Item 5 Fees and Compensation
The Fund pays the Adviser a 1.00% per annum management fee based on the estimated
fair market value of the Fund's assets. Such management fee is subject to negotiation and
may be lower for certain limited partners of the Fund, based on relevant business
considerations within the discretion of the Adviser. The management fee is calculated
monthly and paid by the Fund to the Adviser quarterly in arrears. As general partner of the
Fund, the Adviser causes the Fund to pay such management fees directly to the Adviser
from the assets of the Fund.
The management fee is based on the estimated fair market value of the Fund's assets.
This valuation of the Fund's assets presents an inherent conflict of interest between the
Adviser and the Fund, given that the management fees payable to the Adviser are
determined based on the valuation of the Fund's assets. The Adviser has attempted to
address such conflict of interest by adopting a policy that once every three years, the
Adviser is required to obtain a comprehensive appraisal of the Fund's assets conducted by
an independent appraiser selected by the Adviser. In years where there is no
comprehensive appraisal, the prior year's comprehensive appraisal is updated by such
independent appraiser. Such valuations are made as of December 31 of each year, and
may be adjusted by the Adviser for acquisitions or dispositions during the course of the
year.
The available cash flow of the Fund is allocated among the partners in proportion to their
capital contributions. However, after a limited partner has received a return of its capital
contributions plus a 7% annual return on such capital contributions, 15% of the available
cash flow otherwise allocable to such limited partner will instead be allocated to the
Adviser, as general partner (“Performance Allocation”).
GENERAL INFORMATION
Termination of the Advisory Relationship: As the general partner of the Fund, there is no
formal advisory agreement between the Adviser and the Fund. The Adviser, as general
partner, may be removed upon the vote or written consent of partners holding not less than
two-thirds of the total number of votes eligible to be cast by all partners of the Fund. In
addition, the Fund has a stated term of ten years, which the Adviser may extend for up to two
additional terms of two years each, for a total term of 14 years. At the conclusion of the term,
the Fund will wind down and make an orderly disposition of its assets during a liquidation
period that the Adviser expects to last approximately one year.
Placement Agents and Other Financial Intermediaries: With regard to Sustainable
Woodlands Fund II, L.P., the Fund engaged a financial intermediary to act as a placement
agent to assist in placing interests of the Fund to its brokerage customers. Neither the Fund
nor the Adviser pays separate compensation to such financial intermediary in respect of such
placement services. However, it is our understanding that such brokerage customers are
subject to separate fee arrangements with such financial intermediary, in addition to the fees
and expenses of the Fund. In addition, other financial intermediaries may be compensated
directly by investors in the Fund, under arrangements between such financial intermediaries
and such investors (in their capacities as clients or customers of such financial intermediaries,
and not in their capacities as investors in the Fund). These compensation arrangements with
financial intermediaries are in addition to the fees and expenses charged by the Fund and the
Adviser.
Ongoing Expenses: All expenses of the Fund (including without limitation forest
management fees, legal, accounting, due diligence and appraisal expenses in connection
with acquiring, maintaining and selling Fund’s investments, periodic appraisal expenses and
similar expenses) will be paid by the Fund and are not included in the management fee.
Limited partners of the Fund bear their respective pro rata share of such expenses, in addition
to the management fee.
Forestry Management and Related Expenses: The Fund has contracted with The Molpus
Woodlands Group, LLC ("MWG") to oversee the forest management activities of the Fund
and to provide support in evaluating potential acquisitions, including, without limitation,
conducting due diligence reviews, evaluating land sales for higher and better uses, and
providing silvicultural management and harvesting activities. The costs of these forestry
management services are Fund expenses paid by the Fund from cash flow or from capital
contributions made by limited partners, and are in addition to management fees. The following
is a summary of the approximate costs of such forestry management services:
- Harvesting supervisions: 7% of harvesting revenues.
- Administration cost: $2.50 per acre. The administration cost pays for the forestry
planning employees and support staff employed by MWG, such as accountants and
computer support.
- Acquisition Cost: 1% of acquisition value.
- Disposition Fees: 3% of gross sales price on higher and better use (HBU) transactions.
- Other costs: Other direct expenses are billed to the Fund at cost with no markup.
These are typically services that the Fund contracts, such as bulldozer work on roads,
and fire lanes, painting landlines, spraying, helicopter fertilizing operations, etc. Also
forestry employees of MWG may supervise these activities; such supervisory services
are billed to the Fund at cost. The Adviser believes these direct expenses have
historically cost about $7.50 per acre per year.
Some or all of the foregoing forestry management and related expenses constitute
transaction-based compensation. As an affiliate of a controlling owner of the Adviser, such
compensation creates a conflict of interest as between MWG and the Adviser, and as
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