Item 5 – Fees and Compensation
The specific manner in which fees are charged by Zelman is established in the
relevant confidential private offering memorandum, explanatory memorandum,
prospectus, supplement to prospectus, statement of additional information, investment
management agreement, investment advisory agreement and other governing documents
(“Governing Documents”).
Zelman has elected to treat the Master Fund and the Funds as a common business
enterprise for purposes of expense allocation. Accordingly, all organization and
operational expenses incurred by any fund managed by Zelman or its affiliates and
investing substantially all of its assets in the Master Fund and the Funds will be charged to
the Master Fund. Zelman will allocate the expenses to the individual Funds in the manner
it determines to be fair and equitable in its sole discretion, which will generally be in
proportion to the net assets of each Fund (taking into account any special arrangements
with particular investors in the Funds regarding management fees, performance allocations
and expense ratios), although Zelman may in its discretion specially allocate to a Fund
expenses which, in its opinion, are more appropriately borne by that Fund and not to the
Funds collectively (including, for example, certain audit and administration fees and
expenses, director fees, and expenses relating to investor communications). Zelman may at
its discretion choose to pay or reimburse the Master Fund and/or the Funds for all or any
portion of such expenses. In such event, Zelman may be reimbursed at a later date by the
Master Fund and/or the Funds, as applicable, for such expenses borne by Zelman. For
accounting purposes, the organization expenses incurred by the Master Fund and the
Funds, as well as any operational expenses, which, in the sole discretion of Zelman, are
expected to benefit the Master Fund or the Funds over a period of time greater than one
year, may be amortized over a period of 60 months or such other time period as Zelman
determines to be fair and equitable in its sole discretion.
Zelman is also entitled to receive a Management Fee (the “Management Fee”) and a
Performance Allocation (as defined below) from the Funds. To the extent that Zelman
elects to receive a Management Fee or a Performance Allocation from the Funds, Zelman
will waive its right to the Management Fee and Performance Allocation with respect to the
Fund’s investment in the Master Fund.
Zelman receives the Management Fee from the Master Fund on the last day of each
quarter in arrears equal to 0.50% (approximately 2.00% on an annual basis) of each Fund
investor’s total capital account balance in the Fund as of the last day of such quarter, prior
to the allocation of any Performance Allocation (as defined below) and prior to any
withdrawals as of such last day. The Management Fee is normally paid by deduction from a
Fund investor’s capital account. The Management Fee is prorated for interests held for less
than a full quarter.
On December 31 of each year, the Master Fund also allocates to Zelman a
performance-based allocation (the “Performance Allocation”) equal to 20% of the
appreciation of a Fund investor’s capital account during the year. The Performance
Allocation is made only if, and to the extent that, the net capital appreciation of a Fund
investor’s capital account for the year exceeds any net capital depreciation in the capital
account (reduced pro rata for any withdrawals) accumulated in prior years (i.e., a “high
water mark”).
Zelman may allocate Performance Allocations with regard to unrealized
appreciation as well as realized gains in a Fund’s investor’s capital accounts. If a Fund
investor withdraws all or a portion of its capital account on a date other than December 31,
a Performance Allocation will be made on the amount withdrawn for the period from the
prior January 1 to the date of withdrawal and any applicable Management Fee will be
deducted from the amount withdrawn for the period from the preceding month end to the
date of withdrawal.
Zelman may, in writing, waive some or all of the Management Fee and Performance
Allocation borne by any Fund investor in its sole discretion, including to reflect matters
such as the amount of the Fund investor’s investment and its commitment to maintain its
investment in the Fund. Zelman may also on occasion pay or redirect a portion of its
Management Fee or reallocate a portion of its Performance Allocation attributable to an
investor’s interest to persons who have introduced such investor to the Fund.
Expenses to be charged to the Master Fund will consist of any fees, costs or expenses
the Master Fund, the Funds, Zelman or its affiliates reasonably incur in connection with the
operation of the business and maintenance of the Master Fund and the Funds. These
expenses include but are not limited to:
brokerage and execution charges, commissions, custodial charges, and fees for
quotation and other data services;
fees related to accounting, trading, portfolio management and risk management
systems;
research subscriptions and expenses;
legal and consulting fees related to investment research;
broken trade and broken deal fees;
expenses to register securities and transfer taxes;
costs and expenses incurred for the purpose of protecting and enhancing the
value of the assets of the Master Fund and the Funds (including the costs of
instituting and defending litigation);
U.S. federal, state and local taxes, filing and registration fees of the Master Fund,
the Funds, Zelman and its affiliates (other than taxes on the income of Zelman
and its affiliates);
all costs, fees and expenses relating to investor communications, relations,
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