Item 5 - Fees and Compensation
Allocation of Costs
UCF allocates and charges its clients for its actual investment management and
administrative costs in providing its advisory services. UCF captures and accounts for its
costs through a series of cost centers. To the extent that costs are incurred by UCF which
are attributable directly to a particular client account, such costs are charged to such
account. All other costs incurred by UCF for investment management activities for its
New York office, including salaries, employee benefits, rent, research, custodian fees,
travel, outside legal fees, insurance, outside consultants, tax preparation fees, and general
office-related expenses are calculated pro rata for the various accounts based upon the
size of the respective accounts. Costs incurred by the UCF Accounting group are
charged to the clients based upon an estimate of the employee time spent on such
activities. Cash and publicly traded securities are held by bank custodians and the
custodian fees are paid directly from client assets. In addition, clients incur brokerage
fees (see Item 12 - Brokerage Practices).
The largest component of UCF's allocated cost is salaries. Investment Employees are
paid a salary plus incentive compensation. The compensation program for Investment
Employees provides for total compensation sufficient over the long term to allow UCF to
attract, retain and motivate high quality employees. A key goal of this program is that no
individual should be encouraged to take greater risks in search of a larger bonus than
UCF would ordinarily take. Compensation surveys of competitive investment
institutions and analysis of long-term risk-adjusted performance are used by the
Chairman of UCF's Investment Committee and the President of UCF in connection with
determining total compensation. The Chairman and members of the UCF Accounting
Group are not participants in UCF's compensation program for Investment Employees.
In recognition of the fact that UCF receives certain support services from USS without
charge, and that the USS pension plan provides the scale that reduces each plan's
proportionate cost, Other Clients may be charged more than what would be their
allocable share of expenses on a strictly pro rata basis, in a range between one and two
times the allocable share. Any charge that exceeds a strictly pro rata allocation (a
"Supplemental Charge") is negotiated, and serves to reduce the allocable charges to USS.
No plan sponsored by USS is charged a Supplemental Charge. All domestic accounts are
billed monthly in arrears; Canadian accounts are billed quarterly in arrears. Clients'
accounts are charged directly where authorized by the plan sponsor. In all other cases,
the plan sponsor is billed for such charges. UCF receives no compensation from third
parties with respect to the purchase of securities or other investment products.
As an alternative to the cost allocation method described above, UCF has negotiated a
flat fee contract with certain of its Other Clients who have requested such a fee structure.
Any charges that are directly attributable to such Other Client are charged in addition to
the negotiated flat fee.
Third-Party Management Fees
Where third party managers are utilized, the fees of such managers are charged directly to
the assets under management by those managers. In the case of private equity, real estate
and timber, such third-party fees generally include performance-based fees.