Item 5 – Fees and Compensation
Management Fees
Each Client pays Midway a management fee that is calculated as a percentage of assets
under management by Midway. Management fees for the Funds are set out in detail in
the confidential private placement memorandum for each of the Feeder Funds. These
fees are payable monthly in arrears based on the month-end asset value as of the last
business day of the immediately preceding calendar month (before taking into account
any withdrawals as of such day). Each underlying investor (including Midway
Domestic) in a Feeder Fund is allocated a portion of the fee attributable to that investor’s
holdings in such Feeder Fund excluding any amount held for such investor in a Special
Liquidating Sub-Account (as defined below). Class A shareholders (together with its
affiliates) generally pay a management fee of 1.5% per year (or 0.125% per month) on
the first $100 million of its aggregate investment in the Feeder Funds (and Midway
Domestic) and 1% per year (0.08333% per month) on its aggregate investment in the
Feeder Funds (and Midway Domestic) greater than $100 million. The management fee
paid to Midway for Class B shares is 2.0% per year (or 0.166% per month). Class S
shareholders pay an asset-based management fee that is identical to the management fee
paid by Class A shareholders. While the Midway Master Fund does not charge its own
management fees, Midway, for administrative convenience, may elect to charge the
management fees associated with the Feeder Funds at the Midway Master Fund level.
Management fees associated with Designated Investments (as defined in Item 8 below)
are payable upon the disposition of the designated assets or an investor’s withdrawal
from the applicable Feeder Fund.
The Managed Account generally pays, and future managed account clients generally will
pay, Midway on the basis of a monthly or other periodic fee that is computed as a
percentage of the value of the assets under management. All such fee arrangements are
individually negotiated and set forth in the investment management agreement.
Performance-Based Compensation
At the end of each fiscal year, with respect to Midway Institutional, The Midway Group,
LLC (an affiliate of Midway and the managing member of Midway Institutional), and
with respect to Midway International, the Investment Manager, may receive
performance-based compensation in compliance with Rule 205-3 under the Advisers Act.
Class A shareholders (together with its affiliates) generally pay a performance fee of 20%
on the first $50 million of its aggregate investment in the Feeder Funds (and Midway
Domestic) and 10% on its aggregate investment in the Feeder Funds (and Midway
Domestic) greater than $50 million. Class B shareholders pay a performance fee of 20%.
The performance-based compensation is made pro rata from the account of each
underlying Feeder Fund investor in the amount attributable to that investor’s holdings in
such Feeder Fund. Class S shareholders pay a performance fee that is identical to the
performance-based compensation borne by Class A shareholders. The performance fee is
calculated separately for each series in each class, is net of all expenses, and is subject to
a “high water mark” (i.e., the previous highest net asset value at which performance-
based compensation was paid) so that no performance fee will be made on the
recoupment of any net losses. If Midway ceases to act as the investment manager of a
Feeder Fund, or an underlying investor withdraws its assets from a Feeder Fund, the
performance-based compensation will be allocated on a pro rata basis. While Midway or
any of its affiliates does not receive performance-based compensation attributable to
assets invested in the Midway Master Fund, Midway, for administrative convenience,
may cause the performance-based compensation to be paid at the Midway Master Fund
level. Performance-based compensation attributable to Designated Investments (as
defined in Item 8 below) is payable upon the disposition of the designated assets or an
investor’s withdrawal from the applicable Feeder Fund. Midway Domestic does not pay
any performance-based compensation to Midway or its affiliates with respect to its
investment in Midway Institutional. Midway Domestic pays The Midway Group LLC
performance-based compensation in the same manner and under the same terms as
Midway Institutional.
Midway generally receives performance-based compensation from the Managed
Account, and generally will receive performance-based compensation from any future
managed account clients, on the basis of a percentage of the net capital appreciation in
such client’s portfolio during a specified period, subject to a “high water mark.” All such
fee arrangements are individually negotiated.
Fee Differential
In extremely limited circumstances, certain underlying investors in the Feeder Funds (or
in Midway Domestic) may pay lower fees or have other unique arrangements such as the
waiver or rebate of fees or greater transparency. In addition, investors such as those who
are otherwise affiliated with Midway, or who provide large or initial investments in a
Feeder Fund (or in Midway Domestic), may have specially tailored arrangements with
respect to their investment in a Feeder Fund (or in Midway Domestic). These
arrangements could create preferences or priorities for certain investors as compared to
other investors. Midway or its affiliates may, in their sole discretion, enter into these
arrangements with specific Feeder Fund (or Midway Domestic) investors without the
consent of, or specific notice to, other Feeder Fund (or Midway Domestic) investors. In
addition, Midway may, in the future, exclude certain Midway employees from being
subject to management and performance fees.
Early Withdrawal and Related Charges
The commitment period for investors in the Feeder Funds is one year. Any capital
contribution that is withdrawn from a Feeder Fund before the completion of the
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