Item 5: Fees and Compensation
Pursuant to the advisory agreement (the “Advisory Agreement”) between Yulan and the Funds, the Master
Fund pays a monthly management fee (the “Management Fee”) to Yulan, in its capacity as investment
manager. The Management Fee is generally equal to 1.50% annualized. The Management Fee will be
calculated and paid monthly in advance, based on the value of the Capital Accounts of each Limited Partner
holding Class B Interests, as of the first day of the month. The Investment Manager may elect to reduce,
otherwise modify or waive the Management Fee with respect to any Limited Partner. If Capital
Contributions are made at any time other than at the beginning of a calendar month, a pro rata portion of
the Management Fee will be paid to the Investment Manager in respect of such Capital Contribution (based
on the actual number of days remaining in such partial month). If Capital Accounts are withdrawn at any
time other than at the end of a calendar month, a pro rata portion of the Management Fee will be refunded
to the Limited Partner (based on the actual number of days remaining in such partial month).
Pursuant to a separate advisory agreement between Yulan and the SMA, the fees and terms of the
management of the SMA are negotiated.
Subject to the General Partner’s right to receive an Incentive Allocation as described below, the Net Income
or Net Loss of the Funds (including realized and unrealized gains and losses) will be allocated to each
Limited Partner and the General Partner in proportion to their respective Capital Account balance. In
addition to its proportionate share of the Net Income and Net Losses based on its Capital Account balance,
the General Partner will receive an allocation, generally annually, equal to 20% of the Net Income allocated
for the year to each Limited Partner (the “Incentive Allocation”). An Incentive Allocation is also made as
to amounts withdrawn, as of the effective time of the withdrawal by Limited Partners.
Incentive Allocations are subject to a “high water mark” provision under which the General Partner receives
an Incentive Allocation from a Partner only to the extent Net Income allocated to that Limited Partner’s
Capital Amount exceeds any Net Losses previously allocated to it since the last date an Incentive Allocation
was assessed (or the original date of contribution if no Incentive Allocation has previously been assessed).
If a Partner makes a partial withdrawal or receives a distribution at a time when he or she has unrecovered
losses, for purposes of calculating future Incentive Allocations those unrecovered losses will be reduced in
proportion to the withdrawal. The “high water mark” provision prevents the General Partner from receiving
an Incentive Allocation on Net Income that simply restores previous Net Losses. The General Partner, in
its sole discretion, may waive or modify the Incentive Allocation for any Limited Partner.
With regards to expenses, the Funds bears and shall be responsible for its own expenses, including, but not
limited to, investment related expenses such as the Funds’ brokerage commissions, interest on margin
accounts and other indebtedness, custodial fees, bank service fees, withholding and transfer fees, taxes,
systems and technology expenses, third party research tools, corporate licensing fees, legal and auditing
expenses, accounting, the Funds administration, outsourced risk management advisory and software,
investment related consultants and travel costs that are research related, technology and computer services,
the Funds related insurance costs and indemnification payments (including insurance for the Firm and
General Partner), costs and expenses relating to the Funds’ regulatory compliance, including, without
limitation, the costs of compliance programs, regulatory inquiries and regulatory filings (including
regulatory and reporting forms relating to the Funds’ trading and investing), costs of Foreign Account Tax
Compliance Act (“FATCA”) and other tax-related compliance, expenses incurred with respect to the
preparation, duplication and distribution to limited partners and prospective limited partners of Funds
offering documents, annual reports and other financial information, any other services or service provider
expenses deemed necessary by the General Partner on behalf of the Funds.
Each of the General Partner and Firm bears its own expenses, including office space and utilities, computer
equipment and software (not otherwise paid by the Funds) and secretarial, clerical, employee related and
other personnel, except as assumed by the Funds or except as paid for through the permitted use of
commission dollars. The Funds also incur Brokerage fees, see additional details below in Item 12.
At the option of the General Partner, the organizational expenses of the Funds may be amortized over a
period of 60 months from the date the Funds commenced operations. The amortization of organizational
expenses over 60 months is not in accordance with U.S. generally accepted accounting principles and could
result in an exception opinion in the auditors’ report in the annual audited financial statements if the effect
of the difference between amortization and recognition of these expenditures when incurred is deemed
material to the financial statements.
Finally, neither Yulan, nor any of its supervised persons, are compensated for the sale of securities or other
investment products or mutual funds. Additionally, Yulan does not charge its clients advisory fees over and
above commissions or markup fees for the purchase and sale of securities for client portfolios.