<PAGE> 1
As filed with the Securities and Exchange Commission on August 30, 1996
Investment Company Act File No. 811-07641
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM N-2
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 1
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AUGUSTA PARTNERS, L.P.
(Exact name of Registrant as specified in Charter)
Oppenheimer Tower
One World Financial Center
33rd Floor
200 Liberty Street
New York, New York 10281
(Address of principal executive offices)
Registrant's Telephone Number, including Area Code: (212) 667-7649
---------------------
MITCHELL A. TANZMAN
Managing Director
Oppenheimer & Co., Inc.
Oppenheimer Tower
One World Financial Center
33rd Floor
200 Liberty Street
New York, New York 10281
STEPHANIE R. BRESLOW, ESQ.
Schulte Roth & Zabel LLP
900 Third Avenue
New York, New York 10022
(Name and address of agents for service)
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If any securities being registered on this form will be offered on a delayed or
continuous basis in reliance on Rule 415 under the Securities Act of 1933,
other than securities offered in connection with a dividend reinvestment plan,
check the following box: [ ].
<PAGE> 2
FORM N-2
AUGUSTA PARTNERS, L.P.
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
PART A
ITEM NUMBER CAPTION PROSPECTUS CAPTION
- ----------- ---------------------------- -------------------------------------
<S> <C> <C>
1. Outside Front Cover Outside Front Cover of Confidential
Memorandum
2. Inside Front and Outside Inside Front and Outside Back Cover
Back Cover Page of Confidential Memorandum
3. Fee Table and Synopsis Not Applicable
4. Financial Highlights Not Applicable
5. Plan of Distribution Not Applicable
6. Selling Shareholders Not Applicable
7. Use of Proceeds Not Applicable
8. General Description of the Summary of Terms; The Partnership;
Registrant Investment Program; Types of
Investments and Related Risk
Factors; Additional Risk Factors
9. Management Summary of Terms; The Partnership;
Individual General Partners; The
Manager, Opco and Ardsley;
Brokerage; Fees and Expenses;
Capital Accounts and Allocations;
Additional Information and Summary
of Limited Partnership Agreement
10. Capital Stock, Long-Term Voting; Capital Accounts and
Debt, and Other Securities Allocations; Subscription for
Interests; Redemptions, Repurchases
of Interests and Transfers;
Taxation; Additional Information and
Summary of Limited Partnership
Agreement
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
PART A
ITEM NUMBER CAPTION PROSPECTUS CAPTION
- ----------- ---------------------------- ------------------------------------
<S> <C> <C>
11. Defaults and Arrears on Not Applicable
Senior Securities
12. Legal Proceedings Not Applicable
13. Table of Contents of the Not Applicable
Statement of Additional
Information
PART B
ITEM NUMBER CAPTION PROSPECTUS CAPTION
- ----------- ---------------------------- -------------------------------------
14. Cover Page Not Applicable
15. Table of Contents Not Applicable
16. General Information and Not Applicable
History (Registrant is a newly-formed
entity.)
17. Investment Objective and Summary of Terms; Investment
Policies Program; Types of Investments and
Related Risk Factors; Additional
Risk Factors
18. Management Individual General Partners; The
Manager, Opco and Ardsley
19. Control Persons and The Manager, Opco and Ardsley
Principal Holders of
Securities
20. Investment Advisory and The Manager, Opco and Ardsley;
Other Services Conflicts of Interest; Fees and
Expenses; Capital Accounts and
Allocations; Additional Information
and Summary of Limited Partnership
Agreement
21. Brokerage Allocation and Brokerage
Other Practices
22. Tax Status Taxation
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
PART A
ITEM NUMBER CAPTION PROSPECTUS CAPTION
- ----------- ---------------------------- ------------------------------------
<S> <C> <C>
23. Financial Statements Not Applicable. (Because Registrant
has no assets, financial statements
are omitted.)
</TABLE>
<PAGE> 5
Copy Number: ________________
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AUGUSTA PARTNERS, L.P.
----------------------
CONFIDENTIAL MEMORANDUM
JULY 16, 1996
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AUGUSTA MANAGEMENT, L.L.C.
INVESTMENT ADVISER
GENERAL PARTNER
---------------
OPPENHEIMER TOWER
ONE WORLD FINANCIAL CENTER, 33RD FLOOR
200 LIBERTY STREET
NEW YORK, NEW YORK 10281
(212) 667-7649
IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY UPON THEIR OWN
EXAMINATION OF AUGUSTA PARTNERS, L.P. AND THE TERMS OF THE OFFERING, INCLUDING
THE MERITS AND RISKS INVOLVED. THE LIMITED PARTNERSHIP INTERESTS OF AUGUSTA
PARTNERS, L.P. HAVE NOT BEEN FILED WITH OR APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY OTHER FEDERAL OR STATE GOVERNMENTAL
AGENCY OR REGULATORY AUTHORITY OR ANY NATIONAL SECURITIES EXCHANGE. NO AGENCY,
AUTHORITY OR EXCHANGE HAS PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
CONFIDENTIAL MEMORANDUM OR THE MERITS OF AN INVESTMENT IN THE LIMITED
PARTNERSHIP INTERESTS OF AUGUSTA PARTNERS, L.P. OFFERED HEREBY. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE> 6
TO ALL INVESTORS
THE LIMITED PARTNERSHIP INTERESTS OF AUGUSTA PARTNERS, L.P. WHICH ARE DESCRIBED
IN THIS CONFIDENTIAL MEMORANDUM HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY OF THE
STATES OF THE UNITED STATES. THE OFFERING CONTEMPLATED BY THIS CONFIDENTIAL
MEMORANDUM WILL BE MADE IN RELIANCE UPON AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, FOR OFFERS AND SALES OF
SECURITIES WHICH DO NOT INVOLVE ANY PUBLIC OFFERING, AND ANALOGOUS EXEMPTIONS
UNDER STATE SECURITIES LAWS.
THIS CONFIDENTIAL MEMORANDUM SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF LIMITED
PARTNERSHIP INTERESTS IN AUGUSTA PARTNERS, L.P. IN ANY JURISDICTION IN WHICH
SUCH OFFER, SOLICITATION OR SALE IS NOT AUTHORIZED OR TO ANY PERSON TO WHOM IT
IS UNLAWFUL TO MAKE SUCH OFFER, SOLICITATION OR SALE. NO PERSON HAS BEEN
AUTHORIZED TO MAKE ANY REPRESENTATIONS CONCERNING AUGUSTA PARTNERS, L.P. THAT
ARE INCONSISTENT WITH THOSE CONTAINED IN THIS CONFIDENTIAL MEMORANDUM.
PROSPECTIVE INVESTORS SHOULD NOT RELY ON ANY INFORMATION NOT CONTAINED IN THIS
CONFIDENTIAL MEMORANDUM OR THE EXHIBITS HERETO.
THIS CONFIDENTIAL MEMORANDUM IS INTENDED SOLELY FOR THE USE OF THE PERSON TO
WHOM IT HAS BEEN DELIVERED FOR THE PURPOSE OF EVALUATING A POSSIBLE INVESTMENT
BY THE RECIPIENT IN THE LIMITED PARTNERSHIP INTERESTS DESCRIBED HEREIN, AND IS
NOT TO BE REPRODUCED OR DISTRIBUTED TO ANY OTHER PERSONS (OTHER THAN
PROFESSIONAL ADVISERS OF THE PROSPECTIVE INVESTOR RECEIVING THIS DOCUMENT).
PROSPECTIVE INVESTORS SHOULD NOT CONSTRUE THE CONTENTS OF THIS CONFIDENTIAL
MEMORANDUM AS LEGAL, TAX OR FINANCIAL ADVICE. EACH PROSPECTIVE INVESTOR SHOULD
CONSULT HIS OWN PROFESSIONAL ADVISERS AS TO THE LEGAL, TAX, FINANCIAL OR OTHER
MATTERS RELEVANT TO THE SUITABILITY OF AN INVESTMENT IN AUGUSTA PARTNERS, L.P.
FOR SUCH INVESTOR.
THESE SECURITIES ARE SUBJECT TO SUBSTANTIAL RESTRICTIONS ON TRANSFERABILITY AND
RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE
LIMITED PARTNERSHIP AGREEMENT OF AUGUSTA PARTNERS, L.P., THE SECURITIES ACT OF
1933, AS AMENDED, AND APPLICABLE STATE SECURITIES LAWS, PURSUANT TO
REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY
BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR UP TO TWO (2)
YEARS FROM THE DATE THAT A REPURCHASE REQUEST HAS BEEN MADE BY AN INVESTOR.
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FOR FLORIDA RESIDENTS ONLY
IN THE EVENT THAT SALES ARE MADE TO FIVE (5) OR MORE PERSONS IN THE STATE OF
FLORIDA PURSUANT TO THE EXEMPTION FOR LIMITED OFFERS OR SALES OF SECURITIES SET
FORTH IN SECTION 517.061(11)(a) OF THE FLORIDA SECURITIES AND INVESTOR
PROTECTION ACT, ANY SALE IN FLORIDA MADE PURSUANT TO SUCH SECTION IS VOIDABLE
BY THE PURCHASER IN SUCH SALE EITHER WITHIN THREE (3) DAYS AFTER THE FIRST
TENDER OF CONSIDERATION IS MADE BY SUCH PURCHASER TO THE PARTNERSHIP, AN AGENT
OF THE PARTNERSHIP, OR AN ESCROW AGENT OR WITHIN THREE (3) DAYS AFTER THE
AVAILABILITY OF THAT PRIVILEGE IS COMMUNICATED TO SUCH PURCHASER, WHICHEVER
OCCURS LATER.
FOR GEORGIA RESIDENTS ONLY
THESE SECURITIES HAVE BEEN ISSUED OR SOLD IN RELIANCE ON PARAGRAPH (13) OF CODE
SECTION 10-5-9 OF THE GEORGIA SECURITIES ACT OF 1973, AND MAY NOT BE SOLD OR
TRANSFERRED EXCEPT IN A TRANSACTION WHICH IS EXEMPT UNDER SUCH ACT OR PURSUANT
TO AN EFFECTIVE REGISTRATION UNDER SUCH ACT.
FOR NEW HAMPSHIRE RESIDENTS ONLY
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A LICENSE
HAS BEEN FILED WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS
EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE
CONSTITUTES A FINDING BY THE SECRETARY OF STATE THAT ANY DOCUMENT FILED UNDER
RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE
FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR TRANSACTION
MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE MERITS OR
QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY,
OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY
PROSPECTIVE PURCHASER, CUSTOMER OR CLIENT, ANY REPRESENTATION INCONSISTENT WITH
THE PROVISIONS OF THIS PARAGRAPH.
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FOR PENNSYLVANIA RESIDENTS ONLY
THE INTERESTS OFFERED BY THIS CONFIDENTIAL MEMORANDUM ARE OFFERED PURSUANT TO A
CLAIM OF EXEMPTION UNDER THE PENNSYLVANIA SECURITIES ACT OF 1972. EACH PERSON
WHO ACCEPTS AN OFFER TO PURCHASE SECURITIES EXEMPTED FROM REGISTRATION BY
SECTION 203(d), DIRECTLY FROM THE PARTNERSHIP OR AFFILIATE OF THE PARTNERSHIP,
SHALL HAVE THE RIGHT TO WITHDRAW HIS SUBSCRIPTION, WITHOUT INCURRING ANY
LIABILITY TO THE PARTNERSHIP, SELLER, UNDERWRITER (IF ANY) OR ANY OTHER PERSON,
AND TO CANCEL HIS PURCHASE OF INTERESTS, WITHIN TWO (2) BUSINESS DAYS FROM THE
DATE OF RECEIPT BY THE PARTNERSHIP OF HIS WRITTEN BINDING CONTRACT OF PURCHASE
OR, IN THE CASE OF A TRANSACTION IN WHICH THERE IS NO WRITTEN BINDING CONTRACT
OF PURCHASE, WITHIN TWO (2) BUSINESS DAYS AFTER HE MAKES THE INITIAL PAYMENT
FOR THE INTERESTS BEING OFFERED.
A PENNSYLVANIA INVESTOR MAY NOT SELL HIS INTERESTS FOR A PERIOD OF 12 MONTHS
FROM THE DATE OF PURCHASE.
THESE INTERESTS MAY NOT BE TRANSFERRED EXCEPT IN ACCORDANCE WITH THE
REQUIREMENTS OF SECTION 203(d) OF THE PENNSYLVANIA SECURITIES ACT OF 1972 AND
REGULATION 203.041 PROMULGATED THEREUNDER.
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<PAGE> 9
TABLE OF CONTENTS
<TABLE>
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PAGE
<S> <C>
SUMMARY OF TERMS......................................................... v
THE PARTNERSHIP.......................................................... 1
STRUCTURE................................................................ 1
INVESTMENT PROGRAM....................................................... 2
TYPES OF INVESTMENTS AND RELATED RISK FACTORS............................ 3
ADDITIONAL RISK FACTORS.................................................. 21
PERFORMANCE INFORMATION.................................................. 22
INDIVIDUAL GENERAL PARTNERS.............................................. 22
THE MANAGER, OPCO AND ARDSLEY............................................ 26
VOTING................................................................... 28
CONFLICTS OF INTEREST.................................................... 28
BROKERAGE................................................................ 31
FEES AND EXPENSES........................................................ 32
CAPITAL ACCOUNTS AND ALLOCATIONS......................................... 34
SUBSCRIPTION FOR INTERESTS............................................... 38
REDEMPTIONS, REPURCHASES OF INTERESTS AND TRANSFERS...................... 39
TAXATION................................................................. 43
ERISA CONSIDERATIONS..................................................... 57
ADDITIONAL INFORMATION AND SUMMARY OF LIMITED PARTNERSHIP AGREEMENT...... 58
APPENDIX - PERFORMANCE INFORMATION....................................... A-1
</TABLE>
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SUMMARY OF TERMS
The following summary is qualified entirely by the
detailed information appearing elsewhere in this
Confidential Memorandum and by the terms and conditions of
the limited partnership agreement of Augusta Partners,
L.P. (the "Partnership Agreement"), each of which should
be read carefully and retained by any prospective
investor.
The Partnership Augusta Partners, L.P. (the "Partnership") is a newly
organized Delaware limited partnership, registered under
the Investment Company Act of 1940 (the "1940 Act") as a
closed-end, non-diversified, management investment company.
The Partnership is a specialized investment vehicle that
may be referred to as a registered private investment
partnership. The Partnership is similar to an unregistered
private investment partnership in that (i) the
Partnership's portfolio will be more actively managed than
most other investment companies, (ii) limited partnership
interests in the Partnership will be sold in large minimum
denominations in private placements solely to high net
worth individual and institutional investors, and thus will
be restricted as to transfer, and (iii) the capital
accounts of Limited Partners in the Partnership will be
subject to both asset-based charges and performance-based
allocations in connection with the Partnership's
activities. Unlike a private investment partnership but
like other registered investment companies, however, the
Partnership has registered under the 1940 Act to be able to
offer its interests without limiting the number of
investors that can participate in its investment program.
Investment Program The Partnership's investment objective is to achieve
capital appreciation. The Partnership will invest
principally in equity securities of publicly-traded U.S.
companies and will emphasize investments in equity
securities of growth companies, which are companies that
the Manager (defined below) believes have, or have the
potential to develop, above-average earnings, sales or
asset growth. The Partnership will also invest in equity
securities of foreign issuers and in bonds and other
fixed-income securities of U.S. and foreign issuers.
The Manager will seek to be opportunistic across a broad
array of investment alternatives and will attempt to
maximize returns by investing in U.S. and foreign equities,
U.S. and foreign fixed income securities, futures markets
and options. Although the Partnership will invest
principally in equity securities of
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<PAGE> 11
U.S. issuers, the Manager will also seek investment and
trading opportunities that arise globally in all types of
financial markets. The Manager believes that its
"bottom-up" approach to equity research, stock selection
and portfolio construction, which focuses on reported
company growth and other fundamentals, provides strong
potential for superior investment results.
The Manager's focus is primarily as a growth stock
investor, although other investment styles and techniques,
including value or asset oriented approaches, will also be
utilized. The Manager will seek out both larger and
smaller capitalization companies, and anticipates that the
Partnership's investments will not be confined to specific
capitalization or industry segments. Thus, the nature of
the Partnership's investments and the composition of its
portfolio may vary significantly from time to time.
The Manager believes, however, that many attractive
growth companies are clustered in a relatively small number
of general industry sectors, including biotechnology,
financial services, health care, high technology and
telecommunications. These are sectors that the Manager
believes are experiencing, or are about to experience,
significant expansion or product innovation that may lead
to significant expansion. Although the Partnership will
not concentrate its investments in any one industry, a
significant portion of the Partnership's assets may from
time to time be invested in one or more general industry
sectors.
An essential element of the Manager's investment
philosophy is the pursuit of superior returns in rising
markets, and of preservation of capital in difficult market
environments. In implementing this investment approach,
the Partnership may use a variety of investment strategies
to hedge a portion of its investment portfolio against
certain risks and to pursue its investment objective. The
Partnership may utilize leverage, sell securities short and
enter into repurchase agreements and reverse repurchase
agreements. The Partnership may also use certain special
investment instruments and techniques, such as the trading
of commodity or derivative products, including, but not
limited to, futures contracts, options, swaps and
customized derivative instruments. The use of such special
investment instruments and techniques is an integral part
of the Partnership's investment program, although the use
of certain derivative
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<PAGE> 12
products will be limited as specified elsewhere in this
Confidential Memorandum.
The Partnership's investment program emphasizes active
portfolio management, with a sensitivity to short-term
market trends and price changes in individual securities.
Accordingly, the Partnership expects to take frequent
trading positions, resulting in portfolio turnover and
brokerage expenses that may exceed those of most investment
companies of comparable size. A high turnover rate may
also result in the realization of capital gains, including
short-term gains which will be taxable to the Limited
Partners as ordinary income.
Risk Factors The Partnership's investment program is speculative and
entails substantial risks. There can be no assurance that
the Partnership's investment objective will be achieved.
In particular, the Partnership's use of leverage, short
selling, commodity and derivative transactions and limited
diversification can, in certain circumstances, result in
significant losses to the Partnership's investment
portfolio.
As a non-diversified investment company, there are no
percentage limitations on the portion of the Partnership's
assets that may be invested in the securities of any one
issuer. In addition, the Partnership may invest a
significant portion of its assets in the securities of
companies doing business in a particular general industry
sector. As a result, its investment portfolio may be
subject to greater risk and volatility than if investments
had been made in a broader range of issuers and industry
sectors.
Investments in foreign securities are affected by risk
factors generally not thought to be present in the U.S.,
including, among other things, increased political,
regulatory, contractual and economic risk and exposure to
currency fluctuations. Certain other types of securities,
such as derivatives and "Brady Bonds", also are affected by
particular risks as described herein.
The Incentive Allocation (defined below) that may be
debited to the capital account of each Limited Partner and
credited to the capital account of the Manager may create
an incentive for the Manager to cause the Partnership to
make investments that are riskier or more speculative than
would be the case in the absence of the Incentive
Allocation. In addition, because such allocation
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is calculated on a basis that includes unrealized
appreciation of the Partnership's assets, such allocation
may be greater than if such allocation was based solely on
realized gains.
There are special tax risks associated with an
investment in the Partnership. (See "SUMMARY OF TERMS -
Taxation".)
The Partnership and the Manager are newly formed
entities and have no operating histories upon which
investors can evaluate the performance of the Partnership.
The principal members of the Manager, however, together
have substantial experience in managing private investment
partnerships that have investment programs that are similar
to the Partnership's investment program.
Limited Partner interests in the Partnership will not
be traded on any securities exchange or other market and
are subject to substantial restrictions on transfer.
Although the Partnership may offer to repurchase such
interests from time to time, a Limited Partner may not be
able to liquidate its interest in the Partnership for up to
two years. (See "SUMMARY OF TERMS - Transfer Restrictions;
Withdrawals and Repurchases of Interests by the
Partnership".)
Management Investment advice will be provided to the Partnership
by one of its General Partners, Augusta Management, L.L.C.
(the "Manager"), which is also responsible for the
Partnership's day-to-day management. The Manager is a
joint venture between Oppenheimer & Co., Inc. ("Opco") and
Ardsley Advisory Partners ("Ardsley"). Investment
professionals employed by Ardsley will manage the
Partnership's investment portfolio on behalf of the Manager
under Opco's supervision.
Opco (directly or through affiliates) provides
investment advisory services to registered investment
companies, private investment partnerships and individual
accounts on a non-pooled basis. Ardsley provides
investment advisory services to pension and profit sharing
plans through a group trust, to individuals and businesses
through private investment partnerships and to individual
accounts on a non-pooled basis. Ardsley's managing general
partner is Mr. Philip J. Hempleman.
Ultimate responsibility over the affairs of the
Partnership is vested in the Partnership's five individual
general partners (the "Individual General Partners").
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<PAGE> 14
Placement Agent Opco acts as placement agent for the Partnership,
without special compensation from the Partnership, and will
bear all of its own costs associated with its activities as
placement agent. Opco, as managing member of the Manager
and in its capacity as placement agent for the Partnership,
intends to compensate its account executives for their
ongoing servicing of clients with whom they have placed
interests in the Partnership, and such compensation will be
based upon a formula that takes into account the amount of
client assets being serviced as well as the investment
results attributable to such clients' assets in the
Partnership. (See "CONFLICTS OF INTEREST - Opco".)
Conflicts of Certain conflicts of interest may arise from the
Interest following: (i) Opco (directly or through affiliates) and
Ardsley (directly or through affiliates) each engages in
investment management activities for its own account and
the accounts of others in which the Partnership has no
interest and may have actual or potential conflicts of
interest with respect to investments made by the Manager on
behalf of the Partnership; (ii) Ardsley and its affiliates
manage accounts (in which the Partnership has no interest)
of certain other persons in accordance with an investment
program that is substantially similar to the Partnership's
investment program, but (a) such accounts may commit a
larger percentage of their respective assets to an
investment opportunity than the Manager will commit of the
Partnership's assets and (b) there may be circumstances
under which Ardsley and its affiliates will consider
participation by such accounts in investment opportunities
in which the Manager does not to intend to invest on behalf
of the Partnership; (iii) situations may occur where the
Partnership could be disadvantaged because of the
investment activities conducted by Ardsley and its
affiliates for the other accounts they manage; (iv) the
Partnership may enter into certain transactions with one or
more accounts that are managed by Ardsley or its
affiliates, but only in accordance with the 1940 Act; (v)
Ardsley and/or its affiliates may provide investment
advisory services from time to time to private investment
partnerships or other entities or accounts that are managed
by Opco or its affiliates; and (vi) Ardsley and/or its
affiliates may receive research, products and/or services
in connection with the brokerage services that Opco and/or
its affiliates may provide from time to time (a) to one or
more entities managed by Ardsley or its affiliates or (b)
to the Partnership. Future activities of Opco and/or
Ardsley (including the principals, partners, directors,
officers and employees of the foregoing or of their
respective affiliates) may
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<PAGE> 15
give rise to additional conflicts of interest.
(See generally "CONFLICTS OF INTEREST".)
Fees and Expenses Opco provides certain management and
administrative services to the Partnership, including,
among other things, providing office space and other
support services to the Partnership. In exchange for
such services, the Partnership will pay Opco a monthly
management fee of 0.08333% (1% on an annualized basis)
of the Partnership's net assets for the month,
excluding assets attributable to the Manager's capital
account (the "Opco Fee"). The Opco Fee will be paid to
Opco out of the Partnership's assets, and debited
against Limited Partners' capital accounts. A portion
of the Opco Fee will be paid by Opco to Ardsley.
The Partnership will bear all expenses incurred
in the business of the Partnership, including, but not
limited to, the following: all costs and expenses
related to portfolio transactions and positions for the
Partnership's account; legal fees; accounting fees;
costs of insurance; organizational and registration
expenses; expenses of meetings of General Partners
and/or Limited Partners (collectively, the "Partners");
and the fee paid to PFPC Inc. for providing certain
administration, accounting and investor services to the
Partnership. (See "FEES AND EXPENSES".)
Allocation of Profit The net profits or net losses of the Partnership
net and Loss (including, without limitation, realized gain or loss
and the net change in unrealized appreciation or
depreciation of securities and commodities positions)
will be credited to or debited against the capital
accounts of the Partners at the end of each fiscal
period in accordance with their respective partnership
percentages for such period. Each Partner's
partnership percentage will be determined by dividing
as of the start of a fiscal period the balance of such
Partner's capital account by the sum of the balances of
the capital accounts of all Partners of the Partnership.
Incentive Allocation At the end of the twelve month period following
the admission of a Limited Partner to the Partnership,
and generally at the end of each fiscal year
thereafter, an incentive allocation of 20% of the net
profits, if any, that have been credited to the capital
account of such Limited Partner during such period (an
"Incentive Allocation") will be debited from such
capital account and credited to the capital account of
the Manager. The Incentive Allocation will be charged
to a Limited Partner only to the extent that cumulative
net profits with respect to such Limited Partner
through the close of any period exceeds the highest
level of cumulative net profits with respect to such
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<PAGE> 16
Limited Partner through the close of any prior
period. The Incentive Allocation will be
adjusted for repurchases of interests by the
Partnership. (See "CAPITAL ACCOUNTS AND
ALLOCATIONS - Incentive Allocation".)
Subscription for Interests Both initial and additional subscriptions for
interests by eligible investors may be
accepted at such times as the Manager may
determine, subject to the receipt of cleared
funds on or before the acceptance date set by
the Manager. The Partnership reserves the
right to reject any subscription for interests
in the Partnership. The minimum initial
investment in the Partnership is $150,000 and
the minimum additional investment in the
Partnership is $25,000. The Partnership may,
in its discretion, suspend subscriptions for
interests at any time.
Initial Closing Date The initial closing date for subscriptions of
interests in the Partnership is August 20,
1996. The Manager, in its sole discretion,
may postpone the closing date for up to 30
days.
Transfer Restrictions Limited Partner interests in the Partnership
may be transferred only (i) by operation of
law pursuant to the death, bankruptcy,
insolvency or dissolution of a Limited Partner
or (ii) with the written consent of the
Manager (which may be withheld in its sole and
absolute discretion and is expected to be
granted, if at all, only under extenuating
circumstances) in connection with a transfer
to an entity that does not result in a change
of beneficial ownership. The foregoing
permitted transferees will not be allowed to
become substituted Limited Partners without
the consent of the Manager, which may be
withheld in its sole and absolute discretion.
Withdrawals and Repurchases No Partner in the Partnership will have the
of Interests by the Partnership right to require the Partnership to redeem
such Partner's interest. The Partnership may
from time to time offer to repurchase
interests pursuant to written tenders by
Partners. Such repurchases will be made at
such times and on such terms as may be
determined by the Individual General Partners,
in their complete and exclusive discretion.
In determining whether the Partnership should
repurchase interests or portions thereof from
Partners pursuant to written tenders, the
Individual General Partners will consider the
recommendation of the Manager. The Manager
expects that generally it will recommend to
the Individual General Partners that the
Partnership repurchase interests from
Partners once in
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each year (other than in 1996) effective as of the end
of each such year. The Individual General Partners will
also consider the following factors in making such
determination: (i) whether any Partners have requested
to tender interests or portions thereof to the
Partnership; (ii) the liquidity of the Partnership's
assets; (iii) the investment plans and working capital
requirements of the Partnership; (iv) the relative
economies of scale with respect to the size of the
Partnership; (v) the history of the Partnership in
repurchasing interests or portions thereof; (vi) the
economic condition of the securities markets; and (vii)
the anticipated tax consequences of any proposed
repurchases of interests or portions thereof.
The Partnership Agreement provides that the Partnership
shall be dissolved if any Limited Partner that has
submitted a written request, in accordance with the
terms of the Partnership Agreement, to tender its entire
interest for repurchase by the Partnership has not been
permitted to do so for a period of two years.
Taxation Prior to the date the Partnership commences operation,
counsel to the Partnership will render its opinion that
the Partnership will be treated as a partnership and not
as an association taxable as a corporation for Federal
income tax purposes. Counsel to the Partnership will
also render its opinion that, under a "facts and
circumstances" test set forth in the Treasury
Regulations, the Partnership will not be treated as a
"publicly traded partnership" taxable as a corporation.
Accordingly, the Partnership should not be subject to
Federal income tax, and each Limited Partner will be
required to report on such Partner's own annual tax
return such Partner's distributive share of the
Partnership's taxable income or loss. The Partnership
does not intend to elect treatment as a "regulated
investment company" for Federal income tax purposes.
If it were determined that the Partnership should be
treated as an association or a publicly traded
partnership taxable as a corporation (as a result of a
successful challenge to the opinions rendered by counsel
to the Partnership or otherwise), the taxable income of
the Partnership would be subject to corporate income tax
and distributions of profits from the Partnership would
be treated as dividends.
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<PAGE> 18
ERISA Plans and Other Investors subject to the Employee Retirement Income
Tax-Exempt Entities Security Act of 1974, as amended ("ERISA"), and other
tax-exempt entities (each a "tax-exempt" entity) may
purchase interests in the Partnership with the approval
of the Manager. The Partnership may utilize leverage in
connection with its trading activities. Therefore, a
tax-exempt Limited Partner may incur income tax
liability with respect to its share of the net profits
from such leveraged transactions to the extent they are
treated as giving rise to "unrelated business taxable
income." The Partnership will provide to tax-exempt
Limited Partners such accounting information as such
Partners require to report their "unrelated business
taxable income" for income tax purposes.
Investment in the Partnership by tax-exempt entities
requires special consideration. Trustees or
administrators of such entities are urged to carefully
review the matters discussed in this Confidential
Memorandum.
Term The Partnership will continue its operations through the
earlier of December 31, 2021 or the date the Partnership
is otherwise terminated under the terms of the
Partnership Agreement.
Reports to Partners The Partnership will furnish to Partners as soon as
practicable after the end of each taxable year such
information as is necessary for such Partners to
complete federal and state income tax or information
returns, along with any other tax information required
by law. The Partnership will also send to Partners a
semi-annual and an audited annual report generally
within 60 days after the close of the period for which
it is being made, or as otherwise required by the 1940
Act. Quarterly reports from the Manager regarding the
Partnership's operations during each quarter will also
be sent to Partners.
Fiscal Year The twelve month period ending December 31. The first
fiscal year of the Partnership will commence on the date
of the initial closing and will end on December 31,
1996.
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<PAGE> 19
THE PARTNERSHIP
Augusta Partners, L.P. (the "Partnership") is registered under the
Investment Company Act of 1940 (the "1940 Act") as a non-diversified,
closed-end management investment company. The Partnership was organized as a
limited partnership under the laws of Delaware on May 30, 1996, and has no
operating history. The Partnership's principal office is located at
Oppenheimer Tower, One World Financial Center, 33rd Floor, 200 Liberty Street,
New York, New York 10281, and its telephone number is (212) 667-7649.
Investment advisory services are provided to the Partnership by one of the
Partnership's General Partners, Augusta Management, L.L.C. (the "Manager"),
which is also responsible for the day-to-day management of the Partnership.
Ultimate responsibility over the affairs of the Partnership is vested in five
individual General Partners (the "Individual General Partners").
STRUCTURE
The Partnership is a specialized investment vehicle that combines many of
the features of a private investment partnership with those of a closed-end
investment company. Private investment partnerships are unregistered,
commingled asset pools that are often aggressively managed and offered in large
minimum denominations (often over $1 million) through private placements to a
limited number of high net worth individual and institutional investors. The
general partners of these partnerships are typically compensated through
asset-based fees and performance-based allocations. Closed-end investment
companies are 1940 Act registered pools typically organized as corporations or
business trusts that are usually managed more conservatively than most private
investment partnerships, are usually subject to relatively modest minimum
investment requirements (often less than $2,000) and publicly offered to a
broad range of investors. The advisers to these companies are typically
compensated through asset-based (but not performance-based) fees.
The Partnership is similar to private investment partnerships in that its
investment portfolio will be actively managed and limited partnership interests
in the Partnership will be sold in comparatively large minimum denominations
($150,000) in private placements solely to high net worth individual and
institutional investors, whose capital accounts will be subject to both
asset-based fees and performance-based allocations. However, the Partnership,
like other closed-end investment companies, has registered under the 1940 Act
to be able to offer its interests without limiting the number of investors that
can participate in its investment program. This structure was established by
the Manager to permit a larger number of investors that have a higher tolerance
for investment risk to participate in an aggressive investment program without
making the more substantial minimum capital commitment that is usually required
by private investment partnerships.
<PAGE> 20
INVESTMENT PROGRAM
The Partnership's investment objective is to achieve capital appreciation.
The Partnership will invest principally in equity securities of
publicly-traded U.S. companies and will emphasize investments in equity
securities of growth companies, which are companies that the Manager believes
have, or have the potential to develop, above-average earnings, sales or asset
growth. The Partnership will also invest in equity securities of foreign
issuers and in bonds and other fixed-income securities of U.S. and foreign
issuers.
The Manager will seek to be opportunistic across a broad array of
investment alternatives and will attempt to maximize returns by investing in
U.S. and foreign equities, global fixed income securities, futures markets and
options. Although the Partnership will invest principally in equity securities
of U.S. issuers, the Manager will also seek investment and trading
opportunities that arise globally in all types of financial markets. The
Manager believes that its "bottom-up" approach to equity research, stock
selection and portfolio construction, which focuses on reported company growth
and other fundamentals, provides strong potential for superior investment
results.
The Manager's focus is primarily as a growth stock investor, although
other investment styles and techniques, including value or asset oriented
approaches, will also be utilized. The Manager will seek out both larger and
smaller capitalization companies, and anticipates that the Partnership's
investments will not be confined to specific capitalization or industry
segments. Thus, the nature of the Partnership's investments and the
composition of its portfolio may vary significantly from time to time. The
Manager, however, believes that many attractive growth companies are clustered
in a relatively small number of general industry sectors, including
biotechnology, financial services, health care, high technology and
telecommunications. These are sectors that the Manager believes are
experiencing, or are about to experience, significant expansion or product
innovation that may lead to significant expansion. Although the Partnership
will not concentrate its investments in any one industry, a significant portion
of the Partnership's assets may from time to time be invested in one or more
general industry sectors.
An essential element of the Manager's investment philosophy is the pursuit
of superior returns in rising markets, and of preservation of capital in
difficult market environments. In implementing this investment approach, the
Partnership may use a variety of investment strategies to hedge a portion of
its investment portfolio against certain risks and to pursue its investment
objective. The Partnership may utilize leverage, sell securities short and
enter into repurchase agreements and reverse repurchase agreements. The
Partnership may also use certain special investment instruments and techniques,
such as the trading of commodity or derivative products, including, but not
limited to, futures contracts, options, swaps and customized derivative
instruments. The use of such special investment instruments and techniques is
an integral part of the Partnership's investment program, although the use of
certain derivative products will be limited as specified elsewhere in this
Confidential Memorandum. The Partnership will comply with applicable
regulatory requirements (in particular, asset coverage requirements under the
1940 Act and limitations on commodity trading imposed by the Commodity Futures
Trading Commission (the "CFTC")) when using the investment strategies discussed
above.
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<PAGE> 21
The Partnership's investment program emphasizes active portfolio
management, with a sensitivity to short-term market trends and price changes in
individual securities. Accordingly, the Partnership expects to take frequent
trading positions, resulting in portfolio turnover and brokerage expenses that
may exceed those of most funds of comparable size.
Additional information about the types of investments of the Partnership,
its investment practices and related risk factors is provided below. Except as
otherwise indicated, the Partnership's investment policies are not fundamental
investment policies and may be changed without a vote of Limited Partners
(together with the General Partners, the "Partners"). (See "INVESTMENT PROGRAM
- - Fundamental Investment Policies".)
THE PARTNERSHIP'S INVESTMENT PROGRAM IS SPECULATIVE AND ENTAILS
SUBSTANTIAL RISKS. THERE CAN BE NO ASSURANCE THAT THE PARTNERSHIP'S INVESTMENT
OBJECTIVE WILL BE ACHIEVED. IN PARTICULAR, THE PARTNERSHIP'S USE OF LEVERAGE,
SHORT SELLING, COMMODITY AND DERIVATIVE TRANSACTIONS AND LIMITED
DIVERSIFICATION CAN, IN CERTAIN CIRCUMSTANCES, RESULT IN SIGNIFICANT LOSSES TO
THE PARTNERSHIP'S INVESTMENT PORTFOLIO.
TYPES OF INVESTMENTS AND RELATED RISK FACTORS
EQUITY SECURITIES
The Partnership's investment portfolio may include long and short
positions in common stocks, preferred stocks and convertible securities of U.S.
and foreign companies. The Partnership may also invest in depository receipts
relating to foreign securities. (See "TYPES OF INVESTMENTS AND RELATED FACTORS
- - Foreign Securities".) The value of the Partnership's equity securities varies
in response to many factors, including, but not limited to, the activities and
financial condition of individual companies, the business market in which
individual companies compete and general market and economic conditions.
The Partnership will emphasize investments in equity securities of growth
companies. The investment risks associated with equity securities of growth
companies are higher than that normally associated with the securities of
larger, older companies because growth companies often are of smaller size and
more recent formation than other types of companies, and may have limited
product lines, distribution channels and financial and managerial resources.
Further, there is often less publicly available information concerning growth
companies than there is for larger, more established businesses. The equity
securities of growth companies are often traded over-the-counter and may not be
traded in the volumes typical on a national securities exchange. Consequently,
the Partnership may be required to dispose of such securities over a longer
(and potentially less favorable) period of time than is required to dispose of
the securities of larger companies. In addition, the prices of the securities
of growth companies may be more volatile than those of larger companies.
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<PAGE> 22
COMMON STOCKS. Common stocks are shares of a corporation or other entity
that entitle the holder to a pro rata share of the profits, if any, of the
entity without preference over any other shareholder or claim of shareholders,
after making required payments to holders of such entity's preferred stock and
other senior equity. Common stock usually carries with it the right to vote
and frequently an exclusive right to do so.
PREFERRED STOCKS. Preferred stock generally has a preference as to
dividends and upon liquidation over an issuer's common stock, but ranks junior
to debt securities in an issuer's capital structure. Preferred stock generally
pays dividends in cash (or additional shares of preferred stock) at a defined
rate, but unlike interest payments on debt securities, preferred stock
dividends are payable only if declared by the issuer's board of directors.
Dividends on preferred stock may be cumulative, meaning that, in the event the
issuer fails to make one or more dividend payments on the preferred stock, no
dividends may be paid on the issuer's common stock until all unpaid preferred
stock dividends have been paid. Preferred stock may also be subject to
optional or mandatory redemption provisions.
CONVERTIBLE SECURITIES. Convertible securities are bonds, debentures,
notes, preferred stocks or other securities that may be converted into or
exchanged for a specified amount of common stock of the same or different
issuer within a particular period of time at a specified price or formula. A
convertible security entitles the holder to receive interest that is generally
paid or accrued on debt or a dividend that is paid or accrued on preferred
stock until the convertible security matures or is redeemed, converted or
exchanged. Convertible securities have unique investment characteristics, in
that they generally (1) have higher yields than common stocks, but lower yields
than comparable non-convertible securities, (2) are less subject to fluctuation
in value than the underlying common stock due to their fixed-income
characteristics and (3) provide the potential for capital appreciation if the
market price of the underlying common stock increases.
The value of a convertible security is a function of its "investment
value" (determined by its yield in comparison with the yields of other
securities of comparable maturity and quality that do not have a conversion
privilege) and its "conversion value" (the security's worth, at market value,
if converted into the underlying common stock). The investment value of a
convertible security is influenced by changes in interest rates, with
investment value declining as interest rates increase and increasing as
interest rates decline. The credit standing of the issuer and other factors
may also have an effect on the convertible security's investment value. The
conversion value of a convertible security is determined by the market price of
the underlying common stock. If the conversion value is low relative to the
investment value, the price of the convertible security is governed principally
by its investment value. Generally, the conversion value decreases as the
convertible security approaches maturity. To the extent the market price of
the underlying common stock approaches or exceeds the conversion price, the
price of the convertible security will be increasingly influenced by its
conversion value. A convertible security generally will sell at a premium over
its conversion value by the extent to which investors place value on the right
to acquire the underlying common stock while holding a fixed-income security.
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<PAGE> 23
A convertible security may be subject to redemption at the option of the
issuer at a price established in the convertible security's governing
instrument. If a convertible security held by the Partnership is called for
redemption, the Partnership will be required to permit the issuer to redeem the
security, convert it into the underlying common stock or sell it to a third
party. Any of these actions could have an adverse effect on the Partnership's
ability to achieve its investment objective.
BONDS AND OTHER FIXED-INCOME SECURITIES
GENERALLY. The Partnership's investment portfolio may include bonds and
other fixed-income securities issued by U.S. and foreign issuers. These
securities include, among other securities, the following: money market
instruments; fixed and variable rate debt securities; commercial paper; zero
coupon securities; municipal securities; mortgage-backed and asset-backed
securities; debt securities issued or guaranteed by the U.S. Government or one
of its agencies or instrumentalities; debt securities issued or guaranteed by
foreign governments, their agencies, instrumentalities or political
subdivisions, or by government owned, controlled or sponsored entities,
including central banks (collectively, "Sovereign Debt"), including Brady Bonds
(defined below); and interests in issuers organized and operated for the
purpose of restructuring the investment characteristics of Sovereign Debt.
(See "TYPES OF INVESTMENTS AND RELATED RISK FACTORS - Foreign Securities".)
Fixed-income securities are subject to the risk of the issuer's inability to
meet principal and interest payments on its obligations (i.e., credit risk) and
are subject to price volatility due to such factors as interest rate
sensitivity, market perception of the creditworthiness of the issuer and
general market liquidity (i.e., market risk).
The Partnership may invest in both investment grade and non-investment
grade debt securities. Investment-grade debt securities are securities that
have received a rating from at least one nationally recognized statistical
rating organization ("NRSRO") in one of the four highest rating categories or,
if not rated by any NRSRO, have been determined by the Manager to be of
comparable quality. Non-investment grade debt securities (typically called
"junk bonds") are securities that have received a rating from a NRSRO of below
investment grade or have been given no rating, and are considered by the NRSRO
to be predominantly speculative with respect to the issuer's capacity to pay
interest and repay principal. Non-investment grade debt securities in the
lowest rating categories may involve a substantial risk of default or may be in
default. Changes in economic conditions or developments regarding the
individual issuer are more likely to cause price volatility and weaken the
capacity of the issuers of non-investment grade debt securities to make
principal and interest payments than is the case for higher grade debt
securities. An economic downturn affecting an issuer of non-investment grade
debt securities may result in an increased incidence of default. In addition,
the market for lower grade debt securities may be thinner and less active than
for higher grade debt securities.
BRADY BONDS. The Partnership may invest in Brady Bonds and other
Sovereign Debt of countries that have restructured or are in the process of
restructuring Sovereign Debt pursuant to the Brady Plan. (See "TYPES OF
INVESTMENTS AND RELATED RISK FACTORS - Foreign Securities".) "Brady Bonds" are
debt securities issued under the framework of the Brady
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<PAGE> 24
Plan, an initiative announced by former U.S. Treasury Secretary Nicholas F.
Brady in 1989 as a mechanism for debtor nations to restructure their
outstanding external commercial bank indebtedness. In restructuring its
external debt under the Brady Plan framework, a debtor nation negotiates with
its existing bank lenders as well as multinational institutions such as the
World Bank and the International Monetary Fund ("IMF"). The Brady Plan
framework, as it has developed, contemplates the exchange of commercial bank
debt for newly issued Brady Bonds. Brady Bonds may also be issued in respect
of new money being advanced by existing lenders in connection with the debt
restructuring. The World Bank and/or the IMF support the restructuring by
providing funds pursuant to loan agreements or other arrangements which enable
the debtor nation to collateralize the new Brady Bonds or to repurchase
outstanding bank debt at a discount. In light of the fact that Brady Bonds are
typically not fully collateralized and in view of the history of defaults with
respect to commercial bank loans by public and private entities of countries
issuing Brady Bonds, investments in Brady Bonds are to be viewed as
speculative.
OTHER SOVEREIGN-RELATED DEBT. The Partnership may also invest in
sovereign or sovereign-related fixed income securities. (See "TYPES OF
INVESTMENTS AND RELATED RISK FACTORS - Foreign Securities".) Such obligations
may include, but are not limited to, participations and assignments in
sovereign bank loans, restructured external debt that has not undergone a
Brady-style debt exchange, and internal government debt, such as Mexican
Treasury Bills known as Certificados de la Tesoreira ("CETES"), Argentina Bonos
del Tescro ("BOTE"), Bonos de Inversion y Crocimiento-Quinta Seris ("BIC V")
and Venezuelan zero coupon notes. The sovereign-related fixed income
securities in which the Partnership may invest generally consist of obligations
issued or backed by national, state or provincial governments or similar
political subdivisions or central banks in foreign countries.
Sovereign-related fixed income securities also include debt obligations of
supranational entities, which include international organizations designated or
backed by governmental entities to promote economic reconstruction or
development, international banking institutions and related government
agencies. Sovereign-related fixed income securities also include fixed income
securities of "quasi-governmental agencies" and fixed income securities
denominated in multinational currency units of an issuer (including
supranational issuers).
LIMITED DIVERSIFICATION
The Partnership is a "non-diversified" investment company and there are no
percentage limitations on the portion of the Partnership's assets that may be
invested in the securities of any one issuer. Accordingly, since a relatively
high percentage of the Partnership's assets may be invested in the securities
of a limited number of issuers, some of which may be within the same industry,
the Partnership's investment portfolio may be more susceptible to any single
economic, political or regulatory occurrence than the portfolio of a
diversified investment company.
In addition, the Partnership may, under certain circumstances, invest a
significant portion of its assets in one or more general industry sectors, such
as those described below. This investment approach differs from that of many
other investment companies. To the extent that the Partnership's assets are so
invested, such investments may be subject to greater risk and volatility than
if such investments had been made in a broader range of investment
alternatives. In particular,
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<PAGE> 25
whenever the Partnership invests a significant portion of its assets in a
particular sector, the performance of such investments will be closely tied to
and affected by developments within such sector. Moreover, companies within a
general industry sector are often faced with the same obstacles, issues or
regulatory burdens, and their securities may react similarly to these and other
market conditions. In no event will the Partnership invest more than 25% of
the value of its total assets in the securities of issuers in any one industry;
provided, however, that this limitation does not apply to investments in
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities. (See "TYPES OF INVESTMENTS AND RELATED RISK FACTORS -
Temporary Defensive Investments; Fundamental Investment Policies".)
BIOTECHNOLOGY. The biotechnology sector includes companies that are
engaged in the research, development and manufacture of various
biotechnological products, services and processes. Such companies may include,
for example, companies involved with new or experimental technologies, such as
genetic engineering. The biotechnology sector also includes companies that
manufacture, distribute, or benefit from biotechnological and biomedical
products, processes, or services. For example, the Partnership may invest in
companies involved in applications and developments in such areas as health
care (e.g., cancer, infectious disease, diagnostics and therapeutics),
pharmaceuticals (e.g., new drug development and production), agricultural and
veterinary applications (e.g., improved seed varieties and animal growth
hormones), chemicals (e.g., enzymes, toxic waste treatment), medical/surgical
(e.g., epidermal growth factor, in vitro imaging/therapeutics), and technology
(e.g., biochips, fermentation, enhanced mineral recovery).
Biotechnology companies are affected by patent considerations, intense
competition, rapid technological change and obsolescence, and regulatory
requirements and waiting periods of the U.S. Food and Drug Administration, the
Environmental Protection Agency, state and local governments and foreign
regulatory authorities. Many of these companies are relatively small and their
stock is thinly traded. In addition, many of these companies may be in the
process of developing or testing products, and may, as a result, have no
short-term expectation of sales and profits. These companies may have
persistent losses during a new product's transition from development to
production, and revenue patterns may be erratic.
FINANCIAL SERVICES. The financial services industry includes companies
that provide financial services to consumers and industry. Financial services
companies include, among other companies, commercial banks and savings and loan
associations, consumer and industrial finance companies, securities brokerage
companies, real estate related companies, leasing companies and a variety of
firms in all segments of the insurance field, such as multi-line, property and
casualty, and life insurance. Current regulations of the U.S. Securities and
Exchange Commission (the "SEC"), however, limit the percentage of the
Partnership's assets that may be invested in companies engaged in "securities
related activities," such as the business of a broker-dealer, an underwriter,
an investment adviser to an investment company or an investment adviser that is
registered under the Investment Advisers Act of 1940 (the "Advisers Act").
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<PAGE> 26
The financial services area is currently undergoing relatively rapid
change as existing distinctions between financial service segments become less
clear. In addition, banks, savings and loan associations, and finance
companies are subject to extensive governmental regulation which may limit both
the amounts and types of loans and other financial commitments they can make
and the interest rates and fees they can charge. The profitability of these
groups is largely dependent on the availability and cost of capital funds, and
can fluctuate significantly when interest rates change. In addition, general
economic conditions are important to the operations of these concerns, with
exposure to credit losses resulting from possible financial difficulties of
borrowers potentially having an adverse effect. Insurance companies are
likewise subject to substantial governmental regulation, predominantly at the
state level, and may be subject to severe price competition.
HEALTH CARE. The health care sector includes companies (1) that are
engaged in the design, manufacture or sale of products or services used for or
in connection with health care or medicine or (2) that are engaged in the
ownership or management of hospitals, nursing homes, health maintenance
organizations and other companies specializing in the delivery of health care
services. Such companies may include, among others, the following:
pharmaceutical companies; firms that design, manufacture, sell or supply
medical, dental and optical products, hardware or services; companies involved
in biotechnology or diagnostic and biomedical research and development; and
companies involved in the operation of health care facilities. Such companies
may also include the following: companies that operate acute care, psychiatric,
teaching or specialized treatment hospitals; firms that provide outpatient
surgical, outpatient rehabilitation or other specialized care, including home
health care, drug and alcohol abuse treatment and dental care; firms operating
comprehensive health maintenance organizations and nursing homes for the
elderly and disabled; and firms that provide related laboratory services.
Many health care companies are subject to government regulation and
approval of their products and services, which could have a significant effect
on the price and availability of such products and services. In addition, the
types of products or services produced or provided by health care companies may
quickly become obsolete. Moreover, federal and state governments provide a
substantial percentage of revenues to health care service providers through
Medicare and Medicaid. These sources are subject to extensive governmental
regulation and federal appropriations are a continuing source of debate.
Congress is currently examining the health care sector to determine whether
government funds are spent appropriately, and to ensure that adequate health
care is available to everyone. This examination could lead to decreased
federal spending and/or increased federal regulation of the health care sector.
HIGH TECHNOLOGY. The high technology sector includes companies that the
Manager believes have, or will develop, products, processes or services that
will provide, or benefit significantly from, technological advances and
improvements. The high technology sector may include such products or services
as inexpensive computing power (e.g., personal computers), improved methods of
communications (e.g., satellite transmission) or labor saving machines or
instruments (e.g., computer-aided design equipment). In making significant
investments in the high technology sector, the Partnership may focus on the
securities of those companies that are positioned to benefit from technological
advances in areas such as semiconductors, computers
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<PAGE> 27
and peripheral equipment, scientific instruments, computer software,
telecommunications and future automation trends in both office and factory
settings, among other areas.
Competitive pressures may have a significant effect on the financial
condition of companies in the high technology sector. High technology
companies spend heavily on research and development and are sensitive to the
risk of product obsolescence. In addition, an increase in the number of such
companies and new product offerings could lead to price cuts and slower selling
cycles. Certain high technology companies in which the Partnership may invest
are engaged in fierce competition for a share of the market for their products.
In addition, products or services provided by the high technology sector may
be in the development stage and can face risks such as failure to obtain
financing or regulatory approval, product incompatibility, consumer preferences
and rapid obsolescence. Securities of small high technology companies that
base their business on emerging technologies or recent innovations may be
volatile due to limited product lines, markets or financial resources. In
addition, if technology continues to advance at an accelerated rate, and the
number of companies and product offerings continues to expand, these companies
could become increasingly sensitive to short product cycles and aggressive
pricing.
TELECOMMUNICATIONS. The telecommunications sector includes companies that
are engaged in the development, manufacture or sale of existing or emerging
communications services or communications equipment. Emerging communications
are those that are derived from new technologies or new applications of
existing technologies. Companies in the telecommunications field offer a
variety of services and products including, among others, the following: local
and long distance telephone service; cellular, paging, local and wide area
product networks; satellite, microwave and cable television; and equipment used
to provide such products and services. Long distance telephone companies may
also have interests in new technologies, such as fiber optics and data
transmission. Telephone operating companies are subject to both federal and
state regulations governing rates of return and the kinds of services that may
be offered. Although telephone companies often pay an above-average dividend,
the Manager's investment decisions are primarily based on growth potential and
not on income.
Competitive pressures may have a significant effect on the financial
condition of companies in the telecommunications sector. Telecommunications
companies spend heavily on research and development and are sensitive to the
risk of product obsolescence. In addition, an increase in the number of such
companies and new product offerings could lead to price cuts and slower selling
cycles. Certain telecommunications companies in which the Partnership may
invest are engaged in fierce competition for a share of the market for their
products. In addition, products or services provided by the telecommunications
sector may be in the development stage and can face risks such as failure to
obtain financing or regulatory approval, product incompatibility, consumer
preferences and rapid obsolescence. Securities of small telecommunications
companies that base their business on emerging technologies may be volatile due
to limited product lines, markets or financial resources.
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FOREIGN SECURITIES
Although the Partnership will invest principally in equity securities of
publicly-traded U.S. companies, the Partnership is permitted to invest in
equity and fixed income securities of foreign issuers and in depository
receipts that represent an indirect interest in securities of foreign issuers.
Investments in foreign securities are affected by risk factors generally not
thought to be present in the U.S. Such factors include, but are not limited
to, the following: varying custody, brokerage and settlement practices;
difficulty in pricing; less public information about issuers of foreign
securities; less governmental regulation and supervision over the issuance and
trading of securities than in the U.S.; the unavailability of financial
information regarding the foreign issuer or the difficulty of interpreting
financial information prepared under foreign accounting standards; less
liquidity and more volatility in foreign securities markets; the possibility of
expropriation or nationalization; the imposition of withholding and other
taxes; adverse political, social or diplomatic developments; limitations on the
movement of funds or other assets of the Partnership between different
countries; difficulties in invoking legal process abroad and enforcing
contractual obligations; and the difficulty of assessing economic trends in
foreign countries. Moreover, governmental issuers of foreign securities may be
unwilling to repay principal and interest due, and may require that the
conditions for payment be renegotiated. Investment in foreign countries also
involves higher brokerage and custodian expenses than does investment in
domestic securities.
Other risks of investing in foreign securities include changes in currency
exchange rates and currency exchange control regulations or other foreign or
U.S. laws or restrictions applicable to such investments or devaluations of
foreign currencies. A decline in the exchange rate would reduce the value of
certain of the Partnership's foreign or foreign currency denominated portfolio
securities irrespective of the performance of the underlying investment. In
addition, the Partnership may incur costs in connection with conversion between
various currencies. The foregoing risks may be intensified in emerging
industrialized and less developed countries.
The Partnership may utilize a variety of instruments and techniques,
including derivative transactions, for hedging purposes in connection with its
investments in foreign securities and for non-hedging purposes to pursue its
investment objective. Such instruments include currency futures and related
options and options on foreign currency. (See "TYPES OF INVESTMENTS AND RELATED
RISK FACTORS - Special Investment Instruments and Techniques - Futures
Contracts and Options Thereon".)
In addition, the Partnership may enter into forward currency exchange
contracts ("forward contracts") for hedging purposes and non-hedging purposes
to pursue its investment objective. Forward contracts are transactions
involving the Partnership's obligation to purchase or sell a specific currency
at a future date at a specified price. Forward contracts may be used by the
Partnership for hedging purposes to protect against uncertainty in the level of
future foreign currency exchange rates, such as when the Partnership
anticipates purchasing or selling a foreign security. This technique would
allow the Partnership to "lock in" the U.S. dollar price of the security.
Forward contracts may also be used to attempt to protect the value of the
Partnership's existing holdings of foreign securities. There may be, however,
imperfect correlation between
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the Partnership's foreign securities holdings and the forward contracts entered
into with respect to such holdings. Forward contracts may also be used for
non-hedging purposes to pursue the Partnership's investment objective, such as
when the Manager anticipates that particular foreign currencies will appreciate
or depreciate in value, but securities denominated in such currencies do not
present attractive investment opportunities and are not held in the
Partnership's investment portfolio.
LEVERAGE
The Partnership has the ability to trade on margin and, in that
connection, borrow funds from brokers and banks for the purchase of equity
securities. The Partnership may also borrow in connection with its investments
in fixed-income securities. Trading in equity securities on margin involves an
initial cash requirement representing at least 50% of the underlying security's
value with respect to transactions in U.S. markets and varying (typically
lower) percentages with respect to transactions in foreign markets. Funds that
are borrowed to leverage the Partnership's equity securities typically will be
secured by the pledge of such securities. The financing of securities
purchases may also be effected through reverse repurchase agreements with
banks, brokers and other financial institutions. This involves the transfer by
the Partnership of the underlying security to a counterparty in exchange for
cash proceeds based on a percentage (which can be as high as 95% to 100%) of
the value of the debt instrument.
Although leverage increases returns if the Partnership earns a greater
return on the investments purchased with borrowed funds than it pays for such
funds, the use of leverage decreases returns if the Partnership fails to earn
as much on such investments as it pays for such funds and will magnify the
volatility of the Partnership's investment portfolio. In the event that the
Partnership's equity or debt instruments decline in value, the Partnership
could be subject to a "margin call" or "collateral call", pursuant to which the
Partnership must either deposit additional funds with the lender or suffer
mandatory liquidation of the pledged securities to compensate for the decline
in value. In the event of a sudden, precipitous drop in value of the
Partnership's assets, the Partnership might not be able to liquidate assets
quickly enough to pay off its borrowing. Money borrowed for leveraging will be
subject to interest costs that may or may not be recovered by return on the
securities purchased. The Partnership also may be required to maintain minimum
average balances in connection with its borrowings or to pay a commitment or
other fee to maintain a line of credit; either of these requirements would
increase the cost of borrowing over the stated interest rate.
The 1940 Act requires the Partnership to satisfy an asset coverage
requirement of 300% of its indebtedness, including amounts borrowed, measured
at the time the Partnership incurs the indebtedness (the "Asset Coverage
Requirement"). This means that the value of the Partnership's total
indebtedness may not exceed one-third the value of its total assets (including
such indebtedness), measured at the time the Partnership incurs the
indebtedness. The staff of the SEC's Division of Investment Management (the
"SEC Staff") takes the position that short sales of securities, reverse
repurchase agreements, use of margin, sales of put and call options on specific
securities or indices, investments in certain other types of instruments
(including certain derivatives such as swap agreements), the purchase and sale
of commodity futures contracts or forward
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contracts on currencies, and the purchase and sale of securities on a
when-issued or forward commitment basis, may be deemed to constitute
indebtedness subject to the Asset Coverage Requirement.
The SEC Staff has stated, however, that it will not deem portfolio
positions involving such instruments to be subject to the Asset Coverage
Requirement if the Partnership maintains, in conjunction with such positions,
segregated deposits or portfolio securities in amounts sufficient to offset the
liabilities associated with such positions. Generally, in conjunction with
such portfolio positions, the Partnership must either (1) observe the Asset
Coverage Requirement, (2) maintain daily a segregated custodial account in
cash, U.S. Government securities or other liquid securities at such a level
that the amount deposited in the segregated account plus any amounts pledged to
a broker as collateral will equal the current value of the position or (3)
otherwise cover the portfolio position with offsetting portfolio securities.
Segregation of assets or covering portfolio positions with offsetting portfolio
securities would limit the Partnership's ability to otherwise invest such
assets or dispose of such securities.
In order to obtain "leveraged" market exposure in certain investments and
to increase the overall return to the Partnership of various investments, the
Partnership may purchase options and other synthetic instruments that do not
constitute "indebtedness" for purposes of the Asset Coverage Requirement.
These instruments may nevertheless involve significant economic leverage and
therefore may, in some cases, involve significant risks of loss.
SHORT SALES
The Partnership may attempt to limit exposure to a possible market decline
in the value of its portfolio securities through short sales of securities that
the Manager believes possess volatility characteristics similar to those being
hedged. In addition, the Partnership may use short sales for non-hedging
purposes to pursue its investment objective. To effect a short sale, the
Partnership will borrow a security from a brokerage firm to make delivery to
the buyer. The Partnership is then obligated to replace the borrowed security
by purchasing it at the market price at the time of replacement. Until the
security is replaced, the Partnership is required to pay to the brokerage firm
any accrued interest or dividend and may be required to pay a premium.
The Partnership will realize a gain if the borrowed security declines in
price between the date of the short sale and the date on which the Partnership
replaces such security. The Partnership will incur a loss if the price of the
borrowed security increases between those dates. Such loss can increase
rapidly and without effective limit. The amount of any gain will be decreased,
and the amount of any loss increased, by the amount of any premium or interest
the Partnership may be required to pay in connection with a short sale. There
is a risk that the borrowed securities would need to be returned to the
brokerage firm on short notice. If such request for return of securities
occurs at a time when other short sellers of the subject security are receiving
similar requests, a "short squeeze" can occur, wherein the Partnership might be
compelled, at the most disadvantageous time, to replace borrowed securities
previously sold short with purchases on the open market, possibly at prices
significantly in excess of the proceeds received earlier. The successful use
of short selling may be adversely affected by imperfect correlation between
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movements in the price of the security sold short and the securities being
hedged. Short selling may exaggerate the volatility of the Partnership's
investment portfolio. Short selling may also produce higher than normal
portfolio turnover and may result in increased transaction costs to the
Partnership.
The Partnership may also make short sales against-the-box, in which it
sells short securities it owns or has the right to obtain without payment of
additional consideration. If the Partnership makes a short sale
against-the-box, it will be required to set aside securities equivalent in kind
and amount to the securities sold short (or securities convertible or
exchangeable into such securities) and will be required to hold such securities
while the short sale is outstanding. The Partnership will incur transaction
costs, including interest expenses, in connection with opening, maintaining and
closing short sales against-the-box.
REPURCHASE AGREEMENTS
Repurchase agreements are agreements under which the Partnership purchases
securities from a bank that is a member of the Federal Reserve System, a
foreign bank or a securities dealer that agrees to repurchase the securities
from the Partnership at a higher price on a designated future date. If the
seller under a repurchase agreement becomes insolvent, the Partnership's right
to dispose of the securities may be restricted, or the value of the securities
may decline before the Partnership is able to dispose of them. In the event of
the commencement of bankruptcy or insolvency proceedings with respect to the
seller of the securities before the repurchase of the securities under a
repurchase agreement is accomplished, the Partnership may encounter delay and
incur costs, including a decline in the value of the securities, before being
able to sell the securities. If the seller defaults, the value of such
securities may decline before the Partnership is able to dispose of them. If
the Partnership enters into a repurchase agreement that is subject to foreign
law and the other party defaults, the Partnership may not enjoy protections
comparable to those provided to certain repurchase agreements under U.S.
bankruptcy law, and may suffer delays and losses in disposing of the collateral
as a result. The Partnership has adopted procedures designed to minimize
certain of the risks of loss from the Partnership's repurchase agreement
transactions.
REVERSE REPURCHASE AGREEMENTS
Reverse repurchase agreements involve the Partnership's sale of a security
to a bank or securities dealer and the Partnership's simultaneous agreement to
repurchase such security for a fixed price (reflecting a market rate of
interest) on a specific date. Reverse repurchase agreements involve a risk
that the other party to a reverse repurchase agreement will be unable or
unwilling to complete the transaction as scheduled, which may result in losses
to the Partnership. Reverse repurchase transactions may also increase the
volatility of the Partnership's investment portfolio. The Partnership has
adopted procedures designed to minimize certain of the risks of loss from the
Partnership's reverse repurchase transactions.
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SPECIAL INVESTMENT INSTRUMENTS AND TECHNIQUES
The Partnership may utilize a variety of special investment instruments
and techniques (described below) to hedge its investment portfolio against
various risks (such as changes in currency exchange rates, interest rates,
commodity prices or other factors that affect security values) or for
non-hedging purposes to pursue the Partnership's investment objective. These
strategies may be executed through derivative transactions. The instruments
the Partnership may use and the particular manner in which they may be used may
change over time as new instruments and techniques are developed or regulatory
changes occur. Certain of the special investment instruments and techniques
that the Partnership may use are speculative and involve a high degree of risk,
particularly in the context of non-hedging transactions to pursue the
Partnership's investment objective.
FUTURES CONTRACTS AND OPTIONS THEREON. The Partnership may enter into
futures contracts on securities indices and U.S. Government securities that are
traded on exchanges licensed and regulated by the CFTC or on foreign exchanges,
and may trade in currency futures contracts. Trading on foreign exchanges is
subject to the legal requirements of the jurisdiction in which the exchange is
located and the rules of such foreign exchange.
The Partnership will purchase and sell futures contracts and options
thereon for "bona fide hedging" purposes (as defined by the CFTC) and non-
"bona fide hedging" purposes in accordance with CFTC regulations. In that
connection, upon commencement of operations, the Partnership will have filed a
notice of eligibility for exclusion from the definition of the term "commodity
pool operator" with the CFTC and the National Futures Association, which
regulate trading in the futures markets. The Partnership intends to comply
with CFTC Regulation Section 4.5, which limits the extent to which the
Partnership can use futures contracts, options on futures contracts and
commodity options.
Specifically, the Partnership will use commodity futures or commodity
options contracts solely for "bona fide hedging" purposes (as defined in CFTC
regulations) and, with respect to positions in commodity futures or commodity
option contracts that are not used solely for such purposes, the Partnership's
aggregate initial margin and premiums required to establish such positions will
not exceed 5% of the liquidation value of the Partnership's investment
portfolio, after taking into account unrealized profits and unrealized losses
on any such contracts that it has entered into; provided, however, that in the
case of an option that is in-the-money (as defined in CFTC regulations) at the
time of the purchase, the in-the-money amount may be excluded in computing such
5%. The Partnership's policies regarding futures contracts and options thereon
discussed below and elsewhere in this Confidential Memorandum may be changed
from time to time to conform to regulatory changes.
The Partnership may enter into futures contracts on a securities index,
such as the Standard & Poor's Composite Index of 500 Stocks (the "S&P 500") or
the Russell 2000 Index (the "Russell 2000"). A securities index futures
contract does not require the physical delivery of the securities underlying
the index, but merely provides for profits and losses resulting from changes in
the market value of the contract to be credited or debited at the close of each
trading
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day to the respective accounts of the parties to the contract. On the
contract's expiration date, a final cash settlement occurs and the futures
positions are simply closed out. Changes in the market value of a particular
securities index futures contract reflect changes in the specified index of the
securities on which the futures contract is based.
The Partnership may sell a currency futures contract if the Manager
anticipates that exchange rates for a particular currency will fall. Such a
transaction can be used as a hedge against a decrease in the value of the
Partnership's portfolio securities that are denominated in such currency. If
the Manager anticipates that a particular currency will rise, the Partnership
may purchase a currency futures contract to protect against an increase in the
price of securities that are denominated in a particular currency and which the
Partnership intends to purchase. The Partnership may also purchase a currency
futures contract for non-hedging purposes to pursue its investment objective
when the Manager anticipates that a particular currency will appreciate in
value, but securities denominated in that currency do not present an attractive
investment and are not included in the Partnership's portfolio. The
Partnership will purchase and sell currency futures and related options for
"bona fide hedging" purposes (as defined by the CFTC) and non-"bona fide
hedging" purposes in accordance with CFTC Regulation Section 4.5.
A risk in employing currency futures contracts to protect against the
price volatility of portfolio securities that are denominated in a particular
foreign currency is that the prices of the securities that are subject to such
contracts may not completely correlate with the behavior of the cash prices of
the Partnership's portfolio securities. The correlation may be distorted by
the fact that the currency futures market may be dominated by short-term
traders seeking to profit from changes in exchange rates. This would reduce
the value of such contracts used for hedging purposes over a short-term period.
Such distortions are generally minor and would diminish as the contract
approached maturity. Another risk is that the Manager could be incorrect in
its expectation as to the direction or extent of various exchange rate
movements or the time span within which the movements take place.
The Partnership may also purchase put and call options on futures
contracts for "bona fide hedging" purposes (as defined by the CFTC) and non-
"bona fide hedging" purposes in accordance with CFTC Regulation Section 4.5.
A put option purchased by the Partnership would give it the right to assume a
position as the seller of a futures contract (i.e., assume a "short position").
A call option purchased by the Partnership would give it the right to assume a
position as the purchaser of a futures contract (i.e., assume a "long
position"). The purchase of an option on a futures contract requires the
Partnership to pay a premium. In exchange for the premium, the Partnership
becomes entitled to exercise the benefits, if any, provided by the futures
contract, but is not required to take any actions under the contract. If the
option cannot be profitably exercised before it expires, the Partnership's loss
will be limited to the amount of the premium and any transaction costs.
In addition, the Partnership may write (i.e., sell) put and call options
on futures contracts for "bona fide hedging" purposes (as defined by the CFTC)
and non-"bona fide hedging" purposes in accordance with CFTC Regulation
Section 4.5. The writing of a put option on a futures contract generates a
premium, which may partially offset an increase in the price of securities
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that the Partnership intends to purchase. The Partnership, however, becomes
obligated to purchase the underlying futures contract, which may have a value
lower than the exercise price. Conversely, the writing of a call option on a
futures contract generates a premium, which may partially offset a decline in
the value of the Partnership assets. By writing a call option, the Partnership
becomes obligated, in exchange for the premium, to sell a futures contract,
which may have a value higher than the exercise price.
The Partnership may enter into closing purchase or sale transactions in
order to terminate its position in a futures contract. The Partnership may
close out an option on a futures contract that it has purchased or written by
selling or purchasing an offsetting option of the same series. There is no
guarantee, however, that such closing transactions can be effected. The
Partnership's ability to enter into closing transactions depends on the
development and maintenance of a liquid market, which may not be available at
all times.
Although futures and options transactions, when used for hedging rather
than non-hedging purposes to pursue the Partnership's investment objective, are
intended to enable the Partnership to manage interest rate, stock market or
currency exchange risks, unanticipated changes in interest rates, market prices
or currency exchange rates could result in poorer performance than if the
Partnership had not entered into these transactions. Even if the Manager
correctly predicts interest rate, market price or currency rate movements, a
hedge could be unsuccessful if changes in the value of the Partnership's
futures position did not correspond to changes in the value of its investments.
This lack of correlation between the Partnership's futures and securities or
currency positions may be caused by differences between the futures and
securities or currency markets or by differences between the assets underlying
the Partnership's futures position and the securities held by or to be
purchased for the Partnership. The Manager will attempt to reduce these risks
through careful selection and monitoring of the Partnership's futures and
options positions. The ability to predict the direction of the securities
markets, interest rates and currency exchange rates involves skills different
from those used in selecting securities.
The prices of futures contracts depend primarily on the value or level of
the indices or assets on which they are based. Because there is a limited
number of types of futures contracts, it is likely that the standardized
futures contracts available to the Partnership will not exactly match the
assets the Partnership wishes to hedge or intends to purchase, and consequently
will not provide a perfect hedge against all price fluctuation. To compensate
for differences in historical volatility between positions the Partnership
wishes to hedge and the standardized futures contracts available to it, the
Partnership may purchase or sell futures contracts with a greater or lesser
value than the assets it wishes to hedge or intends to purchase.
Futures contracts and options thereon are derivative instruments. Losses
that may arise from certain futures transactions, particularly those involved
in non-hedging contexts to pursue the Partnership's investment objective, are
potentially unlimited.
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CALL AND PUT OPTIONS ON INDIVIDUAL SECURITIES. The Partnership may
purchase call and put options in respect of specific securities, and may write
and sell covered or uncovered call and put options for hedging purposes and
non-hedging purposes to pursue its investment objective. A put option gives
the purchaser of the option the right to sell, and obligates the writer to buy,
the underlying security at a stated exercise price at any time prior to the
expiration of the option. Similarly, a call option gives the purchaser of the
option the right to buy, and obligates the writer to sell, the underlying
security at a stated exercise price at any time prior to the expiration of the
option.
A covered call option, which is a call option with respect to which the
Partnership owns the underlying security, that is sold by the Partnership
exposes the Partnership during the term of the option to possible loss of
opportunity to realize appreciation in the market price of the underlying
security or to possible continued holding of a security that might otherwise
have been sold to protect against depreciation in the market price of the
security. A covered put option, which is a put option with respect to which
cash or liquid securities have been placed in a segregated account with the
Partnership's custodian to fulfill the obligation undertaken, that is sold by
the Partnership exposes the Partnership during the term of the option to a
decline in price of the underlying security while depriving the Partnership of
the opportunity to invest the segregated assets.
The Partnership may close out a position when writing options by
purchasing an option on the same security with the same exercise price and
expiration date as the option that it has previously written on the security.
The Partnership will realize a profit or loss if the amount paid to purchase an
option is less or more, as the case may be, than the amount received from the
sale thereof. To close out a position as a purchaser of an option, the
Partnership would ordinarily make a similar "closing sale transaction," which
involves liquidating the Partnership's position by selling the option
previously purchased, although the Partnership would be entitled to exercise
the option should it deem it advantageous do so. The Partnership may also
invest in so-called "synthetic" options or other derivative instruments written
by broker-dealers.
Options transactions may be effected on securities exchanges or in the
over-the-counter market. When options are purchased over-the-counter, the
Partnership bears the risk that the counterparty that wrote the option will be
unable or unwilling to perform its obligations under the option contract. Such
options may also be illiquid and, in such cases, the Partnership may have
difficulty closing out its position. Over-the-counter options purchased and
sold by the Partnership may also include options on baskets of specific
securities.
WARRANTS. Warrants are derivative instruments that permit, but do not
obligate, the holder to subscribe for other securities or commodities.
Warrants do not carry with them the right to dividends or voting rights with
respect to the securities that they entitle the holder to purchase, and they do
not represent any rights in the assets of the issuer. As a result, warrants
may be considered more speculative than certain other types of investments. In
addition, the value of a warrant does not necessarily change with the value of
the underlying securities or commodities and a warrant ceases to have value if
it is not exercised prior to its expiration date.
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CALL AND PUT OPTIONS ON SECURITIES INDICES. The Partnership may purchase
and sell call and put options on stock indexes (such as the S&P 500 or the
Russell 2000) listed on national securities exchanges or traded in the
over-the-counter market for hedging purposes and non-hedging purposes to pursue
its investment objective. A stock index fluctuates with changes in the market
values of the stocks included in the index. The effectiveness of purchasing or
writing stock index options for hedging purposes will depend upon the extent to
which price movements in the Partnership's portfolio correlate with price
movements of the stock index selected. Because the value of an index option
depends upon movements in the level of the index rather than the price of a
particular stock, whether the Partnership will realize a gain or loss from the
purchase or writing of options on an index depends upon movements in the level
of stock prices in the stock market generally or, in the case of certain
indexes, in an industry or market segment, rather than movements in the price
of a particular stock. Accordingly, successful use by the Partnership of
options on stock indexes will be subject to the Manager's ability to predict
correctly movements in the direction of the stock market generally or of a
particular industry or market segment. This requires different skills and
techniques than predicting changes in the price of individual stocks.
ADDITIONAL DERIVATIVE TRANSACTIONS. The Partnership may take advantage of
opportunities in the area of swaps, options on various underlying instruments,
swaptions and certain other customized derivative instruments. In addition,
the Partnership may take advantage of opportunities with respect to certain
other derivative instruments that are not presently contemplated for use by the
Partnership or which are currently not available, but which may be developed,
to the extent such opportunities are both consistent with the Partnership's
investment objective and legally permissible for the Partnership. Special
risks may apply to instruments that are invested in by the Partnership in the
future, which risks cannot be determined at this time or until such instruments
are developed or invested in by the Partnership.
A swap is a contract under which two parties agree to make periodic
payments to each other based on specified interest rates, an index or the value
of some other instrument, applied to a stated, or "notional", amount. Swaps
generally can be classified as interest rate swaps, currency swaps, commodity
swaps or equity swaps, depending on the type of index or instrument used to
calculate the payments. Such swaps would increase or decrease the
Partnership's investment exposure to the particular interest rate, currency,
commodity or equity involved. A swaption is an option entitling one party to
enter into a swap agreement with the counterparty. In addition to swaps and
swaptions, the Partnership may become a party to various other customized
derivative instruments entitling the counterparty to certain payments on the
gain or loss on the value of an underlying or referenced instrument. Certain
swaps, options and other derivative instruments may be subject to various types
of risks, including market risk, liquidity risk, counterparty credit risk,
legal risk and operations risk. In addition, swaps and other derivatives can
involve significant economic leverage and may, in some cases, involve
significant risks of loss.
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LENDING PORTFOLIO SECURITIES
The Partnership may lend its portfolio securities to domestic and foreign
brokers, dealers and financial institutions. These loans will be secured by
collateral (consisting of cash, U.S. Government securities or irrevocable
letters of credit) maintained in an amount equal to at least 100% of the market
value, determined daily, of the loaned securities. The Partnership may at any
time call the loan and obtain the return of the securities loaned. The
Partnership will be entitled to payments equal to the interest and dividends on
the loaned security and may receive a premium for lending the securities.
Lending portfolio securities may result in income to the Partnership, but there
may be delays in the recovery of the loaned securities or a loss of rights in
the collateral supplied should the borrower fail financially. Securities
lending involves a form of leverage, and the Partnership may incur a loss if
securities purchased with the collateral from securities loans decline in
value.
WHEN-ISSUED AND FORWARD COMMITMENT SECURITIES
The Partnership may purchase securities on a "when-issued" basis and may
purchase or sell securities on a "forward commitment" basis in order to hedge
against anticipated changes in interest rates and prices. These transactions
involve a commitment by the Partnership to purchase or sell securities at a
future date (ordinarily one or two months later). The price of the underlying
securities, which is generally expressed in terms of yield, is fixed at the
time the commitment is made, but delivery and payment for the securities takes
place at a later date. No income accrues on securities that have been purchased
pursuant to a forward commitment or on a when-issued basis prior to delivery to
the Partnership. When-issued securities and forward commitments may be sold
prior to the settlement date. If the Partnership disposes of the right to
acquire a when-issued security prior to its acquisition or disposes of its
right to deliver or receive against a forward commitment, it may incur a gain
or loss. These transactions will be subject to the Partnership's limitation on
indebtedness unless, at the time the Partnership enters into such a
transaction, a segregated account consisting of cash, U.S. Government
securities or liquid securities equal to the value of the when-issued or
forward commitment securities is established and maintained. There is a risk
that securities purchased on a when-issued basis may not be delivered and that
the purchaser of securities sold by the Partnership on a forward basis will not
honor its purchase obligation. In such cases, the Partnership may incur a
loss.
RESTRICTED AND ILLIQUID INVESTMENTS
Although the Partnership will invest primarily in liquid, marketable
investments, it may invest a portion of its assets in restricted securities and
other investments which are illiquid. Restricted securities are securities
that may not be sold to the public without an effective registration statement
under the Securities Act of 1933 ("1933 Act") or, if they are unregistered, may
be sold only in a privately negotiated transaction or pursuant to an exemption
from registration. In recognition of the increased size and liquidity of the
institutional markets for unregistered securities and the importance of
institutional investors in the formation of capital, the SEC has adopted Rule
144A under the 1933 Act, which is designed to further facilitate efficient
trading among eligible institutional investors by permitting the sale of
certain unregistered securities to
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qualified institutional buyers. The Partnership will be eligible to purchase
securities in Rule 144A transactions if and when it owns at least $100 million
of securities of unaffiliated issuers. To the extent privately placed
securities held by the Partnership qualify under Rule 144A, and an
institutional market develops for those securities, the Partnership likely will
be able to dispose of the securities without registering them under the 1933
Act. To the extent that institutional buyers become, for a time, uninterested
in purchasing these securities, investing in Rule 144A securities could have
the effect of increasing the level of the Partnership's illiquidity. Foreign
securities that can be freely sold in the markets in which they are principally
traded are not considered by the Partnership to be restricted. Regulation S
under the 1933 Act permits the sale abroad of securities that are not
registered for sale in the U.S.
Where registration is required to sell a security, the Partnership may be
obligated to pay all or part of the registration expenses, and a considerable
period may elapse between the decision to sell and the time the Partnership may
be permitted to sell a security under an effective registration statement. If,
during such a period, adverse market conditions were to develop, the
Partnership might obtain a less favorable price than prevailed when it decided
to sell. Restricted securities for which no market exists and other illiquid
investments are valued at fair value as determined in accordance with
procedures approved and periodically reviewed by the Individual General
Partners.
Restricted securities and other illiquid investments involve the risk that
the securities will not be able to be sold at the time desired by the Manager
or at prices approximating the value at which the Partnership is carrying the
securities.
TEMPORARY DEFENSIVE INVESTMENTS
For temporary defensive purposes, the Partnership may vary from its
investment program during periods in which conditions in securities markets or
other economic conditions are abnormal. In such cases, the Partnership may
hold such cash, cash equivalents and other short-term money market instruments
in such amounts as the Manager deems appropriate under the circumstances. Such
investments may constitute up to 100% of the Partnership's assets.
FUNDAMENTAL INVESTMENT POLICIES
The Partnership has adopted the following fundamental investment policies,
which cannot be changed without approval by the holders of a majority (as
defined in the 1940 Act) of the Partnership's outstanding securities:
(1) The Partnership will not issue senior securities representing stock, but
may borrow money to finance portfolio transactions from banks, brokers and
other lenders, and engage in other transactions involving the issuance by
the Partnership of "senior securities" representing indebtedness to the
extent permitted by the 1940 Act.
(2) The Partnership will not underwrite securities of other issuers, except
insofar as the Partnership may be deemed an underwriter under the 1933 Act
in connection with the disposition of its portfolio securities.
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(3) The Partnership will not lend money to other persons, except through
purchasing debt securities, lending portfolio securities or entering into
repurchase agreements in a manner consistent with the Partnership's
investment policies.
(4) The Partnership will not purchase or sell real estate (including real
estate limited partnership interests), but the Partnership may invest in
securities secured by, or issued by companies that invest in, real estate
or interests therein.
(5) The Partnership will not purchase or sell commodities or commodity
contracts, but the Partnership may purchase and sell futures contracts
(and options thereon), may engage in currency transactions and may engage
in other transactions in financial instruments, in each case to the extent
permitted under the Partnership's investment policies.
(6) The Partnership will not invest more than 25% of the value of its total
assets in the securities of issuers in any one industry; provided,
however, that this limitation does not apply to investments in securities
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
If a percentage restriction is adhered to at the time of investment, a
later change in percentage resulting from a change in values or assets will not
constitute a violation of such restriction. In addition to the restrictions
contained in the fundamental investment policies stated above, the Partnership
is subject to any restrictions imposed by the 1940 Act on registered investment
companies, including certain restrictions with respect to its investment in
other investment companies and in securities of insurance companies and brokers
and dealers.
The Manager will not cause the Partnership to make loans to or receive
loans from the Manager or its affiliates. The Partnership may effect brokerage
transactions through the affiliates of the Manager, subject to compliance with
the 1940 Act.
ADDITIONAL RISK FACTORS
INCENTIVE ALLOCATION
The special allocation of 20% of net profits to the capital account of the
Manager may create an incentive for the Manager to cause the Partnership to
make investments that are riskier or more speculative than would be the case in
the absence of such allocation. In addition, because such allocation is
calculated on a basis that includes unrealized appreciation of the
Partnership's assets, such allocation may be greater than if such allocation
was based solely on realized gains. (See "CAPITAL ACCOUNTS AND ALLOCATIONS -
Incentive Allocation".)
TAX RISKS
Prior to the date the Partnership commences operations, counsel to the
Partnership, Schulte Roth & Zabel, will render its opinions that the
Partnership will be treated as a partnership and not as an association or a
"publicly traded partnership" taxable as a corporation for Federal income tax
purposes. If it were determined that the Partnership should be treated as an
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<PAGE> 40
association or publicly traded partnership taxable as a corporation (as a
result of a successful challenge to the opinions rendered by counsel to the
Partnership or otherwise), the taxable income of the Partnership would be
subject to corporate income tax and distributions of profits from the
Partnership would be treated as dividends. (See "TAXATION - Tax Treatment of
Partnership Operations - Classification of the Partnership".)
LACK OF OPERATING HISTORY
The Partnership and the Manager are newly formed entities and have no
operating histories upon which investors can evaluate the performance of the
Partnership. However, as discussed below, the principal members of the Manager
(including such members' employees and affiliates) have substantial experience
in managing portfolios of securities through private investment partnerships.
Moreover, the principal member of the Manager that is primarily responsible for
managing the Partnership's investment portfolio has substantial experience in
managing private investment partnerships that have investment programs that are
substantially similar to the Partnership's investment program. (See
"PERFORMANCE INFORMATION", "THE MANAGER" and "CONFLICTS OF INTEREST -
Participation in Investment Opportunities".)
LIQUIDITY RISKS
Limited Partner interests in the Partnership will not be traded on any
securities exchange or other market and are subject to substantial restrictions
on transfer. Although the Partnership may offer to repurchase such interests
from time to time, a Limited Partner may not be able to liquidate its interest
in the Partnership for up to two years. The Manager expects that generally it
will recommend to the Individual General Partners that the Partnership
repurchase interests from Partners once in each year (other than in 1996)
effective as of the end of each such year. (See "REDEMPTIONS, REPURCHASES OF
INTERESTS AND TRANSFERS".)
PERFORMANCE INFORMATION
Appendix A contains performance information for the two private investment
partnerships (Ardsley Partners Fund I, L.P. and Ardsley Partners Fund II, L.P.,
collectively, the "Ardsley Funds") that are managed by Ardsley Partners I
(discussed below) in accordance with an investment program that is
substantially similar to the Partnership's expected investment program. The
future performance of the Ardsley Funds may vary from the future performance of
the Partnership. (See "CONFLICTS OF INTEREST - Participation in Investment
Opportunities".) PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS.
INDIVIDUAL GENERAL PARTNERS
Ultimate responsibility for the affairs of the Partnership is vested in the
Individual General Partners. The Individual General Partners exercise the same
powers, authority and responsibilities on behalf of the Partnership as are
customarily exercised by the directors of a registered investment company
organized as a corporation, and they have complete and exclusive authority to
oversee and to establish policies regarding the management, conduct and
operation of the Partnership's
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<PAGE> 41
business. The Individual General Partners have vested the responsibility for
the day-to-day management of the Partnership with the Manager.
A majority of the Individual General Partners are not "interested persons"
(as defined in the 1940 Act) of the Partnership (collectively, the "Independent
General Partners") and perform the same functions for the Partnership as are
customarily exercised by the non-interested directors of a registered
investment company organized as a corporation. The remaining Individual
General Partners are employees of Opco, which is the managing member of the
Manager. Individual General Partners will not contribute to the capital of the
Partnership in their capacity as Individual General Partners, but may subscribe
for interests in the Partnership, subject to the eligibility requirements
described in this Confidential Memorandum.
The identity of the Individual General Partners, and brief biographical
information regarding each Individual General Partner, is set forth below.
<TABLE>
<CAPTION>
POSITION(S) HELD
WITH THE PRINCIPAL OCCUPATION(S) DURING
NAME, ADDRESS AND AGE PARTNERSHIP PAST 5 YEARS
<S> <C> <C>
Mr. Blum is an
Robert A. Blum* Individual General Partner Associate General
Oppenheimer & Co., Inc. Counsel of Opco and
Oppenheimer Tower has been a Managing
One World Financial Director of Opco
Center since 1994. From
200 Liberty Street 1991 to 1994, Mr.
New York, NY 10281 Blum was a Senior
Age 36 Vice President, and
from 1989 to 1991
was a Vice
President, of Opco.
Mr. Blum holds the
indicated positions
in the following
closed-end
investment
companies: Director
and Assistant
Secretary of The
India Fund, Inc.;
Secretary of The
Mexico Equity and
Income Fund, Inc.;
Director and
Assistant Secretary
of The Asia Tigers
Fund, Inc.; and
Assistant Secretary
of Municipal
Advantage Fund, Inc.
</TABLE>
- -------------
* Individual General Partner who is an "interested person" (as defined by the
1940 Act) of the Partnership.
-23-
<PAGE> 42
<TABLE>
<CAPTION>
POSITION(S) HELD
WITH THE PRINCIPAL OCCUPATION(S) DURING
NAME, ADDRESS AND AGE PARTNERSHIP PAST 5 YEARS
<S> <C> <C>
Sol Gittleman Individual General Partner Mr. Gittleman has been
Ballou Hall Senior Vice President
Tufts University and Provost of Tufts
Medford, MA 02155 University since 1981.
Age 62 Mr. Gittleman is a
Director of the Mexico
Equity and Income Fund,
Inc.
Luis Rubio Individual General Partner Dr. Rubio is President
Centro de Investigacion of Centro de
Para el Desarrollo, A.C. Investigation Para el
Jaime Balmes No. 11, D-2 Desarrollo, A.C.
Los Morales Polanco (Center of Research
Mexico D.F. 11510 Development), a
Age 40 Director of The Czech
Republic Fund, Inc. (a
closed-end investment
company), Adjunct
Fellow, Center for
Strategic and
International Studies
and a Member of the
Advisory Board of the
National Council of
Science and Technology
of Mexico. He is also a
Director of The Mexico
Equity and Income Fund,
Inc., as well as
certain other private
investment funds
associated with Opco.
From 1991 to 1993, Dr.
Rubio was a Director of
Banco National de
Mexico S.A.
Janet L. Schinderman Individual General Partner Ms. Schinderman is
Columbia Business School Associate Dean for
Office of the Dean Special Projects and
101 Uris Hall Secretary to the Board
Columbia University of Overseers at
New York, NY 10027 Columbia Business
Age 45 School of Columbia
University. From 1987
to 1990, Ms.
Schinderman served as
Executive Assistant to
the President at the
Illinois Institute of
Technology.
</TABLE>
-24-
<PAGE> 43
<TABLE>
<CAPTION>
POSITION(S) HELD
WITH THE PRINCIPAL OCCUPATION(S) DURING
NAME, ADDRESS AND AGE PARTNERSHIP PAST 5 YEARS
<S> <C> <C>
Mitchell A. Tanzman* Principal Individual Mr. Tanzman has been
General Partner Managing Director of Opco
Oppenheimer & Co., Inc. since 1994 and the
Oppenheimer Tower co-head of Opco's
One World Financial Investment Partnership
Center and Offshore Fund
200 Liberty Street Department since 1992.
New York, NY 10281 From 1991 to 1994, he was
Age 36 a Senior Vice President
of Opco, and from 1989 to
1991 he was a Vice
President of Opco. Mr.
Tanzman is an officer of
other investment funds
associated with Opco.
</TABLE>
Each of the Individual General Partners was appointed by the Manager and,
on July 16, 1996, was elected to serve in such position by the Manager and Mr.
Tanzman (in his capacity as the Partnership's organizational limited partner),
who were the sole holders of interests in the Partnership on such date.
An Individual General Partner's position in that capacity will terminate
if such Individual General Partner is removed, resigns or is subject to various
disabling events such as death, incapacity or bankruptcy. An Individual
General Partner may resign upon 90 days prior written notice to the other
Individual General Partners, and may be removed either by vote of two-thirds
(2/3) of the Individual General Partners not subject to the removal vote or
vote of the Partners holding not less than two-thirds (2/3) of the total number
of votes eligible to be cast by all Partners. Individual General Partners may
not transfer their interests in the Partnership as Individual General Partners.
In the event of any vacancy in the position of an Individual General Partner,
the remaining Individual General Partners may appoint an individual to serve as
an Individual General Partner, so long as immediately after such appointment at
least two-thirds (2/3) of the Individual General Partners then serving would
have been elected by the Partners. The Individual General Partners may call a
meeting of Partners to fill any vacancy in the position of an Individual
General Partner, and must do so within 60 days after any date on which
Individual General Partners who were elected by the Partners cease to
constitute a majority of the Individual General Partners then serving. If no
Individual General Partner remains to continue the business of the Partnership,
the Manager may manage and control the Partnership, but must convene a meeting
of Partners within 60 days for the purpose of either electing new Individual
General Partners or dissolving the Partnership.
The Independent General Partners are each paid an annual retainer of
$5,000 and per meeting fees of $700 (or $100 in the case of telephonic
meetings) by the Partnership. The other
- -------------------
* Individual General Partner who is an "interested person" (as defined by the
1940 Act) of the Partnership.
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<PAGE> 44
Individual General Partners receive no annual or other fees from the
Partnership. All Individual General Partners are reimbursed by the
Partnership for their reasonable out-of-pocket expenses. It is estimated that
the aggregate annual compensation paid by the Partnership to each Independent
General Partner will be $7,800 during the coming year, and that, together with
compensation paid to them by other registered investment companies advised by
affiliates of the Manager, Mr. Gittleman and Dr. Rubio will receive aggregate
annual compensation from all such companies of $15,600 and $23,400,
respectively, for such year. The Individual General Partners do not receive
any pension or retirement benefits from the Partnership.
THE MANAGER,
OPCO AND ARDSLEY
The Manager is a General Partner of, provides investment advice to, and is
responsible for the day-to-day management of, the Partnership, in each case
under the ultimate supervision of and subject to any policies collectively
established by the Individual General Partners. The Manager was formed as a
Delaware limited liability company on May 30, 1996 and, upon commencement of
the Partnership's operations, will be registered as an investment adviser under
the Advisers Act. The offices of the Manager are located at Oppenheimer Tower,
One World Financial Center, 33rd Floor, 200 Liberty Street, New York, New York
10281, and its telephone number is (212) 667-7649. As of July 16, 1996, the
Manager owned 99% of the outstanding interests in the Partnership (thereby
controlling the Partnership) and was the only person known by the Partnership
to own of record or beneficially 5% or more of the outstanding interests in the
Partnership. The Manager maintains the Partnership's accounts, books and other
documents required to be maintained under the 1940 Act at 400 Bellevue Parkway,
Wilmington, Delaware 19809.
The Manager is a joint venture between Oppenheimer & Co., Inc. ("Opco")
and Ardsley Advisory Partners ("Ardsley"). Opco is the managing member of (and
therefore controls) the Manager and oversees the Manager's provision of
investment advice and day-to-day management to the Partnership. Ardsley
provides the Manager with use of and access to such of its personnel and
research as the Manager requires to manage the Partnership's investment
portfolio, and such personnel have the sole responsibility, subject only to the
supervision of the Manager and the Individual General Partners, for the
investment advisory services provided to the Partnership.
Opco, organized as a Delaware corporation in 1950, is registered as an
investment adviser under the Advisers Act and provides investment advice
(directly or through affiliates) to registered investment companies, private
investment partnerships and individuals on a non-pooled basis. As of June 30,
1996, Opco (directly or through affiliates) managed assets of more than $46
billion. Opco is also registered as a broker-dealer under the Securities
Exchange Act of 1934 (the "1934 Act") and is a member of the New York Stock
Exchange, Inc. (the "NYSE") and other principal securities exchanges.
Ardsley, organized as a Connecticut general partnership in 1986, is
registered as an investment adviser under the Advisers Act and provides
investment advisory services to pension and profit sharing plans through a
group trust, to individuals and businesses through private investment
partnerships and to individual accounts on a non-pooled basis. Ardsley's
offices are
-26-
<PAGE> 45
located in Greenwich, Connecticut. Mr. Philip J. Hempleman is the managing
general partner of Ardsley. He is the person who will be primarily responsible
for the day-to-day management of the Partnership's investment portfolio, and he
will be directly assisted by other investment professionals employed by Ardsley
or its affiliates who act on behalf of the Manager. Ardsley (which Mr.
Hempleman founded and controls) and its affiliates have provided investment
advisory services to individuals, businesses and other entities since 1987. As
of June 30, 1996, Ardsley and its affiliates managed assets of more than $3.1
billion.
The authority of the Manager to serve or act as investment adviser, and be
responsible for the day-to-day management, of the Partnership (collectively,
"Advice and Management"), and the incentive allocation arrangement between the
Partnership and the Manager (as the foregoing are set forth in the limited
partnership agreement of the Partnership (the "Partnership Agreement")) was
initially approved by the Individual General Partners, including each of the
Independent General Partners, and by vote of Partners holding interests in the
Partnership on July 16, 1996. The authority of the Manager to provide Advice
and Management will terminate under the following circumstances:
(1) if revoked by (A) vote of a majority (as defined in the 1940
Act) of the outstanding voting securities of the Partnership
or (B) the Individual General Partners, including a majority
of the Independent General Partners, in either case with 60
days prior written notice to the Manager;
(2) at the election of the Manager, with 60 days prior written
notice to the Individual General Partners;
(3) if any period of 12 consecutive months following the
effectiveness of such authority shall conclude without the
approval of the continuation of such authority by (A) the vote
of a majority (as defined in the 1940 Act) of the outstanding
voting securities of the Partnership or (B) the Individual
General Partners, and in either case, approval by a majority
of the Independent General Partners by vote cast at a meeting
called for such purpose;
(4) upon the occurrence of any event in connection with the
Manager, its provision of Advice and Management, the
Partnership Agreement or otherwise constituting an
"assignment" within the meaning of the 1940 Act; or
(5) if the Manager is no longer a General Partner of the
Partnership.
The Manager may also withdraw, or be removed by the Partnership, as the
Manager. If the Manager gives notice to the Partnership of its intention to
withdraw, it will be required to remain as a General Partner for one year (or
until such earlier date as a successor Manager is approved by the Partnership)
if, in the opinion of counsel to the Partnership, earlier withdrawal is likely
to cause the Partnership to lose its partnership tax classification or as
otherwise required by Rule 2a19-2 under the 1940 Act. At the request of the
Partnership, the Manager will remain as a General Partner of the Partnership
for a period of six months if the Partnership has terminated the authority of
the
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<PAGE> 46
Manager to provide Advice and Management, unless a successor General Partner to
the Manager is earlier approved by the Partnership.
VOTING
Each Partner will have the right to cast a number of votes based on the
value of such Partner's respective capital account at any meeting of Partners
called by the Individual General Partners or Partners holding 25% or more of
the total number of votes eligible to be cast by all Partners. Limited
Partners will be entitled to vote on any matter on which shareholders of a
registered investment company organized as a corporation would be entitled to
vote, including selection of Individual General Partners, approval of the
authority of the Manager to provide Advice and Management to the Partnership
and approval of the Partnership's auditors. Except for the exercise of their
voting privileges, Limited Partners will not be entitled to participate in the
management or control of the Partnership's business, and may not act for or
bind the Partnership.
CONFLICTS OF INTEREST
OPCO
In addition to managing the Manager, Opco (directly or through affiliates)
manages the assets of registered investment companies, private investment
partnerships and individual accounts on a non-pooled basis (collectively, "Opco
Clients"). The Partnership has no interest in these activities. As a result
of the foregoing, Opco and its officers or employees who assist Opco in its
oversight of the Manager will be engaged in substantial activities other than
on behalf of the Manager and may have conflicts of interest in allocating their
time and activity between the Manager and Opco Clients. Opco and such officers
and employees will devote only so much time to the affairs of the Manager as in
their judgment is necessary and appropriate.
Opco acts as the placement agent for the Partnership and will bear all
costs associated with such activities. Opco, as managing member of the Manager
and in its capacity as placement agent for the Partnership, intends to
compensate its account executives for their ongoing servicing of clients with
whom they have placed interests in the Partnership. Opco intends to compensate
such account executives based upon a formula that takes into account the amount
of client assets being serviced as well as the investment results attributable
to such clients' assets in the Partnership. (See "FEES AND EXPENSES"; "CAPITAL
ACCOUNTS AND ALLOCATIONS - Incentive Allocation".)
Opco and/or its affiliates may provide brokerage and other services from
time to time to one or more accounts or entities managed by Ardsley or Ardsley
Partners I.
ARDSLEY AND ARDSLEY PARTNERS I
Ardsley Partners I, a Connecticut general partnership and an affiliate of
Ardsley, is the general partner of and provides investment advisory and other
services to the Ardsley Funds and other private investment partnerships.
Ardsley and the investment professionals who are employed by Ardsley and
Ardsley Partners I (collectively, the "Ardsley Managers") provide
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<PAGE> 47
investment advisory services to numerous accounts and carry on substantial
investment activities for their own accounts, for the accounts of family
members and for the accounts of friends of such professionals who do not
qualify for an investment in any account or entity to which the Ardsley
Managers provide advisory services (collectively, the "Ardsley Accounts"). The
Partnership has no interest in these activities. As a result of the foregoing,
Ardsley and the investment professionals who, on behalf of the Manager, will
manage the Partnership's investment portfolio will be engaged in substantial
activities other than on behalf of the Manager and may have conflicts of
interest in allocating their time and activity between the Partnership and the
Ardsley Accounts. Such persons will devote only so much time to the affairs of
the Manager as in their judgment is necessary and appropriate.
The Ardsley Managers provide investment advisory services to private
investment partnerships and other entities and accounts managed by Opco or its
affiliates, including, among others, Oppenheimer Catalyst Partners, L.P. and
Oppenheimer Catalyst International, Ltd. In addition, the Ardsley Managers may
receive research products and services in connection with the brokerage
services that Opco and its affiliates may provide from time to time (i) to one
or more entities managed by the Ardsley Managers or (ii) to the Partnership.
PARTICIPATION IN INVESTMENT OPPORTUNITIES
The Manager expects to employ an investment program for the Partnership
that is substantially similar to the investment program that is employed by
Ardsley Partners I for the Ardsley Funds. The other Ardsley Accounts are
managed under an investment program that is similar to the Ardsley Funds'
investment program and the Partnership's expected investment program.
Accordingly, as a general matter, the Manager will consider participation by
the Partnership in all appropriate investment opportunities that are under
consideration for investment by the Ardsley Managers for the Ardsley Accounts.
There may be, however, circumstances under which the Ardsley Managers will
cause the Ardsley Accounts to commit a larger percentage of their respective
assets to an investment opportunity than to which the Manager will commit the
Partnership's assets. There may also be circumstances under which the Ardsley
Managers will consider participation by the Ardsley Accounts in investment
opportunities in which the Manager does not to intend to invest on behalf of
the Partnership.
The Manager will evaluate for the Partnership, and it is anticipated that
the Ardsley Managers will evaluate for each Ardsley Account, a variety of
factors that may be relevant in determining whether a particular investment
opportunity or strategy is appropriate and feasible for the Partnership or to a
particular Ardsley Account at a particular time, including, but not limited to,
the following: (1) the nature of the investment opportunity taken in the
context of the other investments at the time; (2) the liquidity of the
investment relative to the needs of the particular entity or account; (3) the
availability of the opportunity (i.e., size of obtainable position); (4) the
transaction costs involved; and (5) the investment or regulatory limitations
applicable to the particular entity or account. Because these considerations
may differ for the Partnership and the Ardsley Accounts in the context of any
particular investment opportunity, the investment activities of the Partnership
and the Ardsley Accounts may differ considerably from time to time. In
addition, the fees and expenses of the Partnership will differ from those of
the
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<PAGE> 48
Ardsley Accounts. Accordingly, prospective Limited Partners should note that
the future performance of the Partnership and the Ardsley Accounts (including
the Ardsley Funds) may vary.
When the Manager and Ardsley determine that it would be appropriate for
the Partnership and one or more Ardsley Accounts to participate in an
investment opportunity at the same time, they will aggregate, place and
allocate orders on a basis that the Manager believes to be fair and equitable,
consistent with its responsibilities under the Advisers Act and the 1940 Act.
Decisions in this regard are necessarily subjective and there is no requirement
that the Partnership participate, or participate to the same extent as the
Ardsley Accounts, in all trades. However, no participating entity or account
will receive preferential treatment over any other and the Manager and Ardsley
will take steps to ensure that no participating entity or account will be
systematically disadvantaged by the aggregation, placement and allocation of
orders.
Situations may occur, however, where the Partnership could be
disadvantaged because of the investment activities conducted by the Ardsley
Managers for the Ardsley Accounts. Such situations may be based on, among
other things, the following: (1) legal restrictions on the combined size of
positions that may be taken for the Partnership and the Ardsley Accounts,
thereby limiting the size of the Partnership's position; (2) the difficulty of
liquidating an investment for the Partnership and/or the Ardsley Accounts where
the market cannot absorb the sale of the combined positions; and (3) the
determination that a particular investment is warranted only if hedged with an
option or other instrument and there is a limited availability of such options
or other instruments. In particular, the Partnership may be legally restricted
from entering into a "joint transaction" (as defined in the 1940 Act) with the
Ardsley Accounts with respect to the securities of an issuer without first
obtaining exemptive relief from the SEC. (See "CONFLICTS OF INTEREST - Other
Matters".)
Each of the Manager (including its members and their respective principals
and employees) and the Ardsley Managers may buy and sell securities or other
investments for their own accounts and may have actual or potential conflicts
of interest with respect to investments made on behalf of the Partnership. As
a result of differing trading and investment strategies or constraints,
positions may be taken for the Manager (or any of its members and their
respective principals and employees) or the Ardsley Managers that are the same,
different or made at a different time than positions taken for the Partnership.
In order to mitigate the possibility that the Partnership will be adversely
affected by such personal trading, the Partnership and the Manager have each
adopted a Code of Ethics in compliance with Section 17(j) of the 1940 Act that
restricts securities trading in the personal accounts of investment
professionals and others who normally come into possession of information
regarding the Partnership's portfolio transactions.
OTHER MATTERS
The Manager and its members will not buy securities or other property
from, or sell securities or other property to, the Partnership. However, the
Partnership may effect certain principal transactions in securities with one or
more Ardsley Accounts. Such transactions would be made in circumstances where
the Manager has determined it would be appropriate for the
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<PAGE> 49
Partnership to purchase and an Ardsley Account to sell, or the Partnership to
sell and an Ardsley Account to purchase, the same security or instrument on the
same day. All such purchases and sales would be made pursuant to procedures
that the Partnership has adopted under Rule 17a-7 under the 1940 Act. Among
other things, those procedures are intended to ensure that (1) each such
transaction will be effected for cash consideration at the current market price
of the particular securities, (2) no such transaction will involve restricted
securities or securities for which market quotations are not readily available
and (3) no brokerage commissions, fees (except for customary transfer fees) or
other remuneration will be paid in connection with any such transaction.
Future investment activities of Opco (including its affiliates) or Ardsley
(including its affiliates) and the principals, partners, directors, officers or
employees of the foregoing may give rise to additional conflicts of interest.
BROKERAGE
In selecting brokers to effect portfolio transactions for the Partnership,
the Manager considers such factors as price, the ability of the brokers to
effect the transactions, the brokers' facilities, reliability and financial
responsibility and any research products or services provided by such brokers.
Accordingly, if the Manager determines in good faith that the amount of
commissions charged by a broker is reasonable in relation to the value of the
brokerage and research products or services provided by such broker, the
Partnership may pay commissions to such broker in an amount greater than the
amount another firm might charge. Research products or services provided may
include research reports on particular industries and companies, economic
surveys and analyses, recommendations as to specific securities, and other
products or services (e.g., quotation equipment and computer related costs and
expenses) providing lawful and appropriate assistance to the Manager in the
performance of their overall responsibilities to accounts as to which it
exercises investment discretion. Research and services received by the Manager
may be used by the Ardsley Managers in managing, and may benefit, the Ardsley
Accounts. Where a product or service that is obtained with commission dollars
provides both research and non-research assistance to the Manager, the Manager
makes a reasonable allocation of the cost which may be paid for with commission
dollars.
The Manager will consider the amount and nature of research services
provided by brokers as well as the extent to which such services are relied
upon, and attempt to allocate a portion of the brokerage business to the
Partnership on the basis of that consideration. In addition, brokers sometimes
suggest a level of business they would like to receive in return for the
various services they provide. Actual brokerage business received by any
broker may be less than the suggested allocations, but can (and often does)
exceed the suggestions, because total brokerage is allocated on the basis of
all the considerations described above. A broker is not excluded from
receiving business because it has not been identified as providing research
services. Not all of the investment information received from other brokers
may be used by the Manager in connection with the Partnership. Nonetheless,
the Manager believes that such investment information provides the Partnership
with benefits by supplementing the research otherwise available to the
Partnership.
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<PAGE> 50
In view of the fact that the Partnership's investment program includes
trading as well as investments, short-term market considerations are frequently
involved and the Manager believes that the turnover of the Partnership's
portfolio will be substantially higher than the turnover rates of certain other
private investment companies and many other registered investment companies,
resulting in brokerage expenses that may exceed those of most investment
companies of comparable size. A high turnover rate may also result in the
realization of capital gains, including short-term gains which will be taxable
to the Limited Partners as ordinary income. The Partnership anticipates that
its portfolio turnover rate will not exceed 500%.
The Partnership may execute portfolio brokerage transactions through Opco
or its affiliates. All such transactions will be effected pursuant to
procedures that the Partnership has adopted under Section 17(e) of the 1940
Act. Among other things, those procedures provide that when acting as broker
for the Partnership in connection with the sale of securities to or by the
Partnership, Opco and its affiliates may not receive any compensation exceeding
the following limits: (1) if the sale is effected on a securities exchange,
the compensation may not exceed the "usual and customary broker's commission"
(as defined in Rule 17e-1 under the 1940 Act); (2) if the sale is effected in
connection with a secondary distribution of securities, the compensation cannot
exceed 2% of the sale price; and (3) the compensation for sales otherwise
effected cannot exceed 1% of the sales price. Rule 17e-1 defines a "usual and
customary broker's commission" as one that is fair compared to the commission
received by other brokers in connection with comparable transactions involving
similar securities being purchased or sold on an exchange during a comparable
period of time.
FEES AND EXPENSES
Opco provides certain management and administrative services to the
Partnership, including, among other things, providing office space and other
support services to the Partnership. In consideration for such services, the
Partnership will pay Opco a monthly fee of 0.08333% (1% on an annualized basis)
of the Partnership's net assets, excluding assets attributable to the Manager's
capital account (the "Opco Fee"). Net assets means the total value of all
assets of the Partnership, less an amount equal to all accrued debts,
liabilities and obligations of the Partnership, calculated before giving effect
to any repurchases of interests. The Opco Fee will be computed based on the
net assets of the Partnership as of the start of business on the first business
day of each month, after adjustment for any subscriptions effective on such
date, and will be due and payable in arrears within five business days after
the end of such month. The Opco Fee will be charged in each fiscal period to
the capital accounts of all Limited Partners in proportion to their capital
accounts at the beginning of such fiscal period. A portion of the Opco Fee
will be paid by Opco to Ardsley.
PFPC Inc. provides administration, accounting and investor services to the
Partnership, which are in addition to the services provided by Opco to the
Partnership, as described above. In consideration for such services, the
Partnership will pay PFPC Inc. a fee (the "PFPC Fee") that is not anticipated
to exceed 0.20% (annualized) of the Partnership's net assets (as defined
above), plus reimbursement of certain out-of-pocket expenses.
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In addition, the capital accounts of Limited Partners may be subject to an
Incentive Allocation depending upon the investment performance of the
Partnership. (See "CAPITAL - Incentive Allocation".)
The Partnership will bear all expenses incurred in the business of the
Partnership other than those specifically required to be borne by Opco.
Expenses to be borne by the Partnership include, but are not limited to, the
following:
- all costs and expenses directly related to portfolio
transactions and positions for the Partnership's account, including,
but not limited to, brokerage commissions, research fees, interest
and commitment fees on loans and debit balances, borrowing charges
on securities sold short, dividends on securities sold but not yet
purchased, custodial fees, transfer taxes and premiums, taxes
withheld on foreign dividends and indirect expenses from investments
in investment funds;
- expenses incurred in obtaining research and other information
or systems utilized for portfolio management purposes by the
Manager, including the costs of publication subscriptions or other
news services, statistics and pricing services, service contracts
for quotation equipment and related hardware and software;
- all costs and expenses associated with the organization of
the Partnership and certain offering costs and the costs of
compliance with any applicable federal or state laws;
- the costs and expenses of holding any meetings of any
Partners that are regularly scheduled, permitted or required to be
held under the terms of the Partnership Agreement, the 1940 Act or
other applicable law;
- fees and disbursements of any attorneys, accountants,
auditors and other consultants and professionals engaged on behalf
of the Partnership;
- the Opco Fee and the fees of custodians and persons (such as
PFPC Inc.) providing administrative services to the Partnership;
- the costs of a fidelity bond and any liability insurance
obtained on behalf of the Partnership or its General Partners; and
- such other types of expenses as may be approved from time to
time by the Individual General Partners.
The Manager will be reimbursed by the Partnership for any of the above expenses
that it pays on behalf of the Partnership.
The Partnership's organizational expenses are estimated at $500,000, and
the Partnership will also bear certain offering expenses not to exceed $50,000.
Organizational expenses will be
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amortized by the Partnership over 60 months from the date the Partnership
commences operations. Offering costs cannot be deducted by the Partnership or
the Partners.
CAPITAL ACCOUNTS AND ALLOCATIONS
CAPITAL ACCOUNTS
The Partnership will maintain a separate capital account for each Partner,
which will have an opening balance equal to such Partner's initial contribution
to the capital of the Partnership. Each Partner's capital account will be
increased by the sum of the amount of cash and the value of any securities
constituting additional contributions by such Partner to the capital of the
Partnership, plus any amounts credited to such Partner's capital account as
described below. Similarly, each Partner's capital account will be reduced by
the sum of the amount of any repurchase by the Partnership of the interest, or
portion thereof, of such Partner, plus the amount of any distributions to such
Partner which are not reinvested, plus any amounts debited against such
Partner's capital account as described below. To the extent that any debits
would reduce the balance of the capital account of any Limited Partner below
zero, that portion of any such debits will instead be allocated to the capital
account of the Manager; any subsequent credits that would otherwise be
allocable to the capital account of any such Limited Partner will instead be
allocated to the capital account of the Manager in such amounts as are
necessary to offset all previous debits attributable to such Limited Partner.
Capital accounts of Partners are adjusted as of the close of business on
the last day of each fiscal period. Fiscal periods begin on the day after the
last day of the preceding fiscal period and end at the close of business on (1)
the last day of each year, (2) the day preceding the date on which a
contribution to the capital of the Partnership is made, (3) the day on which
the Partnership repurchases any interest or portion of an interest of any
Partner, or (4) the day on which any amount is credited to or debited from the
capital account of any Partner other than an amount to be credited to or
debited from the capital accounts of all Partners in accordance with their
respective partnership percentages. A partnership percentage will be
determined for each Partner as of the start of each fiscal period by dividing
the balance of such Partner's capital account as of the commencement of such
date by the sum of the balances of all capital accounts of all Partners as of
the commencement of such date.
ALLOCATION OF NET PROFITS AND NET LOSS
Net profits or net losses of the Partnership for each fiscal period will
be allocated among and credited to or debited against the capital accounts of
all Partners as of the last day of each fiscal period in accordance with
Partners' respective partnership percentages for such fiscal period. Net
profits or net losses will be measured as the net change in the value of the
net assets of the Partnership (including any net change in unrealized
appreciation or depreciation of investments and realized income and gains or
losses and expenses during a fiscal period), before giving effect to any
repurchases by the Partnership of interests or portions thereof, and excluding
the amount of any items to be allocated among the capital accounts of the
Partners other than in accordance with the Partners' respective partnership
percentages.
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Allocations for Federal income tax purposes generally will be made among
the Partners so as to reflect equitably amounts credited or debited to each
Partner's capital account for the current and prior fiscal years.
INCENTIVE ALLOCATION
So long as the Manager provides Advice and Management to the Partnership,
the Manager will be entitled to an incentive allocation (the "Incentive
Allocation"), charged to the capital account of each Limited Partner as of the
last day of each "allocation period," of 20% of the amount by which any
"allocated gain" during an "allocation period" exceeds the positive balance in
such Limited Partner's "loss recovery account". Such Incentive Allocation will
be credited to the capital account of the Manager.
For purposes of calculating the Incentive Allocation, "allocated gain"
means the excess of the balance of such Limited Partner's capital account at
the end of an "allocation period" (after giving effect to allocations other
than the Incentive Allocation, but before giving effect to repurchases of
interests by the Partnership or debits to such capital account to reflect any
item not chargeable ratably to all Partners), over the balance of such Limited
Partner's capital account at the start of such "allocation period".
Consequently, any Incentive Allocation to be credited to the Manager will be
increased by a portion of the amount of any net unrealized appreciation, as
well as net realized gains, allocable to a Limited Partner.
An Incentive Allocation will be charged only with respect to any
"allocated gain" in excess of the positive balance of a "loss recovery account"
maintained for each Limited Partner. A "loss recovery account" is a memorandum
account maintained by the Partnership for each Limited Partner, which has an
initial balance of zero and is (1) increased after the close of each
"allocation period" by the amount of any negative performance for such Limited
Partner during such "allocation period," and (2) decreased (but not below zero)
after the close of each "allocation period" by the amount of any allocated gain
for such Limited Partner during such "allocation period". Any positive balance
in a Limited Partner's "loss recovery account" would be reduced as the result
of a repurchase or certain transfers with respect to such Limited Partner's
interest in the Partnership in proportion to the reduction of such Limited
Partner's capital account.
An "allocation period" as to each Limited Partner is a period commencing
on the admission of such Limited Partner to the Partnership and ending at the
close of business on the last day of the twelfth complete calendar month after
such admission, and thereafter is each period commencing as of the day
following the last day of the preceding allocation period with respect to any
such Limited Partner and ending as of the close of business on the first to
occur of (1) the last day of a fiscal year of the Partnership, (2) the day as
of which the Partnership repurchases the entire interest of such Limited
Partner, (3) the day as of which the Partnership admits as a substitute Limited
Partner a person to whom the entire interest of such Limited Partner has been
transferred or (4) the day as of which the authority of the Manager to provide
Advice and Management is terminated. The measurement of any Incentive
Allocation for an "allocation period" must take into account any negative
performance from a prior allocation period to the extent reflected in the "loss
recovery account". Therefore, the Incentive Allocation for any allocation
period after the initial twelve-
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month period in effect is a reflection of the extent to which cumulative
performance achieved with respect to a Limited Partner's account since such
Partner's admission to the Partnership exceeds the highest previous level of
performance achieved through the close of any prior allocation period. If any
subsequent allocation period is less than twelve calendar months, the Incentive
Allocation for such period will be computed over the period commencing at the
start of the last allocation period which commenced more than twelve calendar
months previously and ending at the end of the current allocation period, with
appropriate adjustment for any Incentive Allocation made with respect to the
prior allocation periods.
Within 30 days of each allocation period with respect to each Limited
Partner, and subject to certain limitations, the Manager may withdraw up to 98%
of the Incentive Allocation (computed on the basis of unaudited data) that was
credited to the Manager's capital account and debited from such Limited
Partner's capital account with respect to such allocation period. The
Partnership will pay the balance (subject to audit adjustments) within 30 days
after the completion of the audit of the Partnership's books.
ALLOCATION OF SPECIAL ITEMS - CERTAIN WITHHOLDING TAXES AND OTHER EXPENDITURES
Withholding taxes or other tax obligations incurred by the Partnership
which are attributable to any Partner will be debited against the capital
account of such Partner as of the close of the fiscal period during which the
Partnership paid such obligation, and any amounts then or thereafter
distributable to such Partner will be reduced by the amount of such taxes. If
the amount of such taxes is greater than any such distributable amounts, then
the Partner and any successor to such Partner's interest is required to pay to
the Partnership as a contribution to the capital of the Partnership, upon
demand of the Partnership, the amount of such excess. The Partnership is not
obligated to apply for or obtain a reduction of or exemption from withholding
tax on behalf of any Partner that may be eligible for such reduction or
exemption, although in the event that the Partnership determines that a Partner
is eligible for a refund of any withholding tax, it may, at the request and
expense of such Partner, assist such Partner in applying for such refund.
Generally, any expenditures payable by the Partnership, to the extent paid
or withheld on behalf of, or by reason of particular circumstances applicable
to, one or more, but fewer than all of the Partners, will be charged to only
those Partners on whose behalf such payments are made or whose particular
circumstances gave rise to such payments. Such charges shall be debited to the
capital accounts of such Partners as of the close of the fiscal period during
which any such items were paid or accrued by the Partnership.
RESERVES
Appropriate reserves may be created, accrued and charged against net
assets and proportionately against the capital accounts of the Partners for
contingent liabilities as of the date any such contingent liabilities become
known to the Partnership. Such reserves will be in such amounts (subject to
increase or reduction) which the Partnership may deem necessary or appropriate.
The amount of any such reserve (or any increase or decrease therein) will be
proportionately charged or credited, as appropriate, to the capital accounts of
those investors who are Partners at the time when such reserve is created,
increased or decreased, as the case may be;
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provided, however, that if any such reserve (or any increase or decrease
therein) exceeds the lesser of $500,000 or 1% of the aggregate value of the
capital accounts of all such Partners, the amount of such reserve, increase, or
decrease shall instead be charged or credited to those investors who were
Partners at the time, as determined by the Partnership, of the act or omission
giving rise to the contingent liability for which the reserve was established,
increased or decreased in proportion to their capital accounts at that time.
NET ASSET VALUATION
Net asset valuations will be determined by or at the direction of the
Manager as of the close of business at the end of any fiscal period in
accordance with the valuation principles set forth below or as may be
determined from time to time pursuant to policies established by the Individual
General Partners.
Securities traded on a securities exchange will be valued at their last
sale prices as of 4:00 p.m. New York time on the exchanges where such
securities are primarily traded. Securities traded in the over-the-counter
market and listed securities for which no sales are reported on a particular
day will be valued at their bid prices for securities held long and at their
ask prices for securities held short (or for debt securities, the yield
equivalents thereof) obtained from one or more dealers making markets for such
securities. If market quotations are not readily available, such securities
will be valued at fair value as determined in good faith by, or under the
supervision of, the Individual General Partners. Debt securities will be
valued in accordance with the procedures described above, which with respect to
such securities may include the use of valuations furnished by a pricing
service which employs a matrix to determine valuations for normal institutional
size trading units. The Individual General Partners also will periodically
monitor the reasonableness of valuations provided by any such pricing service.
Debt securities with remaining maturities of 60 days or less will, absent
unusual circumstances, be valued at amortized cost, so long as such valuation
is determined by the Individual General Partners to represent fair value.
Futures contracts and options thereon, which are traded on commodities
exchanges, are valued at their settlement value as of the close of such
exchanges. All assets and liabilities initially expressed in foreign
currencies will be converted into U.S. dollars at the mean between the bid and
offer prices of such currencies against U.S. dollars last quoted by a major
bank selected by the Partnership's custodian.
Trading in foreign securities generally is completed, and the values of
such securities are determined, prior to the close of the NYSE. Foreign
currency exchange rates are also generally determined prior to the primary
close of the NYSE. On occasion, the values of such securities and such
exchange rates may be affected by events occurring between the time as of which
determination of such values or such exchange rates are made and the primary
close of the NYSE. When such events materially affect the values of securities
held by the Partnership or its liabilities, such securities and liabilities
will be valued at fair value as determined in good faith by, or under the
supervision of, the Individual General Partners.
Prospective investors should be aware that situations involving
uncertainties as to the valuation of portfolio positions could have an adverse
effect on the Partnership's net assets if the Individual General Partners'
judgments regarding appropriate valuations should prove incorrect.
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SUBSCRIPTION FOR INTERESTS
SUBSCRIPTION TERMS
Both initial and additional interests in the Partnership may be accepted
from eligible investors (as described below) at such times as the Manager may
determine on the terms set forth below. The Partnership may, in its
discretion, suspend subscriptions for interests at any time or permit
subscriptions on a more frequent basis. The Partnership reserves the right to
reject any subscription for interests in the Partnership. The minimum required
initial contribution to the capital of the Partnership from each investor is
$150,000, and the minimum additional investment in the Partnership is $25,000.
The initial closing date for subscriptions of interests in the Partnership is
August 20, 1996. The Manager, in its sole discretion, may postpone the closing
date for up to 30 days.
Except as otherwise permitted by the Partnership, initial and any
additional contributions to the capital of the Partnership by any Partner will
be payable in cash, and all contributions must be transmitted by such time and
in such manner as is specified in the subscription documents of the
Partnership. Initial and any additional contributions to the capital of the
Partnership will be payable in one installment and will be due prior to the
proposed acceptance of the contribution, although the Partnership may accept,
in its discretion, a subscription prior to its receipt of cleared funds.
Each new Limited Partner will be obligated to agree to be bound by all of
the terms of the Partnership Agreement. Each potential investor will also be
obligated to represent and warrant in a subscription agreement, among other
things, that such investor is purchasing an interest for its own account, and
not with a view to the distribution, assignment, transfer or other disposition
of such interest.
If and when the Partnership determines to accept securities as a
contribution to the capital of the Partnership, the Partnership will charge
each Partner making such contribution an amount determined by the Individual
General Partners and not exceeding 2% of the value of such contribution in
order to reimburse the Partnership for any costs it incurs in liquidating and
accepting such securities. Any such charge will be due and payable by the
contributing Partner in full at the time the contribution to the capital of the
Partnership to which such charge relates is due.
ELIGIBLE INVESTORS
Each prospective investor will be required to certify that the interest
subscribed for is being acquired directly or indirectly for the account of an
"accredited investor" as defined in Regulation D under the 1933 Act, and that
such investor (as well as each of the investor's beneficial owners under
certain circumstances) has a net worth immediately prior to the time of
subscription of at least $1 million. Existing Limited Partners who subscribe
for additional interests in the Partnership will be required to represent that
the Limited Partner meets the foregoing eligibility criteria at the time of the
additional subscription. The relevant investor qualifications will be set
forth in a subscription agreement to be provided to prospective investors,
which must be completed by each prospective investor. Prospective investors
may also be required to demonstrate their qualification under the eligibility
standards applicable under state securities laws.
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MANAGER'S INVESTMENT IN THE PARTNERSHIP
The Manager is required by the Partnership Agreement to contribute amounts
to the Partnership sufficient to maintain its capital account balance at a
level that will result in its partnership percentage being not less than 1%.
If total contributions to the Partnership and total capital account balances
exceed $50 million, the Manager may maintain a capital account balance that is
less than the amount specified in the preceding sentence, provided that such
balance shall not be less than $500,000, and provided further that such balance
shall not be less than an amount which results in the Manager's "partnership
percentage" being equal to the greater of (a) 1% divided by the ratio which
total contributions to the capital of the Partnership from all Partners bears
to $50 million, and (b) 0.2%.
REDEMPTIONS, REPURCHASES OF
INTERESTS AND TRANSFERS
NO RIGHT OF REDEMPTION
No Partner or other person holding an interest or a portion of an interest
will have the right to require the Partnership to redeem such interest or
portion thereof. There is no public market for interests in the Partnership,
and none is expected to develop. Consequently, investors may not be able to
liquidate their investment other than as a result of repurchases of interests
by the Partnership, as described below.
REPURCHASES OF INTERESTS
The Individual General Partners may, from time to time and in
their complete and exclusive discretion, determine to direct the Manager to
cause the Partnership to repurchase interests or portions thereof from Partners
pursuant to written tenders by Partners on such terms and conditions as they
may determine. In determining whether the Partnership should repurchase
interests or portions thereof from Partners pursuant to written tenders, the
Individual General Partners will consider the recommendation of the Manager.
The Manager expects that generally it will recommend to the Individual General
Partners that the Partnership repurchase interests from Partners once in each
year (other than in 1996) effective as of the end of each such year. The
Individual General Partners will also consider the following factors in making
such determination:
- whether any Partners have requested to tender interests or
portions thereof to the Partnership;
- the liquidity of the Partnership's assets;
- the investment plans and working capital requirements of the
Partnership;
- the relative economies of scale with respect to the size of the
Partnership;
- the history of the Partnership in repurchasing interests or
portions thereof;
- the economic condition of the securities markets; and
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- the anticipated tax consequences of any proposed repurchases
of interests or portions thereof.
The Individual General Partners will determine that the Partnership
repurchase interests or portions thereof from Partners pursuant to written
tenders only on such terms as they determine to be fair to the Partnership and
to all Partners or persons holding interests acquired from Partners, or to or
one or more classes of Partners, as applicable.
When the Individual General Partners determine that the Partnership shall
repurchase interests in the Partnership or portions thereof, notice will be
provided to Partners describing the terms thereof, containing information
Partners should consider in deciding whether to participate in such repurchase
opportunity and containing information on how to participate. Partners who are
deciding whether to tender their interests or portions thereof during the
period that a repurchase offer is open may ascertain the net asset value of
their interest in the Partnership from the Manager during such period.
The Partnership Agreement provides that the Partnership shall be dissolved
if any Limited Partner that has submitted a written request to tender its
entire interest for repurchase by the Partnership has not been permitted to do
so for a period of two years.
Repurchases of interests or portions thereof from Partners by the
Partnership may be made, in the discretion of the Manager, in part or in whole
for cash or for securities of equivalent value and shall be effective after
receipt by the Partnership of all eligible written tenders of interests or
portions thereof from Partners. The amount due to any Partner whose interest
or portion thereof is repurchased shall be equal to the value of such Partner's
capital account or portion thereof based on the net asset value of the
Partnership's assets as of the effective date of repurchase, after giving
effect to all allocations to be made to such Partner's capital account as of
such date. Payment of the purchase price pursuant to a tender of interests
will consist of, first, cash and/or marketable securities traded on an
established securities exchange (valued at net asset value in accordance with
the Partnership Agreement and distributed to tendering Partners on a pari passu
basis) in an aggregate amount equal to at least 95% of the estimated unaudited
net asset value of the interests tendered, determined as of the expiration date
of the tender offer (the "expiration date"). Payment of such amount will be
made promptly after the expiration date (the "cash payment"). Generally,
payment pursuant to such a tender will also consist of a promissory note that
neither bears interest nor is transferable (the "note") entitling the holder
thereof to a contingent payment equal to the excess, if any, of (a) the net
asset value of the interests tendered as of the expiration date, determined
based on the audited financial statements of the Partnership, over (b) the cash
payment. The note would be delivered to the tendering Partner promptly after
the expiration date and would be payable in cash promptly after completion of
the audit of the financial statements of the Partnership. The audit of the
Partnership's financial statements will be completed within 60 days after the
end of each year. The Partnership does not impose any charges on a repurchase
of interests or portion of interests in the Partnership.
The Partnership intends to maintain daily a segregated custodial account
containing cash, U.S. Government securities or other liquid securities in an
amount equal to the aggregate amount of the notes. Payment for repurchased
interests may require the Partnership to liquidate portfolio holdings earlier
than the Manager would otherwise liquidate such holdings, potentially resulting
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in losses, and may increase the Partnership's portfolio turnover. The Manager
intends to take measures to attempt to avoid or minimize such potential losses
and turnover.
A Limited Partner who tenders for repurchase any amount of the interest of
such Partner in the Partnership prior to having been a Limited Partner for
twelve consecutive months will be required to maintain a capital account
balance equal to the greater of (1) $150,000 and (2) the amount of Incentive
Allocation that would be debited from such Partner's capital account if the
date of repurchase were a date on which an Incentive Allocation would otherwise
be made.
The Partnership may repurchase an interest in the Partnership or portion
thereof of a Partner or any person acquiring an interest or portion thereof
from or through a Partner in the event that:
- such an interest or portion thereof has been transferred or
such an interest or portion thereof has vested in any person by
operation of law as the result of the death, dissolution, bankruptcy
or incompetency of a Partner;
- ownership of such an interest by a Partner or other person
will cause the Partnership to be in violation of, or require
registration of any interest or portion thereof under, or subject
the Partnership to additional registration or regulation under, the
securities, commodities or other laws of the United States or any
other relevant jurisdiction;
- continued ownership of such an interest may be harmful or
injurious to the business or reputation of the Partnership, the
Individual General Partners or the Manager, or may subject the
Partnership or any Partners to an undue risk of adverse tax or other
fiscal consequences;
- any of the representations and warranties made by a Partner
in connection with the acquisition of an interest in the Partnership
or portion thereof was not true when made or has ceased to be true;
or
- it would be in the best interests of the Partnership for the
Partnership to repurchase such an interest or portion thereof.
The Manager is entitled to tender for repurchase all or a portion of its
interest in the Partnership only if the Manager maintains the requisite minimum
capital account balance described previously, or if, in the opinion of legal
counsel to the Partnership, such repurchase would not jeopardize the
classification of the Partnership as a partnership for U.S. federal income tax
purposes. The Manager is also entitled to tender its interest to the
Partnership in certain circumstances described in the Partnership Agreement
where the status of the Manager is terminated or the authority of the Manager
to provide Advice and Management is terminated.
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TRANSFERS OF INTERESTS
No person shall become a substituted Limited Partner without the written
consent of the Manager, which consent may be withheld for any reason in the
Manager's sole and absolute discretion. Limited Partner interests may be
transferred only (i) by operation of law pursuant to the death, bankruptcy,
insolvency or dissolution of a Limited Partner or (ii) with the written consent
of the Manager (which may be withheld in its sole and absolute discretion and
is expected to be granted, if at all, only under extenuating circumstances) in
connection with a transfer to a family trust or other entity that does not
result in a change of beneficial ownership. Notice to the Manager of any
proposed transfer must include evidence satisfactory to the Manager that the
proposed transfer is exempt from registration under the 1933 Act, that the
proposed transferee meets any requirements imposed by the Partnership with
respect to investor eligibility and suitability, including the requirement that
any investor (or investor's beneficial owners in certain circumstances) has a
net worth immediately prior to the time of subscription of at least $1 million,
and must be accompanied by a properly completed subscription agreement. The
Manager is not authorized under the Partnership Agreement to consent to a
transfer of an interest or portion thereof of a Limited Partner unless the
entire interest of the Limited Partner is transferred to a single transferee
and after such transfer the balance of the capital account of the transferee
(and any Partner transferring less than its entire interest) is not less than
$150,000.
Any transferee that acquires an interest or portion thereof in the
Partnership by operation of law as the result of the death, dissolution,
bankruptcy or incompetency of a Limited Partner or otherwise, shall be entitled
to the allocations and distributions allocable to the interest so acquired and
to transfer such interest in accordance with the terms of the Partnership
Agreement, but shall not be entitled to the other rights of a Limited Partner
unless and until such transferee becomes a substituted Limited Partner as
provided in the Partnership Agreement. If a Limited Partner transfers an
interest or portion thereof with the approval of the Manager, under the
policies established by the Individual General Partners, the Manager shall
promptly take all necessary actions so that each transferee or successor to
whom such interest or portion thereof is transferred is admitted to the
Partnership as a Limited Partner. Each Limited Partner and transferee must pay
all expenses, including attorneys' and accountants' fees, incurred by the
Partnership in connection with such transfer.
By subscribing for an interest in the Partnership, each Limited Partner
has agreed to indemnify and hold harmless the Partnership, the Individual
General Partners, the Manager, each other Limited Partner and any affiliate of
the foregoing against all losses, claims, damages, liabilities, costs and
expenses (including legal or other expenses incurred in investigating or
defending against any such losses, claims, damages, liabilities, costs and
expenses or any judgments, fines and amounts paid in settlement), joint or
several, to which such persons may become subject by reason of or arising from
any transfer made by such Limited Partner in violation of these provisions or
any misrepresentation made by such Limited Partner in connection with any such
transfer.
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The Manager may not transfer its interest as a General Partner except to a
person who has agreed to be bound by all of the terms of the Partnership
Agreement and, if the transfer would constitute an "assignment" within the
meaning of the 1940 Act, with the prior approval of (a) the Individual General
Partners (including a majority of the Independent General Partners) by vote
cast in person at a meeting called for such purpose, and (b) Partners holding a
majority of the total number of votes eligible to be cast by all Partners.
Individual General Partners may not transfer their interests as Individual
General Partners.
TAXATION
The following is a summary of certain aspects of the income taxation of
the Partnership and its Partners which should be considered by a prospective
Limited Partner. The Partnership has not sought a ruling from the Internal
Revenue Service (the "Service") or any other Federal, state or local agency
with respect to any of the tax issues affecting the Partnership, nor has it
obtained an opinion of counsel with respect to any Federal tax issues other
than the characterization of the Partnership as a partnership which is not a
"publicly traded partnership" for Federal income tax purposes.
This summary of certain aspects of the Federal income tax treatment of the
Partnership is based upon the Internal Revenue Code of 1986, as amended (the
"Code"), judicial decisions, Treasury Regulations (the "Regulations") and
rulings in existence on the date hereof, all of which are subject to change.
This summary does not discuss the impact of various proposals to amend the Code
which could change certain of the tax consequences of an investment in the
Partnership. This summary also does not discuss all of the tax consequences
that may be relevant to a particular investor or to certain investors subject
to special treatment under the Federal income tax laws, such as insurance
companies.
EACH PROSPECTIVE LIMITED PARTNER SHOULD CONSULT WITH ITS OWN TAX ADVISER
IN ORDER FULLY TO UNDERSTAND THE FEDERAL, STATE, LOCAL AND FOREIGN INCOME TAX
CONSEQUENCES OF AN INVESTMENT IN THE PARTNERSHIP.
In addition to the particular matters set forth in this section,
tax-exempt organizations should review carefully those sections of this
Confidential Memorandum regarding liquidity and other financial matters to
ascertain whether the investment objective of the Partnership is consistent
with their overall investment plans. Each prospective tax-exempt Limited
Partner is urged to consult its own counsel regarding the acquisition of
Interests.
TAX TREATMENT OF PARTNERSHIP OPERATIONS
CLASSIFICATION OF THE PARTNERSHIP. Prior to the date the Partnership
commences operations, counsel to the Partnership, Schulte Roth & Zabel, will
render its opinion that under the provisions of the Code and the Regulations,
as in effect on the date of the opinion, as well as under the relevant
authority interpreting the Code and the Regulations, and based upon certain
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representations of the General Partners, the Partnership will be treated as a
partnership for Federal income tax purposes and not as an association taxable
as a corporation.
Under Section 7704 of the Code, "publicly traded partnerships" are
generally treated as corporations for Federal income tax purposes. A publicly
traded partnership is any partnership the interests in which are traded on an
established securities market or which are readily tradable on a secondary
market (or the substantial equivalent thereof). Interests in the Partnership
will not be traded on an established securities market. Regulations (the
"Regulations") concerning the classification of partnerships as publicly traded
partnerships provide certain safe harbors under which interests in a
partnership will not be considered readily tradable on a secondary market (or
the substantial equivalent thereof). The Partnership will not be eligible for
any of those safe harbors. In particular, it will not qualify under the
private placement safe harbor set forth in the Regulations if, as is
anticipated, the Partnership has more than 100 Partners.
The Regulations specifically provide that the fact that a partnership does
not qualify for the safe harbors is disregarded for purposes of determining
whether interests in a partnership are readily tradable on a secondary market
(or the substantial equivalent thereof). Rather, in this event the
partnership's status is examined under a general facts and circumstances test
set forth in the Regulations. Prior to the date the Partnership commences
operations, Schulte Roth & Zabel will render its opinion that, under this
"facts and circumstances" test, and based upon the anticipated operations of
the Partnership as well as the legislative history to Section 7704 and the text
of the Regulations, the interests in the Partnership will not be readily
tradable on a secondary market (or the substantial equivalent thereof) and,
therefore, that the Partnership will not be treated as a publicly traded
partnership taxable as a corporation.
Neither of the opinions of counsel described above is binding on the
Service or the Courts. If it were determined that the Partnership should be
treated as an association or a publicly traded partnership taxable as a
corporation for Federal income tax purposes (as a result of a successful
challenge to such opinions by the Service, changes in the Code, the Regulations
or judicial interpretations thereof, a material adverse change in facts, or
otherwise), the taxable income of the Partnership would be subject to corporate
income tax when recognized by the Partnership; distributions of such income,
other than in certain redemptions of Interests, would be treated as dividend
income when received by the Partners to the extent of the current or
accumulated earnings and profits of the Partnership; and Partners would not be
entitled to report profits or losses realized by the Partnership.
As a partnership, the Partnership is not itself subject to Federal income
tax. The Partnership files an annual partnership information return with the
Service which reports the results of operations. Each Partner is required to
report separately on its income tax return its distributive share of the
Partnership's net long-term capital gain or loss, net short-term capital gain
or loss and all other items of ordinary income or loss. Each Partner is taxed
on its distributive share of the Partnership's taxable income and gain
regardless of whether it has received or will receive a distribution from the
Partnership.
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ALLOCATION OF PROFITS AND LOSSES. Under the Partnership Agreement, the
Partnership's net capital appreciation or net capital depreciation for each
accounting period is allocated among the Partners and to their capital accounts
without regard to the amount of income or loss actually recognized by the
Partnership for Federal income tax purposes. The Partnership Agreement provides
that items of income, deduction, gain, loss or credit actually recognized by
the Partnership for each fiscal year generally are to be allocated for income
tax purposes among the Partners pursuant to Regulations issued under Sections
704(b) and 704(c) of the Code, based upon amounts of the Partnership's net
capital appreciation or net capital depreciation allocated to each Partner's
capital account for the current and prior fiscal years.
A Limited Partner admitted to the Partnership other than as of January 1
of a fiscal year will be allocated its distributive share of Partnership tax
items at the end of its year of admission based on its pro rata share of the
Partnership's capital. Such allocation does not account for the possibility of
a subsequent reallocation in the following year to the Manager in respect of
the initial Incentive Allocation. The Manager, in its discretion, may attempt
to minimize any negative tax consequences which may result to a Partner from
the foregoing, including by utilizing special allocations of Partnership tax
items. However, there is no assurance that any such attempt will successfully
minimize any negative tax consequence resulting to a Partner from the initial
Incentive Allocation.
Under the Partnership Agreement, the Manager is permitted to, but may
choose not to, allocate specially an amount of the Partnership's taxable
capital gains to a withdrawing Limited Partner to the extent that the Partner's
capital account exceeds its Federal income tax basis in its partnership
interest. There can be no assurance that, if the Manager causes such a special
allocation to be made, the Service will accept such allocation. If such
allocation is successfully challenged by the Service, the Partnership's gains
allocable to the remaining Partners would be increased.
TAX ELECTIONS; RETURNS; TAX AUDITS. The Code provides for optional
adjustments to the basis of partnership property upon distributions of
partnership property to a partner and transfers of partnership interests
(including by reason of death) provided that a partnership election has been
made pursuant to Section 754. Under the Partnership Agreement, at the request
of a Partner, the Manager, in its sole discretion, may cause the Partnership to
make such an election. Any such election, once made, cannot be revoked without
the Service's consent. Because of the complexity and added expense involved in
making a Section 754 election, the Manager does not presently intend to make
such an election.
The Manager decides how to report the partnership items on the
Partnership's tax returns, and all Partners are required under the Code to
treat the items consistently on their own returns. In the event the income tax
returns of the Partnership are audited by the Service, the tax treatment of the
Partnership's income and deductions generally is determined at the partnership
level in a single proceeding rather than by individual audits of the Partners.
The Manager, designated as the "Tax Matters Partner", has considerable
authority to make decisions affecting the tax treatment and procedural rights
of all Partners. In addition, the Tax Matters Partner has the authority to
bind certain Partners to settlement agreements and the right on behalf of all
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Partners to extend the statute of limitations relating to the Partners' tax
liabilities with respect to Partnership items.
TAX CONSEQUENCES TO A WITHDRAWING PARTNER
Upon the withdrawal of a Limited Partner receiving a cash liquidating
distribution from the Partnership, generally, such Limited Partner will
recognize capital gain or loss to the extent of the difference between the
proceeds received by the withdrawing Limited Partner and such Partner's
adjusted tax basis in its partnership interest. Such capital gain or loss will
be short-term or long-term depending upon the Partner's holding period for its
interest in the Partnership. However, a withdrawing Limited Partner will
recognize ordinary income to the extent such Partner's allocable share of the
Partnership's "unrealized receivables" exceeds the Partner's basis in such
unrealized receivables (as determined pursuant to the Regulations). For these
purposes, accrued but untaxed market discount, if any, on securities held by
the Partnership will be treated as an unrealized receivable, with respect to
which a withdrawing Partner would recognize ordinary income. A Partner
receiving a cash nonliquidating distribution will recognize income in a similar
manner only to the extent that the amount of the distribution exceeds such
Partner's adjusted tax basis in its partnership interest.
As discussed above, the Partnership Agreement provides that the Manager
may specially allocate items of Partnership taxable capital gains (including
short-term capital gains) to a withdrawing Limited Partner to the extent its
liquidating distribution would otherwise exceed its adjusted tax basis in its
partnership interest. Such a special allocation may result in the withdrawing
Partner recognizing taxable income, which may include short-term gain, in the
Partner's last taxable year in the Partnership, thereby reducing the amount of
long-term capital gain recognized during the tax year in which it receives its
liquidating distribution upon withdrawal.
Distributions of property other than cash, whether in complete or partial
liquidation of a Limited Partner's interest in the Partnership, generally will
not result in the recognition of taxable income or loss to the Limited Partner
(except to the extent such distribution is treated as made in exchange for such
Limited Partner's share of the Partnership's unrealized receivables).(1)
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(1) It should be noted, however, that gain generally must be recognized
where the distribution consists of marketable securities unless the
distributing partnership is an "investment partnership" and the recipient
is an "eligible partner" as defined in Section 731(c) of the Code. While
there can be no assurance, the Manager anticipates that the Partnership
will qualify as an "investment partnership." Thus, if a Limited Partner is
an "eligible partner", which term should include a Limited Partner whose
sole contributions to the Partnership consisted of cash, the nonrecognition
rule described above should apply.
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TAX TREATMENT OF PARTNERSHIP INVESTMENTS
IN GENERAL. The Partnership expects to act as a trader or investor, and
not as a dealer, with respect to its securities transactions. A trader and an
investor are persons who buy and sell securities for their own accounts. A
dealer, on the other hand, is a person who purchases securities for resale to
customers rather than for investment or speculation. The Partnership intends
to take the position that its securities trading activity constitutes a trade
or business for Federal income tax purposes.
Generally, the gains and losses realized by a trader or investor on the
sale of securities are capital gains and losses. Thus, subject to the
treatment of certain currency exchange gains as ordinary income (see "TAXATION
- - Currency Fluctuations - 'Section 988' Gains or Losses") and certain other
transactions described below, the Partnership expects that its gains and losses
from its securities transactions typically will be capital gains and capital
losses. These capital gains and losses may be long-term or short-term
depending, in general, upon the length of time the Partnership maintains a
particular investment position and, in some cases, upon the nature of the
transaction. Property held for more than one year generally will be eligible
for long-term capital gain or loss treatment. The application of certain rules
relating to short sales, to so-called "straddle" and "wash sale" transactions
and to "Section 1256 contracts" may serve to alter the manner in which the
Partnership's holding period for a security is determined or may otherwise
affect the characterization as long-term or short-term, and also the timing of
the realization, of certain gains or losses. Moreover, the straddle rules and
short sale rules may require the capitalization of certain related expenses of
the Partnership.
The maximum ordinary income tax rate for individuals is 39.6% and the
maximum individual income tax rate for long-term capital gains is 28% (unless
the taxpayer elects to be taxed at ordinary rates - see "TAXATION - Limitation
on Deductibility of Interest"), although in either case the actual rate may be
higher due to the phase out of certain tax deductions and exemptions. The
excess of capital losses over capital gains may be offset against the ordinary
income of an individual taxpayer, subject to an annual deduction limitation of
$3,000. For corporate taxpayers, the maximum income tax rate is 35%. Capital
losses of a corporate taxpayer may be offset only against capital gains, but
unused capital losses may be carried back three years (subject to certain
limitations) and carried forward five years.
The Partnership may realize ordinary income from interest and dividends on
securities. The Partnership may hold debt obligations with "original issue
discount." In such case, the Partnership would be required to include amounts
in taxable income on a current basis even though receipt of such amounts may
occur in a subsequent year. The Partnership may also acquire debt obligations
with "market discount." Upon disposition of such an obligation, the
Partnership generally would be required to treat gain realized as interest
income to the extent of the market discount which accrued during the period the
debt obligation was held by the Partnership. Income or loss from transactions
involving derivative instruments, such as swap transactions, entered into by
the Partnership also may constitute ordinary income or loss.
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Moreover, gain recognized from certain "conversion transactions" will be
treated as ordinary income.(2)
CURRENCY FLUCTUATIONS - "SECTION 988" GAINS OR LOSSES. To the extent that
its investments are made in securities denominated in a foreign currency, gain
or loss realized by the Partnership frequently will be affected by the
fluctuation in the value of such foreign currencies relative to the value of
the dollar. Generally, gains or losses with respect to the Partnership's
investments in common stock of foreign issuers will be taxed as capital gains
or losses at the time of the disposition of such stock. However, under Section
988 of the Code, gains and losses of the Partnership on the acquisition and
disposition of foreign currency (e.g., the purchase of foreign currency and
subsequent use of the currency to acquire stock) will be treated as ordinary
income or loss. Moreover, under Section 988, gains or losses on disposition of
debt securities denominated in a foreign currency to the extent attributable to
fluctuation in the value of the foreign currency between the date of
acquisition of the debt security and the date of disposition will be treated as
ordinary income or loss. Similarly, gains or losses attributable to
fluctuations in exchange rates that occur between the time the Partnership
accrues interest or other receivables or accrues expenses or other liabilities
denominated in a foreign currency and the time the Partnership actually
collects such receivables or pays such liabilities may be treated as ordinary
income or ordinary loss.
As indicated above, the Partnership may acquire foreign currency forward
contracts, enter into foreign currency futures contracts and acquire put and
call options on foreign currencies. Generally, foreign currency regulated
futures contracts and option contracts that qualify as "Section 1256 contracts"
(see "TAXATION - Section 1256 Contracts"), will not be subject to ordinary
income or loss treatment under Section 988. However, if the Partnership
acquires futures currency contracts or option contracts that are not Section
1256 Contracts, or any forward currency contracts, any gain or loss realized by
the Partnership with respect to such instruments will be ordinary, unless (i)
the contract is a capital asset in the hands of the Partnership and is not a
part of a straddle transaction and (ii) the Partnership makes an election (by
the close of the day the transaction is entered into) to treat the gain or loss
attributable to such contract as capital gain or loss.
SECTION 1256 CONTRACTS. In the case of "Section 1256 Contracts," the Code
generally applies a "mark to market" system of taxing unrealized gains and
losses on such contracts and otherwise provides for special rules of taxation.
A Section 1256 Contract includes certain
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(2) Generally, a conversion transaction is one of several enumerated
transactions where substantially all of the taxpayer's return is
attributable to the time value of the net investment in the transaction.
The enumerated transactions are (i) the holding of any property (whether or
not actively traded) and entering into a contract to sell such property (or
substantially identical property) at a price determined in accordance with
such contract, but only if such property was acquired and such contract was
entered into on a substantially contemporaneous basis, (ii) certain
straddles, (iii) generally any other transaction that is marketed or sold
on the basis that it would have the economic characteristics of a loan but
the interest-like return would be taxed as capital gain or (iv) any other
transaction specified in Regulations.
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regulated futures contracts, certain foreign currency forward contracts, and
certain options contracts.
Under these rules, Section 1256 Contracts held by the Partnership at the
end of each taxable year of the Partnership are treated for Federal income tax
purposes as if they were sold by the Partnership for their fair market value on
the last business day of such taxable year. The net gain or loss, if any,
resulting from such deemed sales (known as "marking to market"), together with
any gain or loss resulting from actual sales of Section 1256 Contracts, must be
taken into account by the Partnership in computing its taxable income for such
year. If a Section 1256 Contract held by the Partnership at the end of a
taxable year is sold in the following year, the amount of any gain or loss
realized on such sale will be adjusted to reflect the gain or loss previously
taken into account under the "mark to market" rules.
Capital gains and losses from such Section 1256 Contracts generally are
characterized as short-term capital gains or losses to the extent of 40%
thereof and as long-term capital gains or losses to the extent of 60% thereof.
Such gains and losses will be taxed under the general rules described above.
Gains and losses from certain foreign currency transactions will be treated as
ordinary income and losses. (See "TAXATION - Currency Fluctuations - 'Section
988' Gains or Losses".)
MIXED STRADDLE ELECTION. The Code allows a taxpayer to elect to offset
gains and losses from positions which are part of a "mixed straddle." A "mixed
straddle" is any straddle in which one or more but not all positions are
Section 1256 Contracts.
Pursuant to Temporary Regulations, the Partnership may be eligible to
elect to establish one or more mixed straddle accounts for certain of its mixed
straddle trading positions. The mixed straddle account rules require a daily
"marking to market" of all open positions in the account and a daily netting of
gains and losses from positions in the account. At the end of a taxable year,
the annual net gains or losses from the mixed straddle account are recognized
for tax purposes. The application of the Temporary Regulations' mixed straddle
account rules is not entirely clear. Therefore, there is no assurance that a
mixed straddle account election by the Partnership will be accepted by the
Service.
SHORT SALES. Gain or loss from a short sale of property is generally
considered as capital gain or loss to the extent the property used to close the
short sale constitutes a capital asset in the Partnership's hands. Except with
respect to certain situations where the property used by the Partnership to
close a short sale has a long-term holding period on the date of the short
sale, special rules would generally treat the gains on short sales as
short-term capital gains. These rules may also terminate the running of the
holding period of "substantially identical property" held by the Partnership.
Moreover, a loss on a short sale will be treated as a long-term capital loss
if, on the date of the short sale, "substantially identical property" has been
held by the Partnership for more than one year.
EFFECT OF STRADDLE RULES ON PARTNERS' SECURITIES POSITIONS. The Service
may treat certain positions in securities held (directly or indirectly) by a
Partner and its indirect interest in similar securities held by the Partnership
as "straddles" for Federal income tax purposes. The
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application of the "straddle" rules in such a case could affect a Partner's
holding period for the securities involved and may defer the recognition of
losses with respect to such securities.
LIMITATION ON DEDUCTIBILITY OF INTEREST. For noncorporate taxpayers,
Section 163(d) of the Code limits the deduction for "investment interest"
(i.e., interest or short sale expenses for "indebtedness incurred or continued
to purchase or carry property held for investment"). Investment interest is
not deductible in the current year to the extent that it exceeds the taxpayer's
"investment income," consisting of net gain and ordinary income derived from
investments in the current year. For this purpose, any long-term capital gain
is excluded from investment income unless the taxpayer elects to pay tax on
such amount at ordinary income tax rates.
For purposes of this provision, the Partnership's activities will be
treated as giving rise to investment income for a Limited Partner, and the
investment interest limitation would apply to a noncorporate Limited Partner's
share of the interest and short sale expenses attributable to the Partnership's
operation. In such case, a noncorporate Limited Partner would be denied a
deduction for all or part of that portion of its distributive share of the
Partnership's ordinary losses attributable to interest and short sale expenses
unless it had sufficient investment income from all sources including the
Partnership. A Limited Partner that could not deduct losses currently as a
result of the application of Section 163(d) would be entitled to carry forward
such losses to future years, subject to the same limitation. The investment
interest limitation would also apply to interest paid by a noncorporate Limited
Partner on money borrowed to finance its investment in the Partnership.
Potential investors are advised to consult with their own tax advisers with
respect to the application of the investment interest limitation in their
particular tax situations.
DEDUCTIBILITY OF PARTNERSHIP INVESTMENT EXPENDITURES BY NONCORPORATE
PARTNERS. Investment expenses (e.g., investment advisory fees) of an
individual, trust or estate are deductible only to the extent they exceed 2% of
adjusted gross income.(3) In addition, the Code further restricts the ability
of an individual with an adjusted gross income in excess of a specified amount
(for 1996, $117,950 or $58,975 for a married person filing a separate return)
to deduct such investment expenses. Under such provision, investment expenses
in excess of 2% of adjusted gross income may only be deducted to the extent
such excess expenses (along with certain other itemized deductions) exceed the
lesser of (i) 3% of the excess of the individual's adjusted gross income over
the specified amount or (ii) 80% of the amount of certain itemized deductions
otherwise allowable for the taxable year. Moreover, such investment expenses
are
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(3) However, Section 67(e) of the Code provides that, in the case of a
trust or an estate, such limitation does not apply to deductions or costs
which are paid or incurred in connection with the administration of the
estate or trust and would not have been incurred if the property were not
held in such trust or estate. The Federal Court of Appeals for the Sixth
Circuit, reversing a Tax Court decision, has held that the investment
advisory fees incurred by a trust were exempt (under Section 67(e)) from
the 2% of adjusted gross income floor on deductibility. The Service,
however, has stated that it will not follow this decision outside of the
Sixth Circuit. Limited Partners that are trusts or estates should consult
their tax advisors as to the applicability of this case to the investment
expenses that are allocated to them.
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miscellaneous itemized deductions which are not deductible by a noncorporate
taxpayer in calculating its alternative minimum tax liability.
Pursuant to Temporary Regulations issued by the Treasury Department, these
limitations on deductibility should not apply to a noncorporate Limited
Partner's share of the expenses of the Partnership to the extent that the
Partnership is engaged, as it expects to be, in a trade or business within the
meaning of the Code. Although the Partnership intends to treat its expenses
and the Incentive Allocation (including the initial Incentive Allocation) to
the Manager as not being subject to the foregoing limitations on deductibility,
there can be no assurance that the Service may not treat such allocations and
expenses as investment expenses which are subject to the limitations.
The consequences of these limitations will vary depending upon the
particular tax situation of each taxpayer. Accordingly, noncorporate Limited
Partners should consult their tax advisers with respect to the application of
these limitations.
APPLICATION OF RULES FOR INCOME AND LOSSES FROM PASSIVE ACTIVITIES. The
Code restricts the deductibility of losses from a "passive activity" against
certain income which is not derived from a passive activity. This restriction
applies to individuals, personal service corporations and certain closely held
corporations.
Pursuant to Temporary Regulations issued by the Treasury Department,
income or loss from the Partnership's securities trading activity generally
will not constitute income or loss from a passive activity. Therefore, passive
losses from other sources generally could not be deducted against a Limited
Partner's share of income and gain from the Partnership.
FOREIGN TAXES
It is possible that certain dividends and interest received by the
Partnership from sources within foreign countries will be subject to
withholding taxes imposed by such countries. In addition, the Partnership may
also be subject to capital gains taxes in some of the foreign countries where
it purchases and sells securities. Tax treaties between certain countries and
the United States may reduce or eliminate such taxes. It is impossible to
predict the rate of foreign tax the Partnership will pay in advance since the
amount of the Partnership's assets to be invested in various countries is not
known.
The Partners will be informed by the Partnership as to their proportionate
share of the foreign taxes paid by the Partnership, which they will be required
to include in their income. The Partners generally will be entitled to claim
either a credit (subject, however, to various limitations on foreign tax
credits) or, if they itemize their deductions, a deduction (subject to the
limitations generally applicable to deductions) for their share of such foreign
taxes in computing their Federal income taxes. A Partner that is tax exempt
will not ordinarily benefit from such credit or deduction.
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UNRELATED BUSINESS TAXABLE INCOME
Generally, an exempt organization is exempt from Federal income tax on
certain categories of income, such as dividends, interest, capital gains and
similar income realized from securities investment or trading activity, whether
realized by the organization directly or indirectly through a partnership in
which it is a partner.(4) This type of income is exempt even if it is realized
from securities trading activity which constitutes a trade or business.
This general exemption from tax does not apply to the "unrelated business
taxable income" ("UBTI") of an exempt organization. UBTI includes "unrelated
debt-financed income," which generally consists of (i) income derived by an
exempt organization (directly or through a partnership) from income-producing
property with respect to which there is "acquisition indebtedness" at any time
during the taxable year, and (ii) gains derived by an exempt organization
(directly or through a partnership) from the disposition of property with
respect to which there is "acquisition indebtedness" at any time during the
twelve-month period ending with the date of such disposition.
The Partnership may incur "acquisition indebtedness" with respect to
certain of its transactions, such as the purchase of securities on margin. The
Partnership intends to engage in short sale transactions. Based upon a
published ruling issued by the Service which generally holds that income and
gain with respect to short sales of publicly traded stock does not constitute
income from debt financed property for purposes of computing UBTI, the
Partnership will treat its short sales of securities as not involving
acquisition indebtedness and therefore not resulting in UBTI.(5) To the extent
the Partnership recognizes income (i.e., dividends and interest) from
securities with respect to which there is "acquisition indebtedness" during a
taxable year, the percentage of such income which will be treated as UBTI
generally will be based on the percentage which the "average acquisition
indebtedness" incurred with respect to such securities is of the "average
amount of the adjusted basis" of such securities during the taxable year.
To the extent the Partnership recognizes capital gain from securities with
respect to which there is "acquisition indebtedness" at any time during the
twelve-month period ending with the date of their disposition, the percentage
of such gain which will be treated as UBTI will be based on the percentage
which the highest amount of such "acquisition indebtedness" is of the "average
amount of the adjusted basis" of such securities during the taxable year. In
determining the unrelated debt-financed income of the Partnership, an allocable
portion of deductions directly
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(4) With certain exceptions, tax-exempt organizations which are private
foundations are subject to a 2% Federal excise tax on their "net investment
income." The rate of the excise tax for any taxable year may be reduced to
1% if the private foundation meets certain distribution requirements for
the taxable year. A private foundation will be required to make payments
of estimated tax with respect to this excise tax.
(5) Moreover, income realized by it from option writing and futures contract
transactions generally would not constitute UBTI.
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connected with the Partnership's debt-financed property is taken into account.
Thus, for instance, a percentage of capital losses from debt-financed
securities (based on the debt/basis percentage calculation described above)
would offset gains treated as UBTI.
Since the calculation of the Partnership's "unrelated debt-financed
income" is complex and will depend in large part on the amount of leverage used
by the Partnership from time to time.(6) it is impossible to predict what
percentage of the Partnership's income and gains will be treated as UBTI for a
Limited Partner which is an exempt organization. An exempt organization's
share of the income or gains of the Partnership which is treated as UBTI may
not be offset by losses of the exempt organization either from the Partnership
or otherwise, unless such losses are treated as attributable to an unrelated
trade or business (e.g., losses from securities for which there is acquisition
indebtedness).
To the extent that the Partnership generates UBTI, the applicable Federal
tax rate for such a Limited Partner generally would be either the corporate or
trust tax rate depending upon the nature of the particular exempt organization.
An exempt organization may be required to support, to the satisfaction of the
Service, the method used to calculate its UBTI. The Partnership will be
required to report to a Partner which is an exempt organization information as
to the portion of its income and gains from the Partnership for each year which
will be treated as UBTI. The calculation of such amount with respect to
transactions entered into by the Partnership is highly complex, and there is no
assurance that the Partnership's calculation of UBTI will be accepted by the
Service.
In general, if UBTI is allocated to an exempt organization such as a
qualified retirement plan or a private foundation, the portion of the
Partnership's income and gains which is not treated as UBTI will continue to be
exempt from tax, as will the organization's income and gains from other
investments which are not treated as UBTI. Therefore, the possibility of
realizing UBTI from its investment in the Partnership generally should not
affect the tax-exempt status of such an exempt organization.(7) However, a
charitable remainder trust will not be exempt from Federal income tax under
Section 664(c) of the Code for any year in which it has UBTI. A title-holding
company will not be exempt from tax if it has certain types of UBTI. Moreover,
the charitable contribution deduction for a trust under Section 642(c) of the
Code may be limited for any year in which the trust has UBTI. A prospective
investor should consult its tax adviser with
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(6) The calculation of a particular exempt organization's UBTI would also
be affected if it incurs indebtedness to finance its investment in the
Partnership. An exempt organization is required to make estimated tax
payments with respect to UBTI.
(7) Certain exempt organizations which realize UBTI in a taxable year will
not constitute "qualified organizations" for purposes of Section
514(c)(9)(B)(vi)(I) of the Code, pursuant to which, in limited
circumstances, income from certain real estate partnerships in which such
organizations invest might be treated as exempt from UBTI. A prospective
tax-exempt Limited Partner should consult its tax adviser in this regard.
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respect to the tax consequences of receiving UBTI from the Partnership. (See
"ERISA CONSIDERATIONS".)
CERTAIN ISSUES PERTAINING TO SPECIFIC EXEMPT ORGANIZATIONS
PRIVATE FOUNDATIONS. Private foundations and their managers are subject
to excise taxes if they invest "any amount in such a manner as to jeopardize
the carrying out of any of the foundation's exempt purposes." This rule
requires a foundation manager, in making an investment, to exercise "ordinary
business care and prudence" under the facts and circumstances prevailing at the
time of making the investment, in providing for the short-term and long-term
needs of the foundation to carry out its exempt purposes. The factors which a
foundation manager may take into account in assessing an investment include the
expected rate of return (both income and capital appreciation), the risks of
rising and falling price levels, and the needs for diversification within the
foundation's portfolio.
In order to avoid the imposition of an excise tax, a private foundation
may be required to distribute on an annual basis its "distributable amount,"
which includes, among other things, the private foundation's "minimum
investment return," defined as 5% of the excess of the fair market value of its
nonfunctionally related assets (assets not used or held for use in carrying out
the foundation's exempt purposes), over certain indebtedness incurred by the
foundation in connection with such assets. It appears that a foundation's
investment in the Partnership would most probably be classified as a
nonfunctionally related asset. A determination that an interest in the
Partnership is a nonfunctionally related asset could conceivably cause cash
flow problems for a prospective Limited Partner which is a private foundation.
Such an organization could be required to make distributions in an amount
determined by reference to unrealized appreciation in the value of its interest
in the Partnership. Of course, this factor would create less of a problem to
the extent that the value of the investment in the Partnership is not
significant in relation to the value of other assets held by a foundation.
In some instances, an investment in the Partnership by a private
foundation may be prohibited by the "excess business holdings" provisions of
the Code. For example, if a private foundation (either directly or together
with a "disqualified person") acquires more than 20% of the capital interest or
profits interest of the Partnership, the private foundation may be considered
to have "excess business holdings." If this occurs, such foundation may be
required to divest itself of its interest in the Partnership in order to avoid
the imposition of an excise tax.
A substantial percentage of investments of certain "private operating
foundations" may be restricted to assets directly devoted to their tax-exempt
purposes. Otherwise, generally, rules similar to those discussed above govern
their operations.
QUALIFIED RETIREMENT PLANS. Employee benefit plans subject to the
provisions of ERISA, Individual Retirement Accounts ("IRA's") and Keogh Plans
should consult their counsel as to the implications of such an investment under
ERISA. (See "ERISA CONSIDERATIONS".)
ENDOWMENT FUNDS. Investment managers of endowment funds should consider
whether the acquisition of an Interest is legally permissible. This is not a
matter of Federal law, but is
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determined under state statutes. It should be noted, however, that under the
Uniform Management of Institutional Funds Act, which has been adopted, in
various forms, by a large number of states, participation in investment
partnerships or similar organizations in which funds are commingled and
investment determinations are made by persons other than the governing board of
the endowment fund is allowed.
STATE AND LOCAL TAXATION
In addition to the Federal income tax consequences described above,
prospective investors should consider potential state and local tax
consequences of an investment in the Partnership. State and local laws often
differ from Federal income tax laws with respect to the treatment of specific
items of income, gain, loss, deduction and credit. A Partner's distributive
share of the taxable income or loss of the Partnership generally will be
required to be included in determining its reportable income for state and
local tax purposes in the jurisdiction in which it is a resident.
The Partnership should not be subject to the New York City unincorporated
business tax, which is not imposed on a partnership which purchases and sells
securities for its "own account." By reason of a similar "own account"
exemption, it is also expected that a nonresident individual Partner should not
be subject to New York State personal income tax with respect to his share of
income or gain realized directly by the Partnership. A nonresident individual
Partner will not be subject to New York City earnings tax on nonresidents with
respect to his investment in the Partnership.
Individual Limited Partners who are residents in New York State and New
York City should be aware that the New York State and New York City personal
income tax laws limit the deductibility of itemized deductions for individual
taxpayers at certain income levels. These limitations may apply to a Limited
Partner's share of some or all of the Partnership's expenses. Prospective
Limited Partners are urged to consult their tax advisers with respect to the
impact of these provisions and the Federal limitations on the deductibility of
certain itemized deductions and investment expenses on their New York State and
New York City tax liability.
For purposes of the New York State corporate franchise tax and the New
York City general corporation tax, a corporation generally is treated as doing
business in New York State and New York City, respectively, and is subject to
such corporate taxes as a result of the ownership of a limited partnership
interest in a partnership which does business in New York State and New York
City, respectively.(8) Each of the New York State and New York City corporate
taxes are imposed, in part, on the corporation's taxable income or capital
allocable to the relevant jurisdiction by application of the appropriate
allocation percentages. Moreover, a
- --------------------
(8) New York State (but not New York City) generally exempts from corporate
franchise tax a non-New York corporation which (i) does not actually or
constructively own a 1% or greater limited partnership interest in a
partnership doing business in New York and (ii) has a tax basis in such
limited partnership interest not greater than $1 million.
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non-New York corporation which does business in New York State may be subject
to a New York State license fee. A corporation which is subject to New York
State corporate franchise tax solely as a result of being a limited partner in
a New York partnership may, under certain circumstances, elect to compute its
New York State corporate franchise tax by taking into account only its
distributive share of such partnership's income and loss. There is currently
no similar provision in effect for purposes of the New York City general
corporation tax.
Regulations under both the New York State corporate franchise tax and the
New York City general corporation tax, however, provide an exception to this
general rule in the case of a "portfolio investment partnership", which is
defined, generally, as a partnership which meets the gross income requirements
of Section 851(b)(2) of the Code. New York State (but not New York City) has
adopted regulations that also include income and gains from commodity
transactions described in Section 864(b)(2)(B)(iii) as qualifying gross income
for this purpose. The Partnership's qualification as such a portfolio
investment partnership must be determined on an annual basis and with respect
to a taxable year, the Partnership may not qualify as a portfolio investment
partnership.
Each prospective corporate Partner should consult its tax adviser with
regard to the New York State and New York City tax consequences of an
investment in the Partnership.
A trust or other unincorporated organization which by reason of its
purposes or activities is exempt from Federal income tax is also exempt from
New York State and New York City personal income tax. A nonstock corporation
which is exempt from Federal income tax is generally presumed to be exempt from
New York State corporate franchise tax and New York City general corporation
tax. New York State imposes a tax with respect to such exempt entities on UBTI
(including unrelated debt-financed income) at a rate which is currently equal
to the New York State corporate franchise tax rate (plus the corporate surtax).
There is no New York City tax on the UBTI of an otherwise exempt entity.
CONNECTICUT TAXATION
The Partnership's investment portfolio will be managed in Connecticut.
The Partnership's Connecticut tax counsel, Day, Berry & Howard, has advised the
Partnership as follows with regard to Connecticut taxation. The Partnership
will not be subject to Connecticut income taxation. An individual Limited
Partner who is not a resident of Connecticut will not be subject to Connecticut
Personal Income Tax with respect to his or her share of the Partnership's
income derived solely from its purchase or sale of securities and commodities
for its own account.
Corporate Limited Partners not otherwise subject to the Connecticut
Corporation Business Tax will not be subject to Connecticut Corporation
Business Tax solely by virtue of their investment in the Partnership, provided
that the Partnership qualifies as an "investment partnership" under C.G.S.
Section 12-213(27), as amended by Public Act 96-197. An "investment
partnership" is defined generally as a limited partnership that meets the gross
income requirement of Section 851(b)(2) of the Code. Even if the Partnership
does not qualify as an "investment partnership," a corporate Limited Partner
not otherwise subject to Connecticut
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Corporation Business Tax will not be subject to such Tax on its share of the
Partnership's net income provided that the Partnership's activities consist
solely of the purchase or sale of securities and commodities for its own
account. In that case, however, the corporate Limited Partner may be subject
to Connecticut Corporation Business Tax on its share of the capital base of the
Partnership apportioned to Connecticut. Corporate Limited Partners otherwise
subject to Connecticut Corporation Business Tax also will be taxed on their
share of the Partnership's income from business conducted in Connecticut and
will include their share of the Partnership's apportionment factors in
computing their own apportionment fraction.
An entity exempt from federal income tax by reason of the nature of its
activities similarly will generally be exempt from the Connecticut Corporation
Business Tax with respect to its share of the Partnership's income.
Connecticut does, however, impose an Unrelated Business Income of Nonprofit
Corporations Tax with respect to such exempt entity's UBTI.
ERISA CONSIDERATIONS
Persons who are fiduciaries with respect to an employee benefit plan, IRA,
Keogh plan or other arrangement subject to the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") or the Code (an "ERISA Plan") should
consider, among other things, the matters described below before determining
whether to invest in the Partnership.
ERISA imposes certain general and specific responsibilities on persons who
are fiduciaries with respect to an ERISA Plan, including prudence,
diversification, prohibited transaction and other standards. In determining
whether a particular investment is appropriate for an ERISA Plan, Department of
Labor ("DOL") regulations provide that a fiduciary of an ERISA Plan must give
appropriate consideration to, among other things, the role that the investment
plays in the ERISA Plan's portfolio, taking into consideration whether the
investment is designed reasonably to further the ERISA Plan's purposes, an
examination of the risk and return factors, the portfolio's composition with
regard to diversification, the liquidity and current return of the total
portfolio relative to the anticipated cash flow needs of the ERISA Plan, the
income tax consequences of the investment (see "TAXATION - Unrelated Business
Taxable Income; Certain Issues Pertaining to Specific Exempt Organizations")
and the projected return of the total portfolio relative to the ERISA Plan's
funding objectives. Before investing the assets of an ERISA Plan in the
Partnership, a fiduciary should determine whether such an investment is
consistent with its fiduciary responsibilities and the foregoing regulations.
For example, a fiduciary should consider whether an investment in the
Partnership may be too illiquid or too speculative for a particular ERISA Plan,
and whether the assets of the ERISA Plan would be sufficiently diversified. If
a fiduciary with respect to any such ERISA Plan breaches his responsibilities
with regard to selecting an investment or an investment course of action for
such ERISA Plan, the fiduciary may be held personally liable for losses
incurred by the ERISA Plan as a result of such breach.
Because the Partnership will register as an investment company under the
1940 Act, the underlying assets of the Partnership should not be considered to
be "plan assets" of the ERISA Plans investing in the Partnership for purposes
of ERISA's fiduciary responsibility and prohibited
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transaction rules. Thus, neither the Manager nor the Individual General
Partners will be fiduciaries within the meaning of ERISA.
The Manager will require an ERISA Plan proposing to invest in the
Partnership to represent that it, and any fiduciaries responsible for the
Plan's investments, are aware of and understand the Partnership's investment
objective, policies and strategies, that the decision to invest plan assets in
the Partnership was made with appropriate consideration of relevant investment
factors with regard to the ERISA Plan and is consistent with the duties and
responsibilities imposed upon fiduciaries with regard to their investment
decisions under ERISA.
Certain prospective Plan investors may currently maintain relationships
with the Manager or the Individual General Partners or other entities which are
affiliated with the Manager or the Individual General Partners. Each of such
persons may be deemed to be a party in interest to and/or a fiduciary of any
ERISA Plan to which it provides investment management, investment advisory or
other services. ERISA prohibits ERISA Plan assets to be used for the benefit
of a party in interest and also prohibits an ERISA Plan fiduciary from using
its position to cause the ERISA Plan to make an investment from which it or
certain third parties in which such fiduciary has an interest would receive a
fee or other consideration. ERISA Plan investors should consult with counsel
to determine if participation in the Partnership is a transaction which is
prohibited by ERISA or the Code. Additional conditions may be imposed on such
ERISA Plan investors, and the fiduciaries of such an ERISA Plan will be
required to represent that the decision to invest in the Partnership was made
by them as fiduciaries that are independent of such affiliated persons, that
are duly authorized to make such investment decision and that have not relied
on any individualized advice or recommendation of such affiliated persons, as a
primary basis for the decision to invest in the Partnership.
The provisions of ERISA are subject to extensive and continuing
administrative and judicial interpretation and review. The discussion of ERISA
contained in this Confidential Memorandum, is, of necessity, general and may be
affected by future publication of regulations and rulings. Potential investors
should consult with their legal advisors regarding the consequences under ERISA
of the acquisition and ownership of interests.
ADDITIONAL INFORMATION AND SUMMARY OF
LIMITED PARTNERSHIP AGREEMENT
The following is a summary description of additional items and of select
provisions of the Partnership Agreement which are not described elsewhere in
this Confidential Memorandum. The description of such items and provisions is
not definitive and reference should be made to the complete text of the
Partnership Agreement.
LIABILITY OF LIMITED PARTNERSPursuant to applicable Delaware law, Limited
Partners are not generally personally liable for obligations of the Partnership
unless, in addition to the exercise of their rights and powers as Limited
Partners, they participate in the control of the business of the Partnership.
Any such Limited Partner would be liable only to persons who transact business
with the Partnership
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reasonably believing, based on such Limited Partner's conduct, that the Limited
Partner is a General Partner. Under the terms of the Partnership Agreement,
the Limited Partners do not have the right to take part in the control of the
Partnership, but they may exercise the right to vote on matters requiring
approval under the 1940 Act and on certain other matters. Although such right
to vote should not constitute taking part in the control of the Partnership's
business under applicable Delaware law, there is no specific statutory or other
authority for the existence or exercise of some or all of these powers in some
other jurisdictions. To the extent that the Partnership is subject to the
jurisdiction of courts in jurisdictions other than the State of Delaware, it is
possible that these courts may not apply Delaware law to the question of the
limited liability of the Limited Partners.
Under Delaware law and the Partnership Agreement, each Limited Partner may
be liable up to the amount of any contributions to the capital of the
Partnership (plus any accretions in value thereto prior to withdrawal) and a
Limited Partner may be obligated to return to the Partnership amounts
distributed to him in accordance with the Partnership Agreement in certain
circumstances where after giving effect to the distribution, certain
liabilities of the Partnership exceed the fair market value of the
Partnership's assets.
DUTY OF CARE OF GENERAL PARTNERS
The Partnership Agreement provides that a General Partner shall not be
liable to the Partnership or any of the Limited Partners for any loss or damage
occasioned by any act or omission in the performance of such General Partner's
services as a General Partner in the absence of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
such General Partner's office. The Partnership Agreement also contains
provisions for the indemnification, to the extent permitted by law, of a
General Partner by the Partnership (but not by the Limited Partners
individually) against any liability and expense to which such General Partner
may be liable as a General Partner which arise in connection with the
performance of such General Partner's activities on behalf of the Partnership.
General Partners shall not be personally liable to any Limited Partner for the
repayment of any positive balance in such Limited Partner's capital account or
for contributions by such Limited Partner to the capital of the Partnership or
by reason of any change in the federal or state income tax laws applicable to
the Partnership or its investors. The rights of indemnification and
exculpation provided under the Partnership Agreement shall not be construed so
as to provide for indemnification of a General Partner for any liability
(including liability under federal securities laws which, under certain
circumstances, impose liability even on persons that act in good faith), to the
extent (but only to the extent) that such indemnification would be in violation
of applicable law, but shall be construed so as to effectuate the applicable
provisions of the Partnership Agreement to the fullest extent permitted by law.
AMENDMENT OF THE PARTNERSHIP AGREEMENT
The Partnership Agreement may be amended with the approval of (i) the
Individual General Partners (including the vote of a majority of the Independent
General Partners, if required by the 1940 Act), (ii) the Manager and (iii) a
majority (as defined in the 1940 Act) of the outstanding voting securities of
the Partnership. Certain amendments involving capital accounts and allocations
thereto may not be made without the consent of any Partner adversely affected
thereby or unless
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each Limited Partner has received notice of such amendment and any Limited
Partner objecting to such amendment has been allowed a reasonable opportunity
to tender its entire interest for repurchase by the Partnership. However, the
Manager may at any time without the consent of the other Partners of the
Partnership amend the Partnership Agreement to (i) reflect any change in the
Partners or their respective capital contributions, (ii) restate the
Partnership Agreement, (iii) effect compliance with any applicable law or
regulation, or (iv) make such changes as may be necessary to assure the
Partnership's continuing eligibility for U.S. federal income tax purposes as a
partnership not treated as a corporation under Section 7704(a) of the Code,
subject to the requirement that any amendment of the Partnership Agreement made
pursuant to items (3) or (4) above shall be valid only if approved by the
Individual General Partners.
POWER OF ATTORNEY
By subscribing for an interest in the Partnership, each Partner will
appoint the Manager his attorney-in-fact for purposes of filing required
certificates and documents relating to the formation and maintenance of the
Partnership as a Limited Partnership under Delaware law or signing all
instruments effecting authorized changes in the Partnership or the Partnership
Agreement and conveyances and other instruments deemed necessary to effect the
dissolution or termination of the Partnership.
The power-of-attorney granted as part of each Partner's subscription
agreement is a special power-of-attorney and is coupled with an interest in
favor of the Manager and as such shall be irrevocable and will continue in full
force and effect notwithstanding the subsequent death or incapacity of any
Limited Partner granting such power-of-attorney, and shall survive the delivery
of a transfer by a Partner of the whole or any portion of such Partner's
interest, except that where the transferee thereof has been approved by the
Individual General Partners for admission to the Partnership as a substitute
Partner, or upon the withdrawal of a Partner from the Partnership pursuant to a
periodic tender or otherwise this power-of-attorney given by the transferor
shall terminate.
TERM, DISSOLUTION AND LIQUIDATION
The Partnership shall be dissolved:
- upon the affirmative vote to dissolve the Partnership by both
(1) the Individual General Partners and (2) Partners holding at
least two-thirds (2/3) of the total number of votes eligible to be
cast by all Partners;
- upon either of (1) an election by the Manager to dissolve the
Partnership or (2) the termination of the Manager's status as such,
unless as to either event both (A) the Individual General Partners,
and (B) Partners holding not less than two-thirds (2/3) of the total
number of votes eligible to be cast by all Partners shall elect
within 60 days after such event to continue the business of the
Partnership and either a person has been admitted to the Partnership
as the Manager or one or more General Partners have agreed to make
such contributions to the capital of the Partnership as are required
to be made by the Manager;
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- upon the expiration of any two year period which commences on
the date on which any Limited Partner has submitted a written notice
to the Partnership requesting to tender his entire interest for
repurchase by the Partnership if such Limited Partner has not been
permitted to do so at any time during such period;
- on December 31, 2021, unless both (1) the Individual General
Partners and (2) a majority (as defined in the 1940 Act) of the
outstanding voting securities of the Partnership shall elect within
60 days of such date to continue the business of the Partnership;
- upon the failure of Partners to elect successor Individual
General Partners at a meeting called by the Manager when no
Individual General Partner remains to continue the business of the
Partnership; or
- as required by operation of law.
Upon the occurrence of any event of dissolution, the General Partners (or
a liquidator, if the General Partners are unable to perform this function) are
charged with winding up the affairs of the Partnership and liquidating its
assets. Net profits or net loss during the fiscal period including the period
of liquidation will be allocated as described in the section titled "Capital
Allocations -- Net Profits and Net Loss".
Upon the liquidation of the Partnership, its assets are to be distributed
(1) first to satisfy the debts, liabilities and obligations of the Partnership
(other than debts to Partners) including actual or anticipated liquidation
expenses, (2) next to repay debts owing to the Partners, and (3) finally to the
Partners proportionately in accordance with the balances in their respective
capital accounts. Assets may be distributed in kind on a pro rata basis if the
General Partners or liquidator determines that such a distribution would be in
the interests of the Partners in facilitating an orderly liquidation.
REPORTS TO PARTNERS
The Partnership will furnish to Partners as soon as practicable after the
end of each taxable year such information as is necessary for such Partners to
complete federal and state income tax or information returns, along with any
other tax information required by law. The Partnership will send to Partners a
semi-annual and an audited annual report within 60 days after the close of the
period for which it is being made, or as otherwise required by the 1940 Act.
Quarterly reports from the Manager regarding the Partnership's operations
during such period will also be sent to Partners.
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<PAGE> 80
FISCAL YEAR
The Partnership's fiscal year is the twelve month period ending on
December 31. The first fiscal year of the Partnership will commence on the
date of the initial closing and will end on December 31, 1996.
ACCOUNTANTS AND LEGAL COUNSEL
The Individual General Partners have selected Ernst & Young LLP as the
independent public accountants of the Partnership. Ernst & Young LLP's
principal business address is located at 787 Seventh Avenue, 15th Floor, New
York, New York.
Schulte Roth & Zabel, New York, New York, acts as legal counsel to the
Partnership and to the Manager in connection with this Confidential Memorandum
and as legal counsel to the Manager, its members and their affiliates with
respect to certain other matters. Stroock & Stroock & Lavan, New York, New
York, acts as legal counsel to the Independent General Partners.
CUSTODIAN
Morgan Stanley Trust Company ("Morgan Stanley") serves as the primary
custodian of the Partnership's assets, and may maintain custody of the
Partnership's assets with domestic and foreign subcustodians (which may be
banks, trust companies, securities depositories and clearing agencies),
approved by the Individual General Partners of the Partnership in accordance
with the requirements set forth in Section 17(f) of the 1940 Act and the rules
adopted thereunder. Assets of the Partnership are not held by the Manager or
commingled with the assets of other accounts other than to the extent that
securities are held in the name of a custodian in a securities depository,
clearing agency or omnibus customer account of such custodian. Morgan
Stanley's principal business address is One Evertrust Plaza, Jersey City, New
Jersey 07302.
INQUIRIES
Inquiries concerning the Partnership and interests in the Partnership
(including information concerning subscription and withdrawal procedures)
should be directed to:
Augusta Management, L.L.C.
c/o Oppenheimer & Co., Inc.
Oppenheimer Tower
One World Financial Center
33rd Floor
200 Liberty Street
New York, New York 10281
Telephone: 212-667-7649
Telecopier: 212-667-4839
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<PAGE> 81
For additional information contact:
Joyce Martin O'Brien
Senior Vice President
Oppenheimer & Co., Inc.
* * * * *
All potential investors in the Partnership are encouraged to consult
appropriate legal and tax counsel.
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<PAGE> 82
APPENDIX
PERFORMANCE INFORMATION
Augusta Management, L.L.C. (the "Manager") expects to employ an investment
program for Augusta Partners, L.P. (the "Partnership") that is substantially
similar to the investment program that is employed by Ardsley Partners I for
two private investment partnerships for which it serves as general partner and
investment adviser, Ardsley Partners Fund I, L.P. and Ardsley Partners Fund II,
L.P. (collectively, the "Ardsley Funds"). The primary difference between the
Ardsley Funds is that Ardsley Partners Fund II, L.P. commenced its operations
on August 1, 1988 (rather than August 4, 1987) and, unlike Ardsley Partners
Fund I, L.P. but like the Partnership, Ardsley Partners Fund II, L.P. is
permitted to invest in "hot issues", which are securities offered in an initial
or secondary public offering that trade at a premium in the secondary market
whenever such secondary market trading begins, as defined under the rules of
the U.S. National Association of Securities Dealers, Inc. The Partnership,
like Ardsley Partners Fund II, L.P., is permitted to invest in "hot issues."
Because of the similarity of investment programs, as a general matter, the
Manager will consider participation by the Partnership in all appropriate
investment opportunities that are under consideration by Ardsley Partners I for
investment by the Ardsley Funds. The Manager will evaluate for the
Partnership, and it is anticipated that Ardsley Partners I will evaluate for
each Ardsley Fund, a variety of factors that may be relevant in determining
whether a particular investment opportunity or strategy is appropriate and
feasible for the Partnership or an Ardsley Fund at a particular time. Because
these considerations may differ for the Partnership and the Ardsley Funds in
the context of any particular investment opportunity, the investment activities
of the Partnership and the Ardsley Funds may differ from time to time. (See
"CONFLICTS OF INTEREST - Participation in Investment Opportunities".)
THE FOLLOWING TABLES SET FORTH THE PERFORMANCE RECORD OF EACH ARDSLEY FUND
FOR THE PERIODS INDICATED. THE TABLES SHOULD BE READ IN CONJUNCTION WITH THE
NOTES THERETO. THIS PERFORMANCE AND THE STATISTICAL INFORMATION INCLUDED
HEREIN HAVE BEEN OBTAINED FROM SOURCES BELIEVED TO BE RELIABLE BUT ARE NOT
WARRANTED AS TO ACCURACY OR COMPLETENESS. PAST PERFORMANCE DOES NOT GUARANTEE
FUTURE RESULTS. PROSPECTIVE INVESTORS SHOULD RECOGNIZE THAT THERE ARE CERTAIN
DIFFERENCES BETWEEN THE INVESTMENT POLICIES OF THE PARTNERSHIP AND THOSE OF THE
ARDSLEY FUNDS AND THAT THEIR FEES AND EXPENSES DIFFER. FUTURE PERFORMANCE OF
THE PARTNERSHIP AND OF THE ARDSLEY FUNDS MAY DIFFER.
A-1
<PAGE> 83
TABLE 1
PERFORMANCE RECORD OF
ARDSLEY PARTNERS FUND I, L.P.
<TABLE>
<S> <C> <C> <C>
YEAR FUND S&P 500 NET ASSETS
1987 20.25% -24.16% $23.2 mil.
1988 42.86 16.55 41.1
1989 30.04 31.61 61.8
1990 1.11 -3.05 58.8
1991 60.74 30.47 96.2
1992 11.73 7.62 107.3
1993 36.92 10.08 150.0
1994 -22.83 1.32 166.2
1995 32.68 37.58 166.3
1996* 13.06 10.10 167.1
Cumulative Return
1987 - 1996* 542.94 167.53
</TABLE>
* Through second quarter ended June 30, 1996.
The above returns are net of all fees (including a 1% management fee) and
expenses and a 20% incentive allocation payable to Ardsley Partners I, the
general partner and investment manager. The above returns are based upon the
results achieved by an investor who invested $1 million at the commencement of
the fund's operations. This information is based upon the federal tax
information return for such investor for each period. Returns for 1987 are for
the period August 4, 1987 through December 31, 1987. Performance of the
Standard & Poor's Composite Index of 500 Stocks (the "S&P 500") is provided for
comparison purposes. Ardsley Partners I, however, does not restrict its
selection of securities only to those comprising the S&P 500. Cumulative
return is calculated by using a compounded, time-weighted return. PAST
PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
A-2
<PAGE> 84
TABLE 2
PERFORMANCE RECORD OF
ARDSLEY PARTNERS FUND II, L.P.
<TABLE>
<S> <C> <C> <C>
YEAR FUND S&P 500 NET ASSETS
1988 12.05% 3.83% $17.6 mil.
1989 30.40 31.61 40.4
1990 1.47 -3.05 68.4
1991 63.77 30.47 99.1
1992 11.41 7.62 141.9
1993 38.12 10.08 203.9
1994 -20.49 1.32 166.2
1995 35.78 37.58 170.6
1996* 15.45 10.10 160.2
Cumulative Return
1988 - 1996* 365.73 214.28
</TABLE>
* Through second quarter ended June 30, 1996.
The above returns are net of all fees (including a 1% management fee) and
expenses and a 20% incentive allocation payable to Ardsley Partners I, the
general partner and investment manager. The above returns are based upon the
results achieved by an investor who invested $1 million at the commencement of
the fund's operations. This information is based upon the federal tax
information return for such investor for each period. Returns for 1988 are for
the period August 1, 1988 through December 31, 1988. Performance of the S&P
500 is provided for comparison purposes. Ardsley Partners I, however, does not
restrict its selection of securities only to those comprising the S&P 500.
Cumulative return is calculated by using a compounded, time-weighted return.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
A-3
<PAGE> 85
FORM N-2
AUGUSTA PARTNERS, L.P.
PART C - OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(1) Financial Statements:
Because Registrant has no assets, financial statements are omitted.
(2) Exhibits:
(a) Form of Certificate of Limited
Partnership. Filed herewith.
(b) Form of First Amended and Restated
Limited Partnership Agreement. Filed herewith.
(c) Not Applicable.
(d) See Item 24(2)(b).
(e) Not Applicable.
(f) Not Applicable.
(g) See Item 24(2)(b).
(h) Form of Placement Agency Agreement. Filed herewith.
(i) Not Applicable.
(j) Form of Custody Agreement. Filed herewith.
(k) (i) Form of Management and Administration Agreement.
Filed herewith.
(ii) Form of Administration, Accounting and Investor Services
Agreement. Filed herewith.
(l) Not Applicable.
(m) Not Applicable.
(n) Not Applicable.
(o) Not Applicable.
(p) Not Applicable.
(q) Not Applicable.
(r) Not Applicable.
ITEM 25. MARKETING ARRANGEMENTS
Not Applicable.
<PAGE> 86
ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The Registrant's organizational expenses are estimated at $500,000 and the
Registrant will also bear certain offering expenses not to exceed $50,000.
ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL
Information regarding all persons directly or indirectly controlled by, or
under common control with, the Registrant is set forth in the Registrant's
Confidential Memorandum under the section entitled "THE MANAGER, OPCO AND
ARDSLEY."
ITEM 28. NUMBER OF HOLDERS OF SECURITIES
Title of Class Number of Record Holders
-------------------------------- ---------------------------------
Limited Partnership Interest 1 (Registrant anticipates that there
will be more than 100 record holders
of such interests in the future.)
ITEM 29. INDEMNIFICATION
Information regarding the general effect of any contract, arrangement, or
statute under which any director, officer, underwriter, or affiliated person of
the Registrant is insured or indemnified in any manner against liability that
may be incurred in such capacity, other than insurance provided by any member
of the board of directors, officer, underwriter, or affiliated person for his
or her own protection, is set forth in Registrant's Confidential Memorandum
under the section entitled "ADDITIONAL INFORMATION AND SUMMARY OF LIMITED
PARTNERSHIP AGREEMENT - Duty of Care of General Partners."
ITEM 30. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
A description of any other business, profession, vocation, or employment
of a substantial nature in which each investment adviser of the Registrant, and
each director, executive officer, or partner of any such investment adviser, is
or has been, at any time during the past two fiscal years, engaged in for his
or her own account or in the capacity of director, officer, employee, partner
or trustee, is set forth in Registrant's Confidential Memorandum in the
sections entitled "THE MANAGER, OPCO AND ARDSLEY" and "CONFLICTS OF INTEREST."
Information as to the directors and officers of Oppenheimer & Co., Inc. is
included in its Form ADV filed on October 2, 1995 with the Commission
(registration number 801-10574), and is incorporated herein by reference.
Information as to the partners of Ardsley Advisory Partners is included in its
Form ADV filed on February 28, 1996 with the Commission (registration number
801-28944), and is incorporated herein by reference.
<PAGE> 87
ITEM 31. LOCATION OF ACCOUNTS AND RECORDS
The Manager maintains the partnership's accounts, books and other
documents required to be maintained by Section 31(a) of the Investment Company
Act of 1940 and the rules thereunder at 400 Bellevue Parkway, Wilmington, DE
19809.
ITEM 32. MANAGEMENT SERVICES
Not applicable.
ITEM 33. UNDERTAKINGS
Not Applicable.
<PAGE> 88
FORM N-2
AUGUSTA PARTNERS, L.P.
SIGNATURES
Pursuant to the requirements of the Investment Company Act of 1940, the
Registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto authorized, in the City of New York, and
State of New York, on the 30th day of August, 1996.
AUGUSTA PARTNERS, L.P.
By: AUGUSTA MANAGEMENT, L.L.C.
General Partner
By: OPPENHEIMER & CO., INC.
Managing Member
By: /s/ Mitchell A. Tanzman
--------------------------
Mitchell A. Tanzman
Managing Director
<PAGE> 89
FORM N-2
AUGUSTA PARTNERS, L.P.
EXHIBIT INDEX
EXHIBIT NUMBER DOCUMENT DESCRIPTION
(a) Form of Certificate of Limited Partnership
(b) Form of First Amended and Restated Limited
Partnership Agreement
(c) Not Applicable
(d) See Exhibit (b)
(e) Not Applicable
(f) Not Applicable
(g) See Exhibit (b)
(h) Form of Placement Agency Agreement
(i) Not Applicable
(j) Form of Custody Agreement
(k) (i) Form of Management and Administration Agreement
(ii) Form of Administration, Accounting and Investor Services
Agreement
(l) Not Applicable
(m) Not Applicable
(n) Not Applicable
(o) Not Applicable
(p) Not Applicable
(q) Not Applicable
(r) Not Applicable
<PAGE> 1
EXHIBIT 2(a)
CERTIFICATE OF LIMITED PARTNERSHIP
OF
AUGUSTA PARTNERS, L.P.
This Certificate of Limited Partnership of Augusta Partners, L.P. (the
"Partnership") is being duly executed and filed by the undersigned general
partner (the "General Partner") to form a limited partnership under the
Delaware Revised Uniform Limited Partnership Act (6 Del. C. Section 17-101, et
seq.).
1. The name of the limited partnership formed hereby is Augusta Partners,
L.P.
2. The address of the Partnership's registered office in the state of
Delaware is Corporation Service Company, 1013 Centre Road, Wilmington, Delaware
19805. The name of the Partnership's registered agent for service of process
on the Partnership in the State of Delaware is Corporation Service Company,
1013 Centre Road, Wilmington, Delaware 19805.
3. The name and business address of the General Partner of the Partnership
is as follows:
Name Address
---- -------
Augusta Management, L.L.C. Oppenheimer Tower World Financial Center
200 Liberty Street, 33rd Floor
New York, New York 10281
4. IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Limited Partnership of Augusta Partners, L.P., this 30th day of May, 1996.
AUGUSTA PARTNERS, L.P
By: Augusta Management, L.L.C.,
General Partner
By: Oppenheimer & Co., Inc.
Member
By:
---------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 2(b)
------------------------------------
AUGUSTA PARTNERS, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
------------------------------------
FIRST AMENDED AND RESTATED
LIMITED PARTNERSHIP AGREEMENT
DATED AS OF JULY 16, 1996
------------------------------------
OPPENHEIMER TOWER
ONE WORLD FINANCIAL CENTER, 33RD FLOOR
200 LIBERTY STREET
NEW YORK, NEW YORK 10281
(212) 667-7649
<PAGE> 2
TABLE OF CONTENTS
PAGE
<TABLE>
<S> <C>
ARTICLE I DEFINITIONS.......................................... 1
ARTICLE II ORGANIZATION; ADMISSION OF PARTNERS................. 9
2.1 Formation of Limited Partnership......................... 9
2.2 Name..................................................... 9
2.3 Principal and Registered Office.......................... 9
2.4 Duration................................................. 9
2.5 Objective and Business of the Partnership................10
2.6 General Partners.........................................10
2.7 Limited Partners.........................................11
2.8 Organizational Limited Partner...........................11
2.9 Both General and Limited Partner.........................11
2.10 Limited Liability.......................................11
ARTICLE III MANAGEMENT.........................................12
3.1 Management and Control...................................12
3.2 Actions by Individual General Partners...................12
3.3 Meetings of Partners.....................................13
3.4 Advice and Management....................................14
3.5 Custody of Assets of the Partnership.....................16
3.6 Brokerage................................................16
3.7 Other Activities of Partners.............................17
3.8 Duty of Care.............................................17
3.9 Indemnification..........................................17
3.10 Fees, Expenses and Reimbursement........................19
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE IV TERMINATION OF STATUS AS GENERAL PARTNER,
TRANSFERS AND REPURCHASES...........................21
4.1 Termination of Status of the Manager.....................21
4.2 Termination of Status of an Individual General Partner...22
4.3 Removal of General Partners..............................22
4.4 Transfer of Interests of General Partners................22
4.5 Transfer of Interests of Limited Partners................22
4.6 Repurchase of Interests..................................23
ARTICLE V CAPITAL..............................................26
5.1 Contributions to Capital.................................26
5.2 Rights of Partners to Capital............................27
5.3 Capital Accounts.........................................27
5.4 Allocation of Net Profit and Loss........................28
5.5 Allocation of Insurance Premiums and Proceeds............28
5.6 Allocation of Certain Withholding Taxes..................28
5.7 Reserves.................................................29
5.8 Incentive Allocation.....................................30
5.9 Allocation to Avoid Capital Account Deficits.............30
5.10 Allocations Prior to Closing Date.......................30
5.11 Tax Allocations.........................................31
ARTICLE VI DISSOLUTION AND LIQUIDATION.........................32
6.1 Dissolution..............................................32
6.2 Liquidation of Assets....................................33
ARTICLE VII ACCOUNTING, VALUATIONS AND BOOKS AND RECORDS.......34
7.1 Accounting and Reports...................................34
7.2 Determinations By Manager................................35
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C>
7.3 Valuation of Assets......................................35
ARTICLE VIII MISCELLANEOUS PROVISIONS...........................36
8.1 Amendment of Partnership Agreement.......................36
8.2 Special Power of Attorney................................37
8.3 Notices..................................................38
8.4 Agreement Binding Upon Successors and Assigns............39
8.5 Applicability of 1940 Act and Form N-2...................39
8.6 Choice of Law; Arbitration...............................39
8.7 Not for Benefit of Creditors.............................40
8.8 Consents.................................................40
8.9 Merger and Consolidation.................................40
8.10 Pronouns................................................41
8.11 Confidentiality.........................................41
8.12 Certification of Non-Foreign Status.....................42
8.12 Severability............................................42
</TABLE>
-iii-
<PAGE> 5
AUGUSTA PARTNERS, L.P.
FIRST AMENDED AND RESTATED
LIMITED PARTNERSHIP AGREEMENT
THIS FIRST AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT of Augusta
Partners, L.P. (the "Partnership") is dated July 16, 1996 by and among Augusta
Management, L.L.C., a Delaware limited liability company, as the Manager,
Robert A. Blum, Sol Gittleman, Luis Rubio, Janet L. Schinderman and Mitchell A.
Tanzman as the Individual General Partners and those persons hereinafter
admitted and listed on Schedule I hereto as General Partners and as Limited
Partners.
W I T N E S S E T H :
WHEREAS, the Partnership has heretofore been formed as a limited
partnership under the Delaware Revised Uniform Limited Partnership Act pursuant
to an initial Certificate of Limited Partnership (the "Certificate") dated and
filed with the Secretary of State of Delaware on May 30, 1996;
NOW, THEREFORE, for and in consideration of the foregoing and the mutual
covenants hereinafter set forth, it is hereby agreed as follows:
----------------------
ARTICLE I
DEFINITIONS
----------------------
For purposes of this Agreement:
ADVICE AND MANAGEMENT Those services provided to the Partnership by the
Manager pursuant to Section 3.4(b) hereof.
ADVISERS ACT The Investment Advisers Act of 1940 and the rules,
regulations and orders thereunder, as amended from
time to time, or any successor law.
AFFILIATE An affiliated person as such term is defined in
the 1940 Act.
AGREEMENT This Limited Partnership Agreement, as amended
from time to time.
-1-
<PAGE> 6
ALLOCATION CHANGE With respect to each Limited Partner for each
Allocation Period, the difference between:
(1) the sum of (a) the balance of such
Limited Partner's Capital Account as of
the close of the Allocation Period
(after giving effect to all allocations
to be made to such Limited Partner's
Capital Account as of such date other
than any Incentive Allocation to be
debited against such Limited Partner's
Capital Account), plus (b) any debits
to such Limited Partner's Capital
Account during the Allocation Period to
reflect any actual or deemed
distributions or repurchases with
respect to such Limited Partner's
Interest, plus (c) any debits to such
Limited Partner's Capital Account
during the Allocation Period to reflect
any Insurance premiums allocable to
such Limited Partner, plus (d) any
debits to such Limited Partner's
Capital Account during the Allocation
Period to reflect any items allocable
to such Limited Partner's Capital
Account pursuant to Section 5.6 hereof
other than Management Fees; and
(2) the sum of (a) the balance of such
Limited Partner's Capital Account as of
the commencement of the Allocation
Period, plus (b) any credits to such
Limited Partner's Capital Account
during the Allocation Period to reflect
any contributions by such Limited
Partner to the capital of the
Partnership, plus (c) any credits to
such Limited Partner's Capital Account
during the Allocation Period to reflect
any Insurance proceeds allocable to
such Limited Partner.
If the amount specified in clause (1) exceeds the
amount specified in clause (2), such difference
shall be a POSITIVE ALLOCATION CHANGE, and if the
amount specified in clause (2) exceeds the amount
specified in clause (1), such difference shall be
a NEGATIVE ALLOCATION CHANGE.
If an Allocation Period is less than 12 complete
calendar months (an "Incomplete Allocation
Period"), then solely for purposes of determining
the Incentive Allocation, the
-2-
<PAGE> 7
Positive Allocation Change shall be measured from
the beginning of the last preceding Allocation
Period that commenced at least 12 complete
calendar months prior to the end of the Incomplete
Allocation Period (disregarding all Incentive
Allocations made from the Limited Partner since
such last preceding Allocation Period) through the
end of the Incomplete Allocation Period, less the
Positive Allocation Change for such prior
Allocation Period.
ALLOCATION PERIOD With respect to each Limited Partner, the period
commencing as of the date of admission of such
Limited Partner to the Partnership and ending at
the close of business on the last day of the
twelfth complete calendar month since the
admission of such Limited Partner to the
Partnership, and thereafter each period commencing
as of the day following the last day of the
preceding Allocation Period with respect to such
Limited Partner, and ending at the close of
business on the first to occur of the following:
(1) the last day of a Fiscal Year;
(2) the day as of which the Partnership
repurchases the entire Interest of such
Limited Partner;
(3) the day as of which the Partnership
admits as a substituted Limited Partner
a person to whom the Interest of such
Limited Partner has been Transferred
(unless there is no change of
beneficial ownership); and
(4) the day as of which the authority of the
Manager to provide Advice and
Management is terminated pursuant to
Section 3.4(a) hereof.
CAPITAL ACCOUNT With respect to each Partner, the capital account
established and maintained on behalf of each
Partner pursuant to Section 5.3 hereof.
CERTIFICATE The Certificate of Limited Partnership of the
Partnership and any amendments thereto as filed
with the office of the Secretary of State of
Delaware.
-3-
<PAGE> 8
CLOSING DATE The first date on or as of which a Limited Partner
other than the Organizational Limited Partner is
admitted to the Partnership.
CODE The United States Internal Revenue Code of 1986,
as amended and as hereafter amended from time to
time, or any successor law.
DELAWARE ACT The Delaware Revised Uniform Limited Partnership
Act as in effect on the date hereof and as amended
from time to time, or any successor law.
FISCAL PERIOD The period commencing on the Closing Date, and
thereafter each period commencing on the day
immediately following the last day of the
preceding Fiscal Period and ending at the close of
business on the first to occur of the following
dates:
(1) the last day of a Fiscal Year;
(2) the day preceding any day as of which a
contribution to the capital of the
Partnership is made pursuant to
Section 5.1; or
(3) any day (other than one specified in
clause (2) above) as of which this
Agreement provides for any amount to be
credited to or debited against the
Capital Account of any Partner, other
than an amount to be credited to or
debited against the Capital Accounts of
all Partners in accordance with their
respective Partnership Percentages.
FISCAL YEAR The period commencing on the Closing Date and
ending on December 31, 1996, and thereafter each
period commencing on January 1 of each year and
ending on December 31 of each year (or on the date
of a final distribution pursuant to Section 6.2
hereof), unless the Individual General Partners
shall elect another fiscal year for the
Partnership that is a permissible taxable year
under the Code.
FORM N-2 The Partnership's Registration Statement on Form
N-2 filed with the Securities and Exchange
Commission, as amended from time to time.
-4-
<PAGE> 9
GENERAL PARTNERS The Manager and the Individual General Partners in
such persons' capacity as general partners of the
Partnership, collectively, and GENERAL PARTNER
means any of the General Partners.
INCENTIVE ALLOCATION With respect to any Limited Partner, 20% of the
amount, determined as of the close of each
Allocation Period with respect to such Limited
Partner, by which such Limited Partner's Positive
Allocation Change for such Allocation Period, if
any, exceeds any positive balance in such Limited
Partner's Loss Recovery Account as of the most
recent prior date as of which any adjustment has
been made thereto.
Those Individual General Partners who are not
INDEPENDENT GENERAL "interested persons" of the Partnership as such
PARTNERS term is defined in the 1940 Act.
INDIVIDUAL GENERAL PARTNERS Those natural persons admitted to the Partnership
as General Partners; such term shall not include
the Manager.
INSURANCE One or more "key man" insurance policies on the
life of any principal of a member of the Manager,
the benefits of which are payable to the
Partnership.
INTEREST The entire ownership interest in the Partnership
at any particular time of a Partner or other
person to whom an Interest or portion thereof has
been transferred pursuant to Sections 4.4 or 4.5
hereof, including the rights and obligations of
such Partner or other person under this Agreement
and the Delaware Act.
LIMITED PARTNER Any person who shall have been admitted to the
Partnership as a limited partner (including any
General Partner in such person's capacity as a
limited partner of the Partnership but excluding
any General Partner in such person's capacity as a
general partner of the Partnership) until the
Partnership repurchases the entire Interest of
such person as a limited partner pursuant to
Section 4.6 hereof or a substituted Limited
Partner or Partners are admitted with respect to
any such person's entire Interest as a limited
partner pursuant to Section 4.5 hereof.
LOSS RECOVERY ACCOUNT A memorandum account to be recorded in the books
and records of the Partnership with respect to
each Limited Partner, which shall have an initial
balance of zero and
-5-
<PAGE> 10
which shall be adjusted as follows:
(1) As of the first day after the close of each
Allocation Period for such Limited Partner, the
balance of the Loss Recovery Account shall be
increased by the amount, if any, of such Limited
Partner's Negative Allocation Change for such
Allocation Period and shall be reduced (but not
below zero) by the amount, if any, of such Limited
Partner's Positive Allocation Change for such
Allocation Period.
(2) The balance of the Loss Recovery Account shall
be reduced (but not below zero) as of the first
date as of which the Capital Account balance of
any Limited Partner is reduced as a result of
repurchase or transfer with respect to such
Limited Partner's Interest by an amount determined
by multiplying (a) such positive balance by (b) a
fraction, (i) the numerator of which is equal to
the amount of the repurchase or transfer, and (ii)
the denominator of which is equal to the balance
of such Limited Partner's Capital Account
immediately before giving effect to such
repurchase or transfer.
No transferee of any Interest shall succeed to any
Loss Recovery Account balance or portion thereof
attributable to the transferor unless the Transfer
by which such transferee received such Interest
did not involve a change of beneficial ownership.
MANAGER Augusta Management, L.L.C., a limited liability
company organized under Delaware law, or any other
person admitted to the Partnership as the Manager.
NEGATIVE ALLOCATION CHANGE The meaning given such term in the definition of
Allocation Change.
NET ASSETS The total value of all assets of the Partnership,
less an amount equal to all accrued debts,
liabilities and obligations of the Partnership,
calculated before giving effect to any repurchases
of Interests.
-6-
<PAGE> 11
NET PROFIT OR NET LOSS The amount by which the Net Assets as of the close
of business on the last day of a Fiscal Period
exceed (in the case of Net Profit) or are less
than (in the case of Net Loss) the Net Assets as
of the commencement of the same Fiscal Period (or,
with respect to the initial Fiscal Period of the
Partnership, at the close of business on the
Closing Date), such amount to be adjusted to
exclude:
(1) the amount of any Insurance premiums or
proceeds to be allocated among the
Capital Accounts of the Partners
pursuant to Section 5.5 hereof; and
(2) any items to be allocated among the
Capital Accounts of the Partners on a
basis which is not in accordance with
the respective Partnership Percentages
of all Partners as of the commencement
of such Fiscal Period pursuant to
Sections 5.6 and 5.7 hereof.
1940 ACT The Investment Company Act of 1940 and the rules,
regulations and orders thereunder, as amended from
time to time, or any successor law.
1934 ACT The Securities Exchange Act of 1934 and the rules,
regulations and orders thereunder, as amended from
time to time, or any successor law.
OPCO Oppenheimer & Co., Inc., or any successor thereto.
OPCO SERVICES Such management and administrative services as
Opco shall provide to the Partnership pursuant to
a separate written agreement with the Partnership
as contemplated by Section 3.10(a) hereof.
ORGANIZATIONAL LIMITED Mitchell A. Tanzman.
PARTNER
PARTNERS The General Partners and the Limited Partners,
collectively.
PARTNERSHIP The limited partnership governed hereby, as such
limited partnership may from time to time be
constituted.
PARTNERSHIP PERCENTAGE A percentage established for each Partner on the
Partnership's books as of the first day of each
Fiscal
-7-
<PAGE> 12
Period. The Partnership Percentage of a Partner
for a Fiscal Period shall be determined by
dividing the balance of the Partner's Capital
Account as of the commencement of such Fiscal
Period by the sum of the Capital Accounts of all
of the Partners as of the commencement of such
Fiscal Period. The sum of the Partnership
Percentages of all Partners for each Fiscal
Period shall equal 100%.
POSITIVE ALLOCATION CHANGE The meaning given such term in the definition of
Allocation Change.
RELATED PERSON With respect to any person, (i) a relative, spouse
or relative of a spouse who has the same principal
residence as such person, (ii) any trust or estate
in which such person and any persons who are
related to such person collectively have more than
50% of the beneficial interests (excluding
contingent interests) and (iii) any corporation or
other organization of which such person and any
persons who are related to such person
collectively are beneficial owners of more than
50% of the equity securities (excluding directors'
qualifying shares) or equity interests.
SECURITIES Securities (including, without limitation,
equities, debt obligations, options, and other
"securities" as that term is defined in Section
2(a)(36) of the 1940 Act) and any contracts for
forward or future delivery of any security, debt
obligation, currency or commodity, all manner of
derivative instruments and any contracts based on
any index or group of securities, debt
obligations, currencies or commodities, and any
options thereon.
TRANSFER The assignment, transfer, sale, encumbrance,
pledge or other disposition of all or any portion
of an Interest, including any right to receive any
allocations and distributions attributable to an
Interest.
-8-
<PAGE> 13
-------------------------
ARTICLE II
ORGANIZATION; ADMISSION OF PARTNERS
-------------------------
2.1 FORMATION OF LIMITED PARTNERSHIP.
The General Partners shall execute and file in accordance with the
Delaware Act any amendment to the Certificate and shall execute and file with
applicable governmental authorities any other instruments, documents and
certificates which, in the opinion of the Partnership's legal counsel, may from
time to time be required by the laws of the United States of America, the State
of Delaware or any other jurisdiction in which the Partnership shall determine
to do business, or any political subdivision or agency thereof, or which such
legal counsel may deem necessary or appropriate to effectuate, implement and
continue the valid existence and business of the Partnership.
2.2 NAME.
The name of the Partnership shall be "Augusta Partners, L.P." or such
other name as the Manager may hereafter adopt with the approval of the
Individual General Partners upon (i) causing an appropriate amendment to the
Certificate to be filed in accordance with the Delaware Act and (ii) sending
notice thereof to each Partner.
2.3 PRINCIPAL AND REGISTERED OFFICE.
The Partnership shall have its principal office at the principal office of
the Manager, or at such other place designated from time to time by the
Individual General Partners.
The Partnership shall have its registered office in Delaware at 1013
Center Road, Wilmington, Delaware 19805-1297, and shall have Corporation
Service Company as its registered agent for service of process in Delaware,
unless a different registered office or agent is designated from time to time
by the Individual General Partners.
2.4 DURATION.
The term of the Partnership commenced on the filing of the Certificate
with the Secretary of State of Delaware and shall continue until the
Partnership is dissolved pursuant to Section 6.1 hereof (unless its term is
extended).
-9-
<PAGE> 14
2.5 OBJECTIVE AND BUSINESS OF THE PARTNERSHIP.
(a) The objective and business of the Partnership is to purchase,
sell (including short sales), invest and trade in Securities, and to engage in
any financial or derivative transactions relating thereto or otherwise. The
Partnership may execute, deliver and perform all contracts, agreements and
other undertakings and engage in all activities and transactions as may in the
opinion of the General Partners be necessary or advisable to carry out its
objective or business.
(b) The Partnership shall operate as a closed-end, non-diversified,
management investment company in accordance with the 1940 Act and subject to
any fundamental policies and investment restrictions set forth in the Form N-2.
2.6 GENERAL PARTNERS.
(a) Prior to the Closing Date, the Manager may admit any person
who shall agree to be bound by all of the terms of this Agreement as an
Individual General Partner, subject to such person's election as such prior to
the Closing Date by the Manager and the Organizational Limited Partner. After
the Closing Date, the Individual General Partners may, subject to the
provisions of paragraphs (a) and (b) of this Section 2.6 with respect to the
number of and vacancies in the position of Individual General Partners and the
provisions of Section 3.3 hereof with respect to the election of Individual
General Partners by Partners, admit any person who shall agree to be bound by
all of the terms of this Agreement as an Individual General Partner. The
Manager may admit to the Partnership as a substitute Manager any person to
which it has Transferred its Interest as the Manager pursuant to Section 4.4
hereof. The Individual General Partners may admit to the Partnership any
person as a new Manager if the status of the Manager is terminated pursuant to
Section 4.1 hereof and both the Individual General Partners (including a
majority of the Independent General Partners by vote cast in person at a
meeting called for such purpose) and Partners holding not less than a majority
of the total number of votes eligible to be cast by all Partners elect to
continue the business of the Partnership as provided in Section 6.1(a)(3)
hereof. The names and mailing addresses of the General Partners, and the
Capital Contribution of the Manager, shall be set forth on Schedule I hereto.
The General Partners shall be listed separately as the "Individual General
Partners" and the "Manager." The number of Individual General Partners shall
be fixed from time to time by the Individual General Partners but, at the
Closing Date, shall not be less than five. At and after the Closing Date, not
less than a majority of the Individual General Partners shall be
Independent General Partners.
(b) The Manager shall serve for the duration of the term of the
Partnership, unless its status as the Manager shall be sooner terminated
pursuant to Section 4.1 hereof. Each Individual General Partner admitted to
the Partnership shall serve for the duration of the term of the Partnership,
unless his status as an Individual General Partner shall be sooner terminated
pursuant to Section 4.2 hereof. In the event of any vacancy in the position of
an Individual General Partner, the remaining Individual General Partners may
appoint an individual to serve in such capacity, so long as immediately after
such appointment at least two-thirds (2/3) of the Individual General Partners
then serving would have been elected by the Partners. The Individual General
Partners may call a meeting of Partners to fill any vacancy in the position of
an Individual General Partner,
-10-
<PAGE> 15
and shall do so within 60 days after any date on which Individual General
Partners who were elected by the Partners cease to constitute a majority of the
Individual General Partners then serving.
(c) In the event that no Individual General Partner remains to
continue the business of the Partnership, the Manager shall promptly call a
meeting of the Partners, to be held within 60 days after the date on which the
last Individual General Partner ceased to act in that capacity, for the
purpose of determining whether to continue the business of the Partnership and,
if the business shall be continued, of electing the required number of
Individual General Partners. If the Partners shall determine at such meeting
not to continue the business of the Partnership or if the required number of
Individual General Partners is not elected within 60 days after the date on
which the last Individual General Partner ceased to act in that capacity, then
the Partnership shall be dissolved pursuant to Section 6.1 hereof and the assets
of the Partnership shall be liquidated and distributed pursuant to Section 6.2
hereof.
2.7 LIMITED PARTNERS.
The Manager (subject to any policies established by the Individual General
Partners) may at any time and without advance notice to or consent from any
other Partner admit any person who shall agree to be bound by all of the terms
of this Agreement as a Limited Partner. The Manager may in its absolute
discretion reject subscriptions for limited partnership Interests in the
Partnership. The admission of any person as a Limited Partner shall be
effective upon the revision of Schedule I to this Agreement to reflect the name
and the required contribution to the capital of the Partnership of such
additional Limited Partner.
2.8 ORGANIZATIONAL LIMITED PARTNER.
Upon the admission of any Limited Partner, the Organizational Limited
Partner shall withdraw from the Partnership as the Organizational Limited
Partner and shall be entitled to the return of his Capital Contribution, if
any, without interest or deduction.
2.9 BOTH GENERAL AND LIMITED PARTNER.
A Partner may at the same time be a General Partner and a Limited Partner,
in which event such Partner's rights and obligations in each capacity shall be
determined separately in accordance with the terms and provisions hereof or as
provided in the Delaware Act.
2.10 LIMITED LIABILITY.
Except as provided under applicable law, a Limited Partner shall not be
liable for the Partnership's obligations in any amount in excess of the capital
account balance of such Partner, plus such Partner's share of undistributed
profits and assets.
-11-
<PAGE> 16
--------------------------
ARTICLE III
MANAGEMENT
--------------------------
3.1 MANAGEMENT AND CONTROL.
(a) The ultimate authority over the management and control of the
business of the Partnership shall be vested in the Individual General Partners,
who shall have the right, power and authority, on behalf of the Partnership and
in its name, to exercise all rights, powers and authority of general partners
under the Delaware Act and to do all things necessary and proper to carry out
the objective and business of the Partnership and their duties hereunder. The
parties hereto intend that, except to the extent otherwise expressly provided
herein, (i) each Individual General Partner shall be vested with the same
powers, authority and responsibilities on behalf of the Partnership as are
customarily vested in each director of a Delaware corporation and (ii) each
Independent General Partner shall be vested with the same powers, authority and
responsibilities on behalf of the Partnership as are customarily vested in each
director of a closed-end management investment company registered under the 1940
Act that is organized as a Delaware corporation who is not an "interested
person" of such company as such term is defined in the 1940 Act. During any
period in which the Partnership shall have no Individual General Partners, the
Manager shall continue the management and control of the Partnership.
(b) The Manager shall be the designated tax matters partner for
purposes of Section 6231(a)(7) of the Code. Each Partner agrees not to treat,
on his personal return or in any claim for a refund, any item of income, gain,
loss, deduction or credit in a manner inconsistent with the treatment of such
item by the Partnership. The Manager shall have the exclusive authority and
discretion to make any elections required or permitted to be made by the
Partnership under any provisions of the Code or any other revenue laws.
(c) Limited Partners shall have no right to participate in and
shall take no part in the management or control of the Partnership's business
and shall have no right, power or authority to act for or bind the Partnership.
Limited Partners shall have the right to vote on any matters only as provided in
this Agreement or on any matters that require the approval of the holders of
voting securities under the 1940 Act or as otherwise required in the Delaware
Act.
3.2 ACTIONS BY INDIVIDUAL GENERAL PARTNERS
(a) Unless provided otherwise in this Agreement, the Individual
General Partners shall act only: (i) by the affirmative vote of a majority of
the Individual General Partners (which majority shall include any requisite
number of Independent General Partners required by the 1940 Act) present at a
meeting duly called at which a quorum of the Individual General Partners shall
be present (in person or, if in person attendance is not required by the 1940
Act, by telephone)
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or (ii) by unanimous written consent of all of the Individual General Partners
without a meeting, if permissible under the 1940 Act.
(b) The Individual General Partners may designate from time to time
a Principal Individual General Partner, who shall preside at all meetings.
Meetings of the Individual General Partners may be called by the Principal
Individual General Partner or by any two Individual General Partners, and may
be held on such date and at such time and place as the Individual General
Partners shall determine. Each Individual General Partner shall be entitled to
receive written notice of the date, time and place of such meeting within a
reasonable time in advance of the meeting. Notice need not be given to any
Individual General Partner who shall attend a meeting without objecting to the
lack of notice or who shall execute a written waiver of notice with respect to
the meeting. Individual General Partners may attend and participate in any
meeting by telephone except where in person attendance at a meeting is required
by the 1940 Act. A majority of the Individual General Partners shall
constitute a quorum at any meeting.
3.3 MEETINGS OF PARTNERS.
(a) Actions requiring the vote of the Partners may be taken at any
duly constituted meeting of the Partners at which a quorum is present.
Meetings of the Partners may be called by the Manager, by the Individual General
Partners or by Partners holding 25% or more of the total number of votes
eligible to be cast by all Partners, and may be held at such time, date and
place as the Manager shall determine. The Manager shall arrange to provide
written notice of the meeting, stating the date, time and place of the meeting
and the record date therefor, to each Partner entitled to vote at the meeting
within a reasonable time prior thereto. Failure to receive notice of a meeting
on the part of any Partner shall not affect the validity of any act or
proceeding of the meeting, so long as a quorum shall be present at the meeting.
Only matters set forth in the notice of a meeting may be voted on by the
Partners at a meeting. The presence in person or by proxy of Partners holding a
majority of the total number of votes eligible to be cast by all Partners as of
the record date shall constitute a quorum at any meeting. In the absence of a
quorum, the Manager may adjourn a meeting to the time or times as determined by
the Manager without additional notice to the Partners. Except as otherwise
required by any provision of this Agreement or of the 1940 Act, (i) those
candidates receiving a plurality of the votes cast at any meeting of Partners
shall be elected as Individual General Partners and (ii) all other actions of
the Partners taken at a meeting shall require the affirmative vote of Partners
holding a majority of the total number of votes eligible to be cast by those
Partners who are present in person or by proxy at such meeting.
(b) Each Partner shall be entitled to cast at any meeting of
Partners a number of votes equivalent to such Partner's Partnership Percentage
as of the record date for such meeting. The Manager shall establish a record
date not less than 10 nor more than 60 days prior to the date of any meeting of
Partners to determine eligibility to vote at such meeting and the number of
votes which each Partner will be entitled to cast thereat, and shall maintain
for each such record date a list setting forth the name of each Partner and the
number of votes that each Partner will be entitled to cast at the meeting.
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(c) A Partner may vote at any meeting of Partners by a proxy
properly executed in writing by the Partner and filed with the Partnership
before or at the time of the meeting. A proxy may be suspended or revoked, as
the case may be, by the Partner executing the proxy by a later writing delivered
to the Partnership at any time prior to exercise of the proxy or if the Partner
executing the proxy shall be present at the meeting and decide to vote in
person. Any action of the Partners that is permitted to be taken at a meeting
of the Partners may be taken without a meeting if consents in writing, setting
forth the action taken, are signed by Partners holding a majority of the total
number of votes eligible to be cast or such greater percentage as may be
required in order to approve such action.
3.4 ADVICE AND MANAGEMENT.
(a) The Manager shall provide Advice and Management to the
Partnership under the general supervision of the Individual General Partners,
subject to the initial approval thereof of such authority prior to the Closing
Date by the Individual General Partners (including the vote of a majority of the
Independent General Partners at a meeting called for such purpose) and by the
Organizational Limited Partner. The authority of the Manager granted under this
Section 3.4 shall become effective upon such initial approvals and shall
terminate: (i) if any period of 12 consecutive months following the first twelve
consecutive months of the effectiveness of such authority shall conclude without
the approval of the continuation of such authority by (A) the vote of a majority
(as defined in the 1940 Act) of the outstanding voting securities of the
Partnership or (B) the Individual General Partners, and in either case, approval
by a majority of the Independent General Partners by vote cast in person at a
meeting called for such purpose; (ii) if revoked by the Individual General
Partners or by vote of a majority (as defined in the 1940 Act) of the
outstanding voting securities of the Partnership, in either case with 60 days
prior written notice to the Manager; (iii) at the election of the Manager with
60 days prior written notice to the Individual General Partners; or (iv) upon
the termination of the status of the Manager pursuant to Section 4.1(a) hereof
other than by reason of a Transfer of the Manager's Interest pursuant to Section
4.4 hereof that does not involve an "assignment" within the meaning of the 1940
Act. The authority of the Manager under this Section 3.4 shall not be
terminated in the event of a Transfer of the Manager's Interest pursuant to
Section 4.4 that does not involve an "assignment" within the meaning of the 1940
Act, and shall instead be vested in such Transferee. The authority of the
Manager to provide Advice and Management pursuant to this Section 3.4 shall
automatically terminate upon the occurrence of any event in connection with the
Manager, its provision of Advice and Management, this Agreement or otherwise
constituting an "assignment" within the meaning of the 1940 Act. If the
authority of the Manager under this Section 3.4 is terminated as provided
herein, the Individual General Partners may appoint, subject to the approval
thereof by a majority of the Independent General Partners and by vote of a
majority (as defined in the 1940 Act) of the outstanding voting securities of
the Partnership, a person or persons to provide Advice and Management to the
Partnership, and shall cause the terms and conditions of such appointment to be
stated in an agreement executed on behalf of the Partnership and such person or
persons.
(b) So long as the Manager has been and continues to be authorized
to provide Advice and Management, it shall have, subject to any policies and
restrictions set forth in any current offering memorandum issued by the
Partnership, this Agreement, the Form N-2 or the 1940
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Act, or adopted from time to time by the Individual General Partners and
communicated in writing to the Manager, full discretion and authority (i) to
manage the assets and liabilities of the Partnership and (ii) to manage the
day-to-day business and affairs of the Partnership. In furtherance of and
subject to the foregoing, the Manager shall have full power and authority on
behalf of the Partnership:
(1) to purchase, sell, exchange, trade and otherwise
deal in and with Securities and other property of the
Partnership and to loan Securities of the Partnership;
(2) to open, maintain and close accounts with brokers
and dealers, to make all decisions relating to the manner,
method and timing of Securities and other investment
transactions, to select and place orders with brokers, dealers
or other financial intermediaries for the execution, clearance
or settlement of any transactions on behalf of the Partnership
on such terms as the Manager considers appropriate, and to
grant limited discretionary authorization to such persons with
respect to price, time and other terms of investment and
trading transactions;
(3) to borrow from banks or other financial
institutions and to pledge Partnership assets as collateral
therefor, to trade on margin, to exercise or refrain from
exercising all rights regarding the Partnership's investments,
and to instruct custodians regarding the settlement of
transactions, the disbursement of payments to Partners with
respect to repurchases of Interests and the payment of
Partnership expenses, including those relating to the
organization and registration of the Partnership;
(4) to issue to any Partner an instrument certifying
that such Partner is the owner of an Interest;
(5) to call and conduct meetings of Partners at the
Partnership's principal office or elsewhere as it may
determine and to assist the Individual General Partners in
calling and conducting meetings of the Individual General
Partners;
(6) to engage such attorneys, accountants and other
professional advisers and consultants as the Manager may deem
necessary or advisable in connection with the affairs of the
Partnership or as may be directed by the Individual General
Partners;
(7) to engage the services of others to assist the
Manager in providing, or to provide under the Manager's
control and supervision, Advice and Management to the
Partnership at the expense of the Manager;
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(8) to assist in the preparation and filing of any
required tax or information returns to be made by the
Partnership;
(9) as directed by the Individual General Partners,
to commence, defend and conclude any action, suit,
investigation or other proceeding that pertains to the
Partnership or any assets of the Partnership;
(10) if directed by the Individual General Partners,
to arrange for the purchase of (A) Insurance, or (B) any
insurance covering the potential liabilities of the
Partnership or relating to the performance of the Individual
General Partners or the Manager, or any of their principals,
directors, officers, members, employees and agents; and
(11) to execute, deliver and perform such contracts,
agreements and other undertakings, and to engage in such
activities and transactions as are necessary and appropriate
for the conduct of the business of the Partnership.
3.5 CUSTODY OF ASSETS OF THE PARTNERSHIP.
The Manager shall not have any authority to hold or have possession or
custody of any funds, Securities or other properties of the Partnership. The
physical possession of all funds, Securities or other properties of the
Partnership shall at all times, be held, controlled and administered by one or
more custodians retained by the Partnership. The Manager shall have no
responsibility with respect to the collection of income, physical acquisition
or the safekeeping of the funds, Securities or other assets of the Partnership,
and all such duties of collection, physical acquisition or safekeeping shall be
the sole obligation of such custodians.
3.6 BROKERAGE.
In the course of selecting brokers, dealers and other financial
intermediaries for the execution, clearance and settlement of transactions for
the Partnership pursuant to section 3.4(b)(2) and (3) hereof, the Manager may,
subject to such policies as are adopted by the Partnership and to the
provisions of applicable law, agree to such commissions, fees and other charges
on behalf of the Partnership as it shall deem reasonable in the circumstances
taking into account all such factors as it deems relevant (including the
quality of research and other services made available to it even if such
services are not for the exclusive benefit of the Partnership and the cost of
such services does not represent the lowest cost available) and shall be under
no obligation to combine or arrange orders so as to obtain reduced charges
unless otherwise required under the federal securities laws. The Manager may,
subject to such procedures as may be adopted by the Individual General
Partners, use Affiliates of the Manager as brokers to effect the Partnership's
Securities transactions and the Partnership may pay such commissions to such
brokers in such amounts as are permissible under applicable law.
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3.7 OTHER ACTIVITIES OF PARTNERS.
(a) The General Partners shall not be required to devote full time
to the affairs of the Partnership, but shall devote such time as may reasonably
be required to perform their obligations under this Agreement.
(b) Any Partner, and any Affiliate of any Partner, may engage in or
possess an interest in other business ventures or commercial dealings of every
kind and description, independently or with others, including, but not limited
to, acquisition and disposition of Securities, provision of investment advisory
or brokerage services, serving as directors, officers, employees, advisors or
agents of other companies, partners of any partnership, members of any limited
liability company, or trustees of any trust, or entering into any other
commercial arrangements. No Partner shall have any rights in or to such
activities of any other Partner, or any profits derived therefrom.
(c) The Manager, and its members, directors, officers, employees and
beneficial owners, may from time to time acquire, possess, manage, hypothecate
and dispose of Securities or other investment assets, and engage in any other
investment transaction, for any account over which it or they exercise
discretionary authority, including their own accounts, the accounts of their
families, the account of any entity in which they have a beneficial interest or
the accounts of others for whom they may provide investment advisory or other
services, notwithstanding the fact that the Partnership may have or may take a
position of any kind or otherwise; provided, however, that the Manager shall
not cause the Partnership to purchase any asset from or sell any asset to any
such discretionary account without the consent of the Individual General
Partners and in accordance with the 1940 Act.
3.8 DUTY OF CARE.
(a) A General Partner shall not be liable to the Partnership or to
any of its Partners for any loss or damage occasioned by any act or omission in
the performance of his or its services under this Agreement, unless it shall be
determined by final judicial decision on the merits from which there is no
further right to appeal that such loss is due to an act or omission of such
General Partner constituting willful misfeasance, bad faith, gross negligence
or reckless disregard of the duties involved in the conduct of such General
Partner's office.
(b) Limited Partners not in breach of any obligation hereunder or
under any agreement pursuant to which the Limited Partner subscribed for an
Interest shall be liable to the Partnership, any Partner or third parties only
as provided under the Delaware Act.
3.9 INDEMNIFICATION.
(a) To the fullest extent permitted by law, the Partnership shall,
subject to Section 3.9(b) hereof, indemnify each General Partner (including for
this purpose each director, officer, member, partner, employee or agent of, or
any person who controls, a General Partner, and their executors, heirs, assigns,
successors or other legal representatives), against all losses, claims, damages,
liabilities, costs and expenses, including, but not limited to, amounts paid in
satisfaction
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of judgments, in compromise, or as fines or penalties, and reasonable counsel
fees, incurred in connection with the defense or disposition of any action,
suit, investigation or other proceeding, whether civil or criminal, before any
judicial, arbitral, administrative or legislative body, in which such
indemnitee may be or may have been involved as a party or otherwise, or with
which such indemnitee may be or may have been threatened, while in office or
thereafter, by reason of being or having been a general partner of the
Partnership or the past or present performance of services to the Partnership
by such indemnitee, except to the extent such loss, claim, damage, liability,
cost or expense shall have been finally determined in a decision on the merits
in any such action, suit, investigation or other proceeding to have been
incurred or suffered by such indemnitee by reason of willful misfeasance, bad
faith, gross negligence, or reckless disregard of the duties involved in the
conduct of such indemnitee's office. The rights of indemnification provided
under this Section 3.9 shall not be construed so as to provide for
indemnification of a General Partner for any liability (including liability
under federal securities laws which, under certain circumstances, impose
liability even on persons that act in good faith) to the extent (but only to
the extent) that such indemnification would be in violation of applicable law,
but shall be construed so as to effectuate the applicable provisions of this
Section 3.9 to the fullest extent permitted by law.
(b) Expenses, including reasonable counsel fees, so incurred by any
such indemnitee (but excluding amounts paid in satisfaction of judgments, in
compromise, or as fines or penalties), may be paid from time to time by the
Partnership in advance of the final disposition of any such action, suit,
investigation or proceeding upon receipt of an undertaking by or on behalf of
such indemnitee to repay to the Partnership amounts so paid if it shall
ultimately be determined that indemnification of such expenses is not
authorized under Section 3.9(a) hereof; provided, however, that (i) such
indemnitee shall provide security for such undertaking, (ii) the Partnership
shall be insured by or on behalf of such indemnitee against losses arising by
reason of such indemnitee's failure to fulfill his or its undertaking, or (iii)
a majority of the Independent General Partners (excluding any General Partner
who is either seeking advancement of expenses hereunder or is or has been a
party to any other action, suit, investigation or proceeding involving claims
similar to those involved in the action, suit, investigation or proceeding
giving rise to a claim for advancement of expenses hereunder) or independent
legal counsel in a written opinion shall determine based on a review of readily
available facts (as opposed to a full trial-type inquiry) that there is reason
to believe such indemnitee ultimately will be entitled to indemnification.
(c) As to the disposition of any action, suit, investigation or
proceeding (whether by a compromise payment, pursuant to a consent decree or
otherwise) without an adjudication or a decision on the merits by a court, or by
any other body before which the proceeding shall have been brought, that an
indemnitee is liable to the Partnership or its Partners by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties
involved in the conduct of such indemnitee's office, indemnification shall be
provided pursuant to Section 3.9(a) hereof if (i) approved as in the best
interests of the Partnership by a majority of the Independent General Partners
(excluding any General Partner who is either seeking indemnification hereunder
or is or has been a party to any other action, suit, investigation or proceeding
involving claims similar to those involved in the action, suit, investigation or
proceeding giving rise to a claim for indemnification hereunder) upon a
determination based upon a review of readily available facts (as opposed to a
full trial-type inquiry) that such indemnitee acted in good faith and in the
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reasonable belief that such actions were in the best interests of the
Partnership and that such indemnitee is not liable to the Partnership or its
Partners by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of such indemnitee's
office, or (ii) the Individual General Partners secure a written opinion of
independent legal counsel based upon a review of readily available facts (as
opposed to a full trial-type inquiry) to the effect that such indemnification
would not protect such indemnitee against any liability to the Partnership or
its Partners to which such indemnitee would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of such indemnitee's office.
(d) Any indemnification or advancement of expenses made pursuant to
this Section 3.9 shall not prevent the recovery from any indemnitee of any such
amount if such indemnitee subsequently shall be determined in a decision on the
merits in any action, suit, investigation or proceeding involving the liability
or expense that gave rise to such indemnification or advancement of expenses to
be liable to the Partnership or its Partners by reason of willful misfeasance,
bad faith, gross negligence, or reckless disregard of the duties involved in
the conduct of such indemnitee's office. In (i) any suit brought by a General
Partner (or other person entitled to indemnification hereunder) to enforce a
right to indemnification under this Section 3.9 it shall be a defense that, and
(ii) in any suit in the name of the Partnership to recover any indemnification
or advancement of expenses made pursuant to this Section 3.9 the Partnership
shall be entitled to recover such expenses upon a final adjudication that, the
General Partner or other person claiming a right to indemnification under this
Section 3.9 has not met the applicable standard of conduct set forth in this
Section 3.9. In any such suit brought to enforce a right to indemnification or
to recover any indemnification or advancement of expenses made pursuant to this
Section 3.9, the burden of proving that the General Partner or other person
claiming a right to indemnification is not entitled to be indemnified, or to
any indemnification or advancement of expenses, under this Section 3.9 shall be
on the Partnership (or any Partner acting derivatively or otherwise on behalf
of the Partnership or its Partners).
(e) An indemnitee may not satisfy any right of indemnification or
advancement of expenses granted in this Section 3.9 or to which he or it may
otherwise be entitled except out of the assets of the Partnership, and no
Partner shall be personally liable with respect to any such claim for
indemnification or advancement of expenses.
(f) The rights of indemnification provided hereunder shall not be
exclusive of or affect any other rights to which any person may be entitled by
contract or otherwise under law. Nothing contained in this Section 3.9 shall
affect the power of the Partnership to purchase and maintain liability
insurance on behalf of any General Partner or other person.
3.10 FEES, EXPENSES AND REIMBURSEMENT.
(a) So long as Opco provides Opco Services to the Partnership, it
shall be entitled to receive such fees as may be agreed to by Opco and the
Partnership.
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(b) The Individual General Partners may cause the Partnership to
compensate each Individual General Partner for his services as such. In
addition, the Individual General Partners shall be reimbursed by the
Partnership for reasonable out-of-pocket expenses incurred by them in
performing their duties under this Agreement.
(c) The Partnership shall bear all expenses incurred in the
business of the Partnership other than those specifically required to be borne
by the Manager pursuant hereto. Expenses to be borne by the Partnership
include, but are not limited to, the following:
(1) all costs and expenses related to
portfolio transactions and positions for the
Partnership's account, including, but not limited to,
brokerage commissions, research fees, interest and
commitment fees on loans and debit balances, borrowing
charges on Securities sold short, dividends on
Securities sold short but not yet purchased, custodial
fees, margin fees, transfer taxes and premiums, taxes
withheld on foreign dividends and indirect expenses from
investments in investment funds;
(2) expenses incurred in obtaining
research and other information or systems utilized for
portfolio management purposes by the Manager, including
the costs of publication subscriptions or other news
services, statistics and pricing services, service
contracts for quotation equipment and related hardware
and software;
(3) all costs and expenses associated
with the organization and registration of the
Partnership (which shall be amortized over a 60 month
period) and compliance with any applicable federal or
state laws;
(4) the costs and expenses of holding any
meetings of any Partners that are regularly scheduled,
permitted or are required to be held by this Agreement,
the 1940 Act or other applicable law;
(5) fees and disbursements of any
attorneys, accountants, auditors and other consultants
and professionals engaged on behalf of the Partnership;
(6) the costs of a fidelity bond and any
liability insurance obtained on behalf of the
Partnership or its General Partners;
(7) any fees payable to Opco for Opco
Services and the fees of custodians and persons
providing administrative services to the Partnership;
and
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(8) such other types of expenses as may
be approved from time to time by the Individual General
Partners, other than those required to be borne by the
Manager, as provided in Section 3.10(d) below.
The Manager shall be entitled to reimbursement from the Partnership for any of
the above expenses that it pays on behalf of the Partnership.
(d) Subject to procuring any required regulatory approvals, from
time to time the Partnership may, alone or in conjunction with other accounts
for which the Manager, or any Affiliate of the Manager, acts as general partner
or investment adviser, purchase Insurance in such amounts, from such insurers
and on such terms as the Individual General Partners shall determine.
---------------------------------
ARTICLE IV
TERMINATION OF STATUS AS GENERAL
PARTNER, TRANSFERS AND REPURCHASES
---------------------------------
4.1 TERMINATION OF STATUS OF THE MANAGER.
(a) The status of the Manager shall terminate if the Manager (i) shall be
dissolved or otherwise shall terminate its existence; (ii) shall voluntarily
withdraw as Manager; (iii) shall be removed; (iv) shall transfer its Interest
as Manager as permitted under Section 4.4 hereof and such person to which such
Interest is transferred is admitted as a substitute Manager pursuant to Section
2.6(a) hereof; or (v) shall otherwise cease to be a general partner of the
Partnership under Section 17-402(4) or (5) of the Delaware Act.
(b) The Manager may not voluntarily withdraw as Manager until the earliest
of (i) one year from the date on which the Manager shall have given the
Individual General Partners written notice of its intention to effect such
withdrawal (or upon lesser notice if in the opinion of counsel to the
Partnership, such withdrawal is not likely to cause the Partnership to lose its
partnership tax classification or as otherwise permitted by Rule 2a19-2 of the
1940 Act); (ii) the date on which the authority of the Manager to provide
Advice and Management is terminated (other than at the election of the Manager)
pursuant to Section 3.4(a) hereof, unless within 30 days after such
termination, the Individual General Partners request the Manager not to
withdraw, in which case 180 days after the date of such termination; and (iii)
the date on which one or more persons shall have agreed to assume the
obligations of the Manager hereunder with the approval of the Individual
General Partners and such other approvals as may be required by the 1940 Act.
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4.2 TERMINATION OF STATUS OF AN INDIVIDUAL GENERAL PARTNER.
The status of an Individual General Partner shall terminate if the
Individual General Partner (i) shall die; (ii) shall be adjudicated
incompetent; (iii) shall voluntarily withdraw as an Individual General Partner
(upon not less than 90 days' prior written notice to the other Individual
General Partners); (iv) shall be removed; (v) shall be certified by a physician
to be mentally or physically unable to perform his duties hereunder; (vi) shall
be declared bankrupt by a court with appropriate jurisdiction, file a petition
commencing a voluntary case under any bankruptcy law or make an assignment for
the benefit of creditors; (vii) shall have a receiver appointed to administer
the property or affairs of such Partner; or (viii) shall otherwise cease to be
a general partner of the Partnership under the Delaware Act.
4.3 REMOVAL OF GENERAL PARTNERS.
Any General Partner may be removed either by (a) the vote or written
consent of at least two-thirds (2/3) of the Individual General Partners not
subject to the removal vote or (b) the vote or written consent of Partners
holding not less than two-thirds (2/3) of the total number of votes eligible to
be cast by all Partners.
4.4 TRANSFER OF INTERESTS OF GENERAL PARTNERS.
The Manager may not Transfer its Interest as the Manager except to a
person who has agreed to be bound by all of the terms of this Agreement and, if
the Transfer would constitute an "assignment" within the meaning of the 1940
Act, with the prior approval of (a) the Individual General Partners (including
a majority of the Independent General Partners by vote cast in person at a
meeting called for such purpose) and (b) Partners holding a majority of the
total number of votes eligible to be cast by all Partners. By executing this
Agreement, each other Partner shall be deemed to have consented to any such
Transfer permitted by the preceding sentence. Individual General Partners may
not Transfer their Interests as Individual General Partners.
4.5 TRANSFER OF INTERESTS OF LIMITED PARTNERS.
(a) An Interest or portion thereof of a Limited Partner may be
Transferred only (i) by operation of law pursuant to the death, bankruptcy,
insolvency or dissolution of such Limited Partner or (ii) with the written
consent of the Manager (which may be withheld in its sole and absolute
discretion) in connection with a Transfer to an entity that does not result in a
change of beneficial ownership. In addition, the Manager may not consent to a
Transfer of an Interest or a portion thereof of a Limited Partner unless the
person to whom such Interest is transferred (or each of such person's beneficial
owners if such a person is a "private investment company" as defined in Rule
205-3(g)(2) under the Advisers Act) is a person whom the Manager believes meets
the requirements of paragraph (b)(1) of Rule 205-3 under the Advisers Act. Any
transferee which acquires an Interest by operation of law as the result of the
death, bankruptcy, insolvency or dissolution of a Limited Partner or otherwise,
shall be entitled to the allocations and distributions allocable to the Interest
so acquired and to Transfer such Interest in accordance with the terms of this
Agreement, but shall not be entitled to the other rights of a Limited Partner
unless and until
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such transferee becomes a substituted Limited Partner. If a Limited Partner
transfers an Interest or portion thereof with the approval of the Manager, the
Manager, unless otherwise directed by the Individual General Partners, shall
promptly take all necessary actions so that each transferee or successor to
whom such Interest or portion thereof is transferred is admitted to the
Partnership as a Limited Partner. Each Limited Partner and transferee agrees
to pay all expenses, including attorneys' and accountants' fees, incurred by
the Partnership in connection with such Transfer.
(b) Each Limited Partner shall indemnify and hold harmless the
Partnership, the Individual General Partners, the Manager, each other Limited
Partner and any Affiliate of the foregoing against all losses, claims, damages,
liabilities, costs and expenses (including legal or other expenses incurred in
investigating or defending against any such losses, claims, damages,
liabilities, costs and expenses or any judgments, fines and amounts paid in
settlement), joint or several, to which such persons may become subject by
reason of or arising from (i) any Transfer made by such Limited Partner in
violation of this Section 4.5 and (ii) any misrepresentation by such Limited
Partner in connection with any such Transfer.
4.6 REPURCHASE OF INTERESTS.
(a) Except as otherwise provided in this Agreement, no Partner or
other person holding an Interest or portion thereof shall have the right to
withdraw or tender to the Partnership for repurchase an Interest or portion
thereof. The Individual General Partners may from time to time, in their
complete and exclusive discretion and on such terms and conditions as they may
determine, direct the Manager to cause the Partnership to repurchase Interests
or portions thereof pursuant to written tenders. However, the Partnership shall
not offer to repurchase Interests on more than one occasion during any one
Fiscal Year (other than during its first full Fiscal Year, during which it may
make two such offers) unless it has received an opinion of counsel to the effect
that such more frequent offers would not cause any adverse tax consequences to
the Partnership or its investors. In determining whether to cause the
Partnership to repurchase Interests or portions thereof pursuant to written
tenders, the Individual General Partners shall consider the recommendation of
the Manager, and shall also consider the following factors:
(1) whether any Partners have requested
to tender Interests or portions thereof to the
Partnership;
(2) the liquidity of the Partnership's
assets;
(3) the investment plans and working
capital requirements of the Partnership;
(4) the relative economies of scale with
respect to the size of the Partnership;
(5) the history of the Partnership in
repurchasing Interests or portions thereof;
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(6) the economic condition of the securities
markets; and
(7) the anticipated tax consequences of any
proposed repurchases of Interests or portions
thereof.
The Individual General Partners shall cause the Partnership to repurchase
Interests or portions thereof pursuant to written tenders only on terms fair to
the Partnership and to all Partners or one or more classes of Partners
(including persons holding Interests acquired from Partners), as applicable.
(b) A Limited Partner who tenders for repurchase such
Partner's Interest or portion thereof shall be required to maintain a Capital
Account balance equal to the greater of $150,000 or the amount of Incentive
Allocation that would be debited against such Capital Account if the date of
repurchase of such Interest or portion thereof were a date on which an
Incentive Allocation would otherwise be made.
(c) Except as set forth in Section 4.6(d) and (e) hereof,
the Manager may tender its Interest or a portion thereof as a general partner
of the Partnership under Section 4.6(a) hereof only if and to the extent that
(1) such repurchase would not cause the value of the Capital Account of the
Manager to be less than the value thereof required to be maintained pursuant
to Section 5.1(c) hereof or (2), in the opinion of legal counsel to the
Partnership, such repurchase would not jeopardize the classification of the
Partnership as a partnership for U.S. federal income tax purposes.
(d) Not later than 180 days after termination pursuant to
Section 3.4(a) hereof of its authority to provide Advice and Management, the
Manager may, by written notice to the Individual General Partners, tender to
the Partnership all or any portion of its Capital Account which it is not
required to maintain pursuant to Section 5.1(c) hereof until the termination of
its status as the Manager pursuant to Section 4.1(a) hereof. Not later than 30
days after the receipt of such notice, the Individual General Partners shall
cause the tendered portion of such Capital Account to be repurchased by the
Partnership for cash, subject to any adjustment pursuant to Section 5.7 hereof.
(e) If the Manager's status as Manager is terminated
pursuant to Section 4.1 hereof and the business of the Partnership is continued
pursuant to Section 6.1(a)(3) hereof, the former Manager (or its trustee or
other legal representative) may, by written notice to the Individual General
Partners within 60 days of the action resulting in the continuation of the
Partnership pursuant to Section 6.1(a)(3) hereof, tender to the Partnership
all or any portion of its Interest. Not later than thirty (30) days after the
receipt of such notice, the Individual General Partners shall cause such
Interest to be repurchased by the Partnership for cash in an amount equal to
the balance of the former Manager's Capital Account or applicable portion
thereof, subject to any adjustment pursuant to Section 5.7 hereof. If the
former Manager does not tender to the Partnership all of its Interest as
permitted by this Section 4.6(d) such Interest shall be thereafter deemed to be
and shall be treated in all respects as the Interest of a Limited Partner.
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(f) The Individual General Partners may cause the
Partnership to repurchase an Interest or portion thereof of a Limited Partner
or any person acquiring an Interest or portion thereof from or through a
Limited Partner in the event that the Individual General Partners determine or
have reason to believe that:
(1) such an Interest or portion thereof has been
transferred in violation of Section 4.5 hereof,
or such an Interest or portion thereof has
vested in any person by operation of law as the
result of the death, dissolution, bankruptcy
or incompetency of a Partner;
(2) ownership of such an Interest by a Partner or
other person will cause the Partnership to be
in violation of, or require registration of any
Interest or portion thereof under, or subject
the Partnership to additional registration or
regulation under, the securities or commodities
laws of the United States or any other
relevant jurisdiction;
(3) continued ownership of such an Interest may be
harmful or injurious to the business or
reputation of the Partnership, the Individual
General Partners or the Manager, or may subject
the Partnership or any of the Partners to an
undue risk of adverse tax or other fiscal
consequences;
(4) any of the representations and warranties made
by a Partner in connection with the acquisition
of an Interest or portion thereof was not true
when made or has ceased to be true; or
(5) it would be in the best interests of the
Partnership, as determined by the Individual
General Partners in their absolute discretion,
for the Partnership to repurchase such an
Interest or portion thereof.
(g) Repurchases of Interests or portions thereof by the
Partnership shall be payable promptly after the effective date of such
repurchase in cash, without interest, or, in the discretion of the Manager, in
marketable Securities (or any combination of marketable Securities and cash)
having a value, determined as of the date of repurchase, equal to the amount
to be repurchased. All such repurchases shall be subject to any and all
conditions as the Individual General Partners may impose in their sole
discretion and shall be effective as of a date set by the Individual General
Partners which is not less than 60 days after receipt by the Partnership of all
eligible written tenders of Interests or portion thereof. The amount due to
any Partner whose Interest or portion thereof is repurchased shall be equal to
the value of such Partner's Capital Account or portion thereof as applicable as
of the effective date of repurchase, after giving effect to all allocations to
be made to such Partner's Capital Account as of such date.
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------------------------------------
ARTICLE V
CAPITAL
------------------------------------
5.1 CONTRIBUTIONS TO CAPITAL.
(a) The minimum initial contribution of each Partner to the
capital of the Partnership shall be such amount as the Manager, in its
discretion, may determine from time to time (subject to any policies
established by the Individual General Partners), but in no event shall be less
than $150,000. The amount of the initial contribution of each Partner shall
be recorded by the Manager upon acceptance as a contribution to the capital of
the Partnership. Individual General Partners of the Partnership, but may make
voluntary contributions of capital to the Partnership as general partners of the
Partnership, but may make voluntary contributions to the capital of the
Partnership as limited partners if permitted by the Manager.
(b) The Limited Partners may make additional contributions
to the capital of the Partnership of at least $25,000 and effective as of such
times as the Manager, in its discretion may permit (subject to any policies
established by the Individual General Partners), but no Limited Partner shall
be obligated to make any additional contribution to the capital of the
Partnership except to the extent provided in Section 5.7 hereof.
(c) The Manager may make additional contributions to the
capital of the Partnership of at least $25,000 and effective as of such times
as it may determine, and subject to the exception set forth in the following
sentence, shall be required to make additional contributions to the capital of
the Partnership from time to time to the extent necessary to maintain the
balance of its Capital Account at an amount which results in its Partnership
Percentage being not less than 1%. If both total contributions to the capital
of the Partnership and the aggregate Capital Account balances exceed $50
million, the Manager shall be permitted to maintain a Capital Account balance
which is less than the amount specified in the preceding sentence, provided that
such balance shall not be less than $500,000, and provided further that such
balance shall not be less than an amount which results in the Manager's
Partnership Percentage being equal to the greater of (a) 1% divided by the ratio
which total contributions to the capital of the Partnership from all Partners
bears to $50 million, and (b) 0.2%. Except as provided above or in the Delaware
Act, no General Partner shall be required or obligated to make any additional
contributions to the capital of the Partnership.
(d) Except as otherwise permitted by the Manager, (i)
initial and any additional contributions to the capital of the Partnership by
any Partner shall be payable in cash or in such Securities that the Manager, in
its absolute discretion, may agree to accept on behalf of the Partnership, and
(ii) initial and any additional contributions in cash shall be payable in
readily available funds at the date of the proposed acceptance of the
contribution. The Partnership shall charge each Partner making a contribution
in Securities to the capital of the Partnership such amount as may be determined
by the Individual General Partners not exceeding 2% of the value of such
contribution in order to reimburse the Partnership for any costs incurred by the
Partnership by
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reason of accepting such Securities, and any such charge shall be due and
payable by the contributing Partner in full at the time the contribution to the
capital of the Partnership to which such charges relate is due. The value of
contributed Securities shall be determined in accordance with Section 7.3
hereof as of the date of contribution.
(e) The minimum initial and additional contribution amounts
set forth in (a) and (b) of this Section 5.1 may be reduced by the Manager upon
the approval of the Individual General Partners, if the Partnership received an
opinion of counsel to the effect that such reduction would not have adverse tax
consequences to the Partnership or its Partners.
5.2 RIGHTS OF PARTNERS TO CAPITAL
No Partner shall be entitled to interest on his contributions
to the capital of the Partnership, nor shall any Partner be entitled to the
return of any capital of the Partnership except (i) upon the repurchase by the
Partnership of a part or all of such Partner's Interest pursuant to Section 4.6
hereof, (ii) pursuant to the provisions of Section 5.7(c) hereof or (iii) upon
the liquidation of the Partnership's assets pursuant to Section 6.2 hereof. No
Partner shall be liable for the return of any such amounts. No Partner shall
have the right to require partition of the Partnership's property or to compel
any sale or appraisal of the Partnership's assets.
5.3 CAPITAL ACCOUNTS.
(a) The Partnership shall maintain a separate Capital
Account for each Partner.
(b) Each Partner's Capital Account shall have an initial
balance equal to the amount of cash and the value of any Securities (determined
in accordance with Section 7.3 hereof) constituting such Partner's initial
contribution to the capital of the Partnership.
(c) Each Partner's Capital Account shall be increased by
the sum of (i) the amount of cash and the value of any Securities (determined
in accordance with Section 7.3 hereof) constituting additional contributions by
such Partner to the capital of the Partnership permitted pursuant to Section
5.1 hereof, plus (ii) any amount credited to such Partner's Capital Account
pursuant to Sections 5.4 through 5.7 hereof.
(d) Each Partner's Capital Account shall be reduced by the
sum of (i) the amount of any repurchase of the Interest, or portion thereof, of
such Partner or distributions to such Partner pursuant to Sections 4.6, 5.12 or
6.2 hereof which are not reinvested, plus (ii) any amounts debited against such
Partner's Capital Account pursuant to Sections 5.4 through 5.8 hereof.
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5.4 ALLOCATION OF NET PROFIT AND LOSS.
Subject to Section 5.9 hereof, as of the last day of each Fiscal
Period, any Net Profit or Net Loss for the Fiscal Period shall be allocated
among and credited to or debited against the Capital Accounts of the Partners
in accordance with their respective Partnership Percentages for such Fiscal
Period.
5.5 ALLOCATION OF INSURANCE PREMIUMS AND PROCEEDS.
(a) Any premiums payable by the Partnership for Insurance
purchased pursuant to Section 3.10(d) hereof shall be apportioned evenly over
each Fiscal Period or portion thereof falling within the period to which such
premiums relate under the terms of such Insurance, and the portion of the
premiums so apportioned to any Fiscal Period shall be allocated among and
debited against the Capital Accounts of each Partner who is a partner of the
Partnership during such Fiscal Period in accordance with such Partner's
Partnership Percentage for such Fiscal Period.
(b) Proceeds, if any, to which the Partnership may become
entitled pursuant to such Insurance shall be allocated among and credited to
the Capital Accounts of each Partner who is a partner of the Partnership during
the Fiscal Period in which the event which gives rise to recovery of proceeds
occurs in accordance with such Partner's Partnership Percentage for such Fiscal
Period.
5.6 ALLOCATION OF CERTAIN WITHHOLDING TAXES AND OTHER EXPENDITURES.
(a) If the Partnership incurs a withholding tax or other tax
obligation with respect to the share of Partnership income allocable to any
Partner, then the Manager, without limitation of any other rights of the
Partnership or the General Partners, shall cause the amount of such obligation
to be debited against the Capital Account of such Partner when the Partnership
pays such obligation, and any amounts then or thereafter distributable to such
Partner shall be reduced by the amount of such taxes. If the amount of such
taxes is greater than any such distributable amounts, then such Partner and any
successor to such Partner's Interest shall pay to the Partnership as a
contribution to the capital of the Partnership, upon demand of the Manager, the
amount of such excess. The Manager shall not be obligated to apply for or
obtain a reduction of or exemption from withholding tax on behalf of any Partner
that may be eligible for such reduction or exemption; provided, that in the
event that the Manager determines that a Partner is eligible for a refund of any
withholding tax, the Manager may, at the request and expense of such Partner,
assist such Partner in applying for such refund.
(b) Except as otherwise provided for in this Agreement and
unless prohibited by the 1940 Act, any expenditures payable by the Partnership,
to the extent determined by the Manager to have been paid or withheld on behalf
of, or by reason of particular circumstances applicable to, one or more but
fewer than all of the Partners, shall be charged to only those Partners on whose
behalf such payments are made or whose particular circumstances gave rise to
such payments. Such charges shall be debited from the Capital Accounts of such
Partners as of the close of the Fiscal Period during which any such items were
paid or accrued by the Partnership.
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5.7 RESERVES.
(a) Appropriate reserves may be created, accrued and charged
against Net Assets and proportiocontingent liabilities, if any, as of the date
any such contingent liability becomes known to the Manager, such reserves to be
in the amounts which the Manager in its sole discretion deem necessary or
appropriate. The Manager may increase or reduce any such reserves from time to
time by such amounts as the Manager in its sole discretion deem necessary or
appropriate. The amount of any such reserve, or any increase or decrease
therein, shall be proportionately charged or credited, as appropriate, to the
Capital Accounts of those parties who are Partners at the time when such reserve
is created, increased or decreased, as the case may be; provided, however, that
if any such individual reserve item, adjusted by any increase therein, exceeds
the lesser of $500,000 or 1% of the aggregate value of the Capital Accounts of
all such Partners, the amount of such reserve, increase, or decrease shall
instead be charged or credited to those parties who were Partners at the time,
as determined by the Manager in its sole discretion, of the act or omission
giving rise to the contingent liability for which the reserve was established,
increased or decreased in proportion to their Capital Accounts at that time.
(b) If at any time an amount is paid or received by the
Partnership (other than contributions to the capital of the Partnership,
distributions or repurchases of Interests or portions thereof) and such amount
exceeds the lesser of $500,000 and/or 1% of the aggregate value of the Capital
Accounts of all Partners at the time of payment or receipt and such amount was
not accrued or reserved for but would nevertheless, in accordance with the
Partnership's accounting practices, be treated as applicable to one or more
prior Fiscal Periods, then such amount shall be proportionately charged or
credited, as appropriate, to those parties who were Partners during such prior
Fiscal Period or Periods.
(c) If any amount is required by paragraph (a) or (b) of
this Section 5.7 to be charged or credited to a party who is no longer a
Partner, such amount shall be paid by or to such party, as the case may be, in
cash, with interest from the date on which the Manager determines that such
charge or credit is required. In the case of a charge, the former Partner shall
be obligated to pay the amount of the charge, plus interest as provided above,
to the Partnership on demand; provided, however, that (i) in no event shall a
former Partner be obligated to make a payment exceeding the amount of such
Partner's Capital Account at the time to which the charge relates; and (ii) no
such demand shall be made after the expiration of three years since the date on
which such party ceased to be a Partner. To the extent that a former Partner
fails to pay to the Partnership, in full, any amount required to be charged to
such former Partner pursuant to paragraph (a) or (b), whether due to the
expiration of the applicable limitation period or for any other reason
whatsoever, the deficiency shall be charged proportionately to the Capital
Accounts of the Partners at the time of the act or omission giving rise to the
charge to the extent feasible, and otherwise proportionately to the Capital
Accounts of the current Partners.
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5.8 INCENTIVE ALLOCATION.
(a) So long as the authority of the Manager to provide
Advice and Management under Section 3.4 hereof shall remain effective, the
Incentive Allocation shall be debited against the Capital Account of each
Limited Partner as of the last day of each Allocation Period with respect to
such Limited Partner and the amount so debited shall simultaneously be credited
to the Capital Account of the Manager, or, subject to compliance with the 1940
Act and the Advisers Act, to the Capital Accounts of such Partners as have been
designated in any written notice delivered by the Manager to the Individual
General Partners within 90 days after the close of such Allocation Period.
(b) Within 30 days of each Allocation Period with respect to
each Limited Partner, the Manager may withdraw up to 98% of the Incentive
Allocation (computed on the basis of unaudited data) that was credited to the
Manager's Capital Account and debited from such Limited Partner's Capital
Account with respect to such Allocation Period only if and to the extent that
(1) such withdrawal would not cause the value of the Manager's Capital Account
to be less than the value thereof required to be maintained pursuant to Section
5.1(c) hereof or (2) in the opinion of legal counsel to the Partnership, such
withdrawal would not jeopardize the classification of the Partnership as a
partnership for U.S. federal income tax purposes. Subject to the criteria set
forth in items (1) and (2) of this clause (b), the Partnership shall pay the
Manager the undrawn balance of such Incentive Allocation (subject to audit
adjustments) within 30 days after the completion of the audit of the
Partnership's books. Any amount of such Incentive Allocation not withdrawn by
the Manager pursuant to the first sentence of this Section 5.8(b) shall be
deemed reinvested in the Partnership by the Manager.
5.9 ALLOCATION TO AVOID CAPITAL ACCOUNT DEFICITS.
To the extent that any debits pursuant to Sections 5.4 through
5.7 hereof would reduce the balance of the Capital Account of any Limited
Partner below zero, that portion of any such debits shall instead be allocated
to the Capital Account of the Manager. Any credits in any subsequent Fiscal
Period which would otherwise be allocable pursuant to Sections 5.4 through 5.7
hereof to the Capital Account of any Limited Partner previously affected by the
application of this Section 5.9 shall instead be allocated to the Capital
Account of the Manager in such amounts as are necessary to offset all previous
debits attributable to such Limited Partner pursuant to this Section 5.9 not
previously recovered.
5.10 ALLOCATIONS PRIOR TO CLOSING DATE.
Any net cash profits or any net cash losses realized by the
Partnership from the purchase or sale of Securities during the period ending
on the day prior to the Closing Date shall be allocated to the Capital Account
of the Manager. (No unrealized item of profit or loss shall be allocated
pursuant to this Section 5.10 to the Capital Account of any Partner.)
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5.11 TAX ALLOCATIONS.
For each fiscal year, items of income, deduction, gain, loss or
credit shall be allocated for income tax purposes among the Partners in such
manner as to reflect equitably amounts credited or debited to each Partner's
Capital Account for the current and prior fiscal years (or relevant portions
thereof). Allocations under this Section 3.09 shall be made pursuant to the
principles of Sections 704(b) and 704(c) of the Internal Revenue Code of 1986,
as amended (the "Code"), and in conformity with Regulations Sections
1.704-1(b)(2)(iv)(f), 1.704-1(b)(4)(i) and 1.704.3(e) promulgated thereunder, as
applicable, or the successor provisions to such Section and Regulations.
Notwithstanding anything to the contrary in this Agreement, there shall be
allocated to the Partners such gains or income as shall be necessary to satisfy
the "qualified income offset" requirement of Treasury Regulation Section
1.704-1(b)(2)(ii)(d).
If the Partnership realizes net capital gains for Federal income
tax purposes for any fiscal year as of the end of which one or more Positive
Basis Partners (as hereinafter defined) withdraw from the Partnership pursuant
to Articles IV or VI hereof, the General Partners may elect to allocate such net
gains as follows: (i) to allocate such net gains among such Positive Basis
Partners, pro rata in proportion to the respective Positive Basis (as
hereinafter defined) of each such Positive Basis Partner, until either the full
amount of such net gains shall have been so allocated or the Positive Basis of
each such Positive Basis Partner shall have been eliminated and (ii) to allocate
any net gains not so allocated to Positive Basis Partners to the other Partners
in such manner as shall equitably reflect the amounts credited to such Partners'
Capital Accounts pursuant to Section 3.05.
As used herein, (i) the term "Positive Basis" shall mean, with
respect to any Partner and as of any time of calculation, the amount by which
its interest in the Partnership (determined in accordance with Section 1.03) as
of such time exceeds its "adjusted tax basis", for Federal income tax purposes,
in its interest in the Partnership as of such time (determined without regard to
any adjustments made to such "adjusted tax basis" by reason of any transfer or
assignment of such interest, including by reason of death), and (ii) the term
"Positive Basis Partner" shall mean any Partner who withdraws from the
Partnership and who has Positive Basis as of the effective date of its
withdrawal, but such Partner shall cease to be a Positive Basis Partner at such
time as it shall have received allocations pursuant to clause (i) of the
preceding sentence equal to its Positive Basis as of the effective date of its
withdrawal.
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---------------------------
ARTICLE VI
DISSOLUTION AND LIQUIDATION
---------------------------
6.1 DISSOLUTION.
(a) The Partnership shall be dissolved:
(1) on December 31, 2021, unless both (i) the
Individual General Partners, and (ii) a
majority (as defined in the 1940 Act) of the
outstanding voting securities of the
Partnership, shall elect within 60 days of such
date to continue the business of the
Partnership;
(2) upon the affirmative vote to dissolve
the Partnership by both (i) the Individual
General Partners and (ii) Partners holding at
least two-thirds (2/3) of the total number of
votes eligible to be cast by all Partners;
(3) upon either of (i) an election by the
Manager to dissolve the Partnership or (ii) the
termination of the Manager's status as such
pursuant to Section 4.1 hereof (other than in
conjunction with a Transfer of the Interest of
the Manager permitted by Section 4.4 hereof to a
person who is admitted as a substitute Manager
pursuant to Section 2.6(a) hereof), unless as to
either event both (i) the Individual General
Partners, and (ii) Partners holding not less
than two-thirds (2/3) of the total number of
votes eligible to be cast by all Partners, shall
elect within 60 days after such event to
continue the business of the Partnership and
either a person has been admitted to the
Partnership as the Manager or one or more
general partners have agreed to make such
contributions to the capital of the Partnership
as are required to be made by the Manager
pursuant to Section 5.1(c) hereof;
(4) upon the failure of Partners to elect
successor Individual General Partners at a
meeting called by the Manager in accordance with
Section 2.6(c) hereof when no Individual General
Partner remains to continue the business of the
Partnership;
(5) upon the expiration of any two year period
which commences on the date on which any
Limited Partner has submitted a written notice
to the Partnership requesting to tender his
entire Interest for repurchase
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by the Partnership if such Limited Partner has
not been permitted to do so at any time during
such period; or
(6) as required by operation of law.
Dissolution of the Partnership shall be effective on the later of the day on
which the event giving rise to the dissolution shall occur or the conclusion of
any applicable 60 day period during which the Individual General Partners and
Partners may elect to continue the business of the Partnership as provided
above, but the Partnership shall not terminate until the assets of the
Partnership have been liquidated in accordance with Section 6.2 hereof and the
Certificate has been canceled.
(b) Upon the occurrence of an event of withdrawal under
Section 17-402 of the Delaware Act with respect to any General Partner
(including any event specified in Sections 4.1, 4.2, 4.3 or 4.4 hereof that
causes such General Partner to cease to be a Partner in the Partnership), all
remaining General Partners are authorized to carry on the business of the
Partnership as permitted by Section 17-801(3) of the Delaware Act and to the
extent permitted by this Agreement. Except as provided in Section 6.1(a) hereof
or in the Delaware Act, the death, mental illness, dissolution, termination,
liquidation, bankruptcy, reorganization, merger, sale of substantially all of
the stock or assets of or other change in the ownership or nature of a Partner,
the admission to the Partnership of a new Partner, the withdrawal of a Partner
from the Partnership, or the transfer by a Partner of his Interest to a third
party shall not cause the Partnership to dissolve.
6.2 LIQUIDATION OF ASSETS.
(a) Upon the dissolution of the Partnership as provided in
Section 6.1 hereof, the Individual General Partners or the Manager shall
promptly liquidate the business and administrative affairs of the Partnership,
except that if the Individual General Partners or the Manager are unable to
perform this function, a liquidator elected by Partners holding a majority of
the total number of votes eligible to be cast by all Partners shall promptly
liquidate the business and administrative affairs of the Partnership. Net
Profit and Net Loss during the period of liquidation shall be allocated pursuant
to Section 5.4 hereof. The proceeds from liquidation (after establishment of
appropriate reserves for contingencies in such amount as the Individual General
Partners, Manager or liquidator shall deem appropriate in their or its sole
discretion as applicable) shall be distributed in the following manner:
(1) the debts, of the Partnership, other
than debts, liabilities or obligations to
Partners, and the expenses of liquidation
(including legal and accounting expenses
incurred in connection therewith), up to and
including the date that distribution of the
Partnership's assets to the Partners has been
completed, shall first be paid on a pro rata
basis;
(2) such debts, liabilities or obligations as are
owing to the Partners shall next be paid in
their order of seniority and on a pro rata
basis; and
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(3) the Partners shall next be paid on a pro
rata basis the positive balances of their
respective Capital Accounts after giving effect
to all allocations to be made to such Partners'
Capital Accounts for the Fiscal Period ending on
the date of the distributions under this Section
6.2(a)(3).
(b) Anything in this Section 6.2 to the contrary
notwithstanding, upon dissolution of the Partnership, the Individual General
Partners, Manager or other liquidator may distribute ratably in kind any assets
of the Partnership; provided, however, that if any in-kind distribution is to
be made (i) the assets distributed in kind shall be valued pursuant to Section
7.3 hereof as of the actual date of their distribution and charged as so valued
and distributed against amounts to be paid under Section 6.2(a) above, and (ii)
any profit or loss attributable to property distributed in-kind shall be
included in the Net Profit or Net Loss for the Fiscal Period ending on the date
of such distribution.
-----------------------------
ARTICLE VII
ACCOUNTING, VALUATIONS AND BOOKS AND RECORDS
-----------------------------
7.1 ACCOUNTING AND REPORTS.
(a) The Partnership shall adopt for tax accounting purposes
any accounting method which the Manager shall decide in its sole discretion is
in the best interests of the Partnership. The Partnership's accounts shall be
maintained in U.S. currency.
(b) After the end of each taxable year, the Partnership
shall furnish to each Partner such information regarding the operation of the
Partnership and such Partner's Interest as is necessary for Partners to
complete federal and state income tax or information returns and any other tax
information required by federal or state law.
(c) Except as otherwise required by the 1940 Act, or as may
otherwise be permitted by rule, regulation or order, within 60 days after the
close of the period for which a report required under this Section 7.1(c) is
being made, the Partnership shall furnish to each Limited Partner a semi-annual
report and an annual report containing the information required by such Act.
The Partnership shall cause financial statements contained in each annual report
furnished hereunder to be accompanied by a certificate of independent public
accountants based upon an audit performed in accordance with generally accepted
accounting principles. The Partnership may furnish to each Partner such other
periodic reports in as it deems necessary or appropriate in its discretion.
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(d) The Manager shall provide the Individual General
Partners with the identity of the members of the Manager and shall thereafter
notify the Individual General Partners of any change in the membership of the
Manager within a reasonable time after such change.
7.2 DETERMINATIONS BY MANAGER.
(a) All matters concerning the determination and allocation
among the Partners of the amounts to be determined and allocated pursuant to
Article V hereof, including any taxes thereon and accounting procedures
applicable thereto, shall be determined by the Manager unless specifically and
expressly otherwise provided for by the provisions of this Agreement or required
by law, and such determinations and allocations shall be final and binding on
all the Partners.
(b) The Manager may make such adjustments to the
computation of Net Profit or Net Loss, the Allocation Change with respect to
any Limited Partner, or any components comprising any of the foregoing as it
considers appropriate to reflect fairly and accurately the financial results of
the Partnership and the intended allocation thereof among the Partners.
7.3 VALUATION OF ASSETS.
(a) Except as may be required by the 1940 Act, the
Individual General Partners shall value or have valued any Securities or other
assets and liabilities of the Partnership as of the close of business on the
last day of each Fiscal Period in accordance with such valuation procedures as
shall be established from time to time by the Individual General Partners and
which conform to the requirements of the 1940 Act. In determining the value of
the assets of the Partnership, no value shall be placed on the goodwill or name
of the Partnership, or the office records, files, statistical data or any
similar intangible assets of the Partnership not normally reflected in the
Partnership's accounting records, but there shall be taken into consideration
any items of income earned but not received, expenses incurred but not yet paid,
liabilities fixed or contingent, the unamortized portion of any organizational
expenses and any other prepaid expenses to the extent not otherwise reflected in
the books of account, and the value of options or commitments to purchase or
sell Securities or commodities pursuant to agreements entered into prior to such
valuation date.
(b) The value of Securities and other assets of the
Partnership and the net worth of the Partnership as a whole determined pursuant
to this Section 7.3 shall be conclusive and binding on all of the Partners and
all parties claiming through or under them.
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<PAGE> 40
-----------------------------
ARTICLE VIII
MISCELLANEOUS PROVISIONS
-----------------------------
8.1 AMENDMENT OF PARTNERSHIP AGREEMENT.
(a) Except as otherwise provided in this Section 8.1, this
Agreement may be amended, in whole or in part, with the approval of (i) the
Individual General Partners (including the vote of a majority of the
Independent General Partners, if required by the 1940 Act), (ii) the Manager
and (iii) a majority (as defined in the 1940 Act) of the outstanding voting
securities of the Partnership.
(b) Any amendment that would:
(1) increase the obligation of a Partner to make
any contribution to the capital of the
Partnership;
(2) reduce the Capital Account of a Partner other
than in accordance with Article V; or
(3) modify the events causing the dissolution of the
Partnership;
may be made only if (i) the written consent of each Partner adversely affected
thereby is obtained prior to the effectiveness thereof or (ii) such amendment
does not become effective until (A) each Limited Partner has received written
notice of such amendment and (B) any Limited Partner objecting to such
amendment has been afforded a reasonable opportunity (pursuant to such
procedures as may be prescribed by the Individual General Partners) to tender
his entire Interest for repurchase by the Partnership.
(c) The Manager may at any time without the consent of the
other Partners:
(1) amend Schedule I hereto to reflect any change
required to be made therein pursuant to the
terms of this Agreement;
(2) restate this Agreement together with any
amendments hereto which have been duly adopted
in accordance herewith to incorporate such
amendments in a single, integrated document;
(3) amend this Agreement (other than with
respect to the matters set forth in Section
8.1(b) hereof) to effect compliance with any
applicable law or regulation or to cure any
ambiguity or to correct or supplement any
provision hereof which may be inconsistent with
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<PAGE> 41
any other provision hereof, provided that such
action does not adversely affect the rights of
any Partner in any material respect; and
(4) amend this Agreement to make such changes as
may be necessary or desirable, based on advice
of legal counsel to the Partnership, to assure
the Partnership's continuing eligibility to be
classified for U.S. federal income tax purposes
as a partnership which is not treated as a
corporation under Section 7704(a) of the Code,
subject, however, to the limitation that any amendment to this Agreement
pursuant to Sections 8.1(c)(3) or (4) hereof shall be valid only if approved by
the Individual General Partners (including the vote of a majority of the
Independent General Partners, if required by the 1940 Act).
(d) The Manager shall give prior written notice of any
proposed amendment to this Agreement (other than any amendment of the type
contemplated by clause (1) or (2) of Section 8.1(c) hereof) to each Partner,
which notice shall set forth (i) the text of the proposed amendment or (ii) a
summary thereof and a statement that the text thereof will be furnished to any
Partner upon request.
8.2 SPECIAL POWER OF ATTORNEY.
(a) Each Partner hereby irrevocably makes, constitutes and
appoints the Manager, each of the Individual General Partners, acting
severally, and any liquidator of the Partnership's assets appointed pursuant to
Section 6.2 hereof with full power of substitution, the true and lawful
representatives and attorneys-in-fact of, and in the name, place and stead of,
such Partner, with the power from time to time to make, execute, sign,
acknowledge, swear to, verify, deliver, record, file and/or publish:
(1) any amendment to this Agreement which
complies with the provisions of this Agreement
(including the provisions of Section 8.1
hereof);
(2) any amendment to the Certificate
required because this Agreement is amended,
including, without limitation, an amendment to
effectuate any change in the membership of the
Partnership; and
(3) all such other instruments, documents
and certificates which, in the opinion of legal
counsel to the Partnership, may from time to
time be required by the laws of the United
States of America, the State of Delaware or any
other jurisdiction in which the Partnership
shall determine to do business, or any political
subdivision or agency thereof, or which such
legal counsel may deem necessary or appropriate
to effectuate, implement and continue the valid
existence and business of the Partnership as a
limited partnership under the Delaware Act.
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<PAGE> 42
(b) Each Partner is aware that the terms of this Agreement
permit certain amendments to this Agreement to be effected and certain other
actions to be taken or omitted by or with respect to the Partnership without
such Partner's consent. If an amendment to the Certificate or this Agreement or
any action by or with respect to the Partnership is taken in the manner
contemplated by this Agreement, each Partner agrees that, notwithstanding any
objection which such Partner may assert with respect to such action, the
attorneys-in-fact appointed hereby are authorized and empowered, with full power
of substitution, to exercise the authority granted above in any manner which may
be necessary or appropriate to permit such amendment to be made or action
lawfully taken or omitted. Each Partner is fully aware that each Partner will
rely on the effectiveness of this special power-of-attorney with a view to the
orderly administration of the affairs of the Partnership.
(c) This power-of-attorney is a special power-of-attorney
and is coupled with an interest in favor of the Manager and each of the
Individual General Partners and as such:
(1) shall be irrevocable and continue in
full force and effect notwithstanding the
subsequent death or incapacity of any party
granting this power-of-attorney, regardless of
whether the Partnership or the Manager or
Individual General Partners shall have had
notice thereof; and
(2) shall survive the delivery of a Transfer
by a Partner of the whole or any portion of such
Partner's Interest, except that where the
transferee thereof has been approved by the
Individual General Partners for admission to the
Partnership as a substituted Partner, this
power-of-attorney given by the transferor shall
survive the delivery of such assignment for the
sole purpose of enabling the Manager or
Individual General Partners to execute,
acknowledge and file any instrument necessary to
effect such substitution.
8.3 NOTICES.
Notices which may or are required to be provided under this Agreement by
any party to another party shall be made by hand delivery, registered or
certified mail return receipt requested, commercial courier service, telex or
telecopier, and shall be addressed to the respective parties hereto at their
addresses as set forth on Schedule I hereto (or to such other addresses as may
be designated by any party hereto by notice addressed to the Manager in the
case of notice given to any Partner, and to each of the Partners in the case of
notice given to the Manager). Notices shall be deemed to have been provided
when delivered by hand, on the date indicated as the date of receipt on a
return receipt or when received if sent by commercial courier service, telex or
telecopier. A document that is not a notice and that is required to be
provided under this Agreement by any party to another party may be delivered by
any reasonable means.
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<PAGE> 43
8.4 AGREEMENT BINDING UPON SUCCESSORS AND ASSIGNS.
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective heirs, successors, assigns, executors,
trustees or other legal representatives, but the rights and obligations of the
parties hereunder may not be Transferred or delegated except as provided in
this Agreement and any attempted Transfer or delegation thereof which is not
made pursuant to the terms of this Agreement shall be void.
8.5 APPLICABILITY OF 1940 ACT AND FORM N-2.
The parties hereto acknowledge that this Agreement is not intended to,
and does not, set forth the substantive provisions contained in the 1940 Act and
the Form N-2 which affect numerous aspects of the conduct of the Partnership's
business and of the rights, privileges and obligations of the Partners. Each
provision of this Agreement shall be subject to and interpreted in a manner
consistent with the applicable provisions of the 1940 Act and the Form N-2.
8.6 CHOICE OF LAW; ARBITRATION.
(a) Notwithstanding the place where this Agreement may
executed by any of the parties hereto, the parties expressly agree that all the
terms and provisions hereof shall be construed under the laws of the State of
Delaware, including the Delaware Act without regard to the conflict of law
principles of such State.
(B) UNLESS OTHERWISE AGREED IN WRITING, EACH PARTNER AGREES
TO SUBMIT ALL CONTROVERSIES ARISING BETWEEN PARTNERS OR ONE OR MORE PARTNERS
AND THE PARTNERSHIP TO ARBITRATION IN ACCORDANCE WITH THE PROVISIONS SET FORTH
BELOW AND UNDERSTAND THAT:
(1) ARBITRATION IS FINAL AND BINDING ON THE PARTIES;
(2) THEY ARE WAIVING THEIR RIGHT TO SEEK REMEDIES
IN COURT, INCLUDING THE RIGHT TO A JURY TRIAL;
(3) PRE-ARBITRATION DISCOVERY IS GENERALLY MORE
LIMITED AND DIFFERENT FROM COURT PROCEEDINGS;
(4) THE ARBITRATOR'S AWARD IS NOT REQUIRED
TO INCLUDE FACTUAL FINDINGS OR LEGAL REASONING
AND A PARTY'S RIGHT TO APPEAL OR TO SEEK
MODIFICATION OF RULINGS BY ARBITRATORS IS
STRICTLY LIMITED; AND
(5) THE PANEL OF ARBITRATORS WILL TYPICALLY
INCLUDE A MINORITY OF ARBITRATORS WHO WERE OR
ARE AFFILIATED WITH THE SECURITIES INDUSTRY.
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<PAGE> 44
(B) ALL CONTROVERSIES THAT MAY ARISE AMONG PARTNERS AND
ONE OR MORE PARTNERS AND THE PARTNERSHIP CONCERNING THIS AGREEMENT SHALL
BE DETERMINED BY ARBITRATION IN NEW YORK CITY IN ACCORDANCE WITH THE
FEDERAL ARBITRATION ACT, TO THE FULLEST EXTENT PERMITTED BY LAW. ANY
ARBITRATION UNDER THIS AGREEMENT SHALL BE DETERMINED BEFORE AND IN ACCORDANCE
WITH THE RULES THEN OBTAINING OF EITHER THE NEW YORK STOCK EXCHANGE, INC. (THE
"NYSE") OR THE NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC. (THE "NASD"),
AS THE PARTNER OR ENTITY INSTITUTING THE ARBITRATION MAY ELECT. IF THE NYSE OR
NASD DOES NOT ACCEPT THE ARBITRATION FOR CONSIDERATION, THE ARBITRATION SHALL
BE SUBMITTED TO, AND DETERMINED IN ACCORDANCE WITH THE RULES THEN OBTAINING OF,
THE CENTER FOR PUBLIC RESOURCES, INC. IN NEW YORK CITY. JUDGMENT ON ANY AWARD
OF ANY SUCH ARBITRATION MAY BE ENTERED IN THE SUPREME COURT OF THE STATE OF NEW
YORK OR IN ANY OTHER COURT HAVING JURISDICTION OF THE PERSON OR PERSONS AGAINST
WHOM SUCH AWARD IS RENDERED. ANY NOTICE OF SUCH ARBITRATION OR FOR THE
CONFIRMATION OF ANY AWARD IN ANY ARBITRATION SHALL BE SUFFICIENT IF GIVEN IN
ACCORDANCE WITH THE PROVISIONS OF THIS AGREEMENT. EACH PARTNER AGREES THAT THE
DETERMINATION OF THE ARBITRATORS SHALL BE BINDING AND CONCLUSIVE UPON THEM.
(C) NO PARTNER SHALL BRING A PUTATIVE OR CERTIFIED CLASS
ACTION TO ARBITRATION, NOR SEEK TO ENFORCE ANY PRE-DISPUTE ARBITRATION
AGREEMENT AGAINST ANY PERSON WHO HAS INITIATED IN COURT A PUTATIVE CLASS
ACTION; OR WHO IS A MEMBER OF A PUTATIVE CLASS WHO HAS NOT OPTED OUT OF THE
CLASS WITH RESPECT TO ANY CLAIMS ENCOMPASSED BY THE PUTATIVE CLASS ACTION
UNTIL: (I) THE CLASS CERTIFICATION IS DENIED; OR (II) THE CLASS IS DECERTIFIED;
OR (III) THE PARTNER IS EXCLUDED FROM THE CLASS BY THE COURT. SUCH FORBEARANCE
TO ENFORCE AN AGREEMENT TO ARBITRATE SHALL NOT CONSTITUTE A WAIVER OF ANY
RIGHTS UNDER THIS AGREEMENT EXCEPT TO THE EXTENT STATED HEREIN.
8.7 NOT FOR BENEFIT OF CREDITORS.
The provisions of this Agreement are intended only for the
regulation of relations among past, present and future Partners and the
Partnership. This Agreement is not intended for the benefit of non-Partner
creditors and no rights are granted to non-Partner creditors under this
Agreement.
8.8 CONSENTS.
Any and all consents, agreements or approvals provided for or
permitted by this Agreement shall be in writing and a signed copy thereof shall
be filed and kept with the books of the Partnership.
8.9 MERGER AND CONSOLIDATION.
(a) The Partnership may merge or consolidate with or into one or
more limited partnerships formed under the Delaware Act or other business
entities pursuant to an agreement of merger or consolidation which has
been approved in the manner contemplated by Section 17-211(b) of the Delaware
Act.
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<PAGE> 45
(b) Notwithstanding anything to the contrary contained elsewhere
in this Agreement, an agreement of merger or consolidation approved in
accordance with Section 17-211(b) of the Delaware Act may, to the extent
permitted by Section 17-211(g) of the Delaware Act, (i) effect any amendment to
this Agreement (ii) effect the adoption of a new partnership agreement for the
Partnership if it is the surviving or resulting limited partnership in the
merger or consolidation, or (iii) provide that the partnership agreement of any
other constituent partnership to the merger or consolidation (including a
limited partnership formed for the purpose of consummating the merger or
consolidation) shall be the partnership agreement of the surviving or resulting
limited partnership.
8.10 PRONOUNS.
All pronouns shall be deemed to refer to the masculine, feminine,
neuter, singular or plural, as the identity of the person or persons, firm or
corporation may require in the context thereof.
8.11 CONFIDENTIALITY.
(a) A Limited Partner may obtain from the Partnership such
information regarding the affairs of the Partnership as is just and reasonable
under the Delaware Act, subject to reasonable standards (including standards
governing what information and documents are to be furnished, at what
time and location and at whose expense) established by the General Partners.
(b) Each Partner covenants that, except as required by applicable
law or any regulatory body, it will not divulge, furnish or make accessible to
any other person the name and/or address (whether business, residence or
mailing) of any Limited Partner (collectively, "Confidential Information") with
out the prior written consent of the Manager, which consent may be withheld in
the Manager's sole discretion.
(c) Each Partner recognizes that in the event that this Section
8.11 is breached by any Partner or any of its principals, partners, members,
directors, officers, employees or agents or any of its affiliates,
including any of such affiliates' principals, partners, members, directors,
officers, employees or agents, irreparable injury may result to the
non-breaching Partners and the Partnership. Accordingly, in addition to any
and all other remedies at law or in equity to which the non-breaching Partners
and the Partnership may be entitled, such Partners shall also have the right to
obtain equitable relief, including, without limitation, injunctive relief, to
prevent any disclosure of Confidential Information, plus reasonable attorneys'
fees and other litigation expenses incurred in connection therewith. In the
event that any non-breaching Partner or the Partnership determines that any of
the other Partners or any of its principals, partners, members, directors,
officers, employees or agents or any of its affiliates, including any of such
affiliates' principals, partners, members, directors, officers, employees or
agents should be enjoined from or required to take any action to prevent the
disclosure of Confidential Information, each of the other non-breaching
Partners agrees to pursue in a court of appropriate jurisdiction such
injunctive relief.
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<PAGE> 46
8.12 CERTIFICATION OF NON-FOREIGN STATUS.
Each Limited Partner or transferee of an Interest from a
Limited Partner shall certify, upon admission to the Partnership and at such
other time thereafter as the Manager may request, whether he is a "United
States Person" within the meaning of Section 7701(a)(30) of the Code on forms
to be provided by the Partnership, and shall notify the Partnership within 30
days of any change in such Partner's status. Any Limited Partner who shall
fail to provide such certification when requested to do so by the Manager may
be treated as a non-United States Person for purposes of U.S. federal tax
withholding.
8.13 SEVERABILITY.
If any provision of this Agreement is determined by a court
of competent jurisdiction not to be enforceable in the manner set forth
in this Agreement, each Partner agrees that it is the intention of the Partners
that such provision should be enforceable to the maximum extent possible under
applicable law. If any provisions of this Agreement are held to be invalid or
unenforceable, such invalidation or unenforceability shall not affect the
validity or enforceability of any other provision of this Agreement (or portion
thereof).
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<PAGE> 47
THE UNDERSIGNED ACKNOWLEDGES HAVING READ THIS AGREEMENT IN ITS ENTIRETY
BEFORE SIGNING, INCLUDING THE PRE-DISPUTE ARBITRATION CLAUSE SET FORTH IN
SECTION 8.6 AND THE CONFIDENTIALITY CLAUSE SET FORTH IN SECTION 8.11.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
MANAGER:
AUGUSTA MANAGEMENT, L.L.C.
By: OPPENHEIMER & CO., INC.
Managing Member
By:
---------------------------
Mitchell A. Tanzman
Managing Director
INDIVIDUAL GENERAL PARTNERS:
------------------------------
Robert A. Blum
------------------------------
Sol Gittleman
------------------------------
Luis Rubio
------------------------------
Janet L. Schinderman
------------------------------
Mitchell A. Tanzman
LIMITED PARTNERS:
Each person who shall sign a Limited
Partner Signature Page and who shall be
accepted by the Manager to the Partnership
as a Limited Partner.
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<PAGE> 48
SCHEDULE I
AUGUSTA PARTNERS, L.P.
MANAGER
<TABLE>
<CAPTION>
Name and Address Capital Contribution
---------------- --------------------
<S> <C>
Augusta Management, L.L.C.
Oppenheimer Tower
One World Financial Center, 33rd Floor
200 Liberty Street
New York, New York 10281 $1,000,000
</TABLE>
<TABLE>
<CAPTION>
INDIVIDUAL GENERAL PARTNERS
Name and Address
----------------
<S> <C>
Robert A. Blum
Oppenheimer & Co., Inc.
Oppenheimer Tower Janet L. Schinderman
One World Financial Office of the Dean
Center 101 Uris Hall
200 Liberty Street Columbia University
New York, NY 10281 New York, NY 10027
Sol Gittleman Mitchell A. Tanzman
Ballou Hall Oppenheimer & Co., Inc.
Tufts University One World Financial Center
Medford, MA 02155 200 Liberty Street
New York, NY 10281
Luis Rubio
Centro de Investigation
Para el Desarrollo, A.C.
Jaime Balmes No. 11, D-2
Los Morales Polanco
Mexico D.F. 11510
</TABLE>
<PAGE> 1
EXHIBIT 2(h)
LETTERHEAD OF AUGUSTA PARTNERS, L.P.
[PLACEMENT AGENCY AGREEMENT]
Oppenheimer & Co., Inc.
Oppenheimer Tower
One World Financial Center - 33rd Floor
200 Liberty Street
New York, New York 10281
Re: Appointment as Placement Agent
Ladies and Gentlemen:
Augusta Partners, L.P., a limited partnership organized under
the laws of the State of Delaware (the "Partnership"), hereby agrees with you
as follows:
1. Partnership Offering.
The Partnership proposes to issue and to sell its limited
partnership interests ("Interests") in accordance with a Confidential
Memorandum issued by the Partnership dated May 31, 1996, as amended from time
to time (the "Memorandum").
2. Definitions.
All capitalized terms used in this Agreement which are not
separately defined herein shall have the respective meaning set forth in the
Memorandum.
3. Placement of Interests.
(a) Subject to the terms and conditions set forth herein,
the Partnership hereby appoints you as its placement agent in connection with
the placement of Interests. Subject to the performance in all material
respects by the Partnership of its obligations hereunder, and to the
completeness and accuracy in all material respects of all of the
representations and warranties of the Partnership contained herein, you hereby
accept such agency and agree on the terms and conditions herein set forth to
use your best efforts to find qualified subscribers for Interests and to use
all reasonable efforts to assist the Partnership in obtaining performance by
each subscriber. You shall not have any liability to the Partnership in the
event that any subscriber fails to consummate the purchase of Interests for any
reason other than your willful misconduct or gross negligence.
(b) The offers and sales of Interests are to be effected
pursuant to the exemption from the registration requirements of the Securities
Act of 1933, as amended (the
<PAGE> 2
"Securities Act"), pursuant to Section 4(2) thereof and Regulation D under the
Securities Act. Both you and the Partnership have established the following
procedures in connection with the offer and sale of Interests and agree that
neither of you will make offers or sales of any Interests except in compliance
with such procedures:
(i) Offers and sales of Interests will be made only in
compliance with Regulation D and only to investors that qualify as "accredited
investors," as defined in Rule 501(a) under the Securities Act.
(ii) No sale of Interests to any one Purchaser will be for
less than the minimum denominations as may be specified in the Memorandum.
(iii) No offer or sale of any Interest shall be made in any
state or jurisdiction, or to any prospective investor located in any state or
jurisdiction, where such Interests have not been registered or qualified for
offer and sale under applicable state securities laws unless such Interests are
exempt from the registration or qualification requirements of such laws.
(iv) Sales of Interests will be made only to investors that
qualify as eligible clients under Rule 205-3 under the Investment Advisers Act
of 1940, as amended.
(c) For purposes of the offering of Interests, the Partnership has
furnished to you copies of the Memorandum and subscription documentation which
shall be furnished to prospective investors. Additional copies will be
furnished in such numbers as you may reasonably request for purposes of the
offering. You are authorized to furnish to prospective purchasers only such
information concerning the Partnership and the offering as may be contained in
the Memorandum or any written supplements thereto, and such other materials as
you have prepared and which comply with applicable laws and regulations,
including to the extent applicable the rules of the National Association of
Securities Dealers, Inc. (the "NASD").
4. Subscriptions During the Initial Offering Period.
(a) The initial offering period for the Interests shall commence as
soon as practicable after the date as of which this Agreement is effective and
be closed on August 20, 1996 or on such later date as may be agreed to by
Augusta Management, L.L.C., as manager of the Partnership (the "Initial Offering
Period").
(b) All subscriptions for Interests and payments by subscribers of
subscription amounts for Interests shall be made pursuant to the terms and
conditions set forth in the Memorandum and subscription documentation.
Subscriptions shall be subject to acceptance by you as agent for the
Partnership, as described in Section 6 below.
(c) All payments received by you hereunder for subscriptions in the
name and on behalf of the Partnership shall be handled by you in accordance
with the terms of the subscription documentation.
-2-
<PAGE> 3
(d) If the offering is not completed in accordance with the
conditions set forth in the Memorandum, the Partnership may terminate the
offering. In such case, you will instruct PFPC Inc. to return all subscription
payments to investors.
5. Subscriptions After the Initial Offering Period.
(a) After the Initial Offering Period, the Partnership expects from
time to time in its discretion to offer Interests to investors for purchase
("Subsequent Offerings").
(b) In Subsequent Offerings, the minimum additional investment
requirements shall be such amounts as are specified in the Memorandum. All
subscriptions for Interests in Subsequent Offerings and payments therefor shall
be made pursuant to the terms and conditions set forth in the Memorandum, and
subscriptions shall be subject to acceptance by you as agent for the
Partnership, as described in Section 6 below. In Subsequent Offerings, the
procedures set forth in Sections 4(c) and (d) shall also be applicable.
6. Acceptance of Subscriptions.
You are appointed as agent of the Partnership for purposes of
determining whether to accept or to reject subscriptions for Interests.
Subscriptions shall be accepted only if the investor: (a) has supplied, or in
the case of an additional subscription by an existing limited partner,
previously supplied, to you properly completed subscription documentation; and
(b) has made proper payment for Interests. Subscriptions shall be rejected if
it appears to you that any of the terms or conditions applicable to
subscriptions for Interests as set forth in the Memorandum or subscription
documentation have not been satisfied.
7. Representations and Warranties of the Partnership.
The Partnership represents and warrants to you that:
(a) The Partnership has been duly formed and is validly existing
as a limited partnership in good standing under the laws of the State of
Delaware with all requisite power and authority, all necessary authorizations,
approvals, orders, licenses, certificates and permits of and from all
governmental regulatory officials and bodies, and all necessary rights,
licenses and permits from other parties, to conduct its business as described
in the Memorandum.
(b) Interests to be or which may be issued by the Partnership have
been duly authorized for issuance and sale and, when issued and delivered by the
Partnership, Interests will conform to all statements relating thereto
contained in the Memorandum.
(c) The issue and sale of Interests and the execution, delivery and
performance of the Partnership's obligations under the Memorandum will not
result in the violation of any applicable law.
(d) The Partnership will apply the proceeds from the sale of
Interests for the purposes set forth in the Memorandum.
-3-
<PAGE> 4
(e) The Memorandum will not contain an untrue statement of any
material fact or omit to state any material fact necessary in order to make
statements therein in the light of the circumstances under which they were
made, not misleading.
(f) This Agreement has been duly authorized, executed and delivered
by the Partnership and, assuming your execution hereof, will constitute a valid
and binding agreement of the Partnership.
(g) Prior to and on the effective date of this Agreement, neither
the Partnership, nor to the knowledge of the Partnership any person acting on
behalf of the Partnership, has directly or indirectly offered or sold, or
attempted to offer or sell any Interests to or solicited offers to buy any
Interests from, or otherwise approached or negotiated with respect thereto
with, any prospective investor in connection with the placement thereof.
8. Covenants of the Partnership.
The Partnership covenants and agrees with you as follows:
(a) You and your counsel shall be furnished with such documents and
opinions as you and they may require, from time to time, for the purpose of
enabling you or them to pass upon the issuance and sale of Interests as herein
contemplated and related proceedings, or in order to evidence the accuracy of
any of the representations and warranties, or the fulfillment of any of the
conditions herein contained; and all proceedings taken by the Partnership and
in connection with the issuance and sale of Interests as herein contemplated
shall be satisfactory in form and substance to you and your counsel.
(b) If, at any time after the commencement of an offering of
Interests and prior to its termination, an event occurs which in the opinion of
counsel to the Partnership materially affects the Partnership and which should
be set forth in an amendment or supplement to the Memorandum in order to make
the statements therein not misleading in light of the circumstances under which
they are made, the Partnership will notify you as promptly as practical of the
occurrence of such event and prepare and furnish to you copies of an amendment
or supplement to the Memorandum, in such reasonable quantities as you may
request in order that the Memorandum will not contain any untrue statement of
any material fact or omit to state a material fact which in the opinion of such
counsel is necessary to make the statements therein not misleading in light of
the circumstances under which they are made.
9. Representations and Warranties of the Placement Agent.
You represent and warrant that:
(a) You are duly authorized to enter into and perform, and have duly
executed and delivered, this Agreement.
-4-
<PAGE> 5
(b) You have and will maintain all licenses and registrations
necessary under applicable law and regulations (including the rules of the
NASD) to provide the services required to be provided by you hereunder.
(c) You have not and will not solicit any offer to buy or offer to
sell Interests in any manner which would be inconsistent with applicable laws
and regulations, or with the procedures for solicitations contemplated by the
Memorandum or by any form of general solicitation or advertising, including,
but not limited to, any advertisement, article, notice or other communication
published in any newspaper, magazine or similar medium or broadcast over
television or radio or conduct any seminar or meeting whose attendees have been
invited by any general solicitation or advertising.
(d) You will furnish each subscriber of Interests, identified
either by you or the Partnership, a copy of the Memorandum and subscription
documentation.
10. Compensation of Placement Agent.
(a) You will receive no fee, payment or other remuneration for your
services under this Agreement.
(b) Except as may otherwise by agreed to by the Partnership, you
shall be responsible for the payment of all costs and expenses incurred by you
in connection with the performance of your obligations under this Agreement,
including the costs associated with the preparation, printing and distribution
of any sales materials.
11. Indemnification and Contribution.
The parties agree to indemnify one another as follows:
(a) The Partnership agrees to indemnify and hold harmless you and
each person, if any, who controls you within the meaning of Section 15 of the
Securities Act or Section 20(a) of the Securities Exchange Act of 1934 (the
"Exchange Act"), against any and all losses, liabilities, claims, damages and
expenses whatsoever (including, but not limited to, attorneys' fees and any and
all expenses whatsoever incurred in investigating, preparing or defending
against any litigation, commenced or threatened, or any claim whatsoever, and
any and all amounts paid in settlement of any claim or litigation), joint or
several, to which you or they may become subject under the Securities Act, the
Exchange Act or any other law or statute in any jurisdiction otherwise, insofar
as such losses, liabilities, claims, damages or expense (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in the Memorandum or the subscription
documentation or any amendment or supplement thereto, or arise out of or are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading; provided, however, that the Partnership will not be liable in any
such case to the extent, but only to the extent, that any such loss, liability,
claim, damage or expense arises out of or is based upon any such untrue
statement or alleged untrue statement or omission or alleged omission made
therein in reliance upon and in conformity with written
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<PAGE> 6
information furnished to the Partnership by you or through you expressly for
the use therein; and further provided that this indemnity shall not protect you
or any other person who may otherwise be entitled to indemnity hereunder from
or against any liability to which you or they would be subject by reason of
your own or their own willful misfeasance, bad faith, gross negligence or
reckless disregard of your or their duties hereunder. This indemnity will be
in addition to any liability which the Partnership may otherwise have included
under this Agreement.
(b) You agree to indemnify and hold harmless the Partnership and
each person who controls the Partnership within the meaning of Section 15 of the
Securities Act or Section 20(a) of the Exchange Act, against any losses,
liabilities, claims, damages and expenses whatsoever (including, but not
limited to, attorneys' fees and any and all expenses whatsoever incurred in
investigating, preparing or defending against any litigation, commenced or
threatened, or any claim whatsoever, and any and all amounts paid in settlement
of any claim or litigation), joint or several, to which you or they may become
subject under the Securities Act, the Exchange Act or any other law or statute
in any jurisdiction, insofar as such losses, liabilities, claims, damages or
expenses (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of a material fact contained in
the Memorandum or Subscription Agreement, or any amendment or supplement
thereto, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, in each case to the extent, but
only to the extent, that any such loss, liability, claim, damage or expense
arises out of or is based upon any such untrue statement or alleged untrue
statement or omission or alleged omission made therein in reliance upon and in
conformity with written information furnished to the Partnership by you or on
your behalf through you expressly for use therein. This indemnity will be in
addition to any liability which you may otherwise have incurred under this
Agreement.
(c) Promptly after receipt by an indemnified party under subsection
(a) or (b) above of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify the party against whom
indemnification is to be sought in writing of the commencement thereof (but
the failure so to notify an indemnifying party shall not relieve it from any
other liability which it may have under this Section 11 (except to the extent
that it has been prejudiced in any material respect by such failure) or from
any liability which it may have otherwise). In case any such action is brought
against any indemnified party, and it notifies an indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate
therein and, to the extent it may elect by written notice delivered to the
indemnified party promptly after receiving the aforesaid notice from such
indemnified party, to assume the defense thereof with counsel satisfactory to
such indemnified party; provided, however, that if, in the judgment of such
indemnified party, a conflict of interest exists where it is advisable for such
indemnified party to be represented by separate counsel, the indemnified party
shall have the right to employ separate counsel in any such action, in which
event the fees and expenses of such separate counsel shall be borne by the
indemnifying party or parties. After notice from the indemnifying party to
such indemnified party of its election so to assume the defense thereof and the
approval by the indemnified party of counsel, the indemnifying party shall not
be liable to such indemnified party under such subsections for any legal
expenses of other counsel or any other expenses, in each
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<PAGE> 7
case subsequently incurred by such indemnified party, in connection with the
defense thereof other than reasonable costs of investigation unless (i) the
indemnified party shall have employed separate counsel in accordance with the
proviso to the next preceding sentence (it being understood, however, that the
indemnifying party or parties shall not be liable for the expenses of more than
one such separate counsel representing the indemnified parties under
subparagraph (a) of this Section 11 who are parties to such action), (ii) the
indemnifying party or parties shall not have employed counsel satisfactory to
the indemnified party to represent the indemnified party within a reasonable
time after notice of commencement of the action or (iii) the indemnifying party
or parties have authorized the employment of counsel for the indemnified party
at the expense of the indemnifying party or parties; and except that, if clause
(i) or (iii) is applicable, such liability shall be only in respect of the
counsel referred to in such clause (i) or (iii). No indemnifying party shall,
without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened proceeding in respect of which any
indemnified party is or could have been a party and indemnity could have been
sought hereunder by such indemnified party, unless such settlement includes an
unconditional release of such indemnified party from all liability on claims
that are the subject matter of such proceeding.
12. Representations and Indemnities to Survive Delivery.
The agreements, representations, warranties, indemnities and other
statements of the parties and their officers set forth in or made pursuant to
this Agreement will remain in full force and effect, regardless of (i) any
termination of this Agreement, (ii) any investigation made by or on behalf of
you, or the Partnership, any general partners, directors or officers of any of
the foregoing or any person controlling any of the foregoing, and (iii)
acceptance of any payment for Interests hereunder. The provisions of this
Section 12 shall survive the termination or cancellation of this Agreement.
13. Effective Date and Term of Agreement.
This Agreement shall become effective for all purposes as of July 16,
1996, and shall remain in effect for an initial term of one year from such
date. Thereafter, this Agreement shall continue in effect from year to year,
provided that each such continuance is approved by the Individual General
Partners of the Partnership (the "IGPs"), including the vote of a majority of
the IGPs who are not "interested persons" of the Partnership as defined by the
Investment Company Act of 1940 (the "1940 Act") and the rules thereunder.
14. Termination.
This Agreement may be terminated as follows:
(a) Either party may terminate this Agreement without cause by
written notice to the other on not less than thirty (30) days notice, or, if
there has been a material breach of any condition, warranty, representation or
other term of this Agreement by the other, by written notice to such other at
any time.
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<PAGE> 8
(b) By written notice to the Partnership, you may terminate this
Agreement at any time if (i) there has been, since the respective dates as of
which information is given in the Memorandum, any material adverse change in the
condition, financial or otherwise, of the Partnership, which in your opinion,
will make it inadvisable to proceed with the delivery of Interests; (ii) there
has occurred any outbreak of hostilities or other domestic or international
calamity or crisis the effect of which on the financial markets is so
substantial and adverse as to make it, in your judgment, impracticable to
market Interests or enforce contracts for the sale of Interests; and (iii) any
order suspending the sale of Interests shall have been issued by any
jurisdiction in which a sale or sales of Interests shall have been made, or
proceedings for that purpose shall have been initiated or, to your best
knowledge and belief, shall be contemplated.
(c) This Agreement shall terminate automatically in the event of its
"assignment" as such term is defined by the 1940 Act and the rules thereunder.
15. Delegation of Powers.
You shall be entitled to delegate all or any of your duties, functions
or powers under this Agreement to another person as sub-agents subject to the
approval of the Partnership. However, you shall be solely responsible for the
acts and omissions of any such sub-agent and for the payment of any
remuneration to such sub-agent.
16. Notices.
All communications under this Agreement shall be given in writing, sent
by (i) telecopier, (ii) telex confirmed by answerback, or (iii) registered mail
to the address set forth below or to such other address as such party shall have
specified in writing to the other party hereto, and shall be deemed to have
been delivered effective at the earlier of its receipt or within two (2) days
after dispatch,
If to Oppenheimer & Co., Inc.:
Oppenheimer & Co., Inc.
Oppenheimer Tower
One World Financial Center
33rd Floor
200 Liberty Street
New York, NY 10281
Telephone: (212) 667-7300
Attn: Robert I. Kleinberg, General Counsel
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<PAGE> 9
If to Augusta Partners, L.P.:
Augusta Partners, L.P.
c/o Oppenheimer & Co., Inc.
Oppenheimer Tower
One World Financial Center
33rd Floor
200 Liberty Street
New York, NY 10281
Telephone: (212) 667-6607
Attn: Mitchell A. Tanzman
17. Miscellaneous.
(a) This Agreement may be executed in two or more counterparts,
each of which when so executed and delivered shall constitute one and the same
instrument. This Agreement shall inure to the benefit of and be binding upon
the parties hereto and their respective successors and assigns and no other
person shall have any right or obligation hereunder.
(b) This Agreement supersedes all prior agreements and
understandings relating to the subject matter hereof, and neither this
Agreement nor any term hereof may be changed, waived, discharged or terminated
except by an instrument in writing signed by the party against whom enforcement
of the change, waiver, discharge or termination is sought. The headings in
this Agreement are for purposes of reference only and shall not limit or
otherwise affect the meaning hereof.
18. Governing Law.
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York without regard to the conflicts of laws
provisions thereof, and with the provisions of the 1940 Act. In the event of
any conflict between the provisions of the laws of New York and those of the
1940 Act, the 1940 Act provisions shall control.
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<PAGE> 10
If the foregoing correctly sets forth our understanding with you, please
indicate your acceptance in the space provided below whereupon this letter will
form a valid and binding contract among the signers in accordance with its
terms.
Very truly yours,
AUGUSTA PARTNERS, L.P.
By: AUGUSTA MANAGEMENT, L.L.C.
By: OPPENHEIMER & CO., INC.
By:
---------------------------------
Name:
Title:
Date:
Agreed to and accepted: ---------------------------------
OPPENHEIMER & CO., INC.
By:
-----------------------------
Name:
Title:
Date:
-----------------------------
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<PAGE> 1
EXHIBIT 2(j)
CUSTODY AGREEMENT
This Custody Agreement is dated as of August ___, 1996 between MORGAN
STANLEY TRUST COMPANY, a New York State chartered trust company (the
"Custodian"), and AUGUSTA PARTNERS, L.P., a Delaware limited partnership (the
"Client").
1. Appointment and Acceptance; Accounts. (a) The Client hereby appoints
the Custodian as a custodian of Property (as defined below) owned or under the
control of the Client that is delivered to the Custodian, or any Subcustodian
as appointed below, from time to time to be held in custody for the benefit of
the Client. In this regard, the Client agrees to deliver or cause to be
delivered to the Custodian all Property.
(b) Prior to the delivery of any Property by the Client to the Custodian,
the Client shall deliver to the Custodian each document and other item listed
in Appendix 1. In addition, the Client shall deliver to the Custodian any
additional documents or items as the Custodian may deem necessary for the
performance of its duties under this Agreement.
(c) The Client instructs the Custodian to establish on the books and
records of the Custodian the accounts listed in Appendix 2 (the "Accounts") in
the name of the Client. Upon receipt of Authorized Instructions (as defined
below) and appropriate documentation, the Custodian shall open additional
Accounts for the Client. Upon the Custodian's confirmation to the Client of
the opening of such additional Accounts, or of the closing of Accounts,
Appendix 2 shall be deemed automatically amended or supplemented accordingly.
The Custodian shall record in the Accounts and shall at all times have general
responsibility for the safekeeping of all securities, including without
limitation, shares, stocks, bonds, debentures, notes, mortgages or other
obligations and any certificates, receipts or warrants (collectively,
"Securities"), cash, cash equivalents and other property (all such Securities,
cash, cash equivalents and other property being collectively the "Property") of
the Client that are delivered to the Custodian for custody. Except with
respect to Securities held in custody or deposit accounts maintained with
Subcustodians, securities depositories or clearing agencies, the Custodian
shall at all times hold and physically segregate for the Client all Securities
held by the Custodian hereunder.
(d) The procedures the Custodian and the Client will use in performing
activities in connection with this Agreement are set forth in a client services
guide provided to the Client by the Custodian, as such guide may be amended
from time to time by the Custodian by written notice to the Client (the "Client
Services Guide").
2. Subcustodians. (a) The Property may be held in custody and deposit
accounts that have been established by the Custodian with (i) one or more
domestic banks (as such term is defined by the Investment Company Act of 1940,
the "Act") which are eligible to serve as a custodian for investment companies
under Section 17 of the Act or foreign banks which are "Eligible Foreign
Custodians" (as such term is defined in Rule 17f-5(c)(2) of the Act), as
listed,
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<PAGE> 2
together with any domestic banks, on Exhibit A (the "Subcustodians"), as such
Exhibit may be amended from time to time by the Custodian by sixty (60) days
prior written notice to the Client, or (ii) through the facilities of (A) one
or more domestic clearing agencies registered with the Securities and Exchange
Commission (the "SEC") under Section 17A of the Securities Exchange Act of 1934
which acts as a securities depository or the book-entry system as provided in
Subpart O of Treasury Circular No. 300, 31 CFR 306, Subpart B of 31 CFR Part
350 and the book-entry regulations of Federal agencies substantially in the
form of Subpart O or (B) one or more foreign securities depositories or
clearing agencies, as such domestic clearing agencies, foreign securities
depositories or clearing agencies are listed on Exhibit B, as such Exhibit may
be amended from time to time by the Custodian by sixty (60) days prior written
notice to the Client. The Custodian agrees to deliver any Securities in its or
its Subcustodians' possession as directed by the Client in accordance with
Section 7 herein.
(b) The Custodian shall hold Property through a Subcustodian, securities
depository or clearing agency only if (i) such Subcustodian and any securities
depository or clearing agency in which such Subcustodian or the Custodian holds
Property, or any of their creditors, may not assert any right, charge, security
interest, lien, encumbrance or other claim of any kind to such Property except
a claim of payment for its safe custody or administration and (ii) beneficial
ownership of such Property may be freely transferred without the payment of
money or value other than for safe custody or administration. Any Subcustodian
may hold Property in a securities depository and may utilize a clearing agency,
subject to the terms of this Agreement.
3. Records. With respect to Property held by a Subcustodian, securities
depository or clearing agency:
(a) The Custodian may hold Property for all of its customers with a
Subcustodian in a single account identified as belonging to the Custodian for
the benefit of its customers or with a securities depository or clearing agency
in a single account identified as belonging to the Client or the Custodian or
Subcustodian for the benefit of their customers; provided that the use of such
single account is consistent with paragraph (b) in Section 2 above and that
such single account at the Subcustodian shall include only assets belonging to
the customers of the Custodian and such single account at any securities
depository or clearing agency shall include only assets belonging to the
Client, customers of the Custodian or customers of the Subcustodian, as the
case may be;
(b) The Custodian shall identify on its books as belonging to the Client
any Property held by a Subcustodian, securities depository or clearing agency;
(c) The Custodian shall require that Property held by the Subcustodian be
identified on the Subcustodian's books as separate from any other property held
by the Subcustodian other than property of the Custodian's customers held
solely for the benefit of customers of the Custodian; and
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(d) The Custodian shall send the Client a confirmation of any transfers to
or from the Account. Where Securities are transferred to or from the Account,
the Custodian shall also, by book-entry or otherwise, identify as belonging to
the Client a quantity of Securities in a fungible bulk of securities (i)
registered in the name of the Custodian (or its nominee) or (ii) shown on the
Client's, Custodian's or Subcustodian's, as the case may be, account on the
books of the securities depository, clearing agency, book-entry system or the
Custodian's account on the books of the Subcustodian and the Custodian shall
promptly send to the Client any report it or its Subcustodian receives from the
appropriate Federal Reserve Bank or clearing agency on its respective system of
internal accounting control. The Custodian shall send to the Client such
reports on its or its Subcustodian's own system of internal accounting control
as the Client may reasonably request from time to time.
(e) In the event the Subcustodian holds Property in a securities
depository or clearing agency, such Subcustodian shall be required by its
agreement with the Custodian to identify on its books such Property as being
held for the account of the Custodian as custodian for its customers or in such
other manner as is required by local law or market practice. Notwithstanding
any other provision in this Agreement, no Subcustodian shall be permitted to
deposit Securities in any securities depository or utilize a clearing agency,
incorporated or organized under the laws of a country other than the United
States, other than the Euro-clear System or Centrale de Livraison des Valeurs
Mobilieres S.A., without the written permission of the Custodian unless such
depository or clearing agency operates the central system for handling of
securities or equivalent book-entries in that country or pursuant to Authorized
Instructions.
4. Access to Records. The Custodian shall allow the Client's accountants
reasonable access to the Custodian's records relating to the Property held by
the Custodian as such accountants may reasonably require in connection with
their examination of the Client's affairs. The Custodian shall also obtain
from any Subcustodian (and shall require each Subcustodian to use reasonable
efforts to obtain from any securities depository or clearing agency in which it
deposits Property) an undertaking, to the extent consistent with local practice
and the laws of the jurisdiction or jurisdictions to which such Subcustodian,
securities depository or clearing agency is subject, to permit independent
public accountants such reasonable access to the records of such Subcustodian,
securities depository or clearing agency as may be reasonably required in
connection with the examination of the Client's affairs or to take such other
action as the Custodian in its judgment may deem sufficient to ensure such
reasonable access.
5. Reports. The Custodian shall provide from time to time, but in no
event less frequently than monthly, such reports and other information to the
Client and to such persons as the Client directs as the Custodian and the
Client may agree from time to time. Such reports shall identify the Property
in the Accounts and shall include without limitation (i) the identity of any
entity having custody of the Property and (ii) any transfers of Property to or
from the Accounts.
In addition, the Custodian shall furnish annually to the Client
information concerning the Subcustodians employed by the Custodian on behalf of
the Client. Such information shall be similar in kind and scope to that
furnished to the Client initially by the
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<PAGE> 4
Custodian as of the date of this Agreement. The Custodian agrees to promptly
inform the Client in the event the Custodian learns of a material adverse
change in the financial condition of a Subcustodian or is notified by any
Subcustodian that such Subcustodian's shareholders' equity has declined, (or
there appears to be a substantial likelihood that it will decline) below the
requisite shareholder's equity requirements identified in Rule 17f-5 of the Act
or any applicable exemptive order issued by the SEC under such Rule 17f-5.
6. Payment of Monies. Except as provided in Sections 9, 13 and 17, the
Custodian shall make, or cause any Subcustodian to make, payments from monies
being held in the Accounts as follows:
(a) upon the purchase of Securities for the account of the Client and then
only upon the delivery of such Securities except as may otherwise be consistent
with local custom or market practice in the applicable jurisdiction where
settlement occurs;
(b) for payments to be made in connection with the conversion, exchange or
surrender of Securities;
(c) upon request of the Client that the Custodian transfer monies being
held in the Accounts to another custodian of the Client or to an account of the
Client at a deposit bank;
(d) to partners of the Client in connection with any distribution to such
partners or in connection with the repurchase by the Client from such partners
of interest in the Client;
(e) to third persons in payment of the fees or charges of such third
persons for services provided to the Client or for expenses incurred in the
operation of the Client;
(f) upon termination of this Custody Agreement as hereinafter set forth in
Section 17; and
(g) for any other purpose upon receipt of Authorized Instructions.
All payments pursuant to this Section 6 shall be made only upon receipt by the
Custodian of Authorized Instructions of the Client; provided, however, that:
(i) the Authorized Instruction for purposes of subparagraphs (a), (b) and (c)
of this Section 6 shall be accepted and valid only if (A) such Authorized
Instructions explicitly state that the related payments are in connection with
the transactions contemplated by (a), (b) and (c) above in accordance with the
procedures for processing such Authorized Instructions set forth in Exhibit C
hereto and (B) that such Authorized Instructions have been given by an
Authorized Person (as defined below) who is identified on Appendix 3 as a
partner or officer of Ardsley Advisory Partners; (ii) the Authorized
Instructions for purposes of subparagraph (d), (e) and (f) of this Section 6
shall be accepted and valid only if (A) such Authorized Instructions explicitly
state that the related payments are in connection with the transactions
contemplated by (d), (e) and (f) above in accordance with the procedures for
processing such Authorized Instructions set forth in Exhibit C hereto and (B)
that
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<PAGE> 5
such Authorized Instructions have been given by an Authorized Person who is
identified on Appendix 3 as an officer or employee of PFPC, Inc., the
administrator of the Client (or any successor administrator of the Client);
(iii) any payment in accordance with subparagraphs (a), (b), (c), (d) or (e) of
this Section 6 shall be made only to such specifically identified accounts as
shall have been pre-designated by the Client to receive such payments, the
initial pre-designated accounts as of the date of this Agreement shall be
limited to those accounts at both Morgan Stanley & Co. Incorporated and PFPC,
Inc. (or any successor administrator of the Client) identified in accordance
with the procedures for processing such Authorized Instructions set forth in
Exhibit C hereto and no additional accounts shall be considered pre-designated
without the written agreement of each of the parties to this Agreement; and
(iv) any payment pursuant to subparagraph (g) shall be made only if accompanied
by a certificate of an Authorized Person who is identified on Appendix 3 as an
officer or employee of PFPC, Inc. (or successor administrator of the Client)
specifying the purpose of such payment and stating that the purpose thereof is
a proper one which has been duly authorized by all necessary action of the
Client in accordance with the procedures for processing such Authorized
Instructions set forth in Exhibit C hereto. In the event that it is not
possible to make a payment in accordance with Authorized Instructions of the
Client, the Custodian shall proceed in accordance with the procedures set forth
in the Client Services Guide, except as may be otherwise provided by this
Agreement.
The Custodian may act as the Client's agent or act as a principal in
foreign exchange transactions at such rates as are agreed from time to time
between the Client and the Custodian.
7. Transfer of Securities and Non-Cash Property. Except as provided in
Sections 9, 13 and 17, the Custodian shall make, or cause any Subcustodian to
make, transfers, exchanges or deliveries of Securities or other non-cash
Property as follows:
(a) upon sale of such Securities for the account of the Client and then
only upon receipt of payment therefor except as may otherwise be consistent
with local custom or market practice in the applicable jurisdiction where
settlement occurs;
(b) upon exercise of conversion, subscription, purchase or other similar
rights represented by such Securities;
(c) in the case of warrant, rights or similar securities, upon the
surrender thereof in the exercise of such warrants, rights or similar
securities;
(d) for delivery in connection with any loans of securities made by the
Client, but only against receipt of such collateral as agreed upon from time to
time by the Custodian and the Client;
(e) to partners of the Customer in connection with any distributions in
kind to such partners or in connection with the repurchase by the Client from
such partners of interests in the Client in kind;
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<PAGE> 6
(f) upon the termination of this Custody Agreement as hereinafter set
forth in Section 17; and
(g) for any other purpose upon receipt of Authorized Instructions.
Except as provided below, all transfer, exchanges or deliveries ("Transfers")
of Securities or other non-cash Property pursuant to this Section 7 shall be
made only upon receipt by the Custodian of Authorized Instructions of the
Client; provided, however, that: (i) the Authorized Instructions for purposes
of subparagraphs (a), (b), (c) and (d) of this Section 7 shall be accepted and
valid only if (A) such Authorized Instructions explicitly state that the
related Transfer is in connection with the transactions contemplated by (a),
(b), (c) and (d) of this Section 7 in accordance with the procedures for
processing such Authorized Instructions set forth in Exhibit C hereto and (B)
such Authorized Instructions have been given by an Authorized Person who is
identified on Appendix 3 as a partner or officer of Ardsley Advisory Partners;
(ii) the Authorized Instructions for purposes of subparagraph (e) and (f) of
this Section 7 shall be accepted and valid only (A) such Authorized
Instructions explicitly state that the related Transfer is in connection with
the transactions contemplated by (e) and (f) of this Section 7 in accordance
with the procedures for processing such Authorized Instructions set forth in
Exhibit C hereto and (B) such Authorized Instructions have been given by an
Authorized Person who is identified on Appendix 3 as an officer or employee of
PFPC, Inc. (or any successor administrator of the Client); (iii) any delivery
of Securities or non-cash Property in accordance with subparagraphs (a), (b),
(c), (d) (e) or (f) of this Section 7 shall be made only to such specifically
identified accounts as shall have been pre-designated by the Client to receive
deliveries of Securities or non-cash Property, the initial pre-designated
accounts as of the date of this Agreement shall be limited to those accounts at
both Morgan Stanley & Co. Incorporated and PFPC, Inc. (or any successor
administrator to the Client) identified in accordance with the procedures for
processing such Authorized Instructions set forth in Exhibit C hereto and no
additional accounts shall be considered pre-designated without the written
agreement of each of the parties to this Agreement; and (iv) any delivery
pursuant to subparagraph (g) of this Section 7 shall be made only if
accompanied by a certificate of an Authorized Person who is identified on
Appendix 3 as an officer or employee of PFPC, Inc. (or any successor
administrator of the Client) specifying the purpose of such delivery and
stating that the purpose thereof is a proper one which has been duly authorized
by all necessary action of the Client in accordance with the procedures for
processing such Authorized Instructions set forth in Exhibit C hereto. In the
event that it is not possible to transfer Securities or other non-cash Property
in accordance with such Authorized Instructions, such Transfers shall be made
in accordance with the procedures set forth in the Client Services Guide,
except as may be otherwise provided by this Agreement.
8. Corporate Action. (a) The Custodian shall notify the Client of
details of all corporate actions affecting the Client's Securities promptly
upon its receipt of such information.
(b) The Custodian shall take, or cause any Subcustodian to take, such
action in response to any such corporate action as may be permissible or
necessary only in accordance with Authorized Instructions or as provided in
this Section 8 or Section 9.
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(c) Neither the Custodian nor any nominee of Custodian shall vote any of
the Securities by or for the Accounts except in accordance with Authorized
Instructions. The Custodian shall promptly deliver, or cause to be executed
and delivered, to the Client all notices, proxies and proxy soliciting
materials with relation to such Securities, such proxies to be executed by the
registered holder of such Securities (if registered otherwise than in the name
of the Client), but without indicating the manner in which such proxies are to
be voted;
(d) The Custodian shall transmit promptly to the Client all written
information (including, without limitation, pendency of calls and maturities of
Securities and expiration of rights in connection therewith) received by the
Custodian from issuers of Securities being held for the Client. With respect
to tender or exchange offers, the Custodian shall transmit promptly to the
Client all written information received by the Custodian from issuers of the
Securities whose tender or exchange is sought and from the party (or its
agents) making the tender or exchange offer.
(e) In the event the Client does not provide timely Authorized
Instructions to the Custodian with respect to a corporate action, the Custodian
shall act in accordance with the default option provided by local market
practice and/or the issuer of the Securities.
(f) Fractional shares resulting from corporate action activity shall be
treated in accordance with local market practices.
9. General Authority. In the absence of Authorized Instructions to the
contrary, the Custodian may, and may authorize any Subcustodian to:
(a) make payments to itself or others for expenses of handling Property
or other similar items relating to its duties under this Agreement, provided
that all such payments shall be accounted for to the Client;
(b) receive and collect all income, cash dividends and principal with
respect to Securities and to credit cash receipts to the Accounts;
(c) receive and collect all stock dividends, rights and similar securities
issued with respect to any Securities held by the Custodian hereunder;
(d) exchange Securities when the exchange is purely ministerial
(including, without limitation, the exchange of interim receipts or temporary
securities for securities in definitive form and the exchange of warrants, or
other documents of entitlement to securities, for the securities themselves);
(e) with prior notice to the Client, surrender Securities at maturity or
when called for redemption upon receiving payment therefor;
(f) execute in the Client's name such ownership and other certificates as
may be required to obtain the payment of income from Securities;
7
<PAGE> 8
(g) pay or cause to be paid, from the Accounts, any and all taxes and
levies in the nature of taxes imposed on Property by any governmental authority
in connection with custody of and transactions in such Property;
(h) endorse for collection, in the name of the Client, checks, drafts and
other negotiable instruments;
(i) take non-discretionary action on mandatory corporate actions; and
(j) in general, attend to all nondiscretionary details in connection with
the custody, sale, purchase, transfer and other dealings with the Property.
10. Authorized Instructions; Authorized Persons. (a) Except as otherwise
provided in Sections 6 through 9, 13 and 17, all payments of monies, all
transfers, exchanges or deliveries of Property and all responses to corporate
actions shall be made or taken only upon receipt by the Custodian of Authorized
Instructions; provided that such Authorized Instructions are timely received by
the Custodian in accordance with the procedures for processing such Authorized
Instructions set forth in Exhibit C hereto. "Authorized Instructions" of the
Client means instructions from an Authorized Person received by telecopy,
tested telex, electronic link or other electronic means or by such other means
as may be agreed in writing between the Client and the Custodian.
(b) "Authorized Person" means each of the persons or entities identified
on Appendix 3 as amended from time to time by written notice from the Client to
the Custodian. The Client represents and warrants to the Custodian that each
Authorized Person listed in Appendix 3, as amended from time to time, is
authorized to issue Authorized Instructions on behalf of the Client and the
Client has set forth in Appendix 3 the specific types of instructions that each
such Authorized Person is authorized to deliver pursuant to this Agreement.
Prior to the delivery of the Property to the Custodian, the Custodian shall
provide a list of designated system user ID numbers and passwords that the
Client shall be responsible for assigning to Authorized Persons. The Custodian
shall assume that an electronic transmission received and identified by a
system user ID number and password was sent by the Authorized Person assigned
such user ID number. The Custodian agrees to provide additional designated
system user ID numbers and passwords as needed by the Client. The Client
authorizes the Custodian to issue new system user ID numbers upon the request
of a previously existing Authorized Person. Upon the issuance of additional
system user ID numbers by the Custodian to the Client, Appendix 3 shall be
deemed automatically amended accordingly. The Client authorizes the Custodian
to receive, act and rely upon any Authorized Instructions received by the
Custodian which have been issued, or purport to have been issued, by an
Authorized Person.
(c) Any Authorized Person may cancel/correct or otherwise amend any
Authorized Instruction received by the Custodian, but the Client agrees to
indemnify the Custodian for any liability, loss or expense incurred by the
Custodian and its Subcustodians as a result of their having relied upon or
acted on any prior Authorized Instruction. An amendment or
8
<PAGE> 9
cancellation of an Authorized Instruction to deliver or receive any security or
funds in connection with a trade will not be processed once the trade has
settled.
11. Registration of Securities. (a) In the absence of Authorized
Instructions to the contrary, Securities which must be held in registered form
shall be registered in the name of the Custodian or the Custodian's nominee or,
in the case of Securities in the custody of an entity other than the Custodian,
in the name of the Custodian, its Subcustodian or any such entity's nominee.
The Custodian may, without notice to the Client, cause any Securities to be
registered or re-registered in the name of the Client.
(b) Where the Custodian has been instructed by the Client to hold any
Securities in the name of any person or entity other than the Custodian, its
Subcustodian or any such entity's nominee, the Custodian shall not be
responsible for any failure to collect such dividends or other income or
participate in any such corporate action with respect to such Securities.
12. Deposit Accounts. All cash received by the Custodian for the
Accounts shall be held by the Custodian as a short-term credit balance in favor
of the Client and, if the Custodian and the Client have agreed in writing in
advance that such credit balances shall bear interest, the Client shall earn
interest at the rates and times as agreed between the Custodian and the Client.
The Client acknowledges that any such credit balances shall not be accompanied
by the benefit of any governmental insurance.
13. Short-term Credit Extensions. (a) From time to time, the Custodian
may extend or arrange short-term credit for the Client which is (i) necessary
in connection with payment and clearance of securities and foreign exchange
transactions or (ii) pursuant to an agreed schedule, as and if set forth in the
Client Services Guide, of credits for dividends and interest payments on
Securities. All such extensions of credit shall be repayable by the Client on
demand.
(b) The Custodian shall be entitled to charge the Client interest for any
such credit extension at rates to be agreed upon from time to time or, if such
credit is arranged by the Custodian with a third party on behalf of the Client,
the Client shall reimburse the Custodian for any interest charge. In addition
to any other remedies available, the Custodian shall be entitled to a right of
set-off against the Property to satisfy the repayment of such credit extensions
and the payment of, or reimbursement for, accrued interest thereon.
14. Representations and Warranties. (a) The Client represents and
warrants that (i) the execution, delivery and performance of this Agreement
(including, without limitation, the ability to obtain the short-term extensions
of credit in accordance with Section 13) are within the Client's power and
authority and have been duly authorized by all requisite action (corporate or
otherwise) of the Client and of the beneficial owner of the Property, if other
than the Client, and (ii) this Agreement (including, without each extension of
short-term credit extended to or arranged for the benefit of the Client in
accordance with Section 13) shall at all times constitute a legal, valid and
binding obligation of the Client enforceable against the Client in accordance
with its terms, except as may be limited by bankruptcy, insolvency or other
similar laws affecting the
9
<PAGE> 10
enforcement of creditors' rights in general and subject to the effect of
general principles of equity (regardless of whether considered in a proceeding
in equity or at law).
(b) The Custodian represents and warrants that (i) the execution,
delivery and performance of this Agreement are within the Custodian's power and
authority and have been duly authorized by all requisite action (corporate or
otherwise) of the Custodian (ii) this Agreement constitutes the legal, valid
and binding obligation of the Custodian enforceable against the Custodian in
accordance with its terms, except as may be limited by bankruptcy, insolvency
or other similar laws affecting the enforcement of creditors' rights in general
and subject to the effect of general principles of equity (regardless of
whether considered in a proceeding in equity or at law) and (iii) it will
maintain insurance coverage reasonably comparable to the insurance coverage in
place as of the date of this Agreement, as described in Exhibit B hereto.
15. Standard of Care; Indemnification. (a) The Custodian shall be
responsible for the performance of only such duties as are set forth in this
Agreement or contained in Authorized Instructions given to the Custodian which
are not contrary to the provisions of any relevant law or regulation. The
Custodian shall be liable to the Client for any loss, liability or expense
incurred by the Client in connection with this Agreement to the extent that any
such loss, liability or expense results from the negligence or willful
misconduct of the Custodian or any Subcustodian.
(b) The Client acknowledges that the Property may be physically held
outside the United States. The Custodian shall not be liable for any loss,
liability or expense resulting from events beyond the reasonable control of the
Custodian or of a Subcustodian, including, but not limited to, force majeure.
(c) In addition, the Client shall indemnify the Custodian and
Subcustodians and any nominee for, and hold each of them harmless from, any
liability, loss or expense (including attorneys' fees and disbursements)
incurred in connection with this Agreement, including without limitation, (i)
as a result of the Custodian having acted or relied upon any Authorized
Instructions or (ii) arising out of any such person acting as a nominee or
holder of record of Securities except to the extent such loss, liability or
expenses results from the Custodian's or its Subcustodian's own negligence or
wilful misconduct of the Custodian.
16. Fees; Liens. The Client shall pay to the Custodian from time to time
such compensation for its services pursuant to this Agreement as may be
mutually agreed upon as well as the Custodian's out-of-pocket and incidental
expenses. The Client shall hold the Custodian harmless from any liability or
loss resulting from any taxes or other governmental charges, and any expenses
related thereto, which may be imposed or assessed with respect to the Accounts
or any Property held therein. The Custodian is, and any Subcustodians are,
authorized to charge the Accounts for such items and the Custodian shall have a
lien, charge and security interest on any and all Property for any amount owing
to the Custodian from time to time under this Agreement.
10
<PAGE> 11
17. Termination. This Agreement may be terminated by the Client or the
Custodian by 60 days written notice to the other, sent by registered mail. If
notice of termination is given, the Client shall, within 30 days following the
giving of such notice, deliver to the Custodian a statement in writing
specifying the successor custodian or other person to whom the Custodian shall
transfer the Property. In either event, the Custodian, subject to the
satisfaction of any lien it may have, shall transfer the Property to the person
so specified. If the Custodian does not receive such statement the Custodian,
at its election, may transfer the Property to a bank or trust company
established under the laws of the United States or any state thereof and
qualified to serve as the custodian for a registered investment company under
Section 17(f) of the Act to be held and disposed of pursuant to the provisions
of this Agreement or may continue to hold the Property until such a statement
is delivered to the Custodian. In such event the Custodian shall be entitled
to fair compensation for its services during such period as the Custodian
remains in possession of any Property and the provisions of this Agreement
relating to the duties and obligations of the Custodian shall remain in full
force and effect; provided, however, that the Custodian shall have no
obligation to settle any transactions in Securities for the Accounts. The
provisions of Sections 15 and 16 shall survive termination of this Agreement.
18. Investment Advice. The Custodian shall not supervise, recommend or
advise the Client relative to the investment, purchase, sale, retention or
other disposition of any Property held under this Agreement.
19. Confidentiality. (a) The Custodian, its agents and employees shall
maintain the confidentiality of information concerning the Property held in the
Client's account, including in dealings with affiliates of the Custodian. In
the event the Custodian or any Subcustodian is requested or required to
disclose any confidential information concerning the Property, the Custodian
shall, to the extent practicable and legally permissible, promptly notify the
Client of such request or requirement so that the Client may seek a protective
order or waive any objection to the Custodian's or such Subcustodian's
compliance with this Section 19. In the absence of such a waiver, if the
Custodian or such Subcustodian is compelled, in the opinion of its counsel, to
disclose any confidential information, the Custodian or such Subcustodian may
disclose such information to such persons as, in the opinion of counsel, is so
required.
(b) The Client shall maintain the confidentiality of, and not provide to
any third parties absent the written permission of the Custodian, any computer
software, hardware or communications facilities made available to the Client or
its agents by the Custodian.
20. Notices. Any notice or other communication from the Client to the
Custodian, unless otherwise provided by this Agreement or the Client Services
Guide, shall be sent by certified or registered mail to Morgan Stanley Trust
Company, One Pierrepont Plaza, Brooklyn, New York, 11201, Attention:
President, and any notice from the Custodian to the Client is to be mailed
postage prepaid, addressed to the Client at the address appearing below, or as
it may hereafter be changed on the Custodian's records in accordance with
written notice from the Client.
11
<PAGE> 12
21. Assignment. This contract may not be assigned by either party
without the prior written approval of the other.
22. Miscellaneous. (a) This Agreement shall bind the successors and
assigns of the Client and the Custodian.
(b) This Agreement shall be governed by and construed in accordance with
the internal laws of the State of New York without regard to its conflicts of
law rules and to the extent not preempted by federal law. The Custodian and
the Client hereby irrevocably submit to the exclusive jurisdiction of any New
York State court or any United States District Court located in the State of
New York in any action or proceeding arising out of this Agreement and hereby
irrevocably waive any objection to the venue of any such action or proceeding
brought in any such court or any defense of an inconvenient forum.
In witness whereof, the parties hereto have set their hands as of the date
first above written.
AUGUSTA PARTNERS, L.P.
By: Augusta Management, L.L.C.
(General Partner)
By: Oppenheimer & Co., Inc.
(Managing Member)
By:
---------------------------------
Name:
Title:
Address for record: Oppenheimer Tower
One World Financial Center
33rd Floor
200 Liberty Street
New York, New York 10281
Accepted:
MORGAN STANLEY TRUST COMPANY
By
---------------------------
Authorized Signature
12
<PAGE> 13
APPENDIX 1
Account Documentation
REQUIRED DOCUMENTATION FOR CORE CUSTODIAL SERVICES (INCLUDING TAX
RECLAIMS):
CUSTODY AGREEMENT
CLIENT SERVICES GUIDE (INCLUDING APPENDICES)
FEE SCHEDULE / BILLING GUIDE
GENERAL ACCOUNT INFORMATION
US TAX AUTHORITY DOCUMENTATION
LOCAL TAX OFFICE LETTER / APPLICATION LETTER
(NON-UNITED STATES-RESIDENT BENEFICIAL OWNERS, ONLY)
FORM 6166 / REQUEST FOR FOREIGN CERTIFICATION FORM
(UNITED STATES-RESIDENT BENEFICIAL OWNERS, ONLY)
CERTIFICATION OF BENEFICIAL OWNERSHIP, LEGAL NAME, LEGAL RESIDENCY, TAX
STATUS AND TAX IDS
TAX RECLAIM POWER OF ATTORNEY
PREVIOUS TAX RECLAIM FILING INFORMATION
(PREVIOUS FILERS, ONLY)
UK TAX AUTHORITY DOCUMENTATION
SOPHISTICATED INVESTOR (ACCREDITED INVESTOR) LETTER
(UNITED STATES-RESIDENT BENEFICIAL OWNERS, ONLY)
13
<PAGE> 14
DOCUMENTATION THAT IS REQUIRED FROM AN ENTITY CLASSIFIED AS TAX-EXEMPT BY
ITS LOCAL TAX AUTHORITY:
UK FORM 4338
(EXEMPT NON-UNITED KINGDOM-RESIDENT BENEFICIAL OWNERS, ONLY)
UK FORM 309A
(EXEMPT UNITED STATES-RESIDENT BENEFICIAL OWNERS, ONLY)
FOREIGN EXEMPTION LETTERS / APPLICATION FOR AUSTRALIAN EXEMPTION LETTER
(EXEMPT BENEFICIAL OWNERS, ONLY)
DOCUMENTATION THAT IS REQUIRED ONLY IF YOU WILL USE THE PROXY VOTING
SERVICE:
VOTING POWER OF ATTORNEY
DOCUMENTATION THAT IS REQUIRED ONLY IF YOU WILL DEAL IN CERTAIN
SECURITIES:
JGB INDEMNIFICATION LETTER
KOREAN SECURITIES POWER OF ATTORNEY
NEW ZEALAND 'APPROVED ISSUER LEVY' LETTER
SPANISH POWER OF ATTORNEY WITH APOSTILE
14
<PAGE> 15
APPENDIX 2
Client Accounts
<TABLE>
<CAPTION>
Account Name Account Number Account Mnemonic
- ------------ -------------- ----------------
<S> <C> <C>
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
</TABLE>
15
<PAGE> 16
APPENDIX 3
Part I - Authorized Signatures
The Custodian is directed to accept and act upon Authorized Instructions
received from any of the following persons or entities:
<TABLE>
<CAPTION>
Telephone/ Authorized
Name Organization Title Fax Signature
- ---- ------------ ----- ---------- ----------
<S> <C> <C> <C> <C>
</TABLE>
Authorized by:
--------------------------
16
<PAGE> 17
Part II - System User ID numbers
The Custodian is directed to accept and act upon Authorized Instructions
transmitted electronically and identified with the following mnemonics and
system user ID numbers for the following activities:
<TABLE>
<CAPTION>
Work Station Account Workstation Sessions
User I.D. Mnemonic Number TE TCC SL FE CM MA TD
------------ -------- ------- --- ----- ----- ----- ----- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
Workstation Session Codes
TE Trade Entry
TCC Trade Cancel/Correct
SL Securities Lending
FE Foreign Exchange
CM Cash Movement
MA Mass Authorization
TD Time Deposit
17
<PAGE> 18
EXHIBIT A
Subcustodians
18
<PAGE> 1
EXHIBIT 2 (k)(i)
MANAGEMENT AND ADMINISTRATION AGREEMENT
BY AND BETWEEN
OPPENHEIMER & CO., INC.
AND
AUGUSTA PARTNERS, L.P.
Oppenheimer & Co., Inc. ("Opco") and Augusta Partners, L.P. (the
"Partnership") hereby agree as follows:
THIS MANAGEMENT AND ADMINISTRATION AGREEMENT (the "Agreement") is made
as of this 16th day of July, 1996, by and between Opco and the Partnership.
WHEREAS, Opco is in the business of providing, and the Partnership
wishes Opco to provide, certain management and administrative services;
NOW THEREFORE, in consideration of the terms and conditions herein
contained, the parties agree as follows:
1. Appointment of Opco.
(a) The Partnership hereby appoints, and Opco hereby
accepts appointment, to serve as the Partnership's management company. In such
capacity, Opco agrees to provide certain management (but not investment
management) and administrative services to the Partnership. These services
shall include:
(i) the provision of office space, telephone and utilities;
(ii) the provision of administrative and secretarial,
clerical and other personnel as necessary to provide
the services required to be provided under this
Agreement;
(iii) the general supervision of the entities which are
retained by the Partnership to provide administrative
services and custody services to the Partnership;
(iv) the handling of investor inquiries regarding the
Partnership and providing them with information
concerning their investment in the Partnership and
capital account balances;
<PAGE> 2
(v) monitoring relations and communications between
investors and the Partnership;
(vi) overseeing the drafting and updating of disclosure
documents relating to the Partnership and assisting in
the distribution of all offering materials to investors;
(vii) maintaining and updating investor information, such as
change of address and employment;
(viii) overseeing the distribution and acceptance of investor
subscription documents and confirming the receipt of
such documents and funds;
(ix) overseeing the provision of investment advice to the
Partnership by Augusta Management, L.L.C., the manager
of the Partnership (or any successor adviser), and
monitoring compliance by the manager with applicable
investment policies and restrictions of the Partnership;
(x) coordinating and organizing meetings of the
Partnership's general partners (the "General Partners");
(xi) preparing materials and reports for use in connection
with meetings of the General Partners; and
(xii) reviewing and approving all regulatory filings required
under applicable law.
(b) Notwithstanding the appointment of Opco to provide
services hereunder, the Individual General Partners of the Partnership (the
"IGPs") shall remain responsible for supervising and controlling the
management, business and affairs of the Partnership.
2. Opco Fee; Reimbursement of Expenses.
(a) In consideration for the provision by Opco of its
services hereunder, the Partnership will pay Opco a monthly management fee of
0.08333% (1% on annualized basis) of the Partnership's "net assets" (the "Opco
Fee"). "Net assets" shall equal the total value of all assets of the
Partnership, less an amount equal to all accrued debts, liabilities, and
obligations of the Partnership calculated before giving effect to any
repurchase of interests.
(b) The Opco Fee will be computed based on the net assets
of the Partnership as of the start of business on the first business day of each
month, after adjustment for any subscriptions effective on such date, and will
be due and payable in arrears within five days after the end of such month.
The Opco Fee will be charged in each fiscal period to the
- 2 -
<PAGE> 3
capital accounts of the Partnership's limited partners in proportion to their
capital accounts at the beginning of such fiscal period. In the event that the
Opco Fee is payable in respect of a partial month, such fee will be
appropriately pro-rated.
(c) Opco is responsible for all costs and expenses
associated with the provision of its services hereunder. The Partnership shall
pay all other expenses associated with the conduct of its business.
(d) The Partnership understands that Opco may pay a
portion of the fees received by it hereunder to Ardsley Advisory Partners.
3. Liability. Opco will not be liable for any error of judgment
or mistake of law or for any loss suffered by the Partnership or its partners
in connection with the performance of its duties under this Agreement, except
a loss (as to which it will be liable and will indemnify and hold harmless the
Partnership) resulting from willful misfeasance, bad faith or gross negligence
on Opco's part (or on the part of an officer or employee of Opco) in the
performance of its duties hereunder or reckless disregard by it of its duties
under this Agreement.
4. Effective Date and Termination. This Agreement shall become
effective as of the date first noted above, and shall remain in effect for an
initial may be continued in effect from year to year thereafter provided that
each such continuance is approved by the IGPs, including the vote of a majority
of the IGPs who are not "interested persons" of the Partnership, as defined by
the Investment Company Act of 1940 and the rules thereunder (the "1940 Act").
This Agreement may be terminated by Opco, by the IGPs or by vote of a majority
of the outstanding voting securities of the Partnership at any time, in each
case upon not less than 60 days' prior written notice. This Agreement shall
also terminate automatically in the event of its "assignment," as such term is
defined by the 1940 Act.
5. Entire Agreement. This Agreement embodies the entire
understanding of the parties. This Agreement cannot be altered, amended,
supplemented, or abridged, or any provisions waived except by written agreement
of the parties.
6. Choice of Law. This Agreement shall be construed and enforced
in accordance with the laws of the State of New York and the 1940 Act. In the
event the laws of New York conflict with the 1940 Act, the applicable
provisions of the 1940 Act shall control.
- 3 -
<PAGE> 4
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
OPPENHEIMER & CO., INC.
By:
-----------------------------------
Name:
Title:
AUGUSTA PARTNERS, L.P.
By: Augusta Management, L.L.C.
General Partner/Manager
By: Oppenheimer & Co., Inc.
Managing Member
By:
-----------------------------------
Name:
Title:
- 4 -
<PAGE> 1
EXHIBIT 2(k)(ii)
ADMINISTRATION, ACCOUNTING AND INVESTOR SERVICES AGREEMENT
THIS AGREEMENT is made as of July 16, 1996 by and between AUGUSTA
PARTNERS, L.P., a Delaware limited partnership (the "Partnership"), and PFPC
INC., a Delaware corporation ("PFPC"), which is an indirect wholly owned
subsidiary of PNC Bank Corp.
W I T N E S S E T H :
WHEREAS, the Partnership is registered as a closed-end, non-diversified
management investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"); and
WHEREAS, the Partnership wishes to retain PFPC to provide certain
administration and accounting services and PFPC wishes to furnish such
services.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, and intending to be legally bound hereby the parties hereto
agree as follows:
1. DEFINITIONS. AS USED IN THIS AGREEMENT:
(a) "1933 Act" means the Securities Act of 1933, as amended.
(b) "1934 Act" means the Securities Exchange Act of 1934, as amended.
(c) "Authorized Person" means any officer of the Partnership and any other
person duly authorized by the Partnership's General Partners to give Oral
Instructions and Written Instructions on behalf of the Partnership and listed
on the Authorized Persons Appendix attached hereto and made a part hereof or
any amendment thereto as may be received by PFPC. An Authorized Person's scope
of authority may be limited by the Partnership by setting forth such limitation
in the Authorized Persons Appendix.
(d) "CEA" means the Commodities Exchange Act, as amended.
<PAGE> 2
(e) "General Partners" and "Limited Partners" shall have the same meanings
as set forth in the Partnership's Limited Partnership Agreement.
(f) "Oral Instructions" mean oral instructions received by PFPC from an
Authorized Person or from a person reasonably believed by PFPC to be an
Authorized Person.
(g) "SEC" means the Securities and Exchange Commission.
(h) "Securities Laws" means the 1933 Act, the 1934 Act, the 1940 Act and
the CEA.
(i) "Written Instructions" mean written instructions signed by an
Authorized Person and received by PFPC. The instructions may be delivered by
hand, mail, tested telegram, cable, telex or facsimile sending device.
2. APPOINTMENT. The Partnership hereby appoints PFPC to provide
administration, accounting and investor services, in accordance with the terms
set forth in this Agreement. PFPC accepts such appointment and agrees to
furnish such services.
3. DELIVERY OF DOCUMENTS. The Partnership has provided or, where
applicable, will provide PFPC with the following:
(a) certified or authenticated copies of the resolutions of the
Partnership's General Partners, approving the appointment
of PFPC or its affiliates to provide services and approving
this Agreement;
(b) a copy of Partnership's most recent effective registration
statement;
(c) a copy of the partnership agreement (pursuant to
which Augusta Management, L.L.C., as a general partner,
provides investment advice to the Partnership);
(d) a copy of any distribution agreement with respect to the
Partnership;
(e) a copy of any additional administration agreements;
(f) a copy of any other investor servicing agreement; and
-2-
<PAGE> 3
(g) copies (certified or authenticated, where
applicable) of any and all amendments or supplements to the
foregoing.
4. COMPLIANCE WITH RULES AND REGULATIONS. PFPC undertakes to comply with
all applicable requirements of the Securities Laws, and any laws, rules and
regulations of governmental authorities having jurisdiction with respect to the
duties to be performed by PFPC hereunder. Except as specifically set forth
herein, PFPC assumes no responsibility for such compliance by the Partnership.
5. INSTRUCTIONS.
(a) Unless otherwise provided in this Agreement, PFPC shall act only upon
Oral Instructions and Written Instructions.
(b) PFPC shall be entitled to rely upon any Oral Instructions and Written
Instructions it receives from an Authorized Person (or from a person reasonably
believed by PFPC to be an Authorized Person) pursuant to this Agreement. PFPC
may assume that any Oral Instruction or Written Instruction received hereunder
is not in any way inconsistent with the provisions of organizational documents
or this Agreement or of any vote, resolution or proceeding of the Partnership's
General Partners or of the Partnership's Limited Partners, unless and until
PFPC receives Written Instructions to the contrary.
(c) The Partnership agrees to forward to PFPC Written Instructions
confirming Oral Instructions (except where such Oral Instructions are given by
PFPC or its affiliates) and shall endeavor to ensure that PFPC receives the
Written Instructions by the close of business on the same day that such Oral
Instructions are received. The fact that such confirming Written Instructions
are not received by PFPC shall in no way invalidate the transactions or
enforceability of the transactions authorized by the Oral Instructions. Where
Oral Instructions or Written Instructions reasonably appear to have been
received from an Authorized Person, PFPC shall incur no liability
-3-
<PAGE> 4
to the Partnership in acting upon such Oral Instructions or Written
Instructions provided that PFPC's actions comply with the other provisions of
this Agreement.
6. RIGHT TO RECEIVE ADVICE.
(a) Advice of the Partnership. If PFPC is in doubt as to any action it
should or should not take, PFPC may request directions or advice, including
Oral Instructions or Written Instructions, from the Partnership.
(b) Advice of Counsel. If PFPC shall be in doubt as to any question of
law pertaining to any action it should or should not take, PFPC may request
advice at its own cost from such counsel of its own choosing.
(c) Conflicting Advice. In the event of a conflict between directions,
advice or Oral Instructions or Written Instructions PFPC receives from the
Partnership and the advice PFPC receives from counsel, PFPC may rely upon and
follow the advice of counsel. PFPC shall promptly inform the Partnership of
such conflict and PFPC shall refrain from acting in the event of a conflict
unless counsel advises PFPC that a failure to take action is likely to result
in additional loss, liability or expense. In the event PFPC relies on the
advice of counsel, PFPC remains liable for any action or omission on the part
of PFPC which constitutes willful misfeasance, bad faith, gross negligence or
reckless disregard by PFPC of any duties, obligations or responsibilities set
forth in this Agreement.
(d) Protection of PFPC. PFPC shall be protected in any action it takes or
does not take in reliance upon directions, advice or Oral Instructions or
Written Instructions it receives from the Partnership or (to the extent
permitted under clause (c) above) from counsel and which PFPC believes, in good
faith, to be consistent with those directions, advice and Oral Instructions or
Written Instructions. Nothing in this section shall be construed so as to
impose an obligation upon
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PFPC (i) to seek such directions, advice or Oral Instructions or Written
Instructions, or (ii) to act in accordance with such directions, advice or Oral
Instructions or Written Instructions unless, under the terms of other
provisions of this Agreement, the same is a condition of PFPC's properly taking
or not taking such action. Nothing in this subsection shall excuse PFPC when
an action or omission on the part of PFPC constitutes willful misfeasance, bad
faith, gross negligence or reckless disregard by PFPC of any duties,
obligations or responsibilities set forth in this Agreement.
7. RECORDS; VISITS.
(a) The books and records pertaining to the Partnership which are in the
possession or under the control of PFPC shall be the property of the
Partnership. Such books and records shall be prepared and maintained as
required by the 1940 Act and other applicable securities laws, rules and
regulations. The Partnership and Authorized Persons shall have access to such
books and records at all times during PFPC's normal business hours. Upon the
reasonable request of the Partnership, copies of any such books and records
shall be provided by PFPC to the Partnership or to an Authorized Person, at the
Partnership's expense.
(b) PFPC shall keep the following records:
(i) all books and records with respect to
the Partnership's books of account;
(ii) records of the Partnership's
securities transactions; and
(iii) all other books and records as the
Partnership is required to maintain pursuant to Rule
31a-1 of the 1940 Act in connection with the services
provided by PFPC hereunder.
8. CONFIDENTIALITY. PFPC agrees to keep confidential all records of the
Partnership and information relating to the Partnership and its Limited
Partners, unless the release of such records or information is otherwise
consented to, in writing, by the Partnership. The Partnership agrees that such
consent shall not be unreasonably withheld and may not be withheld where PFPC
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may be exposed to civil or criminal contempt proceedings or when required to
divulge such information or records to duly constituted authorities.
9. LIAISON WITH ACCOUNTANTS. PFPC shall act as liaison with the
Partnership's independent public accountants and shall provide account
analyses, fiscal year summaries, and other audit-related schedules. PFPC shall
take all reasonable action in the performance of its duties under this
Agreement to assure that the necessary information is made available to such
auditors and accountants in a timely fashion for the expression of their
opinion, as required by the Partnership.
10. DISASTER RECOVERY. PFPC shall enter into and shall maintain in effect
with appropriate parties one or more agreements making reasonable provisions
for emergency use of electronic data processing equipment to the extent
appropriate equipment is available. In the event of equipment failures, PFPC
shall, at no additional expense to the Partnership, take reasonable steps to
minimize service interruptions. PFPC shall have no liability with respect to
the loss of data or service interruptions caused by equipment failure, provided
such loss or interruption is not caused by PFPC's own willful misfeasance, bad
faith, gross negligence or reckless disregard of its duties or obligations
under this Agreement.
11. COMPENSATION. As compensation for services rendered by PFPC during
the term of this Agreement, the Partnership will pay to PFPC a fee or fees as
may be agreed to in writing by the Partnership and PFPC.
12. INDEMNIFICATION. The Partnership agrees to indemnify and hold
harmless PFPC and its affiliates from all taxes, charges, expenses,
assessments, claims and liabilities (including, without limitation, liabilities
arising under the Securities Laws and any state or foreign securities and blue
sky laws, and amendments thereto), and expenses, including (without limitation)
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reasonable attorneys' fees and disbursements arising directly or indirectly
from any action or omission to act which PFPC takes (i) at the request or on
the direction of or in reliance on the advice of the Partnership or (ii) upon
Oral Instructions or Written Instructions; provided, however, neither PFPC, nor
any of its affiliates, shall be indemnified against any liability (or any
expenses incident to such liability) arising out of PFPC's or its affiliates
own willful misfeasance, bad faith, gross negligence or reckless disregard of
its duties and obligations under this Agreement.
13. RESPONSIBILITY OF PFPC.
(a) PFPC shall be under no duty to take any action on behalf of the
Partnership except as necessary to fulfill its duties and obligations as
specifically set forth herein or as may be specifically agreed to by PFPC in
writing. PFPC shall be obligated to exercise care and diligence in the
performance of its duties hereunder, to act in good faith and to use its best
efforts, within reasonable limits, in performing services provided for under
this Agreement. PFPC shall be liable for any damages arising out of PFPC's
failure to perform its duties under this Agreement to the extent such damages
arise out of PFPC's willful misfeasance, bad faith, gross negligence or
reckless disregard of such duties.
(b) Without limiting the generality of the foregoing or of any other
provision of this Agreement, (i) PFPC shall not be liable for losses beyond its
control, provided that PFPC has acted in accordance with the standard of care
set forth above; and (ii) PFPC shall not be liable for (A) the validity or
invalidity or authority or lack thereof of any Oral Instruction or Written
Instruction, notice or other instrument which conforms to the applicable
requirements of this Agreement, and which PFPC reasonably believes to be
genuine; or (B) subject to Section 10, delays or errors or loss of data
occurring by reason of circumstances beyond PFPC's control, including acts of
civil or military authority, national emergencies, labor difficulties, fire,
flood,
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catastrophe, acts of God, insurrection, war, riots or failure of the mails,
transportation, communication or power supply.
(c) Notwithstanding anything in this Agreement to the contrary, neither
PFPC nor its affiliates shall be liable to the Partnership or to any Portfolio
for any consequential, special or indirect losses or damages which the
Partnership or any Portfolio may incur or suffer by or as a consequence of
PFPC's or any affiliates' performance of the services provided hereunder,
whether or not the likelihood of such losses or damages was known by PFPC or
its affiliates.
14. DESCRIPTION OF ACCOUNTING SERVICES ON A CONTINUOUS BASIS. PFPC will
perform the following accounting services:
(i) Journalize investment, capital share and income and
expense activities;
(ii) Verify investment buy/sell trade tickets when received
from the investment adviser for a Portfolio (the
"Adviser");
(iii) Maintain individual ledgers for investment securities;
(iv) Maintain historical tax lots for each security;
(v) Record corporate action activity and all other capital
changes;
(vi) Reconcile cash and investment balances of the
Partnership with the Custodian, and provide the Adviser
with the beginning cash balance available for
investment purposes;
(vii) Update the cash availability throughout the day as
required by the Adviser, including details of cash
movements related to securities and payment of
Partnership expenses;
(viii) Calculate various contractual expenses (e.g., advisory
and custody fees);
(ix) Post to and prepare the Statement of Assets and
Liabilities and the Statement of Operations, if required;
(ix) Calculate various contractual expenses (e.g., advisory
and custody fees);
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(x) Maintain annual detailed expense budget for the
Partnership and notify an officer of the Partnership of
any proposed adjustments;
(xi) Control all disbursements and authorize such
disbursements upon Written Instructions;
(xii) Calculate capital gains and losses;
(xiii) Determine net income;
(xiv) Determine applicable foreign exchange gains and losses
on payables and receivables;
(xv) Interface with global custodian to monitor collection
of tax reclaim;
(xvi) Calculate asset coverage ratio;
(xvi) Obtain security market quotes from independent pricing
services approved by the Adviser, or if such quotes are
unavailable, then obtain such prices from the Adviser,
and in either case calculate the market value of and the
appreciation/depreciation on the Partnership's
Investments;
(xvii) Transmit or mail a copy of the daily portfolio valuation
to the Adviser;
(xviii) Compute net asset value;
(xiv) As appropriate, compute yields, total return, expense
ratios, portfolio turnover rate, and, if required,
portfolio average dollar-weighted maturity; and
(xx) Prepare monthly Partnership financial statements as may
be requested by the Manager.
15. DESCRIPTION OF ADMINISTRATION SERVICES ON A CONTINUOUS BASIS. PFPC
will perform the following administration services:
(i) Prepare quarterly broker security transactions summaries
including principal and agency transactions and related
commissions;
(ii) Prepare monthly security transaction listings;
(iii) Supply various normal and customary portfolio and
Partnership statistical data as requested on an ongoing
basis;
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(v) Provide to the extent contained in accounting records
materials required for board reporting as may be
requested from time to time;
(viv) Prepare for execution and file the Partnership's Federal
and state tax returns;
(vi) Prepare and file the Partnership's Semi-Annual Reports
with the SEC on Form N-SAR via EDGAR;
(vii) Prepare and coordinate filing with the SEC via EDGAR
the Partnership's annual, semi-annual, and quarterly
shareholder reports;
(viii) Assist in the preparation of registration statements;
(ix) Transmit or otherwise send, to the extent practicable
and feasible, requested detailed information related to
the Limited Partners, including admission details,
income, capital gains and losses, and performance
detail; and
(x) Mail Partnership offering materials to prospective
investors.
16. DESCRIPTION OF INVESTOR SERVICES ON A CONTINUOUS BASIS. PFPC will
perform the following functions:
(i) Maintain the register of Limited Partners of the
Partnership and enter on such register all issues,
transfers and repurchases of interests in the
Partnership;
(ii) Arrange for the calculation of the issue and repurchase
prices of interests in the Partnership in accordance
with the limited partnership agreement and private
offering memorandum;
(iii) Allocate income, expenses, gains and losses to
individual Limited Partners' capital accounts in
accordance with applicable tax laws and with the private
offering memorandum; and
(iv) Mail to Partners annual Form K-1's in accordance with
applicable tax regulations.
17. DURATION AND TERMINATION. This Agreement shall continue until
terminated by either party on sixty (60) days' prior written notice to the
other party.
18. NOTICES. All notices and other communications, including Written
Instructions, shall be in writing or by confirming telegram, cable, telex or
facsimile sending device. If notice is
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sent by confirming telegram, cable, telex or facsimile sending device, it shall
be deemed to have been given immediately. If notice is sent by first-class
mail, it shall be deemed to have been given three days after it has been
mailed. If notice is sent by messenger, it shall be deemed to have been given
on the day it is delivered. Notices shall be addressed (a) if to PFPC, at 400
Bellevue Parkway, Wilmington, Delaware 19809; Attn: Neal Andrews (b) if to the
Partnership, at c/o Oppenheimer & Co., Inc., One World Financial Center, 200
Liberty Street, 33rd Floor, New York, NY 10281, Attn: Joyce O'Brien; or (c) if
to neither of the foregoing, at such other address as shall have been provided
by like notice to the sender of any such notice or other communication by the
other party.
19. AMENDMENTS. This Agreement, or any term thereof, may be changed or
waived only by written amendment, signed by the party against whom enforcement
of such change or waiver is sought.
20. DELEGATION; ASSIGNMENT. PFPC may assign its rights and delegate its
duties hereunder to any wholly-owned direct or indirect subsidiary of PNC Bank,
National Association or PNC Bank Corp., provided that (i) PFPC gives the
Partnership sixty (60) days' prior written notice; (ii) the delegate (or
assignee) agrees with PFPC and the Partnership to comply with all relevant
provisions of the Securities Laws; and (iii) PFPC and such delegate (or
assignee) promptly provide such information as the Partnership may request, and
respond to such questions as the Partnership may ask, relative to the
delegation (or assignment), including (without limitation) the capabilities of
the delegate (or assignee). Except as stated above, this Agreement may not be
assigned or delegated by any party without the written consent of each party.
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21. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
22. FURTHER ACTIONS. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the purposes
hereof.
23. MISCELLANEOUS.
(a) Entire Agreement. This Agreement embodies the entire agreement and
understanding between the parties and supersedes all prior agreements and
understandings relating to the subject matter hereof, provided that the parties
may embody in one or more separate documents their agreement, if any, with
respect to delegated duties and Oral Instructions.
(b) Captions. The captions in this Agreement are included for convenience
of reference only and in no way define or delimit any of the provisions hereof
or otherwise affect their construction or effect.
(c) Governing Law. This Agreement shall be deemed to be a contract made
in Delaware and governed by Delaware law, without regard to principles of
conflicts of law.
(d) Partial Invalidity. If any provision of this Agreement shall be held
or made invalid by a court decision, statute, rule or otherwise, the remainder
of this Agreement shall not be affected thereby.
(e) Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
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(f) Facsimile Signatures. The facsimile signature of any party to this
Agreement shall constitute the valid and binding execution hereof by such
party.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
PFPC INC.
By:
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Title:
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AUGUSTA PARTNERS, L.P.
BY: AUGUSTA MANAGEMENT, L.L.C.
General Partner
BY: OPPENHEIMER & CO., INC.
Manager
By:
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Title:
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AUTHORIZED PERSONS APPENDIX
NAME (TYPE) SIGNATURE
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