Item 5. Fees and Compensation
SCM’s compensation is negotiable and varies, but typically, it charges an annual fee of 1.0% to
1.5% of assets under management, which amount is payable in monthly installments at the
beginning or end (depending on the provisions of each client’s partnership or other account
agreement) of each calendar month based on the net market value of each client’s account on the
date the fee accrues and becomes payable. SCM also typically is allocated from each limited
partner in its investment limited partnerships 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 a certain
percentage 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. SCM does not get compensation from securities sales or mutual funds
SCM 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 SCM
to make more risky and speculative investments than it would otherwise make.
SCM typically deducts management fees and performance allocations and fees directly from
client accounts, but may bill a client for such amounts on request.
Accounts that invest in mutual funds also pay, indirectly, investment advisory fees to the
managers of those funds.
SCM 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 SCM is general partner, to use the “alternative reporting option” to
report SCM’s compensation as “eligible indirect compensation” on the Schedule C of the plan’s
Form 5500 Annual Return/Report of Employee Benefit Plan.
The relationships with SCM’s investment partnership clients are terminable on expiration of the
partnership’s term, dissolution of the partnership or on SCM’s withdrawal as general partner.
Each limited partner may withdraw from the partnership, on specified prior written notice, on the
last day of any calendar month; provided that if a withdrawal occurs prior to the first anniversary
of such limited partner’s admission to the partnership, the limited partner pays a 2% withdrawal
fee to the partnership.
Except as may be otherwise negotiated in particular cases, the holder of an individually managed
account may terminate the account by giving 30 days’ prior written notice.
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 month, 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.
SCM 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.