Item 5. Fees and Compensation
SCM’s compensation is negotiable and varies, but typically, it charges an annual management
fee of up to 2.5% of assets under management (or targeted capital), which amount is paid
quarterly but charged in calendar monthly installments based on the net market value (or
targeted capital) of each client’s account on the date the fee becomes payable.
SCM (or an affiliate of SCM serving as the general partner of a private fund, the “General
Partner”) also typically is allocated from each investor in a private fund a performance
allocation equal to 17.5% of alpha- based profits of the account (including both realized and
unrealized gains and losses) calculated based on the return or inverse return over a market
index, and otherwise allocable to such investor, and receives from each other client a
performance fee equal to 17.5% of alpha-based profits of the account (including both realized
and unrealized gains and losses) calculated based on the return or inverse return over a market
index. Performance allocations and fees typically are assessed in arrears on an annual basis,
and are only applied to the portion of profits that exceed the cumulative underperformance
(looking back a limited number of months for certain private funds) previously
allocated to or incurred by investors. 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.
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 (or SM) 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.
Relationships with SCM’s private fund clients are terminable on expiration of the fund’s term,
dissolution of the fund or on SCM’s (or SM’s) withdrawal as general partner. Each investor may
withdraw from a private fund, on specified prior written notice, as set forth in a private fund’s
documentation.
An investor who withdraws from a private fund on a date other than the last day of a quarter
or other appropriate period, does not receive a refund of the management fee previously paid;
however, certain private funds would refund the prepayment of the management fee if such
private fund terminated within that quarter.
In general, the private funds bear all costs and expenses incidental to its organization and ongoing
operation, including, without limitation, (a) all trading costs and expenses (such as, for example,
brokerage commissions and charges, expenses relating to short sales, clearing and settlement
charges, option premiums, custodial and service fees, and charges related to outsourced trading
services), (b) all interest and commitment fees on loans and debit balances (on margin or
otherwise), (c) all costs and expenses of negotiating and entering into contracts and arrangements
and making investments (such as brokerage, legal, accounting, investment banking, appraisal and
other professional and consulting fees and expenses arising from particular investments and
potential investments) and similar expenses in terminating those contracts and arrangements and
disposing of the private funds’ investments, (d) costs and expenses associated with regulatory
filings of the private funds, General Partner or its affiliates relating to the private funds (including,
but not limited to filings under section 13 of the Securities Exchange Act of 1934, as amended,
and Form PF), (e) all costs and expenses associated with registering the private funds’ restricted
Securities, (f) all costs and expenses incurred in attempting to protect or enhance the value of the
private funds’ investments (including the costs and expenses of instituting and defending lawsuits
or engaging in proxy contests or tender offers), (g) all income taxes, withholding taxes, transfer
taxes and other governmental charges and duties, (h) all fees and charges of custodians, clearing
agencies and banks, (i) all administration, bookkeeping, recordkeeping, middle and back office
services, legal, accounting, auditing, tax preparation and all professional and consulting fees and
expenses arising in connection with the private funds’ activities (including fees and expenses of
counsel for the private funds, the General Partner or one or more of its officers or managers,
administrator fees charged for providing middle and back office services (such as order
management and trade reconciliation), and all fees, costs and expenses of accounting,
bookkeeping and recordkeeping services of the private funds’ administrator or any similar service
provider retained by the General Partner to assist it in performing services for the private funds),
(j) all fees, costs and expenses of offering and selling limited partner interests and communicating
with existing and prospective limited partners (including, without limitation, legal and accounting
fees and expenses, governmental and self-regulatory agency filing fees, (k) all costs and expenses
of investing the private funds’ assets indirectly, such as through a partnership or other entity (a
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