Item 5. Fees and Compensation
LSC’s compensation is negotiable and varies, but typically, it charges an annual fee of 1.5%
of assets under management, which amount is payable in quarterly installments at the
beginning or end (depending on the provisions of each client’s partnership or other account
agreement) of each calendar quarter based on the net market value of each client’s account on
the date the fee accrues and becomes payable. LSC also typically is allocated from each
limited partner in an investment limited partnership a performance allocation equal to 20% of
net profits (including both realized and unrealized gains and losses) otherwise allocable to
such limited partner, and receives from each other client a performance fee equal to 10 to 20%
of net profits of the account (including both realized and unrealized gains and losses).
Performance allocations and fees are assessed in arrears on an annual basis and are only
applied to the portion of profits that exceed the cumulative losses previously allocated to or
incurred by clients. LSC complies with Rule 205-3 under the Investment Advisers Act of 1940,
to the extent required by applicable law. Performance allocations and fees may create an
incentive for LSC to make more risky and speculative investments than it would otherwise
make.
LSC typically deducts management fees and performance allocations and fees directly from
client accounts.
Accounts that invest in mutual funds also pay, indirectly, investment advisory fees to the
managers of those funds.
LSC believes that its fees are competitive with fees charged by other investment advisers for
comparable services. Comparable services may be available, however, from other sources for
lower fees.
The disclosure in this Item 5, together with the disclosure in Item 12, allow a plan that is
subject to the Employee Retirement Income Security Act of 1974 and that invests in an
investment limited partnership of which LSC is general partner, to use the “alternative
reporting option” to report LSC’s compensation as “eligible indirect compensation” on the
Schedule C of the plan’s Form 5500 Annual Return/Report of Employee Benefit Plan.
Relationships with LSC’s investment partnership clients are terminable on expiration of the
partnership’s term, dissolution of the partnership or on LSC’s withdrawal as general partner.
Each limited partner may withdraw from a partnership, on specified prior written notice, on
the last day of any calendar quarter.
The holder of an individually managed account may terminate the account by giving prior
written notice as negotiated in each client agreement.
In all cases, expenses, the pro rata portion of the management fee and the performance
allocation or fee through the date of termination are charged to the account. All prepaid but
unearned advisory fees are refunded on termination of a client’s account. An investor who
withdraws from a fund on a date other than the last day of a quarter, however, does not receive
a refund of the management fee previously paid.
Each account is responsible for its own costs and expenses, including trading costs and
expenses (such as brokerage commissions, expenses related to short sales, and clearing and
settlement charges), ongoing legal, accounting and bookkeeping fees and expenses, and the fees
and expenses charged by any fund administrator for its accounting, bookkeeping and other
services. LSC bears its own operating, general, administrative and overhead costs and
expenses, other than the expenses described above. All or part of these costs and expenses may
be paid, however, by securities brokerage firms and futures commission merchants that execute
clients’ securities trades, as discussed in Item 12 below.