the Fund pays its ongoing operating and offering
costs as set forth in the offering documents for the Fund, including, but not limited to:
brokerage commissions, dealer mark-ups and other costs of executing transactions, which
are discussed in more detail below;
interest expense;
legal, auditing, reporting and accounting expenses and regulatory reporting expenses
(including, but not limited to, expenses incurred in connection with complying with Securities
and Exchange Commission and Commodity Futures Trading Commission reporting
obligations, such as expenses associated with reports of beneficial ownership of securities
held by the Fund, as well as costs of preparing regulatory filings by the Fund or by Sheffield
with respect to the Fund (including, but not limited to, Form PF);
consulting fees and charges and the fees and charges of third parties retained by Sheffield to
assist in evaluating prospective investments and monitoring existing investments by the
Fund, including research-related travel expenses;
fees of the Fund administrator;
due diligence costs associated with evaluating trades in which the Fund invests, including
travel expenses and payments to third parties for services such as identifying, evaluating,
analyzing, pricing and developing trading strategies for trading in certain markets and
implementing, managing and evaluating these strategies;
computer software, data and information sources (such as Bloomberg) and licensing costs;
research costs;
costs and expenses related to directors’ and officers’ insurance;
fees incurred in connection with the custody of assets of the Fund; and
extraordinary expenses, including expenses relating to litigation or administrative
proceedings.
In some cases, Sheffield pays certain expenses directly and obtain reimbursement therefor from the
Fund.
The Fund is charged brokerage commissions, bid-ask spreads and other transaction costs and
expenses in connection with their trading and investment activities as well as custodian fees for Fund
assets held in cash or securities at various banks, broker-dealers and other financial institutions. For
a discussion of the brokerage arrangements that Sheffield enters into on behalf of the Fund, see Item
12 below. In addition, from time to time, the Fund invests in unaffiliated money market funds, mutual
funds or exchange-traded funds, which charge management fees and expenses as disclosed in the
specific fund’s prospectus.
When Sheffield incurs an expense, it must determine whether to pay the expense directly or allocate
all or a portion of the expense to the Fund. Sheffield makes these determinations in accordance with
the language contained in the Fund’s offering documents but there is some discretion involved. This
creates a potential conflict of interest in that expenses allocated to the Fund are borne by the
investors rather than by Sheffield. Sheffield has adopted and implemented procedures designed to
address this conflict and ensure that Sheffield abides by its fiduciary duty to act in the best interests
of the Fund.
Negotiation of Fees; Waivers
Compensation payable to Sheffield is generally not negotiable, but under certain circumstances,
Sheffield may, in its discretion, waive all or a portion of its management fees and/or incentive
compensation for a particular investor.
Pre-Payment of Fees
As discussed above, management fees are paid by the Fund quarterly in advance but do not accrue
until the end of each month. If an investor withdraws during a calendar quarter, Sheffield will refund
a pro rata portion of the management fee applicable to the withdrawn capital for that quarter, based
...