Item 5: Fees and Compensation
A. Fees.
In consideration of our advisory services, Square Wave generally is entitled to receive
management fees and performance-based compensation with respect to the Clients. The fees and
expenses applicable to the Fund Clients are set forth in detail in their respective Offering
Documents and the fees and expenses applicable to the Managed Account Clients are set forth in
their respective Advisory Agreements. However, a summary of Square Wave’s basic fee schedule
is set forth below. The management fees and performance allocations described below apply to all
Fund Clients, including both the Master Fund and the Offshore Fund, except to the extent a Fund’s
Offering Documents specify class-specific or jurisdiction-specific fee variations.
The Fund Clients
Management Fee.
Square Wave charges an asset-based management fee to the Fund Clients, payable quarterly in
advance. Management fees vary by class of interests as outlined in each Fund’s Offering
Documents. In most cases, the annual management fee is 1.00%, assessed on each investor’s
capital account (including unrealized appreciation or depreciation). Class AA interests pay 1.50%
annually on the first $10 million of capital and 1.00% thereafter. Certain higher-minimum classes
may pay different rates, and additional classes may be formed with distinct fee terms. Management
fees may be reduced for larger asset levels; for example, the management fee may be reduced to
0.50% annually for assets above $2 billion. The Firm may, in its sole discretion, waive or reduce
management fees for certain investors, including pursuant to negotiated side letters.
The Management Fee (the “Management Fee”) is prorated with respect to any new or additional
capital contribution effective other than as of the first business day of a calendar quarter. In the
event of a withdrawal by an investor in the Fund Clients other than as of the last day of a calendar
quarter, a pro rata portion of the Management Fee, based upon the actual number of days remaining
in such quarter, is repaid by Square Wave to the respective Fund Client for credit to the investor’s
account. The Management Fee is deducted directly from the capital account of each investor in the
Fund Clients.
Performance Allocation.
Subject to the terms set forth in the Offering Documents, Square Wave generally receives a
performance-based allocation (“Performance Allocation”) of 20% of net profits attributable to
each investor’s capital account. This allocation is subject to a high-water mark and varies by class.
For example, Class BB interests are subject to a 5% annual hurdle, below which no performance
allocation is charged, and Class C and Class CC interests are subject to benchmark hurdles,
including the MSCI ACWI Index and the S&P 500 Equal Weight Index, respectively. Performance
allocations may be calculated on both realized and unrealized gains and may differ across share
classes pursuant to the Offering Documents. The Firm may enter into side letters or similar
arrangements with certain investors providing for reduced or modified fee terms.
The Performance Allocation is subject to a “high water mark” limitation (or cumulative loss
provision). As a result, after the first fiscal year in which a Performance Allocation is earned, the
Performance Allocation for subsequent years applies only to the extent that an investor’s pro rata
share of net profits measured on a cumulative basis, net of any losses, for all years since admission
exceeds the highest level of such cumulative net profits achieved through the close of any prior
year since admission. If an investor in a Fund Client makes a withdrawal at a time when its capital
account balance is below its historic “high water mark”, the level of the high water mark will be
ratably reduced to reflect such withdrawal. The Performance Allocation is calculated and charged
to each investor in a Fund Client at the end of each fiscal year and such other dates set forth in the
applicable Offering Documents. The Performance Allocation is re-allocated from each capital
account of an investor to the capital account of Square Wave.
Fees with respect to an investor in a Fund Client generally are not negotiable. However, Square
Wave may enter into side letters or other similar arrangements with certain investors in the Fund
Clients that waive, reduce or calculate differently the Management Fee and/or the Performance
Allocation with respect to such investors.
Managed Account Clients
The advisory fees with respect to each Managed Account Client are negotiated separately with
such Managed Account Client and may vary based upon a variety of factors (including the type of
the account, etc.).
Other Fees and Expenses. In addition to the Management Fee and the Performance Allocation,
each Fund Client generally is required to bear (and reimburse Square Wave and its affiliates for)
all costs and expenses relating to its activities. A summary of certain costs and expenses that
generally are required to be borne by the Fund Clients is set forth below:
(a) all costs, expenses, or charges incurred by the Fund Clients, directly or indirectly, in
connection with the investment and trading activities of the Fund Clients, including
without limitation, brokerage commissions, mark-ups, margin interest, expenses
related to short sales, custodial fees, clearing and settlement charges, and other
transaction costs to brokers and/or all expenses incurred in developing, evaluating,
negotiating, consummating, monitoring, structuring, trading, effecting, settling,
holding and/or disposing of investments, including expenses which the general
partner reasonably determines to be related to the activities of the Fund Clients or the
investment of the Fund Clients’ assets;
...