<PAGE> 1
As filed with the Securities and Exchange Commission on May 31, 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. __
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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
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MITCHELL A. TANZMAN, ESQ.
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
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: / /.
This Registration Statement, including exhibits, consists of pages. Exhibit
Index appears on page .
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FORM N-2
AUGUSTA PARTNERS, L.P.
CROSS REFERENCE SHEET
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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 Back Inside Front and Outside Back Cover of
Cover Page 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
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 Debt, Voting; Capital Accounts and Allocations;
and Other Securities Subscription for Interests; Redemptions,
Repurchases of Interests and Transfers;
Taxation; Additional Information and
Summary of Limited Partnership Agreement
</TABLE>
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<TABLE>
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PART A
ITEM NUMBER CAPTION PROSPECTUS CAPTION
----------- ------- ------------------
<S> <C> <C>
11. Defaults and Arrears on Senior Not Applicable
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 Program;
Policies Types of Investments and Related Risk
Factors
18. Management Individual General Partners; The Manager,
Opco and Ardsley
19. Control Persons and Principal The Manager, Opco and Ardsley
Holders of Securities
20. Investment Advisory and Other The Manager, Opco and Ardsley; Conflicts
Services of Interest; Fees and Expenses; Capital
Accounts and Allocations; Additional
Information and Summary of Limited
Partnership Agreement
21. Brokerage Allocation and Other Brokerage
Practices
22. Tax Status Taxation
</TABLE>
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<TABLE>
<CAPTION>
PART B
ITEM NUMBER CAPTION PROSPECTUS CAPTION
----------- ------- ------------------
<S> <C> <C>
23. Financial Statements To be filed
</TABLE>
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Offeree: ________________
Copy Number: ________________
----------------------
AUGUSTA PARTNERS, L.P.
----------------------
CONFIDENTIAL MEMORANDUM
MAY 31, 1996
------------------
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 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 INTEREST 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 PRIVATE PLACEMENT 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
<PAGE> 7
THREE YEARS FROM THE DATE THAT A REPURCHASE REQUEST HAS BEEN MADE BY AN
INVESTOR, EXCLUSIVE OF THE TIME THAT WILL BE REQUIRED TO LIQUIDATE AND
DISTRIBUTE THE INVESTMENT PORTFOLIO OF AUGUSTA PARTNERS, L.P.
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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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
PERFORMANCE INFORMATION.................................................. 20
INDIVIDUAL GENERAL PARTNERS.............................................. 20
THE MANAGER, OPCO AND ARDSLEY............................................ 22
VOTING................................................................... 24
CONFLICTS OF INTEREST.................................................... 24
BROKERAGE................................................................ 27
FEES AND EXPENSES........................................................ 28
CAPITAL ACCOUNTS AND ALLOCATIONS......................................... 30
SUBSCRIPTION FOR INTERESTS............................................... 33
REDEMPTIONS, REPURCHASES OF INTERESTS AND TRANSFERS...................... 35
TAXATION................................................................. 38
ERISA CONSIDERATIONS..................................................... 52
ADDITIONAL INFORMATION AND SUMMARY OF LIMITED
PARTNERSHIP AGREEMENT.................................................... 54
APPENDIX A - 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., 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, 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. In circumstances deemed
appropriate by the Manager, the Partnership will
also invest in bonds and other fixed-income
securities of U.S. and foreign issuers.
The Manager believes that many attractive growth
companies are clustered in a relatively small
number of economic sectors, including
biotechnology, financial services, health care,
high technology and telecommunications. These are
sectors that the
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<PAGE> 11
Manager believes are experiencing, or are about to
experience, significant expansion or product
innovation that may lead to significant expansion.
In emphasizing investments in equity securities of
growth companies, the Manager expects that a
significant portion of the Partnership's assets
may from time to time be invested in one or more
industries within an economic sector. The
Partnership has adopted a fundamental policy that
it will concentrate its assets in one or more
industries within an economic sector only when the
Manager has concluded, based upon its past
investment experience and judgment, that growth
companies falling within the industry offer
significant potential for capital appreciation.
Concentration for this purpose means the
investment of 25% or more of the value of the
Partnership's total assets in the securities of
companies doing business in a particular industry.
The Partnership may use a variety of investment
strategies to hedge a portion of its investment
portfolio against certain risks and to achieve 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 some derivative
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.
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.
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<PAGE> 12
If the Partnership invests 25% or more of the
value of its total assets in the securities of
companies doing business in a particular industry,
such investments may be subject to greater risk
and market fluctuation than if such investments
had been made in a broader range of investment
alternatives.
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.
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
if such allocation were not made. 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.
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 substantially similar to the Partnership's
investment program.
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's principal
members are Oppenheimer & Co., Inc., ("Opco") and
Ardsley Advisory Partners ("Ardsley"). Ardsley
will manage the Partnership's investment portfolio
under Opco's supervision. The Partnership has
filed a notice of eligibility for exclusion from
the definition of the term "commodity pool
operator" with the Commodity Futures Trading
Commission and the National Futures Association,
which regulate trading in the futures markets.
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Opco (directly or through affiliates) provides
investment advisory services to registered
investment companies, private investment
partnerships and to 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").
Placement Agent Opco acts as placement agent for the Partnership
and will bear all costs associated with such
activities. (See "CONFLICTS OF INTEREST
- Opco".)
Conflicts of Interest Certain conflicts of interest may arise from the
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 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 to which
the Manager will commit 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; (vi)
Ardsley and/or its affiliates may receive
research, products and/or
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<PAGE> 14
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; and (vii) account executives of Opco
who have placed interests in the Partnership with
their clients will receive compensation from Opco
that is (a) based upon a formula that takes into
account the value of the client's capital account
in the Partnership, (b) based upon a formula that
takes into account the value of the Opco Fee
(defined below) that Opco receives from the
Partnership and/or (c) based upon the value of the
Incentive Allocation that may be debited to each
Limited Partner's capital account and credited to
the Manager's capital account. Future activities
of Opco and/or Ardsley (including the principals,
partners, directors, officers and employees of the
foregoing or of their respective affiliates) may
give rise to additional 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
calculated and payable in advance as of the first
day of each calendar month or any date on which
contributions to the capital of the Partnership
are made. The Opco Fee will be paid to Opco out of
the Partnership's assets, and debited against
Limited Partners' capital accounts as applicable.
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; organizational and registration expenses;
expenses of meetings of General Partners and/or
Limited Partners (collectively, "Partners"); the
cost of certain expenses incurred by the Manager
and/or Opco in connection with its provision of
investment advice or management services to the
Partnership; and the administrative fee paid to
for providing certain administrative
services to the Partnership.
Allocation of Profit and Loss The net profits or net loss of the Partnership
(including, without limitation, net realized gain
or loss and the net change in unrealized
appreciation or depreciation of securities and
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<PAGE> 15
commodities positions) will be credited to or
debited against the capital accounts of the
Partners of the Partnership 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 that has 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
Limited Partner through the close of any prior
period. The Incentive Allocation will be adjusted
for repurchases of interests by the Partnership.
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 July __, 1996.
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
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<PAGE> 16
consent of the Manager, which may be withheld in
its sole and absolute discretion.
Withdrawals; Repurchases of No Partner in the Partnership will have the right
Interest by the Partnership to require the Partnership to redeem such
Partner's interest. The Partnership may from time
to time 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 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 Limited Partnership Agreement of the
Partnership (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 three years.
Taxation 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
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<PAGE> 17
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.
ERISA and Other Investors subject to the Employee Retirement
Tax-Exempt Entities Income 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 its Limited 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 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.
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Fiscal Year December 31. The first fiscal year of the
Partnership will end on December 31, 1996.
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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 and are publicly offered in relatively modest minimum denominations
(often less than $2,000) 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 a closed-end investment company, 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.
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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. In circumstances deemed appropriate by the Manager, the Partnership will
also invest in bonds and other fixed-income securities of U.S. and foreign
issuers.
The Manager believes that many attractive growth companies are
clustered in a relatively small number of economic 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. In emphasizing investments in
equity securities of growth companies, the Manager expects that a significant
portion of the Partnership's assets may from time to time be invested in one or
more industries within an economic sector. The Partnership has adopted a
fundamental policy that it will concentrate its assets in one or more industries
within an economic sector only when the Manager has concluded, based upon its
past investment experience and judgment, that growth companies falling within
the industry offer significant potential for capital appreciation. Concentration
for this purpose means the investment of 25% or more of the value of the
Partnership's total assets in the securities of companies doing business in a
particular industry.
The Partnership may use a variety of investment strategies to hedge a
portion of its investment portfolio against certain risks and to achieve 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
some 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.
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 Partnership's investment program and
related risks is provided below. Except as otherwise indicated, the
Partnership's investment policies are not
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fundamental investment policies and may be changed without a vote of Limited
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. 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 due to the fact that such 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, in order to sell securities of growth
companies, the Partnership may need to dispose of such securities over a longer
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.
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
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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.
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.
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BONDS AND OTHER FIXED-INCOME SECURITIES
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 things, money market instruments, fixed and variable rate
debt securities, commercial paper, zero coupon securities, municipal securities
and mortgage-backed and asset-backed 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.
LIMITED DIVERSIFICATION
The Partnership is a "non-diversified" investment company and there are
no limitations on the amount that the Partnership may invest in the securities
of any one issuer, except for the limits on "industry concentration" discussed
above and below. 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 economic sector, the Partnership's
portfolio securities may be more susceptible to any single economic, political
or regulatory occurrence than the portfolio securities of a diversified
investment company.
As stated above, the Partnership may, under certain circumstances,
concentrate its assets in one or more industries within a particular economic
sector, such as those described below. This investment approach differs from
that of many other investment companies that, as a matter of fundamental
investment policy, do not concentrate their investments in particular
industries. To the extent that the Partnership's assets are so invested, such
investments may be subject to greater risk and market fluctuation than if such
investments had been made in a broader range of investment alternatives. In
particular, whenever the Partnership concentrates its assets within a particular
industry, the performance of such investments will be closely tied to and
affected by developments
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within such industry. Moreover, companies within an industry are often faced
with the same obstacles, issues or regulatory burdens, and their securities may
react similarly to these and other market conditions.
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. The Manager interprets the biotechnology sector broadly. 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 others, 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. Under current SEC regulations, however, the
Partnership may not invest more than 5% of its total assets in the equity
securities of any company that derives more than 15% of its revenues from
brokerage or investment management activities.
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
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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, 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 description of the high technology sector will be interpreted
broadly by the Manager and 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 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
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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 usually 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.
FOREIGN SECURITIES
Although the Partnership will invest principally in equity securities
of publicly-traded U.S. companies, the Partnership is permitted to invest in
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
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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 in furtherance of
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 in
furtherance of its investment objective. Forward contracts are derivative
transactions involving the Partnership's obligation to purchase or sell a
specific currency at a future date. 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. There may be,
however, imperfect correlation between 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 in furtherance of
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.
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LEVERAGE
The Partnership has the ability to trade on margin and, in that
connection, borrow funds from brokers 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 fixed-income
securities purchases is generally done through reverse repurchase agreements
with banks, brokers and other financial institutions. This involves the transfer
by the Partnership of the underlying debt instrument 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 may 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 such borrowing 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). The staff of the Division of Investment Management (the "SEC
Staff") of the U.S. Securities and Exchange Commission (the "SEC") takes the
position that short sales of securities, reverse repurchase agreements, the sale
of put and call options on specific securities, stock indices, or interest rate
futures contracts or other investment instruments (including certain derivatives
such as swap agreements), the purchase and sale of commodity futures contracts,
and forward contracts on currencies may be deemed to constitute indebtedness
subject to the Asset Coverage Requirement because the potential return and risk
on such instruments corresponds to a capital base that exceeds the equity
invested, and therefore creates liabilities comparable to indebtedness.
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
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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 cash, U.S. Government securities or high quality
liquid debt securities at such a level that (a) the amount deposited in the
segregated account plus any amounts pledged to a broker as collateral will equal
the current value of the position and (b) the amount deposited in the segregated
account plus any amounts pledged to a broker as collateral will not be less than
the market price at which the position was opened, 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 maintain significant investments in options and other
synthetic instruments that do not constitute "indebtedness" for purposes of the
Asset Coverage Requirement.
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 and may use short sales for non-hedging purposes in
furtherance of 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
movements in the price of the security sold short and the securities being
hedged. Short selling may exaggerate changes in the net asset value 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.
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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 from 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.
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. While a reverse repurchase agreement is
outstanding, the Partnership will maintain with its custodian in a segregated
account cash, U.S. Government securities or other liquid, high grade debt
securities, marked-to-market daily, in an amount at least equal to the
Partnership's obligations under the agreement. There is 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 increase fluctuations in the market value of
the Partnership's investment portfolio.
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 to achieve the
Partnership's investment objective. These strategies may be executed through
derivative transactions. The instruments the Partnership may use and the
particular
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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 in furtherance of 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,
the Partnership has 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 Rule 4.5 under the Commodity Exchange Act of
1974, as amended, 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 in respect of the exclusion
obtained by the Manager and Ardsley (defined below) with respect to the
Partnership.
The Partnership may enter into a futures contract 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 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.
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<PAGE> 32
The Partnership may sell a currency futures contract if the Manager
anticipates that exchange rates for a particular currency will fall. Such a
transaction will 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 in furtherance of 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 Rule 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 Rule 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 Rule 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 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
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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 a futures contract. The Partnership may close out an option
that it has purchased or written by selling or purchasing an offsetting option
of the same series. There is no guarantee 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 in furtherance of the Partnership's investment
objectives, 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 minimize 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 and options thereon are derivative instruments. Losses that may
arise from certain futures transactions, particularly those involved in
non-hedging contexts in furtherance of the Partnership's investment objective,
are potentially unlimited.
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 in furtherance of 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
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<PAGE> 34
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.
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.
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 in
furtherance of 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
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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.
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 will 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.
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
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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. At
the time the Partnership enters into a transaction on a when-issued or forward
commitment basis, a segregated account consisting of cash or high grade liquid
debt securities equal to the value of the when-issued or forward commitment
securities will be established and maintained with its custodian and will be
marked-to-market daily. There is a risk that the securities may not be delivered
and that the Partnership may incur a loss.
RESTRICTED AND RULE 144A SECURITIES
The Partnership may invest in restricted securities, which 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 institutional investors by permitting the sale of
certain unregistered securities to qualified institutional buyers. 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, 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 are priced at fair value as determined in
accordance with procedures approved and periodically reviewed by the Individual
General Partners.
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 as the
Manager deems appropriate under the circumstances.
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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 if
such allocation were not made. 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
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 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 "THE
MANAGER" and "CONFLICTS OF INTEREST - Participation in Investment
Opportunities".)
FUNDAMENTAL INVESTMENT POLICIES
In addition to the Partnership's fundamental investment policy
regarding industry concentration (see "INVESTMENT PROGRAM" and "TYPES OF
INVESTMENTS AND RELATED RISK FACTORS - Limited Diversification"), 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.
The Partnership will 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, only to the extent permitted by the 1940
Act.
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(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.
(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 objective.
(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 invest more than 5% of the value of its total
assets in the securities of an issuer if such securities are not traded
on a national securities exchange.
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 enter into
securities transactions with the Manager or its affiliates, subject to
compliance with the 1940 Act.
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 IS NOT NECESSARILY INDICATIVE OF 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 business. The Individual General Partners have
vested the responsibility for the day-to-day management of the Partnership with
the Manager.
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A majority of the Individual General Partners (i.e., the Independent
General Partners) are not affiliated with the Manager or with its affiliates 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>
NAME, ADDRESS AND AGE POSITION(S) HELD WITH THE PRINCIPAL OCCUPATION(S) DURING
PARTNERSHIP PAST 5 YEARS
<S> <C> <C>
Robert A. Blum* Individual General Partner Mr. Blum has been a Managing
Director of Opco since 1994.
Oppenheimer & Co., Inc. From 1991 to 1994, Mr. Blum was
Oppenheimer Tower a Senior Vice President, and from
One World Financial 1989 to 1991 was a Vice
Center President, of Opco. Mr. Blum is a
200 Liberty Street Director and the Assistant Secretary
New York, NY 10281 of The India Fund, Inc. (a _________),
Age __ the Secretary of The Mexico Equity and
Income Fund, Inc. (a ________________),
a Director and the Assistant Secretary
of The Asia Tigers Fund, Inc.
(a ________________) and the Assistant
Secretary of Municipal Advantage Fund, Inc.
(a ________________).
Mitchell A. Tanzman* Individual General Partner Mr. Tanzman has been Managing
Director of Opco since 1994 and
Oppenheimer & Co., Inc. the co-head of Opco's Investment
Oppenheimer Tower Partnership and Offshore Fund
One World Financial Department since 1992. From
Center 1991 to 1994, he was a Senior
200 Liberty Street Vice President of Opco, and from
New York, NY 10281 1989 to 1991 he was a Vice
Age 36 President of Opco. Mr. Tanzman
is an officer and/or a director of
other investment funds associated
with Opco.
</TABLE>
[Other Individual General Partners to Come]
* These Individual General Partners are "interested persons" (as defined
in the 1940 Act) of the Partnership.
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
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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 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 (together with the Manager and
the Limited Partners, the "Partners"). The Manager was formed as a Delaware
limited liability company on May 30, 1996 and is registered as an investment
adviser under the Investment Advisers Act of 1940 (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 May 31, 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.
Oppenheimer & Co., Inc. ("Opco") is the managing member of (and
therefore controls) the Manager and oversees the Manager's provision of
investment advice to and day-to-day management of the Partnership. Ardsley
Advisory Partners ("Ardsley") is also a principal member of the Manager and
determines the composition of the Partnership's investment portfolio under
Opco's supervision.
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 March
31, 1996, Opco (directly or through affiliates) managed assets of more than $42
billion. Opco is also registered as a broker-dealer under the Securities
Exchange Act of 1934 (the
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"1934 Act") and is a member of the New York Stock Exchange, Inc. 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 located in
Greenwich, Connecticut. Mr. Philip J. Hempleman is the managing general partner
of Ardsley. He will be primarily responsible for the day-to-day management of
the Partnership's investment portfolio and will be directly assisted by
approximately nine other investment professionals employed by Ardsley or its
affiliates. 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 March 31, 1996, Ardsley and its affiliates
managed assets of more than $3.1 billion.
The authority of the Manager to provide investment advice to, and be
responsible for the day-to-day management of, the Partnership (collectively,
"Advice and Management"), and the compensation 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 on ___________ __, 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 those Individual
General Partners who are not "interested persons" of
the Partnership, as such term is defined in the 1940
Act (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
first 12 consecutive months of the effectiveness of
such authority shall conclude without the approval of
the continuation of such authority 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; or
(4) 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, but in order to ensure continuation of the Partnership's status as a
partnership for Federal income tax purposes, the Manager must remain as a
General Partner of the Partnership for a period of six months after it has given
notice to the Partnership of its intention to withdraw (unless a successor
General Partner to the Manager is approved by the Partnership), and at the
request of the Partnership will remain as a General Partner of the Partnership
for a period of six months if the
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Partnership has terminated the authority of the Manager to provide Advisory
Services (unless a successor General Partner to the Manager is 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 of
the Partnership called by the Individual General Partners or Partners owning a
majority (as defined in the 1940 Act) of the outstanding voting securities of
the Partnership. 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 Advisory Services 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 (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. Account executives of Opco who have
placed interests in the Partnership with their clients will receive compensation
from Opco based upon a formula that may take into account the value of the
client's capital account in the Partnership. Such persons will also receive
additional compensation from Opco that may be based upon a formula that takes
into account the value of the Opco Fee (defined below) that Opco receives from
the Partnership and/or the value of the Incentive Allocation that may be charged
to each Limited Partner's capital account and debited to the Manager's capital
account. (See "FEES AND EXPENSES"; "CAPITAL ACCOUNTS AND ALLOCATIONS - Incentive
Allocation".)
Opco and/or its affiliates may provide brokerage services from time to
time to one or more accounts or entities managed by Ardsley or Ardsley Partners
I.
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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 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 will manage the Partnership's investment portfolio will be
engaged in substantial activities other than on behalf of the Partnership 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 may provide investment advisory services from time
to time to private investment partnerships or other entities or accounts managed
by Opco or its affiliates. In addition, the Ardsley Managers 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 (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
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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, unlike the Ardsley Accounts, the Partnership will bear the
Administrative Fee and certain organizational expenses. 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 determines that it would be appropriate for the
Partnership and the Ardsley Accounts to participate in an investment opportunity
at the same time, the Manager will aggregate, execute and allocate orders on an
equitable basis in accordance with the Advisers Act and the 1940 Act. No
participating entity or account will receive preferential treatment over any
other and the Manager will take steps to ensure that no participating entity or
account will be systematically disadvantaged by the aggregation, execution 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 from, or sell
securities to, the Partnership. However, the Manager anticipates that the
Partnership may enter into certain
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transactions with one or more Ardsley Accounts. Such transactions would be made
in circumstances where the Manager has determined it would be appropriate for
the Partnership to purchase or sell, and an Ardsley Account to sell or 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 of the 1940 Act. Among other things, those procedures provide that (1)
each such transaction shall be effected for cash consideration at the current
market price of the particular securities, (2) such transactions shall not
involve restricted securities or securities for which market quotations are not
readily available and (3) no brokerage commissions, fee (except for customary
transfer fees) or other remuneration shall 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 to the
Partnership 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 its Advice and Management. 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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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 greater than the turnover rates of other types
of investment vehicles. The Partnership anticipates that its portfolio turnover
rate will not exceed 300%.
The Partnership may execute portfolio 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 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 customer 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. To the extent that the
Partnership executes portfolio transactions through Opco, Opco will charge the
Partnership its posted rate for institutional clients.
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 on the 15th day of such calendar 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.
provides certain administrative services to the Partnership
pursuant to an agreement that provides for the Partnership to pay an
administrative fee (the "Administrative Fee") not exceeding 0.20% (annualized)
of the Partnership's net assets (as defined above).
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".)
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Each Independent General Partner receives an annual fee of $5,000 from
the Partnership. The other Individual General Partners will receive no annual or
other fees from the Partnership. Individual General Partners are reimbursed by
the Partnership for all reasonable out-of-pocket expenses incurred by them in
performing their duties.
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;
- certain expenses incurred by the Manager (including any of
its members and their principals and employees) in
connection with its provision of Advice and Management to
the Partnership;
- all costs and expenses associated with the organization and
registration of the Partnership (which are being amortized
over a 60 month period) and 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;
- any fees provided for in the Partnership Agreement, including,
but not limited to, the Opco Fee and the Administrative Fee;
- 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, other than those
required to be borne by the Manager, as summarized below.
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The Manager will be reimbursed by the Partnership for any of the above expenses
that it pays on behalf of the Partnership.
The Manager (including its members and their affiliates) may receive
research and related services from brokers through whom portfolio transactions
for the Partnership are executed, including the following: written information
and analyses concerning specific securities, companies or sectors; market,
financial and economic studies and forecasts; statistics and pricing services;
hardware, software, data bases and other news, technical and telecommunications
services; and equipment utilized in the investment management process. The
Manager will make any appropriate allocations so that it bears the cost of any
such services used for purposes other than for providing investment advice to
the Partnership and managing its investment portfolio.
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.
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ALLOCATION OF NET PROFITS AND NET LOSS
Net profits or net loss 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 loss 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.
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.
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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-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.
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. 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
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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;
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.
In general, the Partnership will value portfolio securities as of their
last available public sale price in the case of securities listed on any
established securities exchanges or included in the United States NASDAQ
National Market List or any comparable foreign over-the counter quotation system
providing last sale data, and in the case of other over-the-counter securities
at the last reported bid price (in the case of securities held long), or the
last reported asked price (in the case of securities sold short). In special
circumstances in which the Manager determines that market prices or quotations
do not fairly represent the value of particular assets and liabilities, the
Individual General Partners may assign a value to such assets that differs from
the market prices or quotations. The value of assets and liabilities that are
not publicly traded will be recorded at their fair value as determined by the
Individual General Partners.
There will be deducted from the total value of the Partnership's assets
all accrued debts and liabilities, including any contingencies for which
reserves are determined to be required.
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.
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
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capital of the Partnership from each investor is $150,000, and the minimum
additional investment in the Partnership is $25,000.
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 receivable by the
Partnership's custodian in the name 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 that it 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 may charge any
Partner making such contribution an amount 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.
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%.
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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 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
- 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
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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 three 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 generally 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 high quality liquid
debt 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 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.
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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.
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
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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.
The Manager may not transfer its interest as a General Partner, except
to a person admitted to the Partnership as a General Partner who has agreed to
be bound by all of the terms of the Partnership Agreement and (1) who is a
person controlling, controlled by or under common control with the Manager
immediately prior to any such proposed transfer, (2) who is a successor to all
or substantially all of the business and assets of the Manager or (3) with the
approval of the Individual General Partners or 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 in the Partnership.
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
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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 objectives of the Partnership are 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. The Partnership has received an
opinion of Schulte Roth & Zabel, counsel to the Partnership, 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 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
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event the partnership's status is examined under a general facts and
circumstances test set forth in the Regulations. Schulte Roth & Zabel has
rendered 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.
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
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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, unless they file a statement with
the Service disclosing the inconsistency. 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 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
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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)
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
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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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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. 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
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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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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 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
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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 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.
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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
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
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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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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.
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
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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.
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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 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
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(5) Moreover, income realized by it from option writing and futures
contract transactions generally would not constitute UBTI.
(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.
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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 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
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(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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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 determined under state statutes. It should be
noted, however, that under the Uniform Management of Institutional Partnerships
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.
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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 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 principal office of Ardsley, which will manage the Partnership's
investment portfolio under Opco's supervision, is 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
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(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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to Connecticut 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.
Under existing law, it is expected that Connecticut will take the
position that a non-resident corporate Limited Partner not otherwise subject to
the Connecticut Corporation Business Tax will become subject to such tax by
virtue of the Partnership's activities in Connecticut, in which case the
non-resident corporate Limited Partner will be liable for Connecticut
Corporation Business Tax on that portion of its federal net income base or
capital base apportionable to Connecticut. Such bases and apportionment
calculations would include both a portion of the Partner's share of the federal
net income and capital base of the Partnership as well as the Partner's own
federal net income and capital bases. Under legislation passed on May 8, 1996
but not yet signed by the Governor, however, a non-resident corporate Limited
Partner that is not otherwise subject to the Connecticut Corporation Business
Tax would (i) if the Partnership qualifies as an "investment partnership" under
the new legislation, not be subject to the Connecticut Corporation Business Tax
with respect to its share of the Partnership's income, or (ii) if the
Partnership does not qualify as an "investment partnership", would not be
subject to the Connecticut Corporation Business Tax on (A) its share of the
Partnership's income derived solely from its purchase or sale of securities and
commodities for its own account, or (B) any of such Limited Partner's other
income. The Governor is expected to sign the legislation shortly.
An entity exempt from federal 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
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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 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.
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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 PARTNERS
Pursuant 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 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
-54-
<PAGE> 73
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
In general, the Partnership Agreement may be amended only by a written
instrument executed by the Partners holding a majority of the total number of
votes eligible to be cast by all Partners. Certain amendments involving capital
accounts and allocations thereto may not be made without the consent of any
Partner adversely affected thereby or unless 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 (1) reflect any change in the Partners or their respective capital
contributions, (2) restate the Partnership Agreement, (3) effect compliance with
any applicable law or regulation, or (4) 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 and each of the Individual General Partners 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 each of the Individual General Partners 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, regardless of whether the Partnership or the Manager or
Individual General Partners shall have had notice thereof, 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, 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.
-55-
<PAGE> 74
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;
- upon the expiration of any three 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.
-56-
<PAGE> 75
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 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.
ACCOUNTANTS AND LEGAL COUNSEL
The Manager has designated 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 other matters. Stroock & Stroock & Lavan, New York, New York, acts as legal
counsel to the Independent General Partners.
CUSTODIAN
_________ 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. _______'s principal business address is ___________________.
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: 212-227-8956
-57-
<PAGE> 76
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.
-58-
<PAGE> 77
APPENDIX A -
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.
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 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 considerably from time to time.
In addition, unlike the Ardsley Funds, the Partnership will bear the
administrative fee paid to and certain organizational expenses.
Accordingly, prospective Limited Partners should note that the future
performance of the Partnership and the Ardsley Funds may vary. (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. THERE CAN BE NO ASSURANCE THAT THE INVESTMENT OBJECTIVES OF
THE PARTNERSHIP WILL BE ACHIEVED OR THAT THE PERFORMANCE RECORDS OF THE ARDSLEY
FUNDS IS INDICATIVE OF THE PERFORMANCE RECORD WHICH WILL BE ACHIEVED BY THE
PARTNERSHIP.
A-1
<PAGE> 78
TABLE 1
PERFORMANCE RECORD OF
ARDSLEY PARTNERS FUND I, L.P.
<TABLE>
<CAPTION>
YEAR FUND S&P 500 NET ASSETS
<S> <C> <C> <C>
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* 6.80 5.37 157.5
</TABLE>
* First quarter ended March 31, 1996.
The above returns are net of all fees 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. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
TABLE 2
PERFORMANCE RECORD OF
ARDSLEY PARTNERS FUND II, L.P.
<TABLE>
<CAPTION>
YEAR FUND S&P 500 NET ASSETS
<S> <C> <C> <C>
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* 8.58 5.37 150.6
</TABLE>
* First quarter ended March 31, 1996.
The above returns are net of all fees 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. PAST PERFORMANCE IS NO
GUARANTEE OF FUTURE RESULTS.
A-2
<PAGE> 79
FORM N-2
AUGUSTA PARTNERS, L.P.
PART C - OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(1) Financial Statements:
(a) Report of Independent Accountants. To be filed.
(b) Statement of Assets and Liabilities. To be filed.
(2) Exhibits:
(a) Form of Certificate of Limited Partnership of Augusta
Partners, L.P. To be filed.
(b) (i) Form of Limited Partnership Agreement. Filed
herewith. (ii) 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) Not Applicable.
(i) Not Applicable.
(j) Form of Custodian Agreement. To be filed.
(k) Form of Administration Agreement. To be filed.
(l) Not Applicable.
(m) Form of Consent to Service of Process Within the
United States. To be filed.
(n) Not Applicable.
(o) Not Applicable.
(p) Form of Seed Capital Contribution Agreement. To be
filed.
(q) Not Applicable.
(r) Financial Data Schedule. To be filed.
ITEM 25. MARKETING ARRANGEMENTS
Not Applicable.
<PAGE> 80
ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
To be filed.
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> 81
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> 82
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 31st day of May, 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> 83
FORM N-2
AUGUSTA PARTNERS, L.P.
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DOCUMENT DESCRIPTION SEQUENTIAL PAGE NUMBER
<S> <C> <C>
(a) Form of Certificate of
Limited Partnership
(b) (i) Current Form of Limited
Partnership Agreement __
(ii) 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) Not Applicable
(i) Not Applicable
(j) Form of Custodian Agreement
(k) Form of Administration
Agreement
(l) Not Applicable
(m) Form of Consent to Service of
Process Within the United States
(n) Not Applicable
(o) Not Applicable
(p) Form of General Partner
Subscription Agreement
(q) Not Applicable
(r) Financial Data Schedule
</TABLE>
<PAGE> 1
LIMITED PARTNERSHIP AGREEMENT
OF
AUGUSTA PARTNERS, L.P.
LIMITED PARTNERSHIP AGREEMENT OF AUGUSTA PARTNERS, L.P. (the
"Partnership"), dated as of May 30, 1996, by and among Augusta Management,
L.L.C., as general partner (the "General Partner"), and Mitchell A. Tanzman as
the organizational limited partner (the "Limited Partner"). The General Partner
and the Limited Partner are collectively referred to as the "Partners."
Preliminary Statement
The Partners desire to form a limited partnership under the
Delaware Revised Uniform Limited Partnership Act, 6 Del. C. Sections
17.101, et seq., as amended from time to time (the "Act").
Accordingly, in consideration of the mutual promises herein
made, the parties hereto agree as follows:
1. Formation. The General Partner shall execute and file in
accordance with the Act the Certificate of Limited Partnership and any
amendments thereto with the office of the Secretary of State of Delaware. The
parties hereto agree that the rights and liabilities of the Partners shall be as
provided in the Act, except as herein otherwise expressly provided.
2. Name; Place of Business. The name of the Partnership is
Augusta Partners, L.P. The principal place of business of the Partnership shall
be at Oppenheimer Tower, World Financial Center, 33rd Floor, 200 Liberty Street,
New York, New York 10281. The General Partner may at any time change the
location of such offices and may establish such additional offices for the
Partnership as it deems advisable, provided that it gives the Limited Partners
written notice thereof.
3. Purpose. The Partnership has been formed for the purpose of
purchasing, selling, investing and trading in securities and carrying on such
other activities that the General Partner may deem
appropriate.
4. Term. The Partnership shall continue until December 31,
2021, unless or until dissolution prior thereto pursuant to the provisions
hereof or applicable law.
5. Registered Office; Registered Agent. The Partnership shall
maintain a registered office at The Corporation Service Company, 1013 Centre
Road, Wilmington, Delaware 19805-1297. The name and address of the registered
agent for service of process on the Partnership in the State of Delaware is The
Corporation Service Company, 1013 Centre Road, Wilmington, Delaware 19805-1297.
<PAGE> 2
6. Management.
(a) Subject to the terms and conditions of this Agreement, the
General Partner shall have full, exclusive and complete discretion in the
management and control of the business and affairs of the Partnership, shall
make all decisions regarding the business of the Partnership, and shall have all
of the rights, powers and obligations of a general partner of a limited
partnership under the laws of the State of Delaware. Except as otherwise
expressly provided in this Agreement, the General Partner is hereby granted the
right, power and authority to do on behalf of the Partnership all things which,
in the General Partner's sole judgment, are necessary or appropriate to manage
the Partnership's affairs and fulfill the purposes of the Partnership.
(b) Except as otherwise provided herein, the Limited Partner,
in his capacity as the Limited Partner, shall not participate in the management
of or have any control over the Partnership's business nor shall the Limited
Partner have the power to represent, act for, sign for or bind the General
Partner or the Partnership. The Limited Partner hereby consents to the exercise
by the General Partner of the powers conferred on him by this Agreement.
7. Dissolution.
(a) The Partnership shall dissolve upon the happening of the
earliest to occur of the following events:
(i) December 31, 2021;
(ii) the written election by any of the Partners;
(iii) an event of withdrawal of the General Partner;
(iv) if a law is enacted that causes the Partnership
to be treated as an association taxable as a corporation for Federal
income tax purposes or subjected as an entity to Federal income tax; or
(v) entry of a decree of judicial dissolution under
the laws of the State of Delaware.
(b) Dissolution of the Partnership shall be effective on the
day that the event occurs giving rise to the dissolution, but the Partnership
shall not terminate until the term of this Agreement has terminated and the
assets of the Partnership have been distributed as provided in this paragraph
7(b). Upon the dissolution of the Partnership, the General Partner shall proceed
with the liquidation and distribution of the assets of the Partnership, and upon
completion of the winding up of the Partnership shall have the authority to, and
shall execute and file a certificate of cancellation and such other documents
required to effect and evidence the dissolution and termination of the
Partnership. Before the distribution of all the assets of the Partnership, the
business of the Partnership and the affairs of the Partners, as such, shall
continue to be governed by this Agreement. Dissolution, payment of creditors and
distribution of the Partnership's assets shall
-2-
<PAGE> 3
be effected in accordance with the Act, and the General Partner and the Limited
Partner shall share in the assets of the Partnership pro rata in the ratio of
the total of each Partner's capital account to the total of all Partners'
capital accounts, less any amount owing by such Partner to the Partnership.
8. Initial Capital Contributions; Percentage Interest.
Simultaneously herewith, each Partner shall make a capital contribution to the
Partnership in the amount set forth with respect to such Member below. The
"Capital Percentages" of the Partners in the Partnership are as follows:
<TABLE>
Partner Capital Contribution Capital Interest
------- -------------------- ----------------
<S> <C> <C> <C>
General Partner $990 99%
Limited Partner $100 1%
</TABLE>
9. Additional Contributions. No Partner shall have any
obligation to make additional capital contributions to the Partnership.
10. Distributions. Distributions shall be made to the Partners
at the times and in the aggregate amounts determined by the General Partner.
Notwithstanding the foregoing, distributions made in connection with a sale of
all or substantially all of the Partnership's assets or a liquidation of the
Company shall be made in accordance with the capital account balances of all of
the Partners within the time period set forth in Treasury Regulation section
1.704-1(b)(2)(ii)(B)(3).
11. Restrictions on Transfer. No Partner shall have the right
to sell, assign, pledge, transfer or otherwise dispose of all or any part of its
interest in the Partnership without the consent of the other Partner, which
consent may be withheld in such Partner's sole and absolute discretion. Any
purported sale, assignment, transfer or other disposition of all or any part of
such interest shall be void and of no effect.
12. No Agency. This Agreement in no respects creates any
agency in any of the Partners on behalf of any other of the Partners and shall
in no respect be construed, except as explicitly set forth herein, as an
authorization for any of the Partners to represent or act on behalf of any of
the other Partners.
13. New Partners. The General Partner may at any time admit
one or more new Partners on such terms as it may determine in its sole and
absolute discretion.
14. Withdrawal. Without the consent of the General Partner, no
Partner may withdraw as a Partner or make withdrawals from such Partner's
capital account.
15. Limited Liability. The limited partner interests acquired
by the Limited Partners is fully paid and nonassessable. The Limited Partner
shall not be liable for the Partnership's obligations in any amount in excess of
the capital contributed by such Partner, plus such Partner's share of
undistributed profits and assets.
-3-
<PAGE> 4
16. Unanimous Consent Required. Without the unanimous consent
of the Partners, the Partnership shall not: (a) sell or otherwise dispose of all
or substantially all of its assets; or (b) merge, liquidate, dissolve,
reorganize or file for voluntary bankruptcy.
17. Benefits of Agreement. None of the provisions of this
Agreement shall be for the benefit of or enforceable by any creditor of the
Partnership or any Partner.
18. Integration. This Agreement constitutes the entire
agreement among the parties hereto pertaining to the subject matter hereof and
supersedes all prior and contemporaneous agreements and
understandings of the parties in connection therewith.
19. Headings. The titles of sections of this Agreement are for
convenience of reference only and shall not define or limit any of the
provisions of this Agreement.
20. Counterparts. This Agreement may be executed by the
parties hereto in counterparts, each of which shall be considered an original,
and all of which shall together constitute but one and the same
instrument.
21. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, without giving
effect to conflicts of law principles of such State.
22. Amendments. This Agreement may be amended only by written
instrument executed by all the Partners.
-4-
<PAGE> 5
IN WITNESS WHEREOF, the undersigned have duly executed this
Limited Partnership Agreement as of the ____ day of ________, 1996.
GENERAL PARTNER:
AUGUSTA MANAGEMENT, L.L.C.
By: OPPENHEIMER & CO., INC.
By:
---------------------
Mitchell A. Tanzman
Managing Director
By: ARDSLEY ADVISORY PARTNERS
By:
---------------------
Kevin M. McCormack
General Partner
LIMITED PARTNER:
------------------------------
Mitchell A. Tanzman
-5-
<PAGE> 1
AUGUSTA PARTNERS, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
FIRST AMENDED AND RESTATED
LIMITED PARTNERSHIP AGREEMENT
Dated as of __________ __, 1996
<PAGE> 2
TABLE OF CONTENTS
PAGE
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
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 Advisory Services...................................... 14
3.5 Custody of Assets of the Partnership................... 17
3.6 Brokerage.............................................. 17
3.7 Other Activities of Partners........................... 17
3.8 Duty of Care........................................... 18
3.9 Indemnification........................................ 18
3.10 Fees, Expenses and Reimbursement...................... 20
<PAGE> 3
ARTICLE IV TERMINATION OF STATUS AS GENERAL PARTNER,
TRANSFERS AND REPURCHASES.......................... 22
4.1 Termination of Status of the Manager................... 22
4.2 Termination of Status of an Individual................. 22
4.3 Removal of General Partners............................ 22
4.4 Transfer of Interests of General Partners.............. 23
4.5 Transfer of Interests of Limited Partners.............. 23
4.6 Repurchase of Interests................................ 24
ARTICLE V CAPITAL 26
5.1 Contributions to Capital............................... 26
5.2 Rights of Partners in 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..................... 31
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
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7.3 Valuation of Assets.................................... 35
7.4 Books and Records...................................... 37
ARTICLE VIII MISCELLANEOUS PROVISIONS.......................... 37
8.1 Amendment of Partnership Agreement..................... 37
8.2 Special Power of Attorney.............................. 38
8.3 Notices................................................ 40
8.4 Agreement Binding Upon Successors and Assigns.......... 40
8.5 Applicability of 1940 Act and Form N-2................. 40
8.6 Choice of Law; Arbitration............................. 40
8.7 Not for Benefit of Creditors........................... 41
8.8 Consents............................................... 42
8.9 Merger and Consolidation............................... 42
8.10 Pronouns.............................................. 42
8.11 Confidentiality....................................... 42
8.12 Certification of Non-Foreign Status................... 43
8.12 Severability.......................................... 43
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<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 __________ __, 1996 by and
among Augusta Management, L.L.C., a Delaware limited liability company, as the
Manager, Robert A. Blum 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:
ADMINISTRATIVE SERVICES Those services provided to the
Partnership by the Administrator pursuant to
the authority granted by Section 3.4 hereof.
ADMINISTRATOR The entity selected by the Manager to
provide certain administrative and other
non-investment advisory services to the
Partnership.
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.
ADVISORY SERVICES Those services provided to the Partnership
by the Manager
<PAGE> 6
pursuant to the authority granted by Section
3.4 hereof.
AFFILIATE An affiliated person as such term is defined
in the 1940 Act.
AGREEMENT This Limited Partnership Agreement, as
amended from time to time.
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.
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<PAGE> 7
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, then solely for
purposes of determining the Incentive
Allocation, the Positive Allocation Change
shall be measured from the beginning of the
immediately preceding Allocation Period
(disregarding any Incentive Allocation made
from the Limited Partner for such prior
Allocation Period) through the end of the
current 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 Advisory
Services 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.
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<PAGE> 8
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.
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.
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<PAGE> 9
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.
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 each
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.
INDEPENDENT GENERAL Those Individual General Partners who are
PARTNERS not interested persons of the Partnership as
such term is defined in the 1940 Act.
INDIVIDUAL GENERAL Those individuals admitted to the
PARTNERS Partnership as a General Partner other than
the Manager.
INSURANCE One or more "key man" insurance policies on
the life of any principal of a member of the
Manager.
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.
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<PAGE> 10
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 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 The meaning given such
CHANGE 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
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<PAGE> 11
obligations of the Partnership, calculated
before giving effect to any repurchases of
Interests.
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 Those services provided to the Partnership
by Opco pursuant to the authority granted by
Section 3.4 hereof.
ORGANIZATIONAL LIMITED
PARTNER Mitchell A. Tanzman.
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
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<PAGE> 12
Partnership's books as of the first day of
each Fiscal 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 The meaning given such term in the
CHANGE 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,
options, debt obligations and 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 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
dissolved pursuant to Section 6.1 hereof (unless its term is extended).
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<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. 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 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. The Individual General Partners shall serve in
that capacity until their successors, if any, have been duly elected and
admitted to the Partnership as Individual General Partners at the meeting
required to be held pursuant to Section 3.3(d) hereof. Each Individual General
Partner elected at such meeting 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, and shall do so within 60 days
after any date on
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<PAGE> 15
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.
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<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 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
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<PAGE> 17
shall be present (in person or by telephone) or by unanimous written consent of
all of the Individual General Partners without a meeting.
(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. 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.
(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
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<PAGE> 18
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 (other than the election of
the Individual General Partners at the initial meeting held pursuant to Section
3.3(d) hereof) 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.
(d) An initial meeting of the Partners shall be held within
one year after the Closing Date, at a time, date and place designated by the
Manager. Notwithstanding the foregoing, the Manager may convene the initial
meeting of partners on a date later than one year after the Closing Date in
order to permit the Partnership to comply with any applicable requirements under
the 1940 Act and the 1934 Act regarding solicitation of proxies for such
meeting. At such meeting, the Partners will vote upon the election of the
Individual General Partners and on any other matters to come before such meeting
as determined by the Individual General Partners. Except as required by this
Section 3.3(d) and Section 2.6(b) and (c) hereof, no meeting of the Partners
shall be required for the purpose of election of Individual General Partners.
3.4 ADVISORY SERVICES
(a) The Manager shall provide Advisory Services to the
Partnership under the ultimate supervision of the Individual General Partners.
The authority of the Manager granted under this Section 3.4 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) 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); (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 or the Advisers Act.
The authority of the Manager under this Section 3.4(a) 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 or the
Advisers Act, and shall instead be vested in such Transferee. The authority of
the Manager to provide Advisory Services to the Partnership under this Section
3.4(a) shall automatically be terminated in the event of the assignment of this
Agreement within the meaning of the 1940 Act or the Advisers 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 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 Advisory Services
to the Partnership in accordance with any policies established by the Individual
General Partners, 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.
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(b) So long as the Manager has been authorized to provide
Advisory Services to the Partnership, 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 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 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, financial
and derivative transactions, to select 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 arrange for the custody of cash, Securities and
other assets of the Partnership with such custodian
or custodians as may be selected by the Individual
General Partners, to arrange for such custodians to
receive from Partners contributions to the capital of
the Partnership, to instruct such custodians to
deliver cash, Securities or other assets of the
Partnership for the purpose of effecting transactions
or for other Partnership purposes and to exercise or
abstain from exercising any right or privilege
attaching to assets, to borrow from banks or other
financial institutions and to pledge Partnership
assets as collateral therefor, to trade on margin, to
instruct custodians to disburse payments to Partners
in connection with distributions or with respect to
repurchases of Interests and to pay all expenses
relating to the organization and registration of the
Partnership;
(4) to offer and accept subscriptions for Interests and
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
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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, Advisory Services
(other than Administrative Services and Opco
Services) to the Partnership at the expense of the
Manager;
(8) to retain the Administrator to provide, under the
Manager's control and supervision, administrative and
other non-investment advisory services to the
Partnership at the expense of the Partnership;
(9) to retain Opco to provide, under the Manager's
control and supervision, certain administrative and
other non-investment advisory services (other than
Administrative Services) to the Partnership (which
services shall include bearing any costs arising out
of Opco's provision of office space and other support
services to the Partnership and bearing certain
telecommunication expenses incurred in connection
with the Partnership's business) at the expense of
the Partnership;
(10) to prepare, subject to the direction of the
Individual General Partners, and furnish Partners
with any reports required to be provided to Partners
by the Partnership pursuant to this Agreement or
otherwise;
(11) to prepare, or to arrange to have prepared, and to
file any required tax or information returns to be
made by the Partnership;
(12) 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;
(13) 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
(14) to provide all other administrative undertakings for
and on behalf of the Partnership and 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.
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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 any custodians appointed pursuant to Section 3.4(b)(3) hereof.
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 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.
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
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<PAGE> 22
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 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
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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
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
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<PAGE> 24
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 monthly Opco Fees of 0.08333% (1% on an
annualized basis) of the Partnership's Net Assets, excluding the value of assets
attributable to the Capital Account of the Manager. Opco Fees shall be computed
based upon the value of the Net Assets of the Partnership as of the commencement
of business on the first business day of each month, shall be due and payable on
the fifteenth day of such calendar month and the value thereof shall be debited
pro rata against the Capital Account of each Limited Partner.
(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
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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) certain expenses incurred by the Manager
(including any of its principals, partners
or members and their principals, partners,
members, directors, officers and employees)
in connection with its provision of Advisory
Services to the Partnership;
(8) any fees provided for under this Agreement,
including the Opco Fee and the
Administrative Fee; and
(9) 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.
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--------------------
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 earlier of (i) six months from the date on which the Manager shall have
given the Individual General Partners written notice of its intention to effect
such withdrawal; (ii) the date on which the authority of the Manager to provide
Advisory Services 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; or (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.
4.2 TERMINATION OF STATUS OF AN INDIVIDUAL
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.
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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 (a) who is a person controlling, controlled by or under common
control with such Manager immediately prior to any such proposed Transfer, (b)
who is a successor to all or substantially all of the business and assets of the
Manager or (c) with the approval of the Individual General Partners (including a
majority of the Independent General Partners) or 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 to
have a net worth which exceeds $1,000,000 at the time of such Transfer. 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 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.
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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 (but not on more
than two occasions during any one Fiscal Year), 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. 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;
(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
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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 Advisory Services, 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.
(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
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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 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 payment
pursuant to Section 7.3 hereof, equal to the amount to be repurchased, promptly
after the effective date of such repurchase, 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.
--------------------
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 shall not be entitled to 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.
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(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 shall be payable in readily available
funds at the date of the proposed acceptance of the contribution. At the
discretion of the Manager, the Partnership may charge any Partner making a
contribution to the capital of the Partnership an amount not exceeding 2% of the
value of a contribution to the capital of the Partnership to the extent
consisting of Securities in order to reimburse the Partnership for any costs
incurred by the Partnership by 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.
5.2 RIGHTS OF PARTNERS IN 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) upon a distribution to such Partner pursuant to Section 5.12
hereof, (iii) pursuant to the provisions of Section 5.7(c) hereof or (iv) 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 constituting
such Partner's initial contribution to the capital of the Partnership.
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(c) Each Partner's Capital Account shall be increased by the
sum of (i) the amount of cash and the value of any Securities 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.
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(e) 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;
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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, 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.
5.7 RESERVES
(a) Appropriate reserves may be created, accrued and charged
against Net Assets and proportionately against the Capital Accounts of the
Partners for contingent 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 Delaware 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
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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 Delaware Act or omission
giving rise to the charge to the extent feasible, and otherwise proportionately
to the Capital Accounts of the current Partners.
5.8 INCENTIVE ALLOCATION
(a) So long as the Manager provides Advisory Services to the
Partnership, 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 95% 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. The Partnership shall pay the
Manager such balance (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.
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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.)
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, VI or VII, 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 three 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
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repurchase by the Partnership if such
Limited Partner has not been permitted to do
so at any time during such period; or
(6) 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 a 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) Within 30 days after the end of each taxable year, the
Manager 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 Section 30 of the 1940 Act
and the Rules promulgated thereunder, within 60 days after the close of the
period for which a report required under this Section 7.1(c) is being made, the
Manager shall furnish to each Limited Partner a semi-annual report and an annual
report containing the information required by such Act and Rules. Except as
otherwise required by Section 30 of the 1940 Act and the Rules promulgated
thereunder, the Manager 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 Manager 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 the valuation principles set forth in this
Section 7.3 or as may be determined from time to time pursuant to policies
established by the Individual General Partners. In addition, except as may be
required by the 1940 Act, the Individual General Partners shall value Securities
which are being contributed in-kind pursuant to Section 5.1(d) hereof as of
their date of contribution or distributed in-kind pursuant to Section 5.12 or
6.2(b) hereof as of their date of distribution. 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.
Valuation of Securities made pursuant to this Section 7.3 shall be based on all
relevant factors and is expected to comply generally with the following
guidelines:
(1) The market value of each Security listed or
traded on any recognized foreign or U.S.
securities exchange shall be the last
reported sale price at the relevant
valuation date on the composite tape or on
the principal exchange on which such
Security is traded. If no such sale of such
Security was reported on that date, the
market value shall be the last reported bid
price (in the case of a Security held long)
or the last reported asked price (in the
case of a Security sold short). The market
value of any security quoted in the NASDAQ
National
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Market List or comparable foreign
over-the-counter quotation system shall be
determined by reference to the last reported
sale price, or, if none available, to the
last reported bid or asked quotation, as
reported by NASDAQ or the comparable foreign
over-the-counter quotations system.
The market value of each Security which is
not listed on a recognized foreign or U.S.
securities exchange or quoted in the NASDAQ
National Market List or comparable foreign
over-the-counter quotation system shall be
the last reported bid price (in the case of
a Security held long) or the last reported
asked price (in the case of a Security sold
short) of such Security on the valuation
date.
(2) Dividends declared but not yet received and
rights, in respect of Securities which are
quoted ex-dividend or ex-rights, shall be
recorded at the fair value thereof, as
determined by the Individual General
Partners, which may (but need not be) the
value so determined on the day such
Securities are first quoted ex-dividend or
ex-rights.
(3) Listed options, or over-the-counter options
for which representative brokers' quotations
are available, shall be valued in the same
manner as listed or over-the-counter
Securities as hereinabove provided. Premiums
for the sale of such options written by the
Partnership shall be included in the assets
and liabilities of the Partnership, and the
market value of such options shall be
included as a liability.
(4) The value of unrealized gain or loss on open
futures contracts shall be recorded as the
difference between the contract price on the
trade date and the closing price reported as
of the valuation date on the primary
exchange on which such contracts are traded.
(5) The fair value of any assets not referred to
in paragraph (a) of this Section 7.3 (or the
valuation of any assets referred to therein
in the event that the Individual General
Partners shall determine that there is not
an active market or that another method of
valuation is advisable in the circumstances)
shall be determined by or pursuant to the
direction of the Individual General Partners
except as may be required by the 1940 Act.
The Individual General Partners may (but
shall not be required) to obtain independent
appraisals of such assets. Once such an
asset has been valued, except as may be
required by the 1940 Act, the Individual
General Partners shall revalue or have such
asset revalued at such time and with such
frequency as it in its sole discretion shall
determine to be appropriate in light of the
asset
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involved and the likelihood that the value
of such asset would likely have changed
since the last valuation of such asset.
(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.
7.4 BOOKS AND RECORDS
The Manager shall keep or arrange to have kept books and
records pertaining to the Partnership's affairs showing all of its assets and
liabilities, receipts and disbursements, income, realized and unrealized gains
and losses, Partners' Capital Accounts and all transactions entered into by the
Partnership. Such books and records of the Partnership shall be kept at its
principal office, and all Partners and their representatives shall at all
reasonable times have access thereto, in accordance with such procedures as may
be established from time to time by the Manager, for the purpose of inspecting
or copying the same.
--------------------
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 written consent of (i)
the Individual General Partners, (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
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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 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.
(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:
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(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.
(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
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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.
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.
(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:
(I) ARBITRATION IS FINAL AND BINDING ON THE
PARTIES;
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<PAGE> 45
(II) THEY ARE WAIVING THEIR RIGHT TO SEEK REMEDIES
IN COURT, INCLUDING THE RIGHT TO A JURY TRIAL;
(III) PRE-ARBITRATION DISCOVERY IS GENERALLY MORE
LIMITED AND DIFFERENT FROM COURT PROCEEDINGS;
(IV) 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
(V) THE PANEL OF ARBITRATORS WILL TYPICALLY
INCLUDE A MINORITY OF ARBITRATORS WHO WERE OR
ARE AFFILIATED WITH THE SECURITIES INDUSTRY.
(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
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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.
(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") without the prior written consent of the Manager, which consent
may be withheld in the Manager's sole discretion.
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<PAGE> 47
(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.
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> 48
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
------------------------------
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> 49
SCHEDULE I
AUGUSTA PARTNERS, L.P.
MANAGER
Name and Address Capital Contribution
- ---------------- --------------------
Augusta Management, L.L.C $
Oppenheimer Tower ---
World Financial Center
New York, New York 10281
INDIVIDUAL GENERAL PARTNERS
Name and Address Capital Contribution
- ---------------- --------------------
Robert A. Blum $
- ------------------- ---
- -------------------
- -------------------
Mitchell A. Tanzman $
- ------------------- ---
- -------------------
- -------------------
[OTHER INDIVIDUAL GENERAL PARTNERS TO FOLLOW]
LIMITED PARTNERS
Name and Address Capital Contribution
- ---------------- --------------------
