PERFORMANCE FEE STRUCTURE

Performance-based fees are charged at an annual rate of 10% of annual accrued profits.  An estimated pro-rated amount is billed at the end of each quarter and adjusted based on cumulative results each quarter until a year-end final adjustment is made.  All clients participating in the performance-based fee structure must meet SEC qualifications which require a net worth of $1,500,000 or $750,000 in assets under management with SCM or certain income requirements. 

The performance-based fee will be equal to an annual rate of 10% of annual accrued profits, based on net asset value after all fees and commissions as determined by the broker-dealer where the assets are held or such other manner as is described to the client in writing in advance. Performance fees are calculated on a calendar year basis. An estimated fee is collected at the end of each quarter, based on the net asset value in the account as of the last day of the preceding calendar quarter, or, if that value materially misrepresents the actual profits in the account during the quarter, SCM, in its sole discretion, may elect to calculate the fee based on the average daily net asset value of the account during the quarter. The amount due at the end of each quarter is calculated by determining the cumulative amount that would be due for all preceding quarters during the calendar year less amounts paid for those quarters.  Any credits due will be applied to the end of the calendar year when a final annual calculation is made, or on termination if earlier.

Following the first year under management, in the event that there is any loss from a previous year, this loss will be carried forward and will reduce the profits accrued in future years for the purpose of the fee calculation.  There is no minimum fee. 

In the event that the client terminates the managed account during the first year before a complete annual billing cycle, the client will be billed based on a prorated 2% annual fee of the assets under management as of the termination date.  If the client terminates the account after the first full annual cycle the client will be charged a fee of 10% of profits from the beginning of the last paid billing period, or from the inception date, if there was no last paid billing period, through termination date (period of more than 12 months).

This performance-based fee structure contains higher risk because fees will be higher in years where profits are made and although losses carry over to decrease performance fees in subsequent years, fees will not decrease below zero in years where losses may be incurred. Asset managers also may perceive an incentive to take more risk in a performance-based fee system, and will receive fees based in part on unrealized gains at year-end. This system is therefore only appropriate for seasoned, aggressive investors.