Item 5 Fees and Compensation
A. Compensation – Fees
Clients with separately managed accounts advised by L&H pay management fees based on a
percentage of the assets under management pursuant to a written investment advisory agreement,
based upon the following current fee schedule:
equity and balanced (i.e., equity and fixed income securities) accounts: 1.5% (0.375%
quarterly) of assets under management; and
fixed income accounts (taxable): 1.5% (0.375% quarterly) of assets under management.
Fees are negotiable for Client relationships with assets under management of $7.5 million or
more, and may be negotiable under other circumstances, at the sole discretion of L&H.
Charitable institutions may be charged less, at the sole discretion of L&H.
The Gracy Fund pays an administrative fee to L & H of 0.25% of assets on a semiannual basis,
as a reimbursement of expenses incurred by L&H on behalf of The Gracy Fund, and a
performance fee computed and paid on the basis of a net increase in net worth of The Gracy
Fund, subject to certain limitations.
B. Fees Deducted From Client Accounts
Clients and The Gracy Fund are billed by invoice sent either to the custodian each calendar
quarter for the management fee, or directly to the Client. Payment is made by check to L&H or
by automatic debiting of the Client’s account with the custodian, at the Client’s discretion.
C. Other Fees or Expenses
Each Client and The Gracy Fund pay all of the trading, custodian and other related expenses for
their accounts including: brokerage commissions, margin interest and other transaction,
borrowing and custodial expenses. To the extent Client accounts and the Gracy Fund hold
money market funds, other mutual funds and closed-end funds they will also indirectly pay the
underlying fund fees.
Generally, L&H determines and executes trades for its Clients as introducing broker, using the
execution services of National Financial Services, LLC Depending on the size and number of
Client accounts opened, this will usually result in a 75% discount off the retail commission rates
charged by National Financial Services, LLC. Cash in client accounts is invested in money
market funds, typically a fund managed by an affiliate of National Financial Services, LLC
However, if the Client was referred to L&H by another broker-dealer ( a “Referring Broker”),
generally, L&H will execute trades for such Clients through such Referring Broker. Also,
certain Clients direct L&H to use a specific broker-dealer which may be the Referring Broker.
L&H will typically receive a portion of the commission paid to the Referring Broker for each
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trade when it acts as broker. Generally, all Clients will pay higher commissions than charged by
execution-only brokers. Please refer to Item 12 for more information on brokerage practices.
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D. Prepayment of Fees.
The management fee is paid quarterly in arrears. If the agreement with a Client is terminated,
the management fee will be pro-rated and charged for that quarter only up to the date of
termination. Any unearned fees will not be billed to the Client. The administrative and
performance fees for The Gracy Fund are also paid in arrears, and fees would be pro- rated and
charged only for actual services in the event the services of Messrs. Levy and Harkins as General
Partners were terminated.
E. No Compensation for Sale of Securities or Other Investment Products
Other than its activities as broker for Clients, neither L&H nor its supervised persons accept
compensation for the sale of securities or other investment products.
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