As filed with the U.S. Securities and Exchange Commission on
August 11, 1998
Investment Company Act File No. 811-08801
-----------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
FORM N-2
(CHECK APPROPRIATE BOX OR BOXES)
|X| REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940
|X| Amendment No. 1
-------------------------
CONGRESS STREET ASSOCIATES, L.P.
(Exact name of Registrant as specified in Charter)
1285 Avenue of the Americas
New York, New York 10019-6028
(Address of principal executive offices)
Registrant's Telephone Number, including Area Code:
(212) 713-2000
-------------------------
MARK D. GOLDSTEIN, ESQ.
c/o PaineWebber Incorporated
1285 Avenue of the Americas
New York, New York 10019-6028
(Name and address of agent for service)
Copy to:
STUART H. COLEMAN, ESQ.
Stroock & Stroock & Lavan LLP
180 Maiden Lane
New York, New York 10038-4982
-------------------------
<PAGE>
This Registration Statement has been filed by Registrant pursuant to Section
8(b) of the Investment Company Act of 1940, as amended. However, partnership
interests in the Registrant are not being registered under the Securities Act of
1933, as amended (the "1933 Act"), since such interests will be issued solely in
private placement transactions which do not involve any "public offering" within
the meaning of Section 4(2) of the 1933 Act. Investments in the Registrant may
be made only by individuals or entities which are "accredited investors" within
the meaning of Regulation D under the 1933 Act. This Registration Statement does
not constitute an offer to sell, or the solicitation of an offer to buy, any
partnership interests in the Registrant.
<PAGE>
FORM N-2
CONGRESS STREET ASSOCIATES, L.P.
CROSS REFERENCE SHEET
Pursuant to Rule 495(a)
PART A
ITEM NUMBER CAPTION PROSPECTUS CAPTION
- -------- ------- -----------------
1. Outside Front Cover Outside Front Cover of
Confidential Memorandum
2. Inside Front and Outside Front Cover of
Outside Back Cover Page Confidential Memorandum
3. Fee Table and Synopsis Summary of Terms; Fees and
Expenses; Capital Accounts and
Allocations - Incentive
Allocations
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 Summary of Terms; The
the Registrant Partnership; Investment Program;
Types of Investments and Related
Risk Factors; Additional Risk
Factors
9. Management Summary of Terms; The
Partnership; Directors; The
Manager, PWFA and Granum;
Brokerage; Fees and Expenses;
Capital Accounts and Allocations
- Incentive Allocation;
Additional Information and
Summary of Limited Partnership
Agreement - Custodian
10. Capital Stock, Summary of Terms; Voting; Capital
Long-Term Debt, and Other Accounts and Allocations;
Securities Subscription for Interests;
Redemptions, Repurchases of
Interests and Transfers; Tax
Aspects; Additional Information
and Summary of Limited
Partnership Agreement
11. Defaults and Arrears on Not Applicable
Senior Securities
12. Legal Proceedings Not Applicable
<PAGE>
PART B
ITEM NUMBER CAPTION PROSPECTUS CAPTION
---------- ------- -----------------
13. Table of Contents of Not Applicable
the Statement of
Additional Information
14. Cover Page Not Applicable
15. Table of Contents Not Applicable
16. General Information Not Applicable
and History
17. Investment Objective Summary of Terms; Investment
and Policies Program; Types of Investments
and Related Risk Factors;
Additional Risk Factors;
Brokerage
18. Management Summary of Terms; Directors
19. Control Persons and The Manager, PWFA and Granum
Principal Holders of
Securities
20. Investment Advisory Summary of Terms; The Manager,
and Other Services PWFA and Granum; Fees and
Expenses; Capital Accounts and
Allocations - Incentive
Allocations; Additional
Information and Summary of
Limited Partnership Agreement
21. Brokerage Allocation Conflicts of Interest; Brokerage
and Other Practices
22. Tax Status Summary of Terms; Tax Aspects
23. Financial Statements Because Registrant has no
assets, financial statements
are omitted.
PART C
----------
The information required to be included in Part C is set forth under
the appropriate Item, so numbered, in Part C to this Registration Statement.
<PAGE>
Copy Number: ________________
----------------------------
CONGRESS STREET ASSOCIATES, L.P.
----------------------------
<PAGE>
THE PARTNERSHIP INTERESTS WHICH ARE DESCRIBED IN THIS CONFIDENTIAL
MEMORANDUM ("MEMORANDUM") HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED ("1933 ACT"), OR THE SECURITIES LAWS OF ANY
OF THE STATES OF THE UNITED STATES. THE OFFERING CONTEMPLATED BY THIS MEMORANDUM
WILL BE MADE IN RELIANCE UPON AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE 1933 ACT FOR OFFERS AND SALES OF SECURITIES WHICH DO NOT INVOLVE ANY PUBLIC
OFFERING, AND ANALOGOUS EXEMPTIONS UNDER STATE SECURITIES LAWS.
THIS MEMORANDUM SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF PARTNERSHIP
INTERESTS 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 THE PARTNERSHIP THAT ARE INCONSISTENT WITH THOSE CONTAINED IN THIS
MEMORANDUM. PROSPECTIVE INVESTORS SHOULD NOT RELY ON ANY INFORMATION NOT
CONTAINED IN THIS MEMORANDUM OR THE EXHIBITS HERETO.
THIS 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 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
MEMORANDUM AS LEGAL, TAX OR FINANCIAL ADVICE. EACH PROSPECTIVE INVESTOR SHOULD
CONSULT HIS OR HER OWN PROFESSIONAL ADVISERS AS TO THE LEGAL, TAX, FINANCIAL OR
OTHER MATTERS RELEVANT TO THE SUITABILITY OF AN INVESTMENT IN THE PARTNERSHIP
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 THE PARTNERSHIP, THE 1933
ACT AND APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION
THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE
FINANCIAL RISKS OF THIS INVESTMENT FOR UP TO TWO YEARS FROM THE DATE THAT A
REPURCHASE REQUEST HAS BEEN MADE BY AN INVESTOR.
IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY UPON THEIR OWN
EXAMINATION OF CONGRESS STREET ASSOCIATES, L.P. (THE "PARTNERSHIP") AND THE
TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. THE LIMITED
PARTNERSHIP INTERESTS OF THE PARTNERSHIP HAVE NOT BEEN FILED WITH OR APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION ("SEC") OR ANY OTHER
FEDERAL OR STATE GOVERNMENTAL AGENCY OR REGULATORY AUTHORITY OR ANY NATIONAL
SECURITIES EXCHANGE. NO AGENCY, AUTHORITY OR EXCHANGE HAS PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS MEMORANDUM OR THE MERITS OF AN INVESTMENT IN THE
PARTNERSHIP INTERESTS OFFERED HEREBY. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
PAGE
SUMMARY OF TERMS....................................................... 1
THE PARTNERSHIP........................................................ 9
STRUCTURE.............................................................. 9
INVESTMENT PROGRAM..................................................... 9
TYPES OF INVESTMENTS AND RELATED RISK FACTORS..........................11
ADDITIONAL RISK FACTORS................................................20
PERFORMANCE INFORMATION................................................21
THE DIRECTORS..........................................................22
THE MANAGER, PWFA AND GRANUM...........................................24
VOTING.................................................................26
CONFLICTS OF INTEREST..................................................26
BROKERAGE..............................................................29
FEES AND EXPENSES......................................................30
CAPITAL ACCOUNTS AND ALLOCATIONS.......................................32
ALLOCATION OF SPECIAL ITEMS--CERTAIN WITHHOLDING TAXES AND
OTHER EXPENDITURES...................................................35
SUBSCRIPTION FOR INTERESTS.............................................36
REDEMPTIONS, REPURCHASES OF INTERESTS AND TRANSFERS....................38
TAX ASPECTS............................................................42
ERISA CONSIDERATIONS...................................................57
ADDITIONAL INFORMATION AND SUMMARY OF LIMITED PARTNERSHIP
AGREEMENT............................................................58
APPENDIX A - AMENDED AND RESTATED LIMITED PARTNERSHIP
AGREEMENT...............................................A-1
APPENDIX B - PERFORMANCE INFORMATION..................................B-1
<PAGE>
SUMMARY OF TERMS
The following summary is qualified entirely by the detailed
information appearing elsewhere in this Memorandum and by the terms and
conditions of the Partnership's amended and restated limited partnership
agreement (the "Partnership Agreement"), each of which should be read carefully
and retained for future reference.
THE PARTNERSHIP Congress Street Associates, L.P.
(the "Partnership") is a newly formed
Delaware limited partnership, registered
under the Investment Company Act of 1940, as
amended (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 may be more
aggressively managed than other investment
companies, (ii) interests in the Partnership
will be sold in large minimum denominations
in private placements solely to high net
worth individual and institutional investors,
and will be restricted as to transfer, and
(iii) the capital accounts in the Partnership
of persons who purchase the partnership
interests offered hereby (the "Limited
Partners") will be subject to both
asset-based charges and performance-based
allocations. Unlike a private investment
partnership, but like other registered
investment companies, however, the
Partnership has registered under the 1940 Act
to be able to offer its interests without
limiting the number of investors that can
participate in its investment program.
INVESTMENT PROGRAM The Partnership's investment objective
is long-term capital appreciation. It will
seek to achieve its investment objective by
investing principally in equity securities of
U.S. issuers and other securities having
equity characteristics that Congress Street
Management, L.L.C.(the "Manager") believes
are substantially undervalued relative to
their potential for earnings growth. The
Partnership also may invest in equity
securities of foreign issuers and in
fixed-income securities of U.S. and foreign
issuers when the yield and potential for
capital appreciation of such securities are
considered sufficiently attractive.
The Manager is the Partnership's manager and
General Partner. The Manager emphasizes the
use of fundamental research, particularly
balance sheet and return-on-equity analysis,
in identifying companies that it believes to
be undervalued, and focuses on those
companies that it believes have, or have the
potential to develop, above-average earnings,
sales or asset growth.
The Partnership may use various investment
techniques to hedge some or all of its
investment portfolio and for non-hedging
purposes to pursue its investment objective.
For example, the Partnership may utilize
leverage, sell securities short and purchase
and sell options on securities and stock
indexes, and engage in other derivative
transactions, subject to certain limitations
described elsewhere in this Memorandum. The
use of these techniques will be an integral
part of the Partnership's investment program,
and involves certain risks. See "TYPES OF
INVESTMENTS AND RELATED RISK FACTORS."
RISK FACTORS The Partnership's investment program is
speculative and entails substantial risks. No
assurance can be given that the Partnership's
investment objective will be achieved. In
particular, the Partnership's limited
diversification, use of leverage, short sales
and derivative transactions, in certain
circumstances, can result in significant
losses to the Partnership. Investments in
illiquid securities and foreign securities
also involve certain risks. See "TYPES OF
INVESTMENTS AND RELATED RISK FACTORS."
As a non-diversified investment company,
there are no percentage limitations on the
portion of the Partnership's assets that may
be invested in the securities of any one
issuer. As a result, the Partnership's
investment portfolio may be subject to
greater risk and volatility than if
investments had been made in the securities
of a broader range of issuers.
The Manager will receive a performance-based
allocation. The performance-based allocation
that may be 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 those that might have been
made in the absence of the performance-based
allocation. In addition, because the
performance-based allocation is calculated on
a basis that includes unrealized appreciation
of the Partnership's assets, the allocation
may be greater than if it were based solely
on realized gains. See "SUMMARY OF
TERMS--Fees and Expenses" and "--Incentive
Allocation."
An investment in the Partnership entails
special tax risks. See "SUMMARY OF
TERMS--Summary of 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
personnel of the principal members of the
Manager, however, have substantial experience
in managing separately managed client
accounts and private investment funds that
have investment programs that are
substantially similar to the Partnership's
investment program.
Partnership interests will not be traded on
any securities exchange or other market and
are subject to substantial restrictions on
transfer. Although the Partnership may offer
to repurchase interests from time to time, a
Limited Partner may not be able to liquidate
its interest in the Partnership for up to two
years. See "SUMMARY OF TERMS--Transfer
Restrictions" and "--Withdrawals and
Repurchases of Interests by the Partnership."
Limited Partners will be required each year
to pay applicable Federal and state income
taxes on their share of the Partnership's
taxable income. Because the Partnership does
not intend to make periodic distributions of
its net income or gains, if any, to the
Limited Partners, the payment of any such
taxes by a Limited Partner will have to be
made from other sources.
LEVERAGE The Manager uses leverage in the
Partnership's investment program when the
Manager believes it appropriate to do so. The
Manager believes that the use of leverage may
enable the Partnership to achieve a higher
rate of return. However, the use of leverage
has risks and, in certain circumstances, will
magnify the volatility of changes in the
value of the Partnership's investment
portfolio. See "TYPES OF INVESTMENTS AND
RELATED RISK FACTORS--Leverage."
MANAGEMENT The Partnership's General Partner, to the
fullest extent permitted by applicable law,
has irrevocably delegated to a group of
individuals (the "Directors") its rights and
powers to manage and control the business
affairs of the Partnership, including the
exclusive authority to oversee and to
establish policies regarding the management,
conduct and operation of the Partnership's
business. See "THE DIRECTORS."
The Directors have engaged the Manager to
provide investment advice to, and day-to-day
management of, the Partnership. The Manager
is a joint venture between PW Fund Advisor,
L.L.C. ("PWFA") and Granum Advisors, L.L.C.
("Granum"). Investment professionals employed
by Granum will manage the Partnership's
investment portfolio on behalf of the Manager
under the supervision of PWFA's personnel.
PWFA is an indirect, wholly-owned subsidiary
of Paine Webber Group Inc. ("PW Group"), and
is registered as an investment adviser under
the Investment Advisers Act of 1940, as
amended (the "Advisers Act"). PWFA and its
affiliates provide investment advisory
services to registered investment companies,
private investment funds and individual
accounts, and have more than $322 billion of
assets under control and $54 billion of
assets under management. Granum, a registered
investment adviser under the Advisers Act, is
controlled by Lewis M. Eisenberg and Walter
F. Harrison, III, who serve as its members.
Granum and its affiliates provide investment
advisory services to a registered investment
company, an offshore private investment fund
and private investment partnerships with
aggregate assets in excess of $700 million.
PLACEMENT AGENT PaineWebber Incorporated acts as placement
agent for the Partnership, without special
compensation from the Partnership, and will
bear its own costs associated with its
activities as placement agent. PWFA and
PaineWebber Incorporated intend to compensate
PaineWebber Incorporated's or its affiliates'
account executives and others for their
ongoing servicing of clients with whom they
have placed interests in the Partnership, and
such compensation will be based upon a
formula that takes into account the amount of
client assets being serviced as well as the
investment results attributable to such
clients' assets in the Partnership. See
"CONFLICTS OF INTEREST--PWFA."
CONFLICTS OF INTEREST The investment activities of the Manager
and its affiliates for their own accounts and
the other accounts they manage may give rise
to conflicts of interest which may
disadvantage the Partnership. See "CONFLICTS
OF INTEREST."
FEES AND EXPENSES PWFA 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 PWFA a
monthly management fee of .125% (1.50% on an
annualized basis) of the Partnership's net
assets for the month, excluding assets
attributable to the Manager's capital account
(the "Fee"). The Fee will be paid to PWFA out
of the Partnership's assets, and debited
against the Limited Partners' capital
accounts. A portion of the Fee will be paid
by PWFA to an affiliate of Granum.
PFPC Inc. (the "Administrator") performs
certain administration, accounting and
investor services for the Partnership and
other investment funds sponsored by PW Group
or its affiliates. In consideration for such
services, the Partnership and the other
investment funds will pay the Administrator
an annual fee calculated based upon their
aggregate average net assets, subject to a
minimum monthly fee, and will reimburse the
Administrator for certain of the
Administrator's expenses.
The Partnership will bear all expenses
incurred in the business of the Partnership,
including, but not limited to, the following:
all costs and expenses related to portfolio
transactions and positions for the
Partnership's account; legal fees; accounting
fees; costs of insurance; organizational and
registration expenses; certain offering
costs; and expenses of meetings of Directors
and Limited Partners. See "FEES AND
EXPENSES."
ALLOCATION OF PROFIT AND LOSS The net profits or net losses of the
Partnership (including, without limitation,
net realized gain or loss and the net change
in unrealized appreciation or depreciation of
securities positions) will be credited to or
debited against the capital accounts of the
Manager in its capacity as General Partner
and Limited Partners (collectively, the
"Partners") at the end of each fiscal period
in accordance with their respective
partnership percentages for such period. Each
Partner's partnership percentage will be
determined by dividing as of the start of a
fiscal period the balance of the Partner's
capital account by the sum of the balances of
the capital accounts of all Partners of the
Partnership. See "CAPITAL ACCOUNTS AND
ALLOCATIONS--Allocation of Net Profits and
Net Losses."
INCENTIVE ALLOCATION At the end of the 12-month period following
the admission of a Limited Partner to the
Partnership, and generally at the end of each
fiscal year thereafter, an amount equal to
20% of the net profits, if any, that would
otherwise be credited to the Limited
Partner's account for such period will
instead be credited to the account of the
Manager. This allocation (the "Incentive
Allocation") will be made only with respect
to net profits that exceed any net losses
previously debited to the account of such
Limited Partner which have not been offset by
any net profits subsequently credited to the
account of the Limited Partner. See "CAPITAL
ACCOUNTS AND ALLOCATIONS--Incentive
Allocation."
SUBSCRIPTION FOR INTERESTS Both initial and additional subscriptions
for interests by eligible investors may be
accepted at such times as the Manager may
determine, subject to the receipt of cleared
funds on or before the acceptance date set by
the Manager. The Partnership reserves the
right to reject any subscription for
interests in the Partnership. Generally, the
minimum initial investment in the Partnership
is $250,000. For employees of the Manager and
its affiliates, and members of their
immediate families, the minimum initial
investment is $50,000. The Partnership may
vary the investment minimums from time to
time. The Partnership, in its discretion, may
suspend subscriptions for interests at any
time. See "SUMMARY OF TERMS--ERISA Plans and
Other Tax-Exempt Entities."
INITIAL CLOSING DATE The initial closing date for subscriptions
of interests in the Partnership is September
25, 1998. The Manager, in its sole
discretion, may postpone the closing date for
up to 60 days.
TRANSFER RESTRICTIONS Limited Partner interests in the
Partnership may be transferred only (i) by
operation of law pursuant to the death,
bankruptcy, insolvency or dissolution of a
Limited Partner or (ii) with the written
consent of the Manager, which may be withheld
in its sole and absolute discretion and is
expected to be granted, if at all, only under
extenuating circumstances, in connection with
a transfer to an entity that does not result
in a change of beneficial ownership. The
foregoing permitted transferees will not be
allowed to become substituted Limited
Partners without the consent of the Manager,
which may be withheld in its sole and
absolute discretion. See "REDEMPTIONS,
REPURCHASES OF INTERESTS AND
TRANSFERS--Transfers of Interests."
WITHDRAWALS AND REPURCHASES
OF INTERESTS BY THE
PARTNERSHIP No Limited Partner will have the right to
require the Partnership to redeem the Limited
Partner's Partnership interest. The
Partnership from time to time may offer to
repurchase interests pursuant to written
tenders by Partners. These repurchases will
be made at such times and on such terms as
may be determined by the Directors, in their
complete and exclusive discretion. In
determining whether the Partnership should
repurchase interests or portions thereof from
Partners pursuant to written tenders, the
Directors will consider the recommendation of
the Manager. The Manager expects that
generally, beginning in 2000, it will
recommend to the Directors that the
Partnership offer to repurchase interests
from Partners twice each year, in June and
December, and intends to recommend the making
of an offer to repurchase interests effective
as of September 1999 and December 1999. The
Directors also will consider the following
factors, among others, in making such
determination: (i) whether any Limited
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
condition of the securities markets; and
(vii) the anticipated tax consequences of any
proposed repurchases of interests or portions
thereof. In addition, 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 if, among other reasons,
the Manager determines that it would be in
the best interests of the Partnership for the
Partnership to repurchase such an interest or
portion thereof. See "REDEMPTIONS,
REPURCHASES OF INTERESTS AND TRANSFERS--No
Right of Redemption" and "--Repurchases of
Interests."
The Partnership Agreement provides that the
Partnership shall be dissolved if the
interest of 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 repurchased
within a period of two years of such request.
SUMMARY OF TAXATION Counsel to the Partnership has rendered an
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 has
rendered its opinion that, under a "facts and
circumstances" test set forth in regulations
adopted by the U.S. Treasury Department, 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 its own annual tax return its
distributive share of the Partnership's
taxable income or loss.
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 any distributions of
profits from the Partnership would be treated
as dividends.
ERISA PLANS AND OTHER
TAX-EXEMPT ENTITIES Investors subject to the Employee
Retirement Income Security Act of 1974, as
amended ("ERISA"), and other tax-exempt
entities (each a "tax-exempt" entity) may
purchase interests in the Partnership. The
Partnership's assets should not be considered
to be "plan assets" for purposes of ERISA's
fiduciary responsibility and prohibited
transaction rules or similar provisions of
the Internal Revenue Code of 1986, as amended
(the "Code"). 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" ("UBTI"). The
Partnership will provide to tax-exempt
Limited Partners such accounting information
as such Partners require to report their UBTI
for income tax purposes.
Investment in the Partnership by tax-exempt
entities requires special consideration.
Trustees or administrators of such entities
are urged to review carefully the matters
discussed in this Memorandum.
TERM The Partnership's term is perpetual unless
the Partnership is otherwise dissolved under
the terms of the Partnership Agreement. See
"ADDITIONAL INFORMATION AND SUMMARY OF
LIMITED PARTNERSHIP AGREEMENT--Term,
Dissolution and Liquidation."
REPORTS TO PARTNERS The Partnership will furnish to Partners as
soon as practicable after the end of each
taxable year such information as is necessary
for Partners to complete Federal and state
income tax or information returns, along with
any other tax information required by law.
The Partnership also will send to Partners a
semi-annual and an audited annual report
generally within 60 days after the close of
the period for which the report is being
made, or as otherwise required by the 1940
Act. Quarterly reports from the Manager
regarding the Partnership's operations during
each quarter also will be sent to Partners.
<PAGE>
THE PARTNERSHIP
The Partnership is registered under the 1940 Act as a closed-end,
non-diversified, management investment company. The Partnership was formed as a
limited partnership under the laws of Delaware on June 5, 1998, and has no
operating history. The Partnership's principal office is located at 1285 Avenue
of the Americas, New York, New York 10019, and its telephone number is (800)
486-2608. Investment advisory services are provided to the Partnership by the
Manager, which also is the Partnership's General Partner.
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 often are highly leveraged, managed aggressively 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 typically are 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 usually are managed more conservatively than most private
investment partnerships, subject to relatively modest minimum investment
requirements (often less than $2,000), and publicly offered to a broad range of
investors. The advisers to these companies typically are compensated through
asset-based, but not performance-based, fees.
The Partnership is similar to private investment partnerships in that
its investment portfolio may be actively managed and Partnership interests will
be sold in comparatively large minimum denominations in private placements
solely to high net worth individual and institutional investors, whose capital
accounts will be subject to both asset-based fees and performance-based
allocations. However, the Partnership, like other closed-end investment
companies, has registered under the 1940 Act to be able to offer its interests
without limiting the number of investors that can participate in its investment
program. This structure permits a larger number of investors that have a higher
tolerance for investment risk to participate in the Partnership's investment
program without making the more substantial minimum capital commitment that is
required by many private investment partnerships.
INVESTMENT PROGRAM
The Partnership's investment objective is long-term capital
appreciation. The Partnership seeks to achieve its investment objective by
investing principally in equity securities of U.S. issuers and other securities
having equity characteristics that the Manager believes are substantially
undervalued relative to their potential for earnings growth. The Partnership
also may invest in equity securities of foreign issuers and in fixed-income
securities of U.S. and foreign issuers when the yield and potential for capital
appreciation of such securities are considered sufficiently attractive.
The Manager emphasizes the use of fundamental research, particularly
balance sheet and return-on-equity analysis, in identifying companies that it
believes to be undervalued, and focuses on those companies that it believes
have, or have the potential to develop, above-average earnings, sales or asset
growth. In evaluating investments, the Manager also seeks to identify companies
that may be involved in special corporate situations, the occurrence of which
would favorably affect the value of the companies' equity securities. Such
situations could include, among other developments, the following: a change in
management or management policies; the acquisition of a significant equity
position in the company by an investor or investor group; a merger,
reorganization or the sale of a division; the spin-off of a subsidiary,
division, or other substantial assets; or a third-party or issuer tender offer.
The Manager believes that these situations can serve as catalysts for capital
appreciation in the equity securities of undervalued companies. The
Partnership's investments are made without regard to market capitalization. From
time to time, the Partnership may invest a significant portion of its assets in
the securities of companies that have smaller market capitalizations.
Unlike many other investment companies which, as a matter of
investment policy, diversify portfolio holdings so that no more than a specified
percentage of their assets are invested in the securities of any one issuer, the
Partnership does not have fixed guidelines for diversification. In addition,
although the Partnership will not invest more than 25% of the value of its net
assets in the securities of issuers engaged in any one industry (other than U.S.
Government securities), investments by the Partnership may emphasize particular
industries or market segments which the Manager believes offer the opportunity
for maximizing profit. See "TYPES OF INVESTMENTS AND RELATED RISK
FACTORS--Non-Diversified Status."
The Partnership may use various investment techniques to hedge some or
all of its investment portfolio or to pursue its investment objective. In this
regard, the Partnership may utilize leverage, sell securities short, and
purchase and sell options on securities and stock indexes and other derivatives,
subject to certain limitations. See "TYPES OF INVESTMENTS AND RELATED RISK
FACTORS--Leverage," "--Short Sales" and "--Special Investment Instruments and
Techniques."
The Partnership may invest, for defensive purposes or otherwise, some
or all of its assets in high quality fixed-income securities and money market
instruments, or may hold cash or cash equivalents in such amounts as the Manager
deems appropriate under the circumstances. The Partnership also may invest in
these instruments pending allocation of the offering proceeds. See "TYPES OF
INVESTMENTS AND RELATED RISK FACTORS--Money Market Instruments."
Additional information about the types of investments that will be
made by the Partnership, its investment practices and related risk factors is
provided below. Except as otherwise indicated, the Partnership's investment
policies and restrictions are not fundamental and may be changed without a vote
of the Limited Partners. See "TYPES OF INVESTMENTS AND RELATED RISK
FACTORS--Investment Restrictions."
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 OR THAT ITS INVESTMENT PROGRAM WILL BE SUCCESSFUL. IN
PARTICULAR, THE PARTNERSHIP'S USE OF LEVERAGE, SHORT SALES AND DERIVATIVE
TRANSACTIONS, AND ITS LIMITED DIVERSIFICATION CAN, IN CERTAIN CIRCUMSTANCES,
RESULT IN SIGNIFICANT LOSSES TO THE PARTNERSHIP. INVESTORS SHOULD CONSIDER THE
PARTNERSHIP AS A SUPPLEMENT TO AN OVERALL INVESTMENT PROGRAM AND SHOULD INVEST
ONLY IF THEY ARE WILLING TO UNDERTAKE THE RISKS INVOLVED. AN INVESTOR COULD LOSE
MONEY BY INVESTING IN THE PARTNERSHIP.
TYPES OF INVESTMENTS AND RELATED RISK FACTORS
GENERAL
All securities investments risk the loss of capital. To the extent the
Partnership holds the securities of a limited number of issuers, and emphasizes
the securities of issuers in a limited number of industries or market segments,
the risk of an investment in the Partnership is increased. The value of the
Partnership's total net assets should be expected to fluctuate. The
Partnership's use of leverage is likely to cause its net assets to appreciate or
depreciate at a greater rate than if leverage were not used.
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 issuers. The Partnership also may invest in depositary receipts
relating to foreign securities. See "Foreign Securities" below. The Partnership
may purchase equity securities issued by real estate investment trusts. Equity
securities also include warrants and options. Equity securities fluctuate in
value, often based on factors unrelated to the value of the issuer of the
securities, and such fluctuations can be pronounced.
The Partnership may invest in equity securities without restriction as
to market capitalization, such as those issued by smaller capitalization
companies, including micro cap companies. The prices of the securities of these
smaller companies may be subject to more abrupt or erratic market movements than
larger, more established companies, because these securities typically are
traded in lower volume and the issuers typically are more subject to changes in
earnings and prospects. The Partnership may purchase securities in all available
securities trading markets, including initial public offerings and the
aftermarket.
FIXED-INCOME SECURITIES
The Partnership may invest in fixed-income securities. The Manager
will invest in these securities when their yield and potential for capital
appreciation are considered sufficiently attractive and also may invest in these
securities for defensive purposes and to maintain liquidity. Fixed-income
securities include bonds, notes and debentures issued by corporations; debt
securities issued or guaranteed by the U.S. Government or one of its agencies or
instrumentalities ("U.S. Government Securities"); municipal securities; and
mortgage-backed and asset-backed securities. These securities may pay fixed,
variable or floating rates of interest, and may include zero coupon obligations.
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 the risk of price volatility due to such factors as interest rate
sensitivity, market perception of the creditworthiness or financial condition of
the issuer and general market liquidity (i.e., market risk). Certain portfolio
securities, such as those with interest rates that fluctuate directly or
indirectly based on multiples of a stated index, are designed to be highly
sensitive to changes in interest rates and can subject the holders thereof to
extreme reductions of yield and possibly loss of principal.
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 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.
Adverse 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. In addition, the
market for lower grade debt securities may be thinner and less liquid than for
higher grade debt securities.
FOREIGN SECURITIES
Although the Partnership will invest principally in equity securities
of publicly traded U.S. companies, it may invest in equity and fixed-income
securities of foreign issuers and in depositary receipts, such as American
Depositary Receipts ("ADRs"), that represent indirect interests in securities of
foreign issuers. Foreign securities in which the Partnership may invest may be
listed on foreign securities exchanges or traded in foreign over-the-counter
markets.
Foreign securities markets generally are not as developed or efficient
as those in the United States. Securities of some foreign issuers are less
liquid and more volatile than securities of comparable U.S. issuers. Similarly,
volume and liquidity in most foreign securities markets are less than in the
United States and, at times, volatility of price can be greater than in the
United States.
Because evidences of ownership of such securities usually are held
outside the United States, the Partnership will be subject to additional risks
which include possible adverse political and economic developments, seizure or
nationalization of foreign deposits or adoption of governmental restrictions
which might adversely affect or restrict the payment of principal and interest
on the foreign securities to investors located outside the country of the
issuer, whether from currency blockage or otherwise.
Since foreign securities often are purchased with and payable in
currencies of foreign countries, the value of these assets as measured in U.S.
dollars may be affected favorably or unfavorably by changes in currency rates
and exchange control regulations.
Developing countries have economic structures that are generally less
diverse and mature, and political systems that are less stable, than those of
developed countries. The markets of developing countries may be more volatile
than the markets of more mature economies; however, such markets may provide
higher rates of return to investors. Many developing countries providing
investment opportunities for the Partnership have experienced substantial, and
in some periods extremely high, rates of inflation for many years. Inflation and
rapid fluctuations in inflation rates have had and may continue to have adverse
effects on the economies and securities markets of certain of these countries.
FOREIGN CURRENCY TRANSACTIONS
The Partnership may engage in foreign currency transactions for a
variety of purposes, including to fix in U.S. dollars, between trade and
settlement date, the value of a security the Partnership has agreed to buy or
sell, or to hedge the U.S. dollar value of securities the Partnership already
owns, particularly if it expects a decrease in the value of the currency in
which the foreign security is denominated.
Foreign currency transactions may involve, for example, the
Partnership's purchase of foreign currencies for U.S. dollars or the maintenance
of short positions in foreign currencies, which would involve the Partnership
agreeing to exchange an amount of a currency it did not currently own for
another currency at a future date in anticipation of a decline in the value of
the currency sold relative to the currency the Partnership contracted to receive
in the exchange. The Partnership's success in these transactions will depend
principally on the Manager's ability to predict accurately the future exchange
rates between foreign currencies and the U.S. dollar.
MONEY MARKET INSTRUMENTS
The Partnership may invest, for defensive purposes or otherwise, some
or all of its assets in high quality fixed-income securities, money market
instruments, and money market mutual funds, or hold cash or cash equivalents in
such amounts as the Manager deems appropriate under the circumstances. The
Partnership also may invest in these instruments pending allocation of the
offering proceeds. Money market instruments are high quality, short-term
fixed-income obligations, which generally have remaining maturities of one year
or less, and may include U.S. Government Securities, commercial paper,
certificates of deposit and bankers' acceptances issued by domestic branches of
United States banks that are members of the Federal Deposit Insurance
Corporation, and repurchase agreements.
NON-DIVERSIFIED STATUS
The classification of the Partnership as a "non-diversified"
investment company means that the percentage of the Partnership's assets that
may be invested in the securities of a single issuer is not limited by the 1940
Act. A "diversified" investment company is required by the 1940 Act generally,
with respect to 75% of its total assets, to invest not more than 5% of such
assets in the securities of a single issuer. Since a relatively high percentage
of the Partnership's assets may be invested in the securities of a limited
number of issuers, some of which may be within the same industry, the
Partnership's portfolio securities may be more sensitive to changes in the
market value of a single issuer and to events affecting a particular industry or
market segment.
The Partnership does not intend to make investments for the purpose of
exercising control or management over a portfolio company.
LEVERAGE
The Partnership may borrow money from brokers and banks for investment
purposes. Borrowing for investment purposes, which is known as "leverage," is a
speculative investment technique and involves certain risks.
Although leverage will increase investment return if the Partnership
earns a greater return on the investments purchased with borrowed funds than it
pays for the use of such funds, using leverage will decrease investment return
if the Partnership fails to earn as much on such investments as it pays for the
use of such funds. Using leverage, therefore, will magnify the volatility of the
value of the Partnership's investment portfolio. If the Partnership's equity or
debt instruments decline in value, the Partnership could be required to deposit
additional collateral 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, whether resulting
from changes in market value or from redemptions, the Partnership might not be
able to liquidate assets quickly enough to pay off its borrowing. Money borrowed
for leveraging will be subject to interest costs that may or may not be
recovered by return on the securities purchased. The Partnership also may be
required to maintain minimum average balances in connection with its borrowings
or to pay a commitment or other fee to maintain a line of credit; either of
these requirements would increase the cost of borrowing over the stated interest
rate.
The 1940 Act limits the amount an investment company can borrow by
imposing an asset coverage requirement of 300% of its indebtedness, including
amounts borrowed, measured at the time the investment company incurs the
indebtedness (the "Asset Coverage Requirement"). This means that the value of
the Partnership's total indebtedness may not exceed one-third the value of its
total assets, including such indebtedness, measured at the time the Partnership
incurs the indebtedness.
To obtain "leveraged" market exposure in certain investments and to
increase the overall return to the Partnership of various investments, the
Partnership may purchase options and other instruments that do not constitute
"indebtedness" for purposes of the Asset Coverage Requirement. These instruments
nevertheless may involve significant economic leverage and therefore, in some
cases, may involve significant risks of loss.
SHORT SALES
The Partnership may attempt to limit exposure to a possible market
decline in the value of its portfolio securities through short sales of
securities that the Manager believes possess volatility characteristics similar
to those being hedged. In addition, the Partnership may use short sales for
non-hedging purposes. To effect a short sale, the Partnership will borrow a
security from a brokerage firm, or other permissible financial intermediary, to
make delivery to the buyer. The Partnership then is obligated to replace the
borrowed security by purchasing it at the market price at the time of
replacement. The price at such time may be more or less than the price at which
the security was sold by the Partnership, which would result in a loss or gain,
respectively. These techniques are speculative and, in certain circumstances,
can substantially increase the impact of adverse price movements on the
Partnership's portfolio. A short sale of a security involves the risk of an
unlimited increase in the market price of the security which could result in an
inability to cover the short position and thus a theoretically unlimited loss.
There can be no assurance that securities necessary to cover the short position
will be available for purchase.
REVERSE REPURCHASE AGREEMENTS
Reverse repurchase agreements involve the sale of a security to a bank
or securities dealer and the simultaneous agreement to repurchase the security
for a fixed price, reflecting a market rate of interest, on a specific date.
These transactions involve a risk that the other party to a reverse repurchase
agreement will be unable or unwilling to complete the transaction as scheduled,
which may result in losses to the Partnership. Reverse repurchase agreements are
a form of leverage which also may increase the volatility of the Partnership's
investment portfolio.
SPECIAL INVESTMENT TECHNIQUES
The Partnership may utilize a variety of special investment techniques
to hedge its investment portfolio against various risks (such as changes in
interest rates) or other factors that generally affect the values of securities
and for non-hedging purposes. These techniques may involve the use of derivative
transactions. The techniques the Partnership may employ may change over time as
new instruments and techniques are introduced or as a result of regulatory
developments. Certain of the special investment techniques that the Partnership
may use are speculative and involve a high degree of risk, particularly when
used for non-hedging purposes.
DERIVATIVES. The Partnership may invest in, or enter into, derivatives
("Derivatives"). These are financial instruments which derive their performance,
at least in part, from the performance of an underlying asset, index or interest
rate. Derivatives can be volatile and involve various types and degrees of risk,
depending upon the characteristics of the particular Derivative and the
portfolio as a whole. Derivatives permit the Partnership to increase or decrease
the level of risk, or change the character of the risk, to which its portfolio
is exposed in much the same way as the Partnership can increase or decrease the
level of risk, or change the character of the risk, of its portfolio by making
investments in specific securities.
Derivatives may entail investment exposures that are greater than
their cost would suggest, meaning that a small investment in Derivatives could
have a large potential impact on the Partnership's performance.
If the Partnership invests in Derivatives at inopportune times or
judges market conditions incorrectly, such investments may lower the
Partnership's return or result in a loss. The Partnership also could experience
losses if its Derivatives were poorly correlated with its other investments, or
if the Partnership were unable to liquidate its position because of an illiquid
secondary market. The market for many Derivatives is, or suddenly can become,
illiquid. Changes in liquidity may result in significant, rapid and
unpredictable changes in the prices for Derivatives.
OPTIONS. The Partnership may engage in options transactions. The
Partnership also may invest in so-called "synthetic" options or other derivative
instruments written by broker-dealers or other permissible financial
intermediaries. Options transactions may be effected on securities exchanges or
in the over-the-counter market. When options are purchased over-the-counter,
the Partnership bears the risk that the counterparty that wrote the option will
be unable or unwilling to perform its obligations under the option contract.
These options also may be illiquid and, in such cases, the Partnership may have
difficulty closing out its position. Over-the-counter options purchased and sold
by the Partnership also may include options on baskets of specific securities.
The Partnership may purchase and sell call and put options in respect
of specific securities, and may write and sell covered or uncovered call and put
options.
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 the
Partnership has segregated cash or liquid securities 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 such 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 to do so.
WARRANTS. Warrants are derivative instruments that permit, but do not
obligate, the holder to subscribe for other securities. 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 INDEXES. The Partnership may
purchase and sell call and put options on stock indexes, such as the Standard &
Poor's 500 Composite Stock Price Index (the "S&P 500") or the Standard & Poor's
100 Index, listed on national securities exchanges or traded in the over-the-
counter market for hedging purposes and to pursue its investment objective. A
stock index fluctuates with changes in the market values of the stocks that
comprise the index. Accordingly, successful use by the Partnership of options on
stock indexes will be subject to the Manager's ability to predict correctly
movements in the direction of the stock market generally or segments thereof.
This requires different skills and techniques than forecasting changes in the
price of individual stocks.
LENDING PORTFOLIO SECURITIES
The Partnership may lend securities from its portfolio to brokers,
dealers and other financial institutions needing to borrow securities to
complete certain transactions. The Partnership continues to be entitled to
payments in amounts equal to the interest, dividends or other distributions
payable on the loaned securities which affords the Partnership an opportunity to
earn interest on the amount of the loan and on the loaned securities'
collateral. Loans of portfolio securities may not exceed 33-1/3% of the value of
the Partnership's total assets, and the Partnership will receive collateral
consisting of cash, U.S. Government Securities or irrevocable letters of credit
which will be maintained at all times in an amount equal to at least 100% of the
current market value of the loaned securities. The Partnership might experience
risk of loss if the institution with which it has engaged in a portfolio loan
transaction breaches its agreement with the Partnership.
WHEN-ISSUED, DELAYED DELIVERY AND FORWARD COMMITMENT SECURITIES
To reduce the risk of changes in interest rates and securities prices,
the Partnership may purchase securities on a forward commitment, when-issued or
delayed delivery basis, which means delivery and payment take place a number of
days after the date of the commitment to purchase. The payment obligation and
the interest rate receivable with respect to such purchases are fixed when the
Partnership enters into the commitment, but the Partnership does not make
payment until it receives delivery from the counterparty. The Partnership will
commit to purchase such securities only with the intention of actually acquiring
the securities, but the Partnership may sell these securities before the
settlement date if it is deemed advisable. The Partnership will place in a
segregated account permissible liquid assets at least equal at all times to the
amount of the commitments.
Securities purchased on a forward commitment or when-issued or
delayed delivery basis are subject to changes in value, generally changing in
the same way, i.e., appreciating when interest rates decline and depreciating
when interest rates rise, based upon the public's perception of the
creditworthiness of the issuer and changes, real or anticipated, in the level of
interest rates. Securities so purchased may expose the Partnership to risks
because they may experience such fluctuations prior to their actual delivery.
Purchasing securities on a when-issued or delayed delivery basis can involve the
additional risk that the yield available in the market when the delivery takes
place actually may be higher than that obtained in the transaction itself.
Purchasing securities on a forward commitment, when-issued or delayed delivery
basis when the Partnership is fully or almost fully invested may result in
greater potential fluctuation in the value of the Partnership's net assets. In
addition, there is a risk that securities purchased on a when-issued or delayed
delivery basis may not be delivered and that the purchaser of securities sold by
the Partnership on a forward basis will not honor its purchase obligation. In
such cases, the Partnership may incur a loss.
RESTRICTED AND ILLIQUID INVESTMENTS
Although the Partnership will invest primarily in publicly traded
securities, it may invest up to 10% of its assets in restricted securities and
other investments which are illiquid. Restricted securities are securities that
may not be sold to the public without an effective registration statement under
the 1933 Act, or, if they are unregistered, may be sold only in a privately
negotiated transaction or pursuant to an exemption from registration under the
1933 Act.
Where registration is required to sell a security, the Partnership may
be obligated to pay all or part of the registration expenses, and a considerable
period may elapse between the decision to sell and the time the Partnership may
be permitted to sell a security under an effective registration statement. If
during such a period adverse market conditions were to develop, the Partnership
might obtain a less favorable price than the prevailing price when it decided to
sell. Restricted securities for which no market exists and other illiquid
investments are valued at fair value as determined in accordance with procedures
approved and periodically reviewed by the Directors.
The Partnership may be unable to sell restricted and other illiquid
securities at the most opportune times or at prices approximating the value at
which the Partnership purchased such securities.
INVESTMENT RESTRICTIONS
The Partnership has adopted the following investment restrictions as
fundamental policies, which cannot be changed without approval by holders of a
majority (as defined in the 1940 Act) of the Partnership's outstanding voting
securities. The Partnership may not:
- Issue senior securities, except that, to the extent permitted by
the 1940 Act, the Partnership may borrow money (a) to finance
portfolio transactions and engage in other transactions involving
the issuance by the Partnership of "senior securities"
representing indebtedness, and (b) from banks for temporary or
emergency purposes or in connection with repurchases of, or
tenders for, the Partnership's interests.
- 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.
- Make loans, except through purchasing fixed-income securities,
lending portfolio securities or entering into repurchase
agreements in a manner consistent with the Partnership's
investment policies or as otherwise permitted under the 1940 Act.
- Purchase, hold or deal in real estate, except that the
Partnership may invest in securities that are secured by real
estate, or issued by companies that invest or deal in real estate
or real estate investment trusts.
- Invest in commodities or commodity contracts, except that the
Partnership may purchase and sell foreign currency and options
and forward contracts, including those related to indexes, and
options on indexes.
- Invest more than 25% of the value of its total assets in the
securities of issuers in any single industry, except that the
Partnership may purchase U.S. Government Securities without
limitation.
Under the 1940 Act, the vote of a majority of the outstanding voting
securities of an investment company, such as the Partnership, means the vote, at
the annual or a special meeting of the security holders of such company duly
called, (A) of 67% or more of the voting securities present at such meeting, if
the holders of more than 50% of the outstanding voting securities of such
company are present or represented by proxy; or (B) of more than 50% of the
outstanding voting securities of such company, whichever is less.
With respect to these investment restrictions, and other policies
described in this Memorandum, if a percentage restriction is adhered to at the
time of an investment or transaction, a later change in percentage resulting
from a change in the values of investments or the value of the Partnership's
total assets, unless otherwise stated, will not constitute a violation of such
restriction or policy.
The Partnership's investment objective is fundamental and may not be
changed without the vote of a majority (as defined by the 1940 Act) of the
Partnership's outstanding voting securities.
ADDITIONAL RISK FACTORS
INCENTIVE ALLOCATION
The Incentive Allocation of 20% of net profits to the capital account
of the Manager may create an incentive for the Manager to cause the Partnership
to make investments that are riskier or more speculative than would be the case
in the absence of the Incentive Allocation. In addition, because the allocation
is calculated on a basis that includes unrealized appreciation of the
Partnership's assets, the Incentive Allocation may be greater than if it were
based solely on realized gains. See "CAPITAL ACCOUNTS AND ALLOCATIONS--Incentive
Allocation."
TAX RISKS
Counsel to the Partnership has rendered an 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 has
rendered its opinion that, under a "facts and circumstances" test set forth in
regulations adopted by the U.S. Treasury Department, the Partnership will not be
treated as a "publicly traded partnership" taxable as corporation. 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 "TAX ASPECTS--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 personnel of the principal members
of the Manager have substantial experience in managing portfolios of securities
through separately managed client accounts, private investment funds and
registered investment companies. Moreover, the personnel of Granum who are
responsible for managing the Partnership's investment portfolio have substantial
experience in managing investment funds that have investment programs that are
substantially similar to the Partnership's investment program. See "PERFORMANCE
INFORMATION," "THE MANAGER, PWFA AND GRANUM" and "CONFLICTS OF
INTEREST--Participation in Investment Opportunities."
LIQUIDITY RISKS
Partnership interests will not be traded on any securities exchange or
other market and are subject to substantial restrictions on transfer. Although
the Partnership may offer to repurchase Limited Partner interests from time to
time, a Limited Partner may not be able to liquidate its interest in the
Partnership for up to two years. The Manager expects that generally, beginning
in 2000, it will recommend to the Directors that the Partnership offer to
repurchase interests from Partners twice each year, in June and December, and
also intends to recommend the making of offers to repurchase interests effective
as of September 1999 and December 1999. See "REDEMPTIONS, REPURCHASES OF
INTERESTS AND TRANSFERS."
DISTRIBUTIONS TO LIMITED PARTNERS AND PAYMENT OF TAX LIABILITY
The Partnership does not intend to make periodic distributions of its
net income or gains, if any, to Limited Partners. Whether or not distributions
are made, Limited Partners will be required each year to pay applicable Federal
and state income taxes on their respective shares of the Partnership's taxable
income, and will have to pay applicable taxes from other sources. The amount and
times of any distributions will be determined in the sole discretion of the
Directors.
PERFORMANCE INFORMATION
Appendix B--Table 1 contains performance information for a private
investment partnership (the "Granite Partnership") that has been managed by
Granum's personnel since its inception in 1990, with Walter F. Harrison, III as
the primary portfolio manager, in accordance with an investment program that is
substantially similar to the Partnership's expected investment program. In
addition, Appendix B--Table 2 contains composite performance information for all
accounts (including investment funds) (together with the Granite Partnership,
"Granum Accounts") managed by Granum's personnel pursuant to an investment
program that also is substantially similar to the Partnership's expected
investment program. The future performance of the Granite Partnership and the
other Granum Accounts may vary from the future performance of the Partnership.
See "CONFLICTS OF INTEREST--Participation in Investment Opportunities." PAST
PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS.
THE DIRECTORS
The business affairs of the Partnership are managed under the general
supervision of the Directors. The Partnership's General Partner, to the fullest
extent permitted by applicable law, has irrevocably delegated to the Directors
its rights and powers to manage and control the business affairs of the
Partnership, including the complete and exclusive authority to oversee and to
establish policies regarding the management, conduct and operation of the
Partnership's business. The Directors exercise the same powers, authority and
responsibili ties on behalf of the Partnership as are customarily exercised by
the directors of a registered investment company organized as a corporation. The
General Partner retains only those rights, powers and duties that may not be
delegated under Delaware law. The General Partner will not cease to be the
general partner of the Partnership and will continue to be liable as such.
The Directors are not general partners or limited partners of the
Partnership and, accordingly, have no liability as such. The Directors will not
contribute to the capital of the Partnership and will not hold partnership
interests in the Partnership. A majority of the Directors are not "interested
persons" (as defined in the 1940 Act) of the Partnership (collectively, the
"Independent Directors") 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 identity of the Directors and brief biographical information
regarding each Director is set forth below. Each Director who is deemed to be an
"interested person" of the Partnership, as defined in the 1940 Act, is indicated
by an asterisk.
PRINCIPAL OCCUPATION(S) DURING PAST
NAME, ADDRESS AND AGE 5 YEARS
- ------------------------------- -----------------------------------
*E. Garrett Bewkes, Jr. Mr. Bewkes is a director of, and
c/o PaineWebber Incorporated prior to December 1995 was a
1285 Avenue of the Americas consultant to, PW Group. Prior to
New York, New York 10019 1988, he was Chairman of the Board,
Age 71 President and Chief Executive
Officer of American Bakeries Company. Mr.
Bewkes is a director of Interstate
Bakeries Corporation and NaPro
BioTherapeutics, Inc. Mr. Bewkes also is a
director or trustee of 32 other investment
companies for which PaineWebber
Incorporated or its affiliates serves as
investment adviser.
Meyer Feldberg Mr. Feldberg is Dean and Professor
c/o Columbia University of Management of the Graduate
101 Uris Hall School of Business, Columbia
New York, New York 10027 University. Prior to 1989, he was
Age 55 President of the Illinois Institute
of Technology. Dean Feldberg is a director
of K-III Communications Corporation,
Federated Department Stores Inc. and
Revlon, Inc. Dean Feldberg also is a
director or trustee of 31 investment
companies for which PaineWebber
Incorporated or its affiliates serves as
investment adviser.
Richard J. Sterne Mr. Sterne is a private investor.
555 Madison Avenue From 1995 to June 1998, he was a
28th Floor Managing Director of Links
New York, New York 10021 Securities, Inc., a registered
Age 52 broker-dealer. From 1990 to 1995,
Mr. Sterne was a partner at Granite
Capital International Group L.P., a
private asset management firm and an
affiliate of Granum. Mr. Sterne also is a
director of one other registered
investment company for which an affiliate
of the Manager serves as investment
adviser.
Each of the Directors was appointed to serve in such position by the
General Partner and, on July 16, 1998, such appointment was approved and
ratified by the General Partner and Mark F. Vassallo, in his capacity as the
Partnership's organizational limited partner, who were the sole holders of
partnership interests in the Partnership on such date.
A Director's position in that capacity will terminate if such Director
is removed, resigns or is subject to various disabling events such as death or
incapacity. A Director may resign upon 90 days' prior written notice to the
other Directors, and may be removed either by vote of two-thirds of the
Directors not subject to the removal vote or vote of the Partners holding not
less than two-thirds of the total number of votes eligible to be cast by all
Partners. In the event of any vacancy in the position of a Director, the
remaining Directors may appoint an individual to serve as a Director, so long as
immediately after such appointment at least two-thirds of the Directors then
serving would have been elected by the Partners. The Directors may call a
meeting of Partners to fill any vacancy in the position of a Director, and must
do so within 60 days after any date on which Directors who were elected by the
Partners cease to constitute a majority of the Directors then serving. If no
Director remains to manage the business of the Partnership, the General Partner
may manage and control the Partnership, but must convene a meeting of Partners
within 60 days for the purpose of either electing new Directors or dissolving
the Partnership.
The Independent Directors are each paid an annual retainer of $5,000
and per meeting fees of $500, or $250 in the case of telephonic meetings, by the
Partnership. The other Directors receive no annual or other fees from the
Partnership. All Directors are reimbursed by the Partnership for their
reasonable out-of-pocket expenses. It is estimated that the aggregate annual
compensation paid by the Partnership to each Independent Director will be $7,000
during the coming year, and that, together with compensation paid to them by
other registered investment companies advised by affiliates of the Manager,
Messrs. Feldberg and Sterne will receive aggregate annual compensation from all
such companies of approximately $124,000 and $14,000, respectively, for such
year. The Directors do not receive any pension or retirement benefits from the
Partnership.
THE MANAGER, PWFA AND GRANUM
The Manager is the Partnership's General Partner. The Directors have
engaged the Manager to provide investment advice to, and 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 Directors. The
Manager was formed as a Delaware limited liability company on June 5, 1998 and
is registered as an investment adviser under the Advisers Act. The offices of
the Manager are located at 1285 Avenue of the Americas, New York, New York
10019, and its telephone number is (800) 486-2608. As of August 3, 1998, the
Manager owned 99% of the outstanding interests in the Partnership (thereby
controlling the Partnership) and was the only person 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 1285 Avenue of the Americas, New York,
New York 10019.
The Manager is a joint venture between PWFA and Granum. PWFA is the
managing member of the Manager and oversees the Manager's provision of
investment advice and day-to-day management to the Partnership. Granum provides
the Manager with use of and access to such of its personnel, research and
facilities as the Manager requires to manage the Partnership's investment
portfolio, and such personnel have the sole responsibility, subject only to the
supervision of the Manager and the Directors, for the investment advisory
services provided to the Partnership.
PWFA is an indirect, wholly-owned subsidiary of PW Group and is
registered as an investment adviser under the Advisers Act. PWFA and its
affiliates provide investment advisory services to registered investment
companies, private investment funds and individual accounts, and have more than
$322 billion of assets under control and $54 billion of assets under management.
PaineWebber Incorporated, a wholly-owned subsidiary of PW Group, is registered
as a broker-dealer under the Securities Exchange Act of 1934, as amended, and is
a member of the New York Stock Exchange, Inc. and other principal securities
exchanges.
Granum, a registered investment adviser under the Advisers Act, is
controlled by Lewis M. Eisenberg and Walter F. Harrison, III, who serve as its
members. Although Granum is a newly formed entity, Messrs. Harrison and
Eisenberg have substantial experience in managing assets. Granum and its
affiliates provide investment advisory services to a registered investment
company, private investment partnerships and individual accounts with aggregate
assets in excess of $700 million. Mr. Harrison will be primarily responsible for
the day-to-day management of the Partnership's investment portfolio. In
addition to Mr. Harrison, Mr. Eisenberg and Paul Matten, a Vice President of
Granum, also will be responsible for managing the Partnership's investment
portfolio.
Mr. Harrison graduated from Dartmouth College in 1966 and received an
M.B.A. in 1969 from the Amos Tuck School of Business Administration. He has
served as a member of Granum since its formation in July 1998 and as a founding
partner of a private investment advisory firm that is under common control with
Granum since 1990. Mr. Harrison serves as a portfolio manager to a registered
investment company, an offshore private investment fund and private investment
partnerships, each advised by Granum or an affiliate thereof. From 1971 to 1980,
Mr. Harrison was associated with A.W. Jones & Associates and A.W. Jones Co., two
investment limited partnerships (collectively, "A.W. Jones"). During his tenure
with A.W. Jones, Mr. Harrison became a managing general partner and was a member
of the Policy Committee, set guidelines for equity exposure, and performed
extensive work on equities valuation techniques. From 1980 to 1983, Mr. Harrison
was senior vice president and a principal of Brokaw Capital Management Co.,
Inc., and from 1983 to 1989, he was associated with Siebel Capital Management.
Mr. Eisenberg graduated from Dartmouth College in 1964 and received an
M.B.A. from Cornell University in 1966. He has served as a managing member of
Granum since its formation and as a founding partner of a private investment
advisory firm that is under common control with Granum since 1990. Mr. Eisenberg
also serves as a portfolio manager to a registered investment company, an
offshore private investment fund and four private investment partnerships
advised by Granum or an affiliate thereof. From 1966 to 1989, he was associated
with Goldman, Sachs & Co. ("Goldman, Sachs"). While at Goldman, Sachs, Mr.
Eisenberg became a general partner of the firm, was co-head of the Equities
Division and served on the Sales, Trading and Research Policy Committee, the
Budget Committee and the International Equity Policy Committee, among others.
The authority of the Manager to serve or act as investment adviser,
and be responsible for the day-to-day management, of the Partnership
(collectively, "Advice and Management"), and the incentive allocation
arrangement between the Partnership and the Manager, as the foregoing are set
forth in the Partnership Agreement, was initially approved by the Directors,
including each Independent Director, and by vote of Partners holding interests
in the Partnership on July 16, 1998. 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 Directors, 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 Directors;
(3) if, after July 16, 1999, any period of 12 consecutive months
shall conclude without the approval of the continuation of such
authority by (A) the vote of a majority (as defined in the 1940
Act) of the outstanding voting securities of the Partnership or
(B) the Directors and, in either case, approval by a majority of
the Independent Directors by vote cast at a meeting called for
such purpose;
(4) to the extent required by the 1940 Act, upon the occurrence of
any event in connection with the Manager, its provision of Advice
and Management, the Partnership Agreement or otherwise
constituting an "assignment" within the meaning of the 1940 Act;
or
(5) if the Manager is no longer a General Partner of the Partnership.
The Manager also may withdraw, or be removed by the Partnership, as a
General Partner. If the Manager gives notice to the Partnership of its intention
to withdraw, it will be required to remain as a General Partner for one year, or
until such earlier date as a successor Manager is approved by the Partnership,
if, in the opinion of counsel to the Partnership, earlier withdrawal is likely
to cause the Partnership to lose its partnership tax classification or as
otherwise required by the 1940 Act. At the request of the Partnership, the
Manager will remain as a General Partner of the Partnership for a period of six
months if the Partnership has terminated the authority of the Manager to provide
Advice and Management, unless a successor General Partner to the Manager is
earlier approved by the Partnership.
VOTING
Each Partner will have the right to cast a number of votes based on
the value of such Partner's respective capital account at any meeting of
Partners called by the Directors or Partners holding at least a majority of the
total number of votes eligible to be cast by all Partners. Limited Partners will
be entitled to vote on any matter on which shareholders of a registered
investment company organized as a corporation would be entitled to vote,
including selection of Directors, approval of the authority of the Manager to
provide Advice and Management to the Partnership and approval of the
Partnership's auditors. Except for the exercise of their voting privileges,
Limited Partners will not be entitled to participate in the management or
control of the Partnership's business, and may not act for or bind the
Partnership.
CONFLICTS OF INTEREST
PWFA
PWFA and its affiliates manage the assets of registered investment
companies, private investment funds and individual accounts (collectively, "PWFA
Clients"). The Partnership has no interest in these activities. PWFA and its
officers or employees who assist PWFA 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 PWFA Clients. PWFA and its officers and employees will devote so
much of their time to the affairs of the Manager as in their judgment is
necessary and appropriate.
PaineWebber Incorporated acts as the placement agent for the
Partnership, without special compensation from the Partnership, and will bear
its own costs associated with its activities as placement agent. PWFA and
PaineWebber Incorporated intend to compensate PaineWebber Incorporated's or its
affiliates' account executives, as well as third-party securities dealers and
other industry professionals, for their ongoing servicing of clients with whom
they have placed interests in the Partnership and such compensation will be
based upon a formula that takes into account the amount of client assets being
serviced as well as the investment results attributable to the clients' assets
in the Partnership. See "FEES AND EXPENSES" and "CAPITAL ACCOUNTS AND
ALLOCATIONS--Incentive Allocation."
PaineWebber Incorporated or its affiliates may provide brokerage and
other services from time to time to one or more accounts or entities managed by
Granum or one of its affiliates.
GRANUM AND HARRISON AND EISENBERG
Messrs. Harrison and Eisenberg are the general partners of and provide
investment advisory and other services to the Granite Partnership and control
the investment advisers that provide investment advisory and other services to
the other Granum Accounts. Granum, of which Messrs. Harrison and Eisenberg are
members, or its affiliates, provides investment advisory and other services to a
registered investment company, an offshore private investment fund and to
private investment partnerships and separately managed client accounts. Granum
and certain of the investment professionals who are principals of or employed by
Granum or its affiliates (collectively with Granum, the "Granum Managers") also
carry on substantial investment activities for their own accounts, for the
accounts of family members and for other Granum Accounts. The Partnership has no
interest in these activities. As a result of the foregoing, Granum and the
investment professionals who, on behalf of the Manager, will manage the
Partnership's investment portfolio will be engaged in substantial activities
other than on behalf of the Manager and may have conflicts of interest in
allocating their time and activity between the Partnership and the Granum
Accounts. Such persons will devote only so much time to the affairs of the
Manager as in their judgment is necessary and appropriate.
PWFA, its affiliates or PWFA Clients may have an interest in the
Granum Accounts on terms different than an interest in the Partnership. In
addition, the Granum Managers may receive research products and services in
connection with the brokerage services that PWFA and its affiliates may provide
from time to time to one or more Granum Accounts or 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 employed by
the Granum Managers for the Granum Accounts. 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
Granum Managers for the Granum Accounts. There may be, however, circumstances
under which the Granum Managers will cause one or more Granum 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 also may be
circumstances under which the Granum Managers will consider participation by the
Granum Accounts in investment opportunities in which the Manager does not intend
to invest on behalf of the Partnership, or vice versa.
The Manager will evaluate for the Partnership, and it is anticipated
that the Granum Managers will evaluate for each Granum Account, a variety of
factors that may be relevant in determining whether, and to what extent, a
particular investment opportunity or strategy is appropriate and feasible for
the Partnership or a Granum Account at a particular time, including, but not
limited to, the following: (1) the nature of the investment opportunity taken in
the context of the other investments at the time; (2) the liquidity of the
investment relative to the needs of the particular entity or account; (3) the
availability of the opportunity (i.e., size of obtainable position); (4) the
transaction costs involved; and (5) the investment or regulatory limitations
applicable to the particular entity or account. Because these considerations may
differ for the Partnership and the Granum Accounts in the context of any
particular investment opportunity, the investment activities of the Partnership
and the Granum Accounts may differ from time to time. In addition, the fees and
expenses of the Partnership will differ from those of the Granum Accounts.
Accordingly, prospective Limited Partners should note that the future
performance of the Partnership and the Granum Accounts will vary.
When the Manager and the Granum Managers determine that it would be
appropriate for the Partnership and one or more Granum Accounts to participate
in an investment opportunity at the same time, they will attempt to aggregate,
place and allocate orders on a basis that the Manager believes to be fair and
equitable, consistent with its responsibilities under applicable law. Decisions
in this regard are necessarily subjective and there is no requirement that the
Partnership participate, or participate to the same extent as the Granum
Accounts, in all trades. However, no participating entity or account will
receive preferential treatment over any other and the Manager and the Granum
Managers will take steps to ensure that no participating entity or account will
be systematically disadvantaged by the aggregation, placement and allocation of
orders.
Situations may occur, however, where the Partnership could be
disadvantaged because of the investment activities conducted by the Granum
Managers for the Granum 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 Granum Accounts, thereby limiting
the size of the Partnership's position; (2) the difficulty of liquidating an
investment for the Partnership and the Granum 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 Granum
Accounts with respect to the securities of an issuer without first obtaining
exemptive relief from the SEC. See "CONFLICTS OF INTEREST--Other Matters."
The members of the Manager, and their members, directors, officers,
employees and affiliates 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 by members, directors, officers, employees and affiliates of PWFA or
Granum, or by the Granum Managers for the Granum Accounts, that are the same,
different or made at a different time than positions taken for the Partnership.
OTHER MATTERS
Except in accordance with applicable law, the Manager and its members
are not permitted to buy securities or other property from, or sell securities
or other property to, the Partnership. However, the Partnership may effect
certain principal transactions in securities with one or more Granum Accounts,
except for accounts in which Granum or any affiliate thereof serves as a general
partner or in which it has a financial interest, other than an interest that
results solely from Granum's or any affiliate's appointment as an investment
adviser to the account. Such transactions would be made in circumstances where
the Manager has determined it would be appropriate for the Partnership to
purchase and a Granum Account to sell, or the Partnership to sell and a Granum
Account to purchase, the same security or instrument on the same day.
Future investment activities of PWFA or Granum, or their affiliates,
and the principals, partners, directors, officers or employees of the foregoing,
may give rise to additional conflicts of interest.
BROKERAGE
The Manager is responsible for the execution of the Partnership's
portfolio transactions and the allocation of brokerage. Transactions on U.S.
stock exchanges and on some foreign stock exchanges involve the payment of
negotiated brokerage commissions. On the great majority of foreign stock
exchanges, commissions are fixed. No stated commission is generally applicable
to securities traded in over-the-counter markets, but the prices of those
securities include undisclosed commissions or mark-ups.
In executing transactions on behalf of the Partnership, the Manager
seeks to obtain the best price and execution for the Partnership, taking into
account factors such as price, size of order, difficulty of execution and
operational facilities of a brokerage firm, and in the case of transactions
effected by the Partnership with unaffiliated brokers, the firm's risk in
positioning a block of securities. Although the Manager generally seeks
reasonably competitive commission rates, the Partnership will not necessarily
pay the lowest commission available on each transaction. The Partnership has no
obligation to deal with any broker or group or brokers in executing transactions
in portfolio securities. The Partnership may execute portfolio brokerage
transactions through PaineWebber Incorporated or its affiliates, subject to
compliance with the 1940 Act.
Following the principle of seeking best price and execution, the
Manager may place brokerage business on behalf of the Partnership with brokers
that provide the Manager and its affiliates, including the Granum Managers, with
supplemental research, market and statistical information, including advice as
to the value of securities, the advisability of investing in, purchasing or
selling securities, and the availability of securities or purchasers or sellers
of securities, and furnishing analyses and reports concerning issuers,
industries, securities, economic factors and trends, portfolio strategy and the
performance of accounts. The expenses of the Manager are not necessarily reduced
as a result of the receipt of this supplemental information, which may be useful
to the Manager and its affiliates in providing services to clients other than
the Partnership. In addition, not all of the supplemental information is used by
the Manager in connection with the Partnership. Conversely, the information
provided to the Manager by brokers and dealers through which other clients of
the Manager and its affiliates effect securities transactions may be useful to
the Manager in providing services to the Partnership.
Although the Partnership cannot accurately predict its portfolio
turnover, the Partnership expects that its annual portfolio turnover rate
generally will not be high because the Partnership invests for long-term growth
rather than short-term profits. Nevertheless, securities transactions for the
Partnership will be based only upon investment considerations and will not be
limited by other considerations when the Manager deems it appropriate to make
changes in the Partnership's portfolio securities.
FEES AND EXPENSES
PWFA 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 PWFA a monthly fee of .125% (1.50% on an annualized basis)
of the Partnership's net assets, excluding assets attributable to the Manager's
capital account (the "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 Fee will be computed based on the net assets of
the Partnership as of the start of business on the first business day of each
month, after adjustment for any subscriptions effective on such date, and will
be due and payable in arrears within five business days after the end of such
month. The Fee will be charged in each fiscal period to the capital accounts of
all Limited Partners in proportion to their capital accounts at the beginning of
such fiscal period. A portion of the Fee will be paid by PWFA to an affiliate of
Granum.
The Administrator performs certain administration, accounting and
investor services for the Partnership and other investment funds sponsored by PW
Group or its affiliates. In consideration for these services, the Partnership
and such other funds will pay the Administrator an annual fee, payable monthly
and which is calculated based upon their combined net assets, of a maximum of
.13% and a minimum of .10% of average aggregate net assets, subject to an
aggregate minimum monthly fee, and will reimburse the Administrator for
out-of-pocket expenses. This combined fee will be allocated among the
Partnership and the other investment funds for which these services are provided
in a fair and equitable manner, taking into account factors, such as the amount
of capital under management in each fund, the nature of each fund's investment
activities and the number of investors in each fund.
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 ACCOUNTS AND ALLOCATIONS--Incentive Allocation."
The Partnership will bear all expenses incurred in the business of the
Partnership other than those specifically required to be borne by PWFA. Expenses
to be borne by the Partnership include, but are not limited to, the following:
- all costs and expenses related to portfolio transactions and
positions for the Partnership's account, including, but not
limited to, brokerage commissions, research fees, interest and
commitment fees on loans and debit balances, borrowing charges on
securities sold short, dividends on securities sold short but not
yet purchased, custodial fees, margin fees, transfer taxes and
premiums, taxes withheld on foreign dividends and indirect
expenses from investments in investment funds;
- all costs and expenses associated with the organization and
registration of the Partnership, certain offering costs and the
costs of compliance with any applicable Federal or state laws;
- the costs and expenses of holding any meetings of any Partners
that are regularly scheduled, permitted or required to be held
under the terms of the Partnership Agreement, the 1940 Act or
other applicable law;
- fees and disbursements of any attorneys, accountants, auditors
and other consultants and professionals engaged on behalf of the
Partnership;
- the fees of custodians and other persons providing administrative
services to the Partnership;
- the costs of a fidelity bond and any liability insurance obtained
on behalf of the Partnership, the General Partner or the
Directors;
- all costs and expenses of preparing, setting in type, printing
and distributing reports and other communications to Limited
Partners;
- all expenses of computing the Partnership's net asset value,
including any equipment or services obtained for the purpose of
valuing the Partnership's investment portfolio;
- all charges for equipment or services used for communications
between the Partnership and any custodian, or other agent engaged
by the Partnership; and
- such other types of expenses as may be approved from time to time
by the Directors other than those required to be borne by the
Manager.
The Manager will be reimbursed by the Partnership for any of the above expenses
that it pays on behalf of the Partnership.
The Partnership's organizational and offering expenses are estimated
at $350,000. The Partnership also will bear certain on-going offering costs
associated with any periodic offers of Partnership interests. Offering costs
cannot be deducted by the Partnership or the Partners.
CAPITAL ACCOUNTS AND ALLOCATIONS
CAPITAL ACCOUNTS
The Partnership will maintain a separate capital account for each
Partner, which will have an opening balance equal to such Partner's initial
contribution to the capital of the Partnership. Each Partner's capital account
will be increased by the sum of the amount of cash and the value of any
securities constituting additional contributions by such Partner to the capital
of the Partnership, plus any amounts credited to such Partner's capital account
as described below. Similarly, each Partner's capital account will be reduced by
the sum of the amount of any repurchase by the Partnership of the interest, or
portion thereof, of such Partner, plus the amount of any distributions to such
Partner which are not reinvested, plus any amounts debited against such
Partner's capital account as described below. To the extent that any debits
would reduce the balance of the capital account of any Limited Partner below
zero, that portion of any such debits will instead be allocated to the capital
account of the Manager; any subsequent credits that would otherwise be allocable
to the capital account of any such Limited Partner will instead be allocated to
the capital account of the Manager in such amounts as are necessary to offset
all previous debits attributable to such Limited Partner.
Capital accounts of Partners are adjusted as of the close of business
on the last day of each fiscal period. Fiscal periods begin on the day after the
last day of the preceding fiscal period and end at the close of business on (1)
the last day of the fiscal year of the Partnership, (2) the day preceding the
date as of which a contribution to the capital of the Partnership is made, (3)
the day as of which the Partnership repurchases any interest or portion of an
interest of any Partner, or (4) the day as of 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
period by the sum of the balances of all capital accounts of all Partners as of
such date.
ALLOCATION OF NET PROFITS AND NET LOSSES
Net profits or net losses of the Partnership for each fiscal period
will be allocated among and credited to or debited against the capital accounts
of all Partners as of the last day of each fiscal period in accordance with
Partners' respective partnership percentages for such fiscal period. Net profits
or net losses will be measured as the net change in the value of the net assets
of the Partnership, including any net change in unrealized appreciation or
depreciation of investments and realized income and gains or losses and expenses
during a fiscal period, before giving effect to any repurchases by the
Partnership of interests or portions thereof, and adjusted to reflect the amount
of any "key man" insurance premiums or proceeds to be allocated among the
capital accounts of the Partners and 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 a performance-based 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 the Limited Partner's "loss recovery account." The 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 the 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 (other
than management fees) not chargeable ratably to all Partners, over the balance
of the 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 the Limited Partner's interest
in the Partnership in proportion to the reduction of the Limited Partner's
capital account attributable to the repurchase or transfer.
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
the 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 (or portion thereof)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 or the Manager ceases to be a general
partner of the Partnership. 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
12-month period in effect is a reflection of the extent to which cumulative
performance achieved with respect to a Limited Partner's account since such
Partner's admission to the Partnership exceeds the highest previous level of
performance achieved through the close of any prior allocation period. If any
subsequent allocation period is less than 12 calendar months, the Incentive
Allocation for such period will be computed over the period commencing at the
start of the last allocation period which commenced more than 12 calendar months
previously and ending at the end of the current allocation period, with
appropriate adjustment for any Incentive Allocation made with respect to the
prior allocation periods.
Within 30 days of each allocation period with respect to each Limited
Partner, and subject to certain limitations, the Manager may withdraw up to 98%
of the Incentive Allocation, computed on the basis of unaudited data, that was
credited to the Manager's capital account and debited from the 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 the 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.
RESERVES
Appropriate reserves may be created, accrued and charged against net
assets and proportionately against the capital accounts of the Partners for
contingent liabilities as of the date any such contingent liabilities become
known to the Partnership. Reserves will be in such amounts, subject to increase
or reduction, which the Partnership may deem necessary or appropriate. The
amount of any 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, as determined by the Partnership, were Partners
at the time 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 value of the Partnership 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 Directors.
Domestic exchange traded securities and securities included in the
Nasdaq National Market System will be valued at their last composite sale prices
as reported on the exchanges where such securities are traded. If no sales of
such securities are reported on a particular day, the securities will be valued
based upon their composite bid prices for securities held long, or their
composite ask prices for securities held short, as reported by such exchanges.
Securities traded on a foreign securities exchange will be valued at their last
sale prices on the exchange where such securities are primarily traded, or in
the absence of a reported sale on a particular day, at their bid prices, in the
case of securities held long, or ask prices, in the case of securities held
short, as reported by such exchange. Listed options will be valued using last
sales prices as reported by the exchange with the highest reported daily volume
for such options or, in the absence of any sales on a particular day, at their
bid prices as reported by the exchange with the highest volume on the last day a
trade was reported. Other securities for which market quotations are readily
available will be valued at their bid prices, or ask prices in the case of
securities held short, as obtained from one or more dealers making markets for
such securities. If market quotations are not readily available, securities and
other assets will be valued at fair value as determined in good faith by, or
under the supervision of, the Directors.
Debt securities will be valued in accordance with the procedures
described above, which with respect to such securities may include the use of
valuations furnished by a pricing service which employs a matrix to determine
valuations for normal institutional size trading units. The Directors will
monitor periodically the reasonableness of valuations provided by any such
pricing service. Debt securities with remaining maturities of 60 days or less,
absent unusual circumstances, will be valued at amortized cost, so long as such
valuation is determined by the Directors to represent fair value.
All assets and liabilities initially expressed in foreign currencies
will be converted into U.S. dollars using foreign exchange rates provided by a
pricing service compiled as of 4:00 p.m. London time. Trading in foreign
securities generally is completed, and the values of such securities are
determined, prior to the close of securities markets in the U.S. Foreign
exchange rates are also determined prior to such close. On occasion, the values
of securities and exchange rates may be affected by events occurring between the
time as of which determination of such values or exchange rates are made and the
time as of which the net asset value of the Partnership is determined. When such
events materially affect the values of securities held by the Partnership or its
liabilities, such securities and liabilities may be valued at fair value as
determined in good faith by, or under the supervision of, the Directors.
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 Directors' judgments regarding
appropriate valuations should prove incorrect.
SUBSCRIPTION FOR INTERESTS
SUBSCRIPTION TERMS
Both initial and additional subscriptions for 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 the offering of 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. Generally, the minimum
required initial contribution to the capital of the Partnership from each
investor is $250,000. For employees of the Manager and its affiliates, and
members of their immediate families, the minimum required initial contribution
to the capital of the Partnership is $50,000. The Partnership may vary the
investment minimums from time to time. The initial closing date for
subscriptions of interests in the Partnership is September 25, 1998. The
Manager, in its sole discretion, may postpone the closing date for up to 60
days. Interests may not be purchased by nonresident aliens, foreign
corporations, foreign partnerships, foreign trusts or foreign estates, all as
defined in the Code. In addition, because the Partnership may generate UBTI,
charitable remainder trusts may not want to purchase interests in the
Partnership because 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.
See "TAX ASPECTS--Unrelated Business Taxable Income."
Except as otherwise permitted by the Partnership, initial and any
additional contributions to the capital of the Partnership by any Partner will
be payable in cash, and all contributions must be transmitted by such time and
in such manner as is specified in the subscription documents of the Partnership.
Initial and any additional contributions to the capital of the Partnership will
be payable in one installment and will be due prior to the proposed acceptance
of the contribution, although the Partnership may accept, in its discretion, a
subscription prior to its receipt of cleared funds.
Each new Limited Partner will be obligated to agree to be bound by all
of the terms of the Partnership Agreement. Each potential investor also will be
obligated to represent and warrant in a subscription agreement, among other
things, that such investor is purchasing an interest for its own account, and
not with a view to the distribution, assignment, transfer or other disposition
of such interest.
If and when the Partnership determines to accept securities as a
contribution to the capital of the Partnership, the Partnership will charge each
Partner making such contribution an amount determined by the Directors and not
exceeding 2% of the value of such contribution in order to reimburse the
Partnership for any costs it incurs in liquidating and accepting such
securities. Any such charge will be due and payable by the contributing Partner
in full at the time the contribution to the capital of the Partnership to which
such charge relates is due.
ELIGIBLE INVESTORS
Each prospective investor will be required to certify that the
interest subscribed for is being acquired directly or indirectly for the account
of an "accredited investor" as defined in Regulation D under the 1933 Act, and
that such investor, as well as each of the investor's equity owners under
certain circumstances, (i) immediately after the time of subscription, has at
least $750,000 under the management of PW Group and its affiliates or
subsidiaries, (ii) at the time of subscription, has a net worth of more than
$1.5 million, or (iii) at the time of subscription, is a "qualified purchaser"
as defined in Section 2(a)(51)(A) of the 1940 Act (a "Qualified Purchaser").
Existing Limited Partners who subscribe for additional interests in the
Partnership and transferees of 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.
MANAGER'S INVESTMENT IN THE PARTNERSHIP
The Manager, in its capacity as General Partner, is required by the
Partnership Agreement to contribute amounts to the Partnership sufficient to
maintain its capital account balance at a level, if any, necessary to ensure
that the Partnership will be treated as a partnership for Federal income tax
purposes.
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 the interest
or portion thereof. No public market exists for interests in the Partnership,
and none is expected to develop. Consequently, investors may not be able to
liquidate their investment other than as a result of repurchases of interests by
the Partnership, as described below.
REPURCHASES OF INTERESTS
The Directors, from time to time and in their complete and exclusive
discretion, may determine to direct the Manager to cause the Partnership to
repurchase interests or portions thereof from Partners, including the Manager,
pursuant to written tenders by Partners on such terms and conditions as the
Directors may determine. In determining whether the Partnership should
repurchase interests or portions thereof from Partners pursuant to written
tenders, the Directors will consider the recommendation of the Manager. The
Manager expects that generally, beginning in 2000, it will recommend to the
Directors that the Partnership offer to repurchase interests from Partners twice
in each year, in June and December, and also intends to recommend the making of
offers to repurchase interests effective as of September 1999 and December 1999.
The Directors also will consider the following factors, among others, 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 condition of the securities markets; and
- the anticipated tax consequences of any proposed repurchases of
interests or portions thereof.
The Directors will determine that the Partnership repurchase interests
or portions thereof from Partners pursuant to written tenders only on terms they
determine to be fair to the Partnership and to all Partners or persons holding
interests acquired from Partners, as applicable. When the Directors determine
that the Partnership will repurchase interests in the Partnership or portions
thereof, notice will be provided to each Partner describing the terms thereof,
and containing information Partners should consider in deciding whether and how
to participate in such repurchase opportunity. Partners who are deciding whether
to tender their interests or portions thereof during the period that a
repurchase offer is open may ascertain the net asset value of their interest in
the Partnership from the Manager during such period.
The Partnership Agreement provides that the Partnership shall be
dissolved if the interest of any Limited Partner that has submitted a written
request to tender its entire interest for repurchase by the Partnership has not
been repurchased within a period of two years of such request.
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 will 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 will be equal to the value of the 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 the 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 also will consist of a promissory note that bears no interest and is not
transferable (the "note") entitling the holder thereof to a contingent payment
equal to the excess, if any, of (a) the net asset value of the interests
tendered as of the expiration date, determined based on the audited financial
statements of the Partnership, over (b) the cash payment. The note would be
delivered to the tendering Partner promptly after the expiration date and would
be payable in cash promptly after completion of the audit of the financial
statements of the Partnership. The audit of the Partnership's financial
statements is expected to 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 account
containing permissible liquid assets 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 otherwise would 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 12 consecutive months or who tenders for repurchase a portion of the
interest of such Partner will be required to maintain a capital account balance
equal to the greater of (1) $250,000, or $50,000 in the case of employees of the
Manager and its affiliates, and members of their immediate families, and (2) the
amount of Incentive Allocation that would be debited from such Partner's capital
account if the date of repurchase were a date on which an Incentive Allocation
would otherwise be made.
The Partnership may repurchase an interest in the Partnership or
portion thereof of a Partner or any person acquiring an interest or portion
thereof from or through a Partner if:
- 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 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 also is entitled to tender its interest to the Partnership
in certain circumstances described in the Partnership Agreement and 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 may 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 equity owners in certain circumstances, (i)
immediately after the time of subscription, has at least $750,000 under the
management of PW Group and its affiliates or subsidiaries, (ii) at the time of
subscription, has a net worth of more than $1.5 million, or (iii) at the time of
subscription, is a Qualified Purchaser, and must be accompanied by a properly
completed subscription agreement. In addition to the foregoing, no Limited
Partner will be permitted to transfer an interest or portion thereof unless
after such transfer the balance of the capital account of the transferee, and
any Partner transferring less than its entire interest, is at least $250,000.
Any transferee meeting the eligibility requirements 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, will 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 will 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 Directors, the Manager will promptly take all
necessary actions to admit such transferee or successor to the Partnership as a
Limited Partner. Each Limited Partner and transferee is required to pay all
expenses, including attorneys' and accountants' fees, incurred by the
Partnership in connection with such transfer. If such a transferee does not meet
the investor eligibility requirements, the Partnership reserves the right to
redeem its partnership interest.
By subscribing for an interest in the Partnership, each Limited
Partner has agreed to indemnify and hold harmless the Partnership, the
Directors, 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 who has agreed to be bound by all of the terms of the Partnership
Agreement and pursuant to applicable law.
TAX ASPECTS
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 tax issues other than the
characterization of the Partnership as a partnership for Federal income tax
purposes.
This summary of certain aspects of the Federal income tax treatment of
the Partnership is based upon 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, to investors
that acquire interests in the Partnership other than for cash 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
Memorandum regarding liquidity and other financial matters to ascertain whether
the investment objective of the Partnership is consistent with their overall
investment plans. Each prospective tax-exempt Limited Partner is urged to
consult its own counsel regarding the acquisition of Partnership interests.
TAX TREATMENT OF PARTNERSHIP OPERATIONS
CLASSIFICATION OF THE PARTNERSHIP. The Partnership has received an
opinion of Stroock & Stroock & Lavan LLP, counsel to the Partnership, that under
the provisions of the Code and the Regulations, as in effect on the date of the
opinion, 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 concerning the
classification of partnerships as publicly traded partnerships provide certain
safe harbors under which interests in a partnership will not be considered
readily tradable on a secondary market, or the substantial equivalent thereof.
The Partnership will not be eligible for any of those safe harbors. In
particular, it will not qualify under the private placement safe harbor set
forth in the Regulations if, as is anticipated, the Partnership has more than
100 Partners.
The Regulations specifically provide that the fact that a partnership
does not qualify for the safe harbors is disregarded for purposes of determining
whether interests in a partnership are readily tradable on a secondary market,
or the substantial equivalent thereof. Rather, in this event the partnership's
status is examined under a general facts and circumstances test set forth in the
Regulations. Counsel to the Partnership 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, interests in the Partnership will not be readily
tradable on a secondary market, or the substantial equivalent thereof, and,
therefore, the Partnership will not be treated as a publicly traded partnership
taxable as a corporation.
Neither of the opinions of counsel described above, however, 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 Partnership interests, would be treated as
dividend income when received by the Partners to the extent of the Partnership's
current or accumulated earnings and profits; 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 and 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.
Under the Partnership Agreement, the Manager has the discretion to
allocate specially an amount of the Partnership's net capital gains, including
short-term capital gain, for Federal income tax purposes 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 makes such a special allocation, 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.
A Limited Partner admitted to the Partnership other than as of January
1 of a fiscal year will be allocated its distributive share of Partnership tax
items at the end of its year of admission based on its pro rata share of the
Partnership's capital. Such allocation does not account for the possibility of a
subsequent reallocation in the following year to the Manager in respect of the
initial Incentive Allocation. The Manager, in its discretion, may attempt to
minimize any negative tax consequences which may result to a Partner from the
foregoing, including by utilizing special allocations of Partnership tax items.
However, there is no assurance that any such attempt will successfully minimize
any negative tax consequence resulting to a Partner from the initial Incentive
Allocation.
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. As a result of the complexity and added expense of the tax
accounting required to implement such an election, the Manager does not
presently intend to make such 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 LIMITED PARTNER
A Limited Partner receiving a cash liquidating distribution from the
Partnership, in connection with a complete withdrawal from the Partnership
generally will recognize capital gain or loss to the extent of the difference
between the proceeds received by such Limited Partner and such Limited Partner's
adjusted tax basis in its partnership interest. Such capital gain or loss will
be short-term or long-term depending upon the Limited Partner's holding period
for its interest in the Partnership. However, a withdrawing Limited Partner will
recognize ordinary income to the extent such Limited Partner's allocable share
of the Partnership's "unrealized receivables" exceeds the Limited 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 the withdrawing Limited Partner. A Limited Partner receiving a cash
nonliquidating distribution will recognize income in a similar manner only to
the extent that the amount of the distribution exceeds such Limited 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 capital gain, including
short-term capital gain, 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 capital gain, 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
- ----------------------------
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.
<PAGE>
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.
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 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. See "Currency Fluctuations--'Section 988' Gains or Losses" below
and certain other transactions described below.
These capital gains and losses may be long-term or short-term
depending, in general, upon the length of time the Partnership maintains a
particular investment position and, in some cases, upon the nature of the
transaction. Property held for more than one year generally will be eligible for
long-term capital gain or loss treatment. The application of certain rules
relating to short sales, to so-called "straddle" and "wash sale" transactions
and to "Section 1256 contracts" may serve to alter the manner in which the
Partnership's holding period for a security is determined or may otherwise
affect the characterization as long-term or short-term, and also the timing of
the realization, of certain gains or losses. Moreover, the straddle rules and
short sale rules may require the capitalization of certain related expenses of
the Partnership.
The maximum ordinary income tax rate for individuals is 39.6%, and the
maximum individual income tax rate for long-term capital gains is 20%, unless
the taxpayer elects to be taxed at ordinary rates, although in any case the
actual rate may be higher due to the phase out of certain tax deductions and
exemptions. See "Limitation on Deductibility of Interest" below. 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 accruals of 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. The Partnership may realize
ordinary income or loss with respect to its investments in partnerships engaged
in a trade or business. 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
- ------------------
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.
<PAGE>
CURRENCY FLUCTUATIONS--"SECTION 988" GAINS OR LOSSES. To the extent
that its investments are made in securities denominated in a foreign currency,
gain or loss realized by the Partnership frequently will be affected by the
fluctuation in the value of such foreign currencies relative to the value of the
dollar. Generally, gains or losses with respect to the Partnership's investments
in common stock of foreign issuers will be taxed as capital gains or losses at
the time of the disposition of such stock. However, under Section 988 of the
Code, gains and losses of the Partnership on the acquisition and disposition of
foreign currency (e.g., the purchase of foreign currency and subsequent use of
the currency to acquire stock) will be treated as ordinary income or loss.
Moreover, under Section 988, gains or losses on disposition of debt securities
denominated in a foreign currency to the extent attributable to fluctuation in
the value of the foreign currency between the date of acquisition of the debt
security and the date of disposition will be treated as ordinary income or loss.
Similarly, gains or losses attributable to fluctuations in exchange rates that
occur between the time the Partnership accrues interest or other receivables or
accrues expenses or other liabilities denominated in a foreign currency and the
time the Partnership actually collects such receivables or pays such liabilities
may be treated as ordinary income or ordinary loss.
The Partnership may acquire foreign currency forward contracts. See
"TYPES OF INVESTMENTS AND RELATED RISK FACTORS--Foreign Currency Transactions."
Generally, any gain or loss realized by the Partnership with respect to any
forward currency contracts 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.
Under these rules, Section 1256 Contracts, which include certain foreign
currency forward contracts and certain options 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.
<PAGE>
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.
Under recent legislation, the long-term portion of capital gains and losses
arising from such Section 1256 Contracts will be taken into account by an
individual at the 20% capital gains tax rate. Gains and losses from certain
foreign currency transactions will be treated as ordinary income and losses. See
"Currency Fluctuations--'Section 988' Gains or Losses." If an individual
taxpayer incurs a net capital loss for a year, the portion thereof, if any,
which consists of a net loss on "Section 1256 Contracts" may, at the election of
the taxpayer, be carried back three years. Losses so carried back may be
deducted only against net capital gain to the extent that such gain includes
gains on "Section 1256 Contracts."
MIXED STRADDLE ELECTION. The Code allows a taxpayer to elect to offset
gains and losses from positions which are part of a "mixed straddle." A "mixed
straddle" is any straddle in which one or more but not all positions are Section
1256 Contracts.
Pursuant to Temporary Regulations, the Partnership may be eligible to
elect to establish one or more mixed straddle accounts for certain of its mixed
straddle trading positions. The mixed straddle account rules require a daily
"marking to market" of all open positions in the account and a daily netting of
gains and losses from positions in the account. At the end of a taxable year,
the annual net gains or losses from the mixed straddle account are recognized
for tax purposes. The application of the Temporary Regulations' mixed straddle
account rules is not entirely clear. Therefore, there is no assurance that a
mixed straddle account election by the Partnership will be accepted by the
Service.
SHORT SALES. Gain or loss from a short sale of property is generally
considered as capital gain or loss to the extent the property used to close the
short sale constitutes a capital asset in the Partnership's hands. Except with
respect to certain situations where the property used by the Partnership to
close a short sale has a long-term holding period on the date of the short sale,
special rules would generally treat the gains on short sales as short-term
capital gains. These rules may also terminate the running of the holding period
of "substantially identical property" held by the Partnership. Moreover, a loss
on a short sale will be treated as a long-term capital loss if, on the date of
the short sale, "substantially identical property" has been held by the
Partnership for more than one year.
The Taxpayer Relief Act of 1997 included constructive sale provisions
that generally will apply if the Partnership either holds an appreciated
financial position with respect to stock, certain debt obligations, or
partnership interests and then enters into a short sale respecting the same or
substantially identical property or holds an appreciated financial position that
is a short sale and then acquires property that is the same as or substantially
identical to the underlying property. In each instance, with certain exceptions,
the Partnership generally will recognize gain as if the appreciated financial
position were sold at its fair market value on the date the Partnership enters
into the short sale or acquires the property, respectively. The holding period
for any appreciated financial position that is subject to the constructive sale
rules will be determined as if such position were acquired on the date of the
constructive sale.
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.
DEDUCTIBILITY OF PARTNERSHIP INVESTMENT EXPENDITURES BY NONCORPORATE
PARTNERS. Investment expenses (e.g., investment advisory fees) of an individual,
trust and 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
1998, $124,500 or $62,250 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.
- -------------------------
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 advisers as to
the applicability of this case to the investment expenses that are
allocated to them.
<PAGE>
Pursuant to Temporary Regulations issued by the Treasury Department,
these limitations on deductibility will apply to a noncorporate Limited
Partner's share of the expenses of the Partnership, including the Fee. Although
the Partnership intends to treat 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 as an investment expense which is 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. Income or loss
attributable to investments in partnerships engaged in a trade or business may
constitute passive activity income or loss.
"PHANTOM INCOME" FROM PARTNERSHIP INVESTMENTS. Pursuant to various
"anti-deferral" provisions of the Code (the "Subpart F," "passive foreign
investment company" and "foreign personal holding company" provisions),
investments, if any, by the Partnership in certain foreign corporations may
cause a Limited Partner to (i) recognize taxable income prior to the
Partnership's receipt of distributable proceeds, (ii) pay an interest charge on
receipts that are deemed as having been deferred or (iii) recognize ordinary
income that, but for the "anti-deferral" provisions, would have been treated as
long-term capital gain.
FOREIGN TAXES
It is possible that certain dividends and interest received by the
Partnership from sources within foreign countries will be subject to withholding
taxes imposed by such countries. In addition, the Partnership may also be
subject to capital gains taxes in some of the foreign countries where it
purchases and sells securities. Tax treaties between certain countries and the
United States may reduce or eliminate such taxes. It is impossible to predict
the rate of foreign tax the Partnership will pay in advance since the amount of
the Partnership's assets to be invested in various countries is not known.
The Partnership will inform Partners of their proportionate share of
the foreign taxes paid or incurred by the Partnership that Partners will be
required to include in their income. The Partners generally will be entitled to
claim either a credit, subject to the limitations discussed below, and provided
that, in the case of dividends, the foreign stock is held for the requisite
holding period, 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.
Generally, a credit for foreign taxes is subject to the limitation
that it may not exceed the Partner's Federal tax, before the credit,
attributable to its total foreign source taxable income. A Partner's share of
the Partnership's dividends and interest from non-U.S. securities generally will
qualify as foreign source income. Generally, the source of income realized upon
the sale of personal property, such as securities, will be based on the
residence of the seller. In the case of a partnership, the determining factor is
the residence of the partner. Thus, absent a tax treaty to the contrary, the
gains from the sale of securities allocable to a Partner that is a U.S. resident
will be treated as derived from U.S. sources, even though the securities are
sold in foreign countries. However, proposed regulations would generally provide
that certain securities losses realized by U.S. residents would be
recharacterized as foreign source to the extent of certain dividends and other
deemed inclusions of income taken into account by that U.S. resident in respect
of the shares during the two-year period ending on the date of the sale. Certain
currency fluctuation gains, including fluctuation gains from foreign currency
denominated debt securities, receivables and payables, will also be treated as
ordinary income derived from U.S. sources.
The limitation on the foreign tax credit is applied separately to
foreign source passive income, such as dividends and interest. In addition, the
foreign tax credit is allowed to offset only 90% of the alternative minimum tax
imposed on corporations and individuals.
Furthermore, for foreign tax credit limitation purposes, the amount of
a Partner's foreign source income is reduced by various deductions that are
allocated and/or apportioned to such foreign source income. One such deduction
is interest expense, a portion of which generally will reduce the foreign source
income of any Partner who owns (directly or indirectly) foreign assets. For
these purposes, foreign assets owned by the Partnership will be treated as owned
by the investors in the Partnership and indebtedness incurred by the Partnership
will be treated as incurred by investors in the Partnership. Because of these
limitations, Partners may be unable to claim a credit for the full amount of
their proportionate share of the foreign taxes paid by the Partnership. The
foregoing is only a general description of the foreign tax credit under current
law. Moreover, since the availability of a credit or deduction depends on the
particular circumstances of each Partner, Partners are advised to consult their
own tax advisers.
UNRELATED BUSINESS TAXABLE INCOME
Generally, an exempt organization is exempt from Federal income tax on
its passive investment income, such as dividends, interest and capital gains,
whether realized by the organization directly or indirectly through a
partnership in which it is a partner.4
- -------------------------
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.
<PAGE>
This general exemption from tax does not apply to the UBTI of an
exempt organization. Generally, except as noted above with respect to certain
categories of exempt trading activity, UBTI includes income or gain derived,
either directly or through partnerships, from a trade or business, the conduct
of which is substantially unrelated to the exercise or performance of the
organization's exempt purpose or function. UBTI also 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 12-month
period ending with the date of such disposition. With respect to its investments
in partnerships engaged in a trade or business, the Partnership's income, or
loss, from these investments may constitute UBTI.
The Partnership may incur "acquisition indebtedness" with respect to
certain of its transactions, such as the purchase of securities on margin. Based
upon a published ruling issued by the Service which generally holds that income
and gain with respect to short sales of publicly traded stock does not
constitute income from debt financed property for purposes of computing UBTI,
the Partnership will treat its short sales of securities as not involving
"acquisition indebtedness" and therefore not resulting in UBTI.5 To the extent
the Partnership recognizes income (i.e., dividends and interest) from securities
with respect to which there is "acquisition indebtedness" during a taxable year,
the percentage of such income which will be treated as UBTI generally will be
based on the percentage which the "average acquisition indebtedness" incurred
with respect to such securities is of the "average amount of the adjusted basis"
of such securities during the taxable year.
To the extent the Partnership recognizes capital gain from securities
with respect to which there is "acquisition indebtedness" at any time during the
twelve-month period ending with the date of their disposition, the percentage of
such gain which will be treated as UBTI will be based on the percentage which
the highest amount of such "acquisition indebtedness" is of the "average amount
of the adjusted basis" of such securities during the taxable year. In
determining the unrelated debt-financed income of the Partnership, an allocable
portion of deductions directly 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.
- -------------------------
5 Income realized from option writing transactions generally would not
constitute UBTI.
<PAGE>
Since the calculation of the Partnership's "unrelated
debt-financed income" is complex and will depend in large part on the amount of
leverage, if any, 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, if any, of its income and gains from
the Partnership for each year which will be treated as UBTI. The calculation of
such amount with respect to transactions entered into by the Partnership is
highly complex, and there is no assurance that the Partnership's calculation of
UBTI will be accepted by the Service.
In general, if UBTI is allocated to an exempt organization such as a
qualified retirement plan or a private foundation, the portion of the
Partnership's income and gains which is not treated as UBTI will continue to be
exempt from tax, as will the organization's income and gains from other
investments which are not treated as UBTI. Therefore, the possibility of
realizing UBTI from its investment in the Partnership generally should not
- -------------------------
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 its UBTI.
<PAGE>
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.
- ----------------------
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.
<PAGE>
In some instances, an investment in the Partnership by a private
foundation may be prohibited by the "excess business holdings" provisions of the
Code. For example, if a private foundation, either directly or together with a
"disqualified person," acquires more than 20% of the capital interest or profits
interest of the Partnership, the private foundation may be considered to have
"excess business holdings." If this occurs, such foundation may be required to
divest itself of its interest in the Partnership in order to avoid the
imposition of an excise tax. However, the excise tax will not apply if at least
95% of the gross income from the Partnership is "passive" within the applicable
provisions of the Code and Regulations. Although there can be no assurance, the
Manager believes that the Partnership will meet this 95% gross income test.
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 ("IRAs") 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 Funds Act,
which has been adopted, in various forms, by a large number of states,
participation in investment partnerships or similar organizations in which funds
are commingled and investment determinations are made by persons other than the
governing board of the endowment fund is allowed.
STATE AND LOCAL TAXATION
In addition to the Federal income tax consequences described above,
prospective investors should consider potential state and local tax consequences
of an investment in the Partnership. State and local laws often differ from
Federal income tax laws with respect to the treatment of specific items of
income, gain, loss, deduction and credit. A Partner's distributive share of the
taxable income or loss of the Partnership generally will be required to be
included in determining its reportable income for state and local tax purposes
in the jurisdiction in which it is a resident.
A partnership in which the Partnership acquires an interest may
conduct business in a jurisdiction which will subject to tax a Limited Partner's
share of the Partnership's income from that business. Prospective investors
should consult their tax advisers with respect to the availability of a credit
for such tax in the jurisdiction in which that Limited Partner 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." (This exemption may not be
applicable if a partnership in which the Partnership invests conducts a business
in New York City.) 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 or her
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. This limitation would likely apply to a
Limited Partner's share of some or all of the Partnership's expenses.
Prospective investors are urged to consult their tax advisers with respect to
the impact of these provisions and the Federal limitations on the deductibility
of certain itemized deductions and investment expenses on their New York State
and New York City tax liability.
For purposes of the New York State corporate franchise tax and the New
York City general corporation tax, a corporation generally is treated as doing
business in New York State and New York City, respectively, and is subject to
such corporate taxes as a result of the ownership of a limited partnership
interest in a partnership which does business in New York State and New York
City, respectively.8 Each of the New York State and New York City corporate
taxes are imposed, in part, on the corporation's taxable income or capital
allocable to the relevant jurisdiction by application of the appropriate
allocation percentages. Moreover, a 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.
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.
- ---------------------
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.
<PAGE>
ERISA CONSIDERATIONS
Persons who are fiduciaries with respect to an employee benefit plan
or other arrangement subject to the Employee Retirement Income Security Act of
1974, as amended (an "ERISA Plan" and "ERISA," respectively), and persons who
are fiduciaries with respect to an IRA or Keogh plan, which is not subject to
ERISA but is subject to the prohibited transaction rules of Section 4975 of the
Code (together with ERISA Plans, "Benefit Plans") 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, an obligation not to engage in a 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 "TAX
ASPECTS--Unrelated Business Taxable Income" and "--Certain Issues Pertaining to
Specific Exempt Organizations") and the projected return of the total portfolio
relative to the ERISA Plan's funding objectives. Before investing the assets of
an ERISA Plan in the Partnership, a fiduciary should determine whether such an
investment is consistent with its fiduciary responsibilities and the foregoing
regulations. For example, a fiduciary should consider whether an investment in
the Partnership may be too illiquid or too speculative for a particular ERISA
Plan, and whether the assets of the ERISA Plan would be sufficiently
diversified. If a fiduciary with respect to any such ERISA Plan breaches its or
his responsibilities with regard to selecting an investment or an investment
course of action for such ERISA Plan, the fiduciary itself or himself may be
held 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 (or the Code's) fiduciary responsibility and prohibited transaction
rules. Thus, the Manager will not be a fiduciary within the meaning of ERISA by
reason of its authority with respect to the Partnership.
The Manager will require a Benefit Plan which proposes to invest in
the Partnership to represent that it, and any fiduciaries responsible for such
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 Benefit Plan and is consistent with the duties and
responsibilities imposed upon fiduciaries with regard to their investment
decisions under ERISA and/or the Code.
Certain prospective Benefit Plan investors may currently maintain
relationships with the Manager or other entities which are affiliated with the
Manager. Each of such persons may be deemed to be a party in interest to and/or
a fiduciary of any Benefit Plan to which it provides investment management,
investment advisory or other services. ERISA prohibits (and the Code penalizes)
the use of ERISA and Benefit Plan assets for the benefit of a party in interest
and also prohibits (or penalizes) an ERISA or Benefit Plan fiduciary from using
its position to cause such 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 and Benefit Plan investors should consult with
counsel to determine if participation in the Partnership is a transaction which
is prohibited by ERISA or the Code. Fiduciaries of ERISA or Benefit Plan
investors 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 such fiduciaries are duly authorized to make such
investment decision and that they 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 and the Code are subject to extensive and
continuing administrative and judicial interpretation and review. The discussion
of ERISA and the Code contained in this Memorandum is general and may be
affected by future publication of regulations and rulings. Potential Benefit
Plan investors should consult their legal advisers regarding the consequences
under ERISA and the Code of the acquisition and ownership of interests.
ADDITIONAL INFORMATION AND SUMMARY OF
LIMITED PARTNERSHIP AGREEMENT
The following is a summary description of additional items and of
select provisions of the Partnership Agreement which are not described elsewhere
in this Memorandum. The description of such items and provisions is not
definitive and reference should be made to the complete text of the Partnership
Agreement contained in Appendix A.
LIABILITY OF LIMITED PARTNERS
Pursuant to applicable Delaware law, Limited Partners generally are
not 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 make certain other payments provided for in
the Partnership Agreement and to return to the Partnership amounts wrongfully
distributed to him.
DUTY OF CARE OF THE GENERAL PARTNER
The Partnership Agreement provides that the 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 the General
Partner's services as General Partner in the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of the General Partner's office. The Partnership Agreement also contains
provisions for the indemnification, to the extent permitted by law, of the
General Partner by the Partnership, but not by the Limited Partners
individually, against any liability and expense to which the General Partner may
be liable as General Partner which arise in connection with the performance of
its activities on behalf of the Partnership. The General Partner will not be
personally liable to any Limited Partner for the repayment of any positive
balance in such Limited Partner's capital account or for contributions by such
Limited Partner to the capital of the Partnership or by reason of any change in
the Federal or state income tax laws applicable to the Partnership or its
investors. The rights of indemnification and exculpation provided under the
Partnership Agreement do not provide for indemnification of the 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.
AMENDMENT OF THE PARTNERSHIP AGREEMENT
The Partnership Agreement may be amended with the approval of (i) the
Directors, including a majority of the Independent Directors, if required by the
1940 Act, (ii) the Manager or (iii) a majority, as defined in the 1940 Act, of
the outstanding voting securities of the Partnership. Certain amendments
involving capital accounts and allocations thereto may not be made without the
consent of any Partners 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 (i) reflect any change in the Partners or their
respective capital contributions, (ii) restate the Partnership Agreement, (iii)
effect compliance with any applicable law or regulation, or (iv) make such
changes as may be necessary to assure the Partnership's continuing eligibility
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 to the
requirement that any amendment of the Partnership Agreement made pursuant to
items (iii) or (iv) above must be approved by the Directors.
POWER OF ATTORNEY
By subscribing for an interest in the Partnership, each Partner will
appoint the Manager and each of the Directors his or her attorney-in-fact for
purposes of filing required certificates and documents relating to the formation
and continuance 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 in the Partnership Agreement is a
special power-of-attorney coupled with an interest in favor of the Manager and
each of the Directors and as such is irrevocable and continues in effect until
all of such Partner's interest in the Partnership has been withdrawn pursuant to
a periodic tender or transferred to one or more transferees that have been
approved by the Manager for admission to the Partnership as substitute Partners.
TERM, DISSOLUTION AND LIQUIDATION
The Partnership will be dissolved:
- upon the affirmative vote to dissolve the Partnership by both (1)
the Directors and (2) Partners holding at least two-thirds 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 a
general partner of the Partnership (other than as a result of a
transfer as provided in the Partnership Agreement), unless (A) as
to clause (2) above, there is at least one other general partner
of the Partnership who is authorized to and does carry on the
business of the Partnership, and (B) as to either event both the
Directors and Partners holding not less than two-thirds 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 a person to be admitted to the Partnership,
effective as of the date of such event, as an additional General
Partner has agreed to make such contributions to the capital of
the Partnership as are required to be made in the Partnership
Agreement;
- upon the expiration of any two-year period which commences on the
date on which any Limited Partner has submitted to the
Partnership a written request, in accordance with the Partnership
Agreement, to tender its entire interest for repurchase by the
Partnership if such Limited Partner's interest has not been
repurchased during such period;
- upon the failure of Partners to elect successor Directors at a
meeting called by the Manager when no Director remains; or
- as required by operation of law.
Upon the occurrence of any event of dissolution, the General Partner,
or a liquidator, if the General Partner is unable to perform this function, is
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
ACCOUNTS AND ALLOCATIONS--Allocation of Net Profits and Net Losses."
Upon the dissolution 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 satisfy 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 Partner or liquidator determines that such a distribution
would be in the interests of the Partners in facilitating an orderly
liquidation.
REPORTS TO PARTNERS
The Partnership will furnish to Partners as soon as practicable after
the end of each taxable year such information as is necessary for such Partners
to complete Federal and state income tax or information returns, along with any
other tax information required by law. The Partnership will send to Partners a
semi-annual and an audited annual report within 60 days after the close of the
period for which it is being made, or as otherwise required by the 1940 Act.
Quarterly reports from the Manager regarding the Partnership's operations during
such period will also be sent to Partners.
FISCAL YEAR
The Partnership's fiscal year ends on December 31st.
ACCOUNTANTS AND LEGAL COUNSEL
Ernst & Young LLP serves as the independent public accountants of the
Partnership. Its principal business address is located at 787 Seventh Avenue,
New York, New York 10019.
Stroock & Stroock & Lavan LLP, New York, New York, acts as legal
counsel to the Partnership.
Schulte Roth & Zabel LLP, New York, New York, acts as legal counsel to
the Manager.
CUSTODIAN
PNC Bank, N.A. (the "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 Directors. 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. The Custodian's principal business address is Airport
Business Center, International Court 2, 200 Stevens Drive, Lester, Pennsylvania
19113.
INQUIRIES
Inquiries concerning the Partnership and interests in the Partnership,
including information concerning subscription and withdrawal procedures, should
be directed to:
Congress Street Management, L.L.C.
c/o PaineWebber Incorporated
Alternative Investment Group
1285 Avenue of the Americas
New York, New York 10019
Telephone: (800) 486-2608
Telecopier: (212) 713-1498
For additional information contact:
Robert Discolo, Vice President
* * * * *
All potential investors in the Partnership are encouraged to consult
appropriate legal and tax counsel.
<PAGE>
APPENDIX A
CONGRESS STREET ASSOCIATES, L.P.
AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT
THIS AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT of Congress
Street Associates, L.P. (the "Partnership") is dated as of July 16, 1998 by and
among Congress Street Management, L.L.C., a Delaware limited liability company,
as the General Partner and Mark F. Vassallo as the Organizational Limited
Partner and each person hereinafter admitted to the Partnership and reflected on
the books of the Partnership as a General Partner or as a Limited Partner.
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, 6 Del.
C. ss.ss. 17-101 ET SEQ., pursuant to an initial Certificate of Limited
Partnership (the "Certificate") dated as of June 5, 1998 and filed with the
Secretary of State of the State of Delaware on June 5, 1998 and pursuant to an
agreement of limited partnership of the Partnership, dated as of June 5, 1998
(the "Original Partnership Agreement"), between the General Partner and the
Organizational Limited Partner;
WHEREAS, the parties hereto hereby agree to continue the Partnership
as a limited partnership under and pursuant to the provision of the Delaware Act
and agree that the rights, duties and liabilities of the Partners shall be as
provided in the Delaware Act, except as otherwise provided herein; and
WHEREAS, the Original Partnership Agreement hereby is being amended
and restated by the Partners to set forth in its entirety the terms and
conditions of the agreement of the Partners with respect to the operation of the
Partnership;
NOW, THEREFORE, for and in consideration of the foregoing and the
mutual covenants hereinafter set forth, it is hereby agreed as follows:
-----------------------------------------
ARTICLE I
DEFINITIONS
-----------------------------------------
For purposes of this Agreement:
ADVICE AND MANAGEMENT means those services provided to the Partnership
by the Manager pursuant to Section 3.4(b) hereof.
ADVISERS ACT means the Investment Advisers Act of 1940 and the rules,
regulations and orders thereunder, as amended from time to time, or any
successor law.
AFFILIATE means affiliated person as such term is defined in the 1940
Act.
AGREEMENT means this Amended and Restated Limited Partnership
Agreement, as amended and/or restated from time to time.
ALLOCATION CHANGE means, with respect to each Limited Partner for each
Allocation Period, the difference between:
(1) the sum of (a) the balance of such Limited Partner's Capital
Account as of the close of the Allocation Period (after
giving effect to all allocations to be made to such Limited
Partner's Capital Account as of such date other than any
Incentive Allocation to be debited against such Limited
Partner's Capital Account), plus (b) any debits to such
Limited Partner's Capital Account during the Allocation
Period to reflect any actual or deemed distributions or
repurchases with respect to such Limited Partner's Interest,
plus (c) any debits to such Limited Partner's Capital
Account during the Allocation Period to reflect any
Insurance premiums allocable to such Limited Partner, plus
(d) any debits to such Limited Partner's Capital Account
during the Allocation Period to reflect any items allocable
to such Limited Partner's Capital Account pursuant to
Section 5.6 hereof other than Management Fees; and
(2) the sum of (a) the balance of such Limited Partner's Capital
Account as of the commencement of the Allocation Period,
plus (b) any credits to such Limited Partner's Capital
Account during the Allocation Period to reflect any
contributions by such Limited Partner to the capital of the
Partnership, plus (c) any credits to such Limited Partner's
Capital Account during the Allocation Period to reflect any
Insurance proceeds allocable to such Limited Partner.
If the amount specified in clause (1) exceeds the amount
specified in clause (2), such difference shall be a POSITIVE
ALLOCATION CHANGE, and if the amount specified in clause (2) exceeds
the amount specified in clause (1), such difference shall be a
NEGATIVE ALLOCATION CHANGE.
If an Allocation Period is less than 12 complete calendar months
(an "Incomplete Allocation Period"), then solely for purposes of
determining the Incentive Allocation, the Positive Allocation Change
shall be measured from the beginning of the last preceding Allocation
Period that commenced at least 12 complete calendar months prior to
the end of the Incomplete Allocation Period (disregarding all
Incentive Allocations made from the Limited Partner since such last
preceding Allocation Period) through the end of the Incomplete
Allocation Period, less the Positive Allocation Change for such prior
Allocation Period.
ALLOCATION PERIOD means, 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 (or portion
thereof) of such Limited Partner has been Transferred
(unless there is no change of beneficial ownership); and
(4) the day as of which the authority of the Manager to provide
Advice and Management is terminated pursuant to Section
3.4(a) hereof or the Manager ceases to be a general partner
of the Partnership.
CAPITAL ACCOUNT means, with respect to each Partner, the capital
account established and maintained on behalf of each Partner pursuant to Section
5.3 hereof.
CAPITAL CONTRIBUTION means the contribution, if any, made, or to be
made, as the context requires, to the capital of the Partnership by a Partner.
CERTIFICATE means the Certificate of Limited Partnership of the
Partnership and any amendments thereto and/or restatements thereof as filed with
the office of the Secretary of State of the State of Delaware.
CLOSING DATE means the first date on or as of which a Limited Partner
other than the Organizational Limited Partner is admitted to the Partnership.
CODE means the United States Internal Revenue Code of 1986, as amended
and as hereafter amended from time to time, or any successor law.
DELAWARE ACT means 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.
DIRECTORS means those natural persons listed on Schedule II hereto as
Directors and such other natural persons who, from time to time, pursuant hereto
shall become Directors.
FISCAL PERIOD means 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;
(3) the day as of which the Partnership repurchases any Interest
or portion of an Interest of any Partner; or
(4) 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 means the period commencing on the Closing Date and ending
on December 31, 1998, 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 Directors shall
designate another fiscal year for the Partnership that is a permissible taxable
year under the Code.
FORM N-2 means the Partnership's Registration Statement on Form N-2
filed with the Securities and Exchange Commission, as amended from time to time.
GENERAL PARTNERS means Congress Street Management, L.L.C. and any
other person or persons admitted to the Partnership as a general partner of the
Partnership, collectively, in their capacities as general partners of the
Partnership, and GENERAL PARTNER means any of the General Partners. Where the
term General Partners is used and there is only one General Partner, such term
shall refer to the sole General Partner. If at any time there is more than one
general partner of the Partnership, unless otherwise provided herein, any action
allowed to be taken, or required to be taken, by the General Partners may be
taken only with the unanimous approval of all of the General Partners.
INCENTIVE ALLOCATION means, with respect to any Limited Partner, 20%
of the amount, determined as of the close of each Allocation Period with respect
to such Limited Partner, by which such Limited Partner's Positive Allocation
Change for such Allocation Period, if any, exceeds any positive balance in such
Limited Partner's Loss Recovery Account as of the most recent prior date as of
which any adjustment has been made thereto.
INDEPENDENT DIRECTORS means those Directors who are not "interested
persons" of the Partnership as such term is defined in the 1940 Act.
INSURANCE means one or more "key man" insurance policies on the life
of any principal of a member of the Manager, the benefits of which are payable
to the Partnership.
INTEREST means 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 Section 4.3 or 4.4 hereof, including
the rights and obligations of such Partner or other person under this Agreement
and the Delaware Act.
LIMITED PARTNER means any person who shall have been admitted to the
Partnership as a limited partner (including any person who is a General Partner
when acting in such person's capacity as a limited partner of the Partnership)
until the Partnership repurchases the entire Interest of such person as a
limited partner pursuant to Section 4.5 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 4.4 hereof, in such person's capacity as a
limited partner of the Partnership.
LOSS RECOVERY ACCOUNT means 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.
MANAGEMENT FEE means the fee paid to PWFA out of the Partnership's
assets, and debited against Limited Partners' Capital Accounts, for PWFA
Services.
MANAGER means Congress Street Management, L.L.C., or any other person
selected by the Directors as the Manager, in its capacity as an agent of the
Directors and a subagent of the General Partners.
NEGATIVE ALLOCATION CHANGE has the meaning given such term in the
definition of Allocation Change.
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.
NET PROFIT OR NET LOSS means 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 reflect:
(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 means 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 means the Securities Exchange Act of 1934 and the rules,
regulations and orders thereunder, as amended from time to time, or any
successor law.
ORGANIZATIONAL LIMITED PARTNER means Mark F. Vassallo.
PARTNERS means the General Partners and the Limited Partners,
collectively.
PARTNERSHIP means the limited partnership governed hereby, as such
limited partnership may from time to time be constituted.
PARTNERSHIP PERCENTAGE means a percentage established for each Partner
on the 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%.
PERSON means any individual, entity, corporation, partnership,
association, limited liability company, joint-stock company, trust, estate,
joint venture, organization or unincorporated organization.
POSITIVE ALLOCATION CHANGE has the meaning given such term in the
definition of Allocation Change.
PWFA means PW Fund Advisor, L.L.C., or any successor thereto.
PWFA SERVICES means such management and administrative services as
PWFA or its affiliates shall provide to the Partnership pursuant to a separate
written agreement with the Partnership as contemplated by Section 3.10(a)
hereof.
RELATED PERSON means, 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 means securities (including, without limitation, equities,
debt obligations, options, and other "securities" as that term is defined in
Section 2(a)(36) of the 1940 Act) and any contracts for forward or future
delivery of any security, debt obligation, currency or commodity, all manner of
derivative instruments and any contracts based on any index or group of
securities, debt obligations, currencies or commodities, and any options
thereon.
TRANSFER means the assignment, transfer, sale or other disposition of
all or any portion of an Interest, including any right to receive any
allocations and distributions attributable to an Interest.
<PAGE>
-----------------------------------------
ARTICLE II
ORGANIZATION; ADMISSION OF PARTNERS; DIRECTORS
-----------------------------------------
2.1 CONTINUATION OF LIMITED PARTNERSHIP.
The parties hereto hereby continue the Partnership as a limited
partnership under and pursuant to the provisions of the Delaware Act and agree
that the rights, duties and liabilities of the Partners shall be as provided in
the Delaware Act, except as otherwise provided herein. 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. Each person listed on the date hereof as a Limited
Partner on the books of the Partnership shall be admitted to the Partnership as
a limited partner of the Partnership upon the execution and delivery by or on
behalf of such person and the General Partner of a counterpart of this
Agreement. The person listed on the date hereof as the General Partner on the
books of the Partnership shall continue as a general partner of the Partnership
upon the execution and delivery by or on behalf of such person of a counterpart
of this Agreement.
2.2 NAME.
The name of the Partnership shall be "Congress Street Associates,
L.P." or such other name as the General Partners hereafter may adopt 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 General Partner, or at such other place designated from time to
time by the General Partners.
The Partnership shall have its registered office in the State of
Delaware at 1013 Center Road, Wilmington, New Castle County, Delaware
19805-1297, and shall have Corporation Service Company as its registered agent
for service of process in the State of Delaware, unless a different registered
office or agent is designated from time to time by the General Partners in
accordance with the Delaware Act.
2.4 DURATION.
The term of the Partnership commenced on the filing of the Certificate
with the Secretary of State of the State of Delaware and shall continue until
the Partnership is dissolved pursuant to Section 6.1 hereof.
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 the General
Partners may deem necessary or advisable to carry out its objective or business.
(b) The Partnership shall operate as a closed-end, 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) The General Partners may admit to the Partnership any person, who
shall agree to be bound by all of the terms of this Agreement as a General
Partner, as an additional General Partner. The General Partners may admit to the
Partnership as a substitute General Partner any person to which it has
Transferred its Interest as the General Partner pursuant to Section 4.3 hereof.
Such person shall be admitted immediately prior to the Transfer and shall
continue the business of the Partnership without dissolution. The names and
mailing addresses of the General Partners and the Capital Contribution of the
General Partners shall be reflected on the books of the Partnership.
(b) Each General Partner shall serve for the duration of the term of
the Partnership, unless it ceases to be a general partner of the Partnership
pursuant to Section 4.1 hereof.
2.7 LIMITED PARTNERS.
The 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 an additional Limited Partner. The General
Partners may in their absolute discretion reject subscriptions for Interests in
the Partnership. The admission of any person as an additional Limited Partner
shall be effective upon the execution and delivery by, or on behalf of, such
additional Limited Partner of this Agreement or a counterpart hereof. The
General Partners shall cause the books of the Partnership to reflect the name
and the required contribution to the capital of the Partnership of such
additional Limited Partner. For all purposes of the Delaware Act, the Limited
Partners shall constitute a single class or group of limited partners of the
Partnership.
2.8 ORGANIZATIONAL LIMITED PARTNER.
Upon the admission to the Partnership 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, and shall cease to
be a limited partner of the Partnership.
2.9 BOTH GENERAL AND LIMITED PARTNER.
A Partner may be simultaneously 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 and as provided in the Delaware Act.
2.10 LIMITED LIABILITY.
Except as provided under applicable law, a Limited Partner shall not
be liable for the Partnership's obligations in any amount in excess of the
Capital Account balance of such Partner, plus such Partner's share of
undistributed profits and assets. In addition, subject to applicable law, a
Limited Partner shall be obligated to return to the Partnership amounts
distributed to the Limited Partner in accordance with this Agreement if, after
giving effect to such distribution, the Partnership's liabilities exceed the
fair value of the Partnership's assets.
2.11 DIRECTORS.
(a) The number of Directors shall be fixed from time to time by the
Directors then in office, but, at the Closing Date, shall not be fewer than
three. The Organizational Limited Partner hereby approves the delegation by the
General Partners to the Directors, pursuant to Section 3.1 hereof, of the
General Partners' rights and powers.
(b) Each Director shall serve for the duration of the term of the
Partnership, unless his or her status as a Director shall be sooner terminated
pursuant to Section 2.11(d) hereof. If any vacancy in the position of a Director
occurs, the remaining Directors may appoint an individual to serve in such
capacity, so long as immediately after such appointment at least two-thirds of
the Directors then serving would have been approved of by the Partners. The
Directors may call a meeting of Partners to fill any vacancy in the position of
a Director, and shall do so within 60 days after any date on which Directors who
were approved of by the Partners cease to constitute a majority of the Directors
then serving.
(c) If no Director remains, the General Partners shall promptly call a
meeting of the Partners, to be held within 60 days after the date on which the
last Director 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, approving the required number of Directors. If the Partners shall
determine at such meeting not to continue the business of the Partnership or, if
the required number of Directors is not approved of within 60 days after the
date on which the last Director 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.
(d) The status of a Director shall terminate if the Director (i) shall
die; (ii) shall be adjudicated incompetent; (iii) shall resign as a Director
(upon not less than 90 days' prior written notice to the other Directors); (iv)
shall be removed; (v) shall be certified by a physician to be mentally or
physically unable to perform his or her duties hereunder; or (vi) shall be
determined to be ineligible to serve as a director of a registered investment
company pursuant to the 1940 Act.
(e) Any Director may be removed either by (a) the vote or written
consent of at least two-thirds of the Directors not subject to the removal vote
or (b) the vote or written consent of Partners holding not less than two-thirds
of the total number of votes eligible to be cast by all Partners.
-----------------------------------------
ARTICLE III
MANAGEMENT; ADVICE AND MANAGEMENT
-----------------------------------------
3.1 MANAGEMENT AND CONTROL.
(a) The General Partners hereby irrevocably delegate to the Directors,
except to the extent such delegation is not permitted under the Delaware Act and
so long as the Partnership shall have Directors, their rights and powers to
manage and control the business affairs of the Partnership, including the right
to execute documents on behalf of the Partnership and to bind the Partnership,
as well as those other rights and powers expressly given to the General Partners
under this Agreement, the complete authority to oversee and to establish
policies regarding the management, conduct and operation of the Partnership's
business, and to do all things necessary and proper to carry out the objective
and business of the Partnership, including without limitation the power to
engage the Manager to provide Advice and Management and such other rights and
powers expressly given to the Directors under this Agreement. The parties hereto
intend that, to the fullest extent permitted by law and except to the extent
otherwise expressly provided herein, (i) each Director shall be vested with the
same powers and authority on behalf of the Partnership as are customarily vested
in each director of a Delaware corporation and (ii) each Independent Director
shall be vested with the same powers and authority 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 Directors, the General Partners shall manage and control the Partnership.
Each Director shall be the agent of the General Partners but shall not, for any
purpose, be a Partner. The General Partners retain only those rights, powers and
duties that may not be delegated under the Delaware Act. The General Partners
will not cease to be the general partners of the Partnership and will continue
to be liable as such. Notwithstanding anything to the contrary contained herein,
in no event shall a Director be considered a general partner of the Partnership
by agreement, estoppel or otherwise as a result of the performance of his or her
duties hereunder or otherwise. The Directors will not contribute to the capital
of the Partnership and will not have partnership interests in the Partnership.
(b) Congress Street Management, L.L.C. 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 tax matters partner 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 DIRECTORS.
(a) Unless provided otherwise in this Agreement, the Directors shall
act only: (i) by the affirmative vote of a majority of the Directors (which
majority shall include any requisite number of Independent Directors required by
the 1940 Act) present at a meeting duly called at which a quorum of the
Directors shall be present (in person or, if in person attendance is not
required by the 1940 Act, by telephone) or (ii) by unanimous written consent of
all of the Directors without a meeting, if permissible under the 1940 Act.
(b) The Directors may designate from time to time a principal Director
(the "Principal Director"), who shall preside at all meetings. Meetings of the
Directors may be called by the Principal Director or by any two Directors, and
may be held on such date and at such time and place as the Directors shall
determine. Each Director 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 Director 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. Directors may attend and participate in any
meeting by telephone, except where in person attendance at a meeting is required
by the 1940 Act. A majority of the Directors shall constitute a quorum at any
meeting.
(c) The Directors may designate from time to time agents and employees
of the Partnership who shall have the same powers and duties on behalf of the
Partnership as are customarily vested in officers of a Delaware corporation, and
designate them as officers of the Partnership.
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 General Partners or by Partners holding at
least a majority 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 General Partners
shall determine. The General Partners 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. Except as otherwise
required by applicable law, 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 General Partners may adjourn a meeting to the
time or times as determined by the General Partners 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 Directors 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 General Partners 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 proxy may be suspended or revoked, as the case may
be, by the Partner executing the proxy by a later writing delivered to the
Partnership at any time prior to exercise of the proxy or if the Partner
executing the proxy shall be present at the meeting and decide to vote in
person. Any action of the Partners that is permitted to be taken at a meeting of
the Partners may be taken without a meeting if consents in writing, setting
forth the action to be 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 under this Agreement to approve such action.
3.4 ADVICE AND MANAGEMENT.
(a) Among their powers, the Directors shall have the power to engage
the Manager to provide Advice and Management to the Partnership under their
general supervision, subject to the initial approval thereof prior to the
Closing Date by the Directors (including the vote of a majority of the
Independent Directors at a meeting called for such purpose) and by the
Organizational Limited Partner. The Directors also delegate to the Manager the
rights and powers expressly given to the Manager under this Agreement. The
authority of the Manager granted under this Section 3.4 shall become effective
upon such initial approvals and shall terminate: (i) if any period of 12
consecutive months following the first 12 consecutive months of the
effectiveness of such authority shall conclude without the approval of the
continuation of such authority by (A) the vote of a majority (as defined in the
1940 Act) of the outstanding voting securities of the Partnership or (B) the
Directors, and in either case, approval by a majority of the Independent
Directors by vote cast in person at a meeting called for such purpose; (ii) if
revoked by the Directors 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; or (iii) at the election of the
Manager with 60 days' prior written notice to the Directors. The authority of
the Manager to provide Advice and Management pursuant to this Section 3.4 shall
automatically terminate upon the occurrence of any event in connection with the
Manager, its provision of Advice and Management, this Agreement or otherwise
constituting an "assignment" within the meaning of the 1940 Act. If the
authority of the Manager under this Section 3.4 is terminated as provided
herein, the Directors may appoint, subject to the approval thereof by a majority
of the Independent Directors and by vote of a majority (as defined in the 1940
Act) of the outstanding voting securities of the Partnership, a person or
persons to provide Advice and Management to the Partnership, and shall cause the
terms and conditions of such appointment to be stated in an agreement executed
on behalf of the Partnership and such person or persons. Notwithstanding
anything in this Agreement to the contrary, upon receiving the requisite
approval set forth in the preceding sentence, the Partnership, and the General
Partners on behalf of the Partnership, shall have the power and authority to
enter into such agreement without any further act, vote or approval of any
Partner.
(b) So long as the Manager has been and continues to be authorized to
provide Advice and Management, it shall have, subject to any policies and
restrictions set forth in any current offering memorandum issued by the
Partnership, this Agreement, the Form N-2 or the 1940 Act, or adopted from time
to time by the Directors and communicated in writing to the Manager, full
discretion and authority (i) to manage the assets and liabilities of the
Partnership and (ii) to manage the day-to-day business and affairs of the
Partnership. In furtherance of and subject to the foregoing, the Manager, except
as otherwise provided in this Agreement, shall have full power and authority on
behalf of the Partnership:
(1) to purchase, sell, exchange, trade and otherwise deal in and with
Securities and other property of the Partnership and to loan
Securities of the Partnership;
(2) to open, maintain and close accounts with brokers and dealers, to
make all decisions relating to the manner, method and timing of
Securities and other investment transactions, to select and place
orders with brokers, dealers or other financial intermediaries
for the execution, clearance or settlement of any transactions on
behalf of the Partnership on such terms as the Manager considers
appropriate, and to grant limited discretionary authorization to
such persons with respect to price, time and other terms of
investment and trading transactions;
(3) to borrow from banks or other financial institutions and to
pledge Partnership assets as collateral therefor, to trade on
margin, to exercise or refrain from exercising all rights
regarding the Partnership's investments, and to instruct
custodians regarding the settlement of transactions, the
disbursement of payments to Partners with respect to repurchases
of Interests and the payment of Partnership expenses, including
those relating to the organization and registration of the
Partnership;
(4) to issue to any Partner an instrument certifying that such
Partner is the owner of an Interest;
(5) to call and conduct meetings of Partners at the Partnership's
principal office or elsewhere as it may determine and to assist
the Directors in calling and conducting meetings of the
Directors;
(6) to engage and terminate such attorneys, accountants and other
professional advisers and consultants as the Manager may deem
necessary or advisable in connection with the affairs of the
Partnership or as may be directed by the Directors;
(7) to engage and terminate the services of others to assist the
Manager in providing, or to provide under the Manager's control
and supervision, Advice and Management to the Partnership at the
expense of the Manager;
(8) to assist in the preparation and filing of any required tax or
information returns to be made by the Partnership;
(9) as directed by the Directors, to commence, defend and conclude
any action, suit, investigation or other proceeding that pertains
to the Partnership or any assets of the Partnership;
(10) if directed by the Directors, 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 Directors or the Manager, or any of their principals,
directors, officers, members, employees and agents; and
(11) to execute, deliver and perform such contracts, agreements and
other undertakings, and to engage in such activities and
transactions as are necessary and appropriate for the conduct of
the business of the Partnership.
3.5 CUSTODY OF ASSETS OF THE PARTNERSHIP.
Notwithstanding anything to the contrary contained herein, the Manager
shall not have any authority to hold or have possession or custody of any funds,
Securities or other property of the Partnership. The physical possession of all
funds, Securities or other property of the Partnership shall at all times, be
held, controlled and administered by one or more custodians retained by the
Partnership. The Manager shall have no responsibility with respect to the
collection of income, physical acquisition or the safekeeping of the funds,
Securities or other assets of the Partnership, and all such duties of
collection, physical acquisition or safekeeping shall be the sole obligation of
such custodians.
3.6 BROKERAGE.
In the course of selecting brokers, dealers and other financial
intermediaries for the execution, clearance and settlement of transactions for
the Partnership pursuant to section 3.4(b)(2) and (3) hereof, the Manager may,
subject to such policies as are adopted by the Partnership and to the provisions
of applicable law, agree to such commissions, fees and other charges on behalf
of the Partnership as it shall deem reasonable in the circumstances taking into
account all such factors as it deems relevant (including the quality of research
and other services made available to it even if such services are not for the
exclusive benefit of the Partnership and the cost of such services does not
represent the lowest cost available) and shall be under no obligation to combine
or arrange orders so as to obtain reduced charges unless otherwise required
under the Federal securities laws. The Manager, subject to such procedures as
may be adopted by the Directors, may use Affiliates of the Manager as brokers to
effect the Partnership's Securities transactions and the Partnership may pay
such commissions to such brokers in such amounts as are permissible under
applicable law.
3.7 OTHER ACTIVITIES.
(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, from time to time may 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 it or they have a beneficial
interest or the accounts of others for whom they may provide investment advisory
or other services, notwithstanding the fact that the Partnership may have or may
take a position of any kind or otherwise; PROVIDED, HOWEVER, that the Manager
shall not cause the Partnership to purchase any asset from or sell any asset to
any such discretionary account without the consent of the Directors and in
accordance with the 1940 Act.
(d) To the extent that at law or in equity the General Partners, the
Directors or the Manager have duties (including fiduciary duties) and
liabilities relating thereto to the Partnership or to any other Partner, any
such person acting under this Agreement shall not be liable to the Partnership
or to any other Partner for its good faith reliance on the provisions of this
Agreement. The provisions of this Agreement, to the extent that they restrict
the duties and liabilities of the General Partners, the Directors or the Manager
otherwise existing at law or in equity, are agreed by the Partners to replace
such other duties and liabilities of such person.
3.8 DUTY OF CARE.
(a) The Directors, the General Partners and the Manager, including any
officer, director, partner, member, principal, employee or agent of the
foregoing, 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 such
person's 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 person constituting willful
misfeasance, bad faith, gross negligence or reckless disregard of such person's
duties hereunder.
(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 required by 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 officer, director, member, partner, principal, employee or
agent of, or any person who controls, a General Partner or a member thereof, and
their executors, heirs, assigns, successors or other legal representatives), the
Manager (including for this purpose each officer, director, member, partner,
principal, employee or agent of, or any person who controls, the Manager or a
member thereof, and their executors, heirs, assigns, successors or other legal
representatives) and each Director (and their executors, heirs, assigns,
successors or other legal representatives) (each such person being referred to
as an "indemnitee"), 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, Manager or Director,
respectively, 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 an indemnitee for any liability (including
liability under federal securities laws which, under certain circumstances,
impose liability even on persons that act in good faith) to the extent (but only
to the extent) that such indemnification would be in violation of applicable
law, but shall be construed so as to effectuate the applicable provisions of
this Section 3.9 to the fullest extent permitted by law.
(b) Expenses, including reasonable counsel fees, so incurred by any
such indemnitee (but excluding amounts paid in satisfaction of judgments, in
compromise, or as fines or penalties), may be paid from time to time by the
Partnership in advance of the final disposition of any such action, suit,
investigation or proceeding upon receipt of an undertaking by or on behalf of
such indemnitee to repay to the Partnership amounts so paid if it shall
ultimately be determined that indemnification of such expenses is not authorized
under Section 3.9(a) hereof; PROVIDED, HOWEVER, that (i) such indemnitee shall
provide security for such undertaking, (ii) the Partnership shall be insured by
or on behalf of such indemnitee against losses arising by reason of such
indemnitee's failure to fulfill his or its undertaking, or (iii) a majority of
the Independent Directors (excluding any Director 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 Directors
(excluding any Director 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 Directors 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 an indemnitee to
enforce a right to indemnification under this Section 3.9 it shall be a defense
that, and (ii) in any suit in the name of the Partnership to recover any
indemnification or advancement of expenses made pursuant to this Section 3.9 the
Partnership shall be entitled to recover such expenses upon a final adjudication
that, the indemnitee 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 indemnitee 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, Manager, Director or other person.
3.10 FEES, EXPENSES AND REIMBURSEMENT.
(a) So long as PWFA (or its affiliates) provides PWFA Services to the
Partnership, it shall be entitled to receive such fees as may be agreed to by
PWFA and the Partnership pursuant to a separate written agreement, which,
notwithstanding anything in this Agreement to the contrary, may be entered into
by the Partnership, and the Manager on behalf of the Partnership, without any
further act, vote or approval of any Partner.
(b) The Partnership shall compensate each Director for his or her
services hereunder as may be agreed to by the Directors and the General
Partners. In addition, the Partnership shall reimburse the Directors for
reasonable out-of-pocket expenses incurred by them in performing their duties
under this Agreement.
(c) The Partnership shall bear all expenses incurred in the business
of the Partnership other than those specifically required to be borne by the
Manager pursuant hereto. Expenses to be borne by the Partnership include, but
are not limited to, the following:
(1) all costs and expenses related to portfolio transactions and
positions for the Partnership's account, including, but not
limited to, brokerage commissions, research fees, interest
and commitment fees on loans and debit balances, borrowing
charges on Securities sold short, dividends on Securities
sold short but not yet purchased, custodial fees, margin
fees, transfer taxes and premiums, taxes withheld on foreign
dividends and indirect expenses from investments in
investment funds;
(2) all costs and expenses associated with the organization and
registration of the Partnership, certain offering costs and
the costs of compliance with any applicable Federal or state
laws;
(3) 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;
(4) fees and disbursements of any attorneys, accountants,
auditors and other consultants and professionals engaged on
behalf of the Partnership;
(5) the costs of a fidelity bond and any liability insurance
obtained on behalf of the Partnership, the General Partners
or the Directors;
(6) any fees payable to PWFA or its affiliates for PWFA
Services;
(7) all costs and expenses of preparing, setting in type,
printing and distributing reports and other communications
to Limited Partners;
(8) all expenses of computing the Partnership's net asset value,
including any equipment or services obtained for the purpose
of valuing the Partnership's investment portfolio;
(9) all charges for equipment or services used for
communications between the Partnership and any custodian, or
other agent engaged by the Partnership;
(10) fees payable to custodians and persons providing
administrative services to the Partnership; and
(11) such other types of expenses as may be approved from time to
time by the General Partners, other than those required to
be borne by the Manager.
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, the
Partnership from time to time, alone or in conjunction with other accounts for
which the Manager, or any Affiliate of the Manager, acts as general partner or
investment adviser, may purchase Insurance in such amounts, from such insurers
and on such terms as the General Partners shall determine.
-----------------------------------------
ARTICLE IV
TERMINATION OF STATUS OF GENERAL PARTNERS, REMOVAL OF
GENERAL PARTNERS, TRANSFERS AND REPURCHASES
-----------------------------------------
4.1 TERMINATION OF STATUS OF A GENERAL PARTNER.
(a) A General Partner shall cease to be a general partner of the
Partnership if the General Partner (i) shall be dissolved or otherwise shall
terminate its existence; (ii) shall voluntarily withdraw as General Partner;
(iii) shall be removed; (iv) shall transfer its entire Interest as General
Partner as permitted under Section 4.3 hereof and such person to which such
Interest is transferred is admitted as a substitute General Partner pursuant to
Section 2.6(a) hereof; or (v) shall otherwise cease to be a general partner of
the Partnership under Section 17-402(a) of the Delaware Act.
(b) A General Partner may not withdraw voluntarily as a General
Partner until the earliest of (i) one year from the date on which the General
Partner shall have given the Directors written notice of its intention to effect
such withdrawal (or upon lesser notice if in the opinion of counsel to the
Partnership, such withdrawal is not likely to cause the Partnership to lose its
partnership tax classification or as otherwise permitted by the 1940 Act); (ii)
the date on which the authority of the Manager to provide Advice and Management
is terminated (other than at the election of the Manager) pursuant to Section
3.4(a) hereof, unless within 30 days after such termination, the Directors
request the General Partner not to withdraw, in which case 180 days after the
date of such termination, unless a successor general partner is earlier approved
by the Partnership; and (iii) the date on which one or more persons shall have
agreed to assume the obligations of the Manager hereunder with the approval of
the Directors and such other approvals as may be required by the 1940 Act.
4.2 REMOVAL OF GENERAL PARTNERS.
Any General Partner may be removed by the vote or written consent of
Partners holding not less than two-thirds of the total number of votes eligible
to be cast by all Partners.
4.3 TRANSFER OF INTERESTS OF GENERAL PARTNERS.
A General Partner may not Transfer its Interest as the General Partner
except to persons who have agreed to be bound by all of the terms of this
Agreement and pursuant to applicable law. By executing this Agreement, each
other Partner shall be deemed to have consented to any such Transfer permitted
by the preceding sentence.
4.4 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 General Partners (which may be withheld in their sole and
absolute discretion). In addition, the General Partners 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 equity
owners if such a person is a "private investment company" as defined in Rule
205-3(d)(3) under the Advisers Act, an investment company registered under the
1940 Act, or a business development company as defined under the Advisers Act)
is a person whom the General Partners believe meets the requirements of
paragraph (d)(1) of Rule 205-3 under the Advisers Act or successor rule thereto,
or is otherwise exempt from such requirements. If any transferee does not meet
such investor eligibility requirements, the Partnership reserves the right to
redeem its Interest. Any permitted transferee 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 General Partners, the
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. The admission of any
transferee as a substituted Limited Partner shall be effective upon the
execution and delivery by, or on behalf of, such substituted Limited Partner of
this Agreement or a counterpart hereof. 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 General Partners, the Directors, 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 4.4 and (ii) any misrepresentation by such Limited
Partner in connection with any such Transfer.
4.5 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 General Partners may from time to time, in their complete and
exclusive discretion and on such terms and conditions as they may determine,
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 General Partners
shall consider the following factors, among others:
(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 condition of the securities markets; and
(7) the anticipated tax consequences of any proposed repurchases
of Interests or portions thereof.
The 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 and persons holding Interests acquired from
Partners, as applicable.
(b) A Limited Partner who tenders for repurchase any amount of such
Partner's Interest prior to having been a Limited Partner for 12 consecutive
months or who tenders for repurchase a portion of such Partner's Interest shall
be required to maintain a Capital Account balance equal to the greater of
$250,000 ($50,000 for employees of the Manager and its affiliates, and members
of their immediate families) 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 4.5(d) and (e) hereof, a General
Partner may tender its Interest or a portion thereof under Section 4.5(a) hereof
only if and to the extent that (1) such repurchase would not cause the value of
the Capital Account of the General Partner to be less than the value thereof
required to be maintained pursuant to Section 5.1(c) hereof, or (2) in the
opinion of legal counsel to the Partnership, such repurchase would not
jeopardize the classification of the Partnership as a partnership for U.S.
Federal income tax purposes.
(d) Not later than 180 days after termination of the authority to
provide Advice and Management, the Manager, if it is a General Partner, may, by
written notice to the Directors, tender to the Partnership all or any portion of
its Capital Account, established and maintained by it as a general partner of
the Partnership, which it is not required to maintain pursuant to Section 5.1(c)
hereof until it ceases to be a general partner of the Partnership pursuant to
Section 4.1(a) hereof. Not later than 30 days after the receipt of such notice,
the Directors 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 a General Partner ceases to be a general partner of the
Partnership pursuant to Section 4.1 hereof and the business of the Partnership
is continued pursuant to Section 6.1(a)(2) hereof, the former General Partner
(or its trustee or other legal representative) may, by written notice to the
Directors within 60 days of the action resulting in the continuation of the
Partnership pursuant to Section 6.1(a)(2) hereof, tender to the Partnership all
or any portion of its Interest. Not later than 30 days after the receipt of such
notice, the Directors shall cause such Interest to be repurchased by the
Partnership for cash in an amount equal to the balance of the former General
Partner's Capital Account or applicable portion thereof, subject to any
adjustment pursuant to Section 5.7 hereof. If the former General Partner does
not tender to the Partnership all of its Interest as permitted by this Section
4.5(e) such Interest shall be thereafter deemed to be and shall be treated in
all respects as the Interest of a Limited Partner.
(f) The 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 General Partners determine or have reason to believe that:
(1) such an Interest or portion thereof has been transferred in
violation of Section 4.4 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 Directors or the General Partners, or may subject the
Partnership or any of the Partners to an undue risk of
adverse tax or other fiscal consequences;
(4) any of the representations and warranties made by a Partner
in connection with the acquisition of an Interest or portion
thereof was not true when made or has ceased to be true; or
(5) it would be in the best interests of the Partnership, as
determined by the General Partners, 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 General
Partners, in marketable Securities (or any combination of marketable Securities
and cash) of equivalent value. All such repurchases shall be subject to any and
all conditions as the General Partners may impose and shall be effective as of a
date set by the General Partners 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. Notwithstanding anything
to the contrary in this Agreement, a Partner may be compelled to accept a
distribution of any asset in kind from the Partnership despite the fact that the
percentage of the asset distributed to him exceeds the percentage of that asset
which is equal to the percentage in which he shares in distributions from the
Partnership.
-----------------------------------------
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 General Partners may determine from
time to time, but in no event shall be less than $250,000 ($50,000 for employees
of the Manager and its affiliates, and members of their immediate families). The
amount of the initial contribution of each Partner shall be recorded by the
General Partners upon acceptance as a contribution to the capital of the
Partnership.
(b) The Limited Partners may make additional contributions to the
capital of the Partnership effective as of such times and in such amounts as the
General Partners may permit, but no Limited Partner shall be obligated to make
any additional contribution to the capital of the Partnership except to the
extent provided in Section 5.7 hereof.
(c) A General Partner may make additional contributions to the capital
of the Partnership effective as of such times and in such amounts as it may
determine; and 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, if any, necessary to ensure that
the Partnership will be treated as a partnership for Federal income tax
purposes. 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 General Partners, (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 General
Partners, in their absolute discretion, may agree to accept on behalf of the
Partnership, and (ii) initial and any additional contributions in cash shall be
payable in readily available funds at the date of the proposed acceptance of the
contribution. The Partnership shall charge each Partner making a contribution in
Securities to the capital of the Partnership such amount as may be determined by
the General Partners not exceeding 2% of the value of such contribution in order
to reimburse the Partnership for any costs incurred by the Partnership by reason
of accepting such Securities, and any such charge shall be due and payable by
the contributing Partner in full at the time the contribution to the capital of
the Partnership to which such charges relate is due. The value of contributed
Securities shall be determined in accordance with Section 7.3 hereof as of the
date of contribution.
(e) The minimum initial and additional contributions set forth in (a)
and (b) of this Section 5.1 may be reduced by the General Partners.
5.2 RIGHTS OF PARTNERS TO CAPITAL.
No Partner shall be entitled to interest on his or its contribution 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 4.5
hereof, (ii) pursuant to the provisions of Section 5.7(b) hereof or (iii) upon
the liquidation of the Partnership's assets pursuant to Section 6.2 hereof. No
Partner shall be liable for the return of any such amounts. To the fullest
extent permitted by applicable law, no Partner shall have the right to require
partition of the Partnership's property or to compel any sale or appraisal of
the Partnership's assets.
5.3 CAPITAL ACCOUNTS.
(a) The Partnership shall maintain a separate Capital Account for each
Partner.
(b) Each Partner's Capital Account shall have an initial balance equal
to the amount of cash and the value of any Securities (determined in accordance
with Section 7.3 hereof) constituting such Partner's initial contribution to the
capital of the Partnership.
(c) Each Partner's Capital Account shall be increased by the sum of
(i) the amount of cash and the value of any Securities (determined in accordance
with Section 7.3 hereof) constituting additional contributions by such Partner
to the capital of the Partnership permitted pursuant to Section 5.1 hereof, plus
(ii) any amount credited to such Partner's Capital Account pursuant to Sections
5.4 through 5.7 hereof.
(d) Each Partner's Capital Account shall be reduced by the sum of (i)
the amount of any repurchase of the Interest, or portion thereof, of such
Partner or distributions to such Partner pursuant to Sections 4.5, 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(d) hereof shall be apportioned evenly over each Fiscal
Period or portion thereof falling within the period to which such premiums
relate under the terms of such Insurance, and the portion of the premiums so
apportioned to any Fiscal Period shall be allocated among and debited against
the Capital Accounts of each Partner who is a partner of the Partnership during
such Fiscal Period in accordance with such Partner's Partnership Percentage for
such Fiscal Period.
(b) Proceeds, if any, to which the Partnership may become entitled
pursuant to such Insurance shall be allocated among and credited to the Capital
Accounts of each Partner who is a partner of the Partnership during the Fiscal
Period in which the event which gives rise to recovery of proceeds occurs in
accordance with such Partner's Partnership Percentage for such Fiscal Period.
5.6 ALLOCATION OF CERTAIN WITHHOLDING TAXES AND OTHER EXPENDITURES.
(a) If the Partnership incurs a withholding tax or other tax
obligation with respect to the share of Partnership income allocable to any
Partner, then the General Partners, 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 General Partners, the amount of such excess. A General Partner shall not be
obligated to apply for or obtain a reduction of or exemption from withholding
tax on behalf of any Partner that may be eligible for such reduction or
exemption; provided, that in the event that the General Partners determine that
a Partner is eligible for a refund of any withholding tax, the General Partners
may, at the request and expense of such Partner, assist such Partner in applying
for such refund.
(b) Except as otherwise provided for in this Agreement and unless
prohibited by the 1940 Act, any expenditures payable by the Partnership, to the
extent determined by the General Partners 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 General Partners, such reserves to be in the amounts which
the General Partners in their sole discretion deem necessary or appropriate. The
General Partners may increase or reduce any such reserves from time to time by
such amounts as they in their 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 instead shall be
charged or credited to those parties who were Partners at the time, as
determined by the General Partners in their sole discretion, of the act or
omission giving rise to the contingent liability for which the reserve was
established, increased or decreased in proportion to their Capital Accounts.
(b) If any amount is required by paragraph (a) 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 General Partners determine that such charge or credit is
required. In the case of a charge, the former Partner shall be obligated to pay
the amount of the charge, plus interest as provided above, to the Partnership on
demand; PROVIDED, however, that (i) in no event shall a former Partner be
obligated to make a payment exceeding the amount of such Partner's Capital
Account at the time to which the charge relates; and (ii) no such demand shall
be made after the expiration of three years from 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), the deficiency shall be charged proportionately to
the Capital Accounts of the Partners at the time of the act or omission giving
rise to the charge to the extent feasible, and otherwise proportionately to the
Capital Accounts of the current Partners.
5.8 INCENTIVE ALLOCATION.
(a) So long as the authority to provide Advice and Management under
Section 3.4 hereof shall remain effective and the Manager is a general partner
of 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 be
credited simultaneously to the Capital Account of such General Partner, 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 such General Partner, to the Partnership within 90 days after the
close of such Allocation Period.
(b) Within 30 days of each Allocation Period with respect to each
Limited Partner and as long as the Manager is a general partner of the
Partnership, the Manager may withdraw up to 98% of the Incentive Allocation
(computed on the basis of unaudited data) that was credited to the Capital
Account of such General Partner, and debited from such Limited Partner's Capital
Account with respect to such Allocation Period only if and to the extent that
such withdrawal would not cause the value of the Capital Account of such General
Partner to be less than the value thereof required to be maintained pursuant to
Section 5.1(c) hereof. Subject to such criteria, the Partnership shall pay the
Manager the undrawn balance of such Incentive Allocation (subject to audit
adjustments) within 30 days after the completion of the audit of the
Partnership's books. Any amount of such Incentive Allocation not withdrawn by
the Manager pursuant to the first sentence of this Section 5.8(b) shall be
deemed reinvested in the Partnership by such General Partner.
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 and as long as the Manager is a general partner of the Partnership,
that portion of any such debits instead shall be allocated to the Capital
Account of such General Partner. Any credits in any subsequent Fiscal Period
which otherwise would 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 instead shall be allocated to the Capital
Account of such General Partner in such amounts as are necessary to offset all
previous debits attributable to such Limited Partner, pursuant to this Section
5.9, that have not been recovered.
5.10 ALLOCATIONS PRIOR TO CLOSING DATE.
As long as the Manager is a general partner of the Partnership, 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 such General Partner.
(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 a 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 5.11 shall be made pursuant to the principles of
Sections 704(b) and 704(c) of the Code, and in conformity with Treasury
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 Regulations Section 1.704-1(b)(2)(ii)(d).
If the Partnership realizes net capital gains for Federal income tax
purposes for any fiscal year during or as of the end of which one or more
Positive Basis Partners (as hereinafter defined) withdraw from the Partnership
pursuant to Articles IV or VI hereof, the General Partners may elect to allocate
such net gains as follows: (i) to allocate such net gains among such Positive
Basis Partners, PRO RATA in proportion to the respective Positive Basis (as
hereinafter defined) of each such Positive Basis Partner, until either the full
amount of such net gains shall have been so allocated or the Positive Basis of
each such Positive Basis Partner shall have been eliminated and (ii) to allocate
any net gains not so allocated to Positive Basis Partners to the other Partners
in such manner as shall reflect equitably the amounts credited to such Partners'
Capital Accounts.
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 the total
of such Partner's Capital Account 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 a Positive Basis
as of the effective date of its withdrawal.
5.12 DISTRIBUTIONS.
(a) The General Partners may authorize the Partnership to make
distributions in cash or in kind at any time to all of the Partners on a PRO
RATA basis in accordance with the Partners' Partnership Percentages.
(b) The General Partners may withhold taxes from any distribution to
any Partner to the extent required by the Code or any other applicable law. For
purposes of this Agreement, any taxes so withheld by the Partnership with
respect to any amount distributed by the Partnership to any Partner shall be
deemed to be a distribution or payment to such Partner, reducing the amount
otherwise distributable to such Partner pursuant to this Agreement and reducing
the Capital Account of such Partner.
(c) Notwithstanding any provision to the contrary contained in this
Agreement, the Partnership and the General Partners on behalf of the Partnership
shall not make a distribution to any Partner on account of its interest in the
Partnership if such distribution would violate Section 17-607 of the Delaware
Act or other applicable law.
-----------------------------------------
ARTICLE VI
DISSOLUTION AND LIQUIDATION
-----------------------------------------
6.1 DISSOLUTION.
(a) The Partnership shall be dissolved at any time there are no
Limited Partners or upon the occurrence of any of the following events:
(1) upon the affirmative vote to dissolve the Partnership by
both (i) the Directors and (ii) Partners holding at least
two-thirds of the total number of votes eligible to be cast
by all Partners;
(2) upon either of (i) an election by the General Partners to
dissolve the Partnership or (ii) a General Partner ceasing
to be a general partner of the Partnership pursuant to
Section 4.1 hereof (other than in conjunction with a
Transfer of the Interest of a General Partner permitted by
Section 4.3 hereof to a person who is admitted as a
substitute General Partner pursuant to Section 2.6(a)
hereof), unless (a) as to the event set forth in clause (ii)
above, there is at least one other general partner of the
Partnership who is hereby authorized to and does carry on
the business of the Partnership, and (b) as to either event
both the Directors and the Partners holding not less than
two-thirds 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 a person to
be admitted to the Partnership, effective as of the date of
such event, as an additional General Partner has agreed to
make such contributions to the capital of the Partnership as
are required to be made pursuant to Section 5.1(c) hereof;
(3) upon the failure of Partners to approve of successor
Directors at a meeting called by the General Partners in
accordance with Section 2.11(c) hereof when no Director
remains to continue the business of the Partnership;
(4) upon the expiration of any two-year period which commences
on the date on which any Limited Partner has submitted a
written notice to the Partnership requesting to tender such
Partner's entire Interest for repurchase by the Partnership
if such Limited Partner has not been permitted to do so at
any time during such period; or
(5) as required by operation of law.
Dissolution of the Partnership shall be effective on the later of the
day on which the event giving rise to the dissolution shall occur or, to the
extent permitted by the Delaware Act, the conclusion of any applicable 60-day
period during which the Directors 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) 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 General Partners shall promptly liquidate the business and
administrative affairs of the Partnership, except that if the General Partners
are unable to perform this function, a liquidator elected by Partners holding a
majority of the total number of votes eligible to be cast by all Partners shall
promptly liquidate the business and administrative affairs of the Partnership.
Net Profit and Net Loss during the period of liquidation shall be allocated
pursuant to Article V hereof. Subject to the Delaware Act, the proceeds from
liquidation (after establishment of appropriate reserves for all claims and
obligations, including all contingent, conditional or unmatured claims and
obligations in such amount as the General Partners 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 be paid next in their order of seniority and
on a PRO RATA basis; and
(3) the Partners shall be paid next 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, subject to the Delaware Act and the priorities
set forth in Section 6.2(a), the General Partners 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. Notwithstanding
anything to the contrary in this Agreement, the General Partner may compel a
Partner to accept a distribution of any asset in kind from the Partnership
notwithstanding that the percentage of the asset distributed to the Partner
exceeds a percentage of that asset that is equal to the percentage in which such
Partner shares in distributions from the Partnership.
---------------------------------
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 General Partners shall decide in their sole
discretion is in the best interests of the Partnership. The Partnership's
accounts shall be maintained in U.S. currency.
(b) After the end of each taxable year, the Partnership shall furnish
to each Partner such information regarding the operation of the Partnership and
such Partner's Interest as is necessary for Partners to complete Federal and
state income tax or information returns and any other tax information required
by federal or state law.
(c) Except as otherwise required by the 1940 Act, or as may otherwise
be permitted by rule, regulation or order, within 60 days after the close of the
period for which a report required under this Section 7.1(c) is being made, the
Partnership shall furnish to each Limited Partner a semi-annual report and an
annual report containing the information required by the 1940 Act. The
Partnership shall cause financial statements contained in each annual report
furnished hereunder to be accompanied by a certificate of independent public
accountants based upon an audit performed in accordance with generally accepted
accounting principles. The Partnership may furnish to each Partner such other
periodic reports as it deems necessary or appropriate in its discretion.
(d) The General Partners shall provide the Directors with the identity
of the members of the General Partners and thereafter shall notify the Directors
of any change in the membership of the General Partners within a reasonable time
after such change.
7.2 DETERMINATIONS BY GENERAL PARTNERS.
(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 General Partners unless specifically and
expressly otherwise provided for by the provisions of this Agreement or as
required by law, and such determinations and allocations shall be final and
binding on all the Partners.
(b) The General Partners 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 (withholding any items of increase, gain, loss or
deduction) comprising any of the foregoing as they consider 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 General Partners
shall value or have valued any Securities or other assets and liabilities of the
Partnership as of the close of business on the last day of each Fiscal Period in
accordance with such valuation procedures as shall be established from time to
time by the General Partners and which conform to the requirements of the 1940
Act. In determining the value of the assets of the Partnership, no value shall
be placed on the goodwill or name of the Partnership, or the office records,
files, statistical data or any similar intangible assets of the Partnership not
normally reflected in the Partnership's accounting records, but there shall be
taken into consideration any items of income earned but not received, expenses
incurred but not yet paid, liabilities fixed or contingent, the unamortized
portion of any organizational expenses and any other prepaid expenses to the
extent not otherwise reflected in the books of account, and the value of options
or commitments to purchase or sell Securities or commodities pursuant to
agreements entered into prior to such valuation date.
(b) The value of Securities and other assets of the Partnership and
the net worth of the Partnership as a whole determined pursuant to this Section
7.3 shall be conclusive and binding on all of the Partners and all parties
claiming through or under them.
---------------------------------
ARTICLE VIII
MISCELLANEOUS PROVISIONS
---------------------------------
8.1 AMENDMENT OF PARTNERSHIP AGREEMENT.
(a) Except as otherwise provided in this Section 8.1, this Agreement
may be amended, in whole or in part, with the approval of (i) the Directors
(including the vote of a majority of the Independent Directors, if required by
the 1940 Act), (ii) the General Partners or (iii) a majority (as defined in the
1940 Act) of the outstanding voting securities of the Partnership.
(b) Any amendment that would:
(1) increase the obligation of a Partner to make any
contribution to the capital of the Partnership;
(2) reduce the Capital Account of a Partner other than in
accordance with Article V; or
(3) modify the events causing the dissolution of the
Partnership;
may be made only if (i) the written consent of each Partner adversely affected
thereby is obtained prior to the effectiveness thereof or (ii) such amendment
does not become effective until (A) each Limited Partner has received written
notice of such amendment and (B) any Limited Partner objecting to such amendment
has been afforded a reasonable opportunity (pursuant to such procedures as may
be prescribed by the General Partners) to tender his entire Interest for
repurchase by the Partnership.
(c) The General Partners at any time without the consent of the other
Partners may:
(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 Directors (including the vote of a majority of the Independent Directors, if
required by the 1940 Act).
(d) The General Partners 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
each of the General Partners and each of the Directors, acting severally, and
any liquidator of the Partnership's assets appointed pursuant to Section 6.2
hereof with full power of substitution, the true and lawful representatives and
attorneys-in-fact of, and in the name, place and stead of, such Partner, with
the power from time to time to make, execute, sign, acknowledge, swear to,
verify, deliver, record, file and/or publish:
(1) any amendment to this Agreement which complies with the
provisions of this Agreement (including the provisions of
Section 8.1 hereof);
(2) any amendment to the Certificate required because this
Agreement is amended, including, without limitation, an
amendment to effectuate any change in the membership of the
Partnership; and
(3) all other such instruments, documents and certificates
which, in the opinion of legal counsel to the Partnership,
from time to time may 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 each of the General Partners and each of
the Directors, acting severally, and any liquidator of the Partnership's assets,
appointed pursuant to Section 6.2 hereof, 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, the General Partners, the Directors or any
liquidator 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
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 General Partners, the
Directors or any liquidator 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
shall be made, if to a Limited Partner, by regular mail, or, if to a General
Partner, 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
the books of the Partnership (or to such other addresses as may be designated by
any party hereto by notice addressed to the General Partners in the case of
notice given to any Partner, and to each of the Partners in the case of notice
given to the General Partners). 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 regular mail, 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 be executed by
any of the parties hereto, the parties expressly agree that all the terms and
provisions hereof shall be construed under the laws of the State of Delaware,
including the Delaware Act, without regard to the conflict of law principles of
such State.
(B) EACH PARTNER AGREES TO SUBMIT ALL CONTROVERSIES ARISING BETWEEN OR
AMONG PARTNERS OR ONE OR MORE PARTNERS AND THE PARTNERSHIP IN CONNECTION WITH
THE PARTNERSHIP OR ITS BUSINESSES OR CONCERNING ANY TRANSACTION, DISPUTE OR THE
CONSTRUCTION, PERFORMANCE OR BREACH OF THIS OR ANY OTHER AGREEMENT, WHETHER
ENTERED INTO PRIOR TO, ON OR SUBSEQUENT TO THE DATE HEREOF, TO ARBITRATION IN
ACCORDANCE WITH THE PROVISIONS SET FORTH BELOW. EACH PARTNER UNDERSTANDS THAT:
(1) ARBITRATION IS FINAL AND BINDING ON THE PARTIES;
(2) THE PARTIES ARE WAIVING THEIR RIGHTS TO SEEK REMEDIES IN
COURT, INCLUDING THE RIGHT TO JURY TRIAL;
(3) PRE-ARBITRATION DISCOVERY IS GENERALLY MORE LIMITED THAN AND
DIFFERENT FROM COURT PROCEEDINGS;
(4) THE ARBITRATOR'S AWARD IS NOT REQUIRED TO INCLUDE FACTUAL
FINDINGS OR LEGAL REASONING AND A PARTY'S RIGHT TO APPEAL OR
TO SEEK MODIFICATION OF RULINGS BY ARBITRATORS IS STRICTLY
LIMITED; AND
(5) A PANEL OF ARBITRATORS WILL TYPICALLY INCLUDE A MINORITY OF
ARBITRATORS WHO WERE OR ARE AFFILIATED WITH THE SECURITIES
INDUSTRY.
(C) CONTROVERSIES SHALL BE DETERMINED BY ARBITRATION BEFORE, AND ONLY
BEFORE, AN ARBITRATION PANEL CONVENED BY THE NEW YORK STOCK EXCHANGE, INC.
("NYSE") OR THE NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC. (THE "NASD"),
TO THE FULLEST EXTENT PERMITTED BY LAW. THE PARTIES MAY ALSO SELECT ANY OTHER
NATIONAL SECURITIES EXCHANGE'S ARBITRATION FORUM UPON WHICH A PARTY IS LEGALLY
REQUIRED TO ARBITRATE THE CONTROVERSY, TO THE FULLEST EXTENT PERMITTED BY LAW.
SUCH ARBITRATION SHALL BE GOVERNED BY THE RULES OF THE ORGANIZATION CONVENING
THE PANEL. 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 PARTY OR PARTIES AGAINST WHOM SUCH AWARD IS RENDERED. EACH PARTNER AGREES
THAT THE DETERMINATION OF THE ARBITRATORS SHALL BE BINDING AND CONCLUSIVE UPON
THEM.
(D) 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 UNLESS AND 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. THE FORBEARANCE TO ENFORCE AN AGREEMENT
TO ARBITRATE SHALL NOT CONSTITUTE A WAIVER OF ANY RIGHTS UNDER THIS AGREEMENT
EXCEPT TO THE EXTENT STATED HEREIN.
8.7 NOT FOR BENEFIT OF CREDITORS.
The provisions of this Agreement are intended only for the regulation
of relations among past, present and future Partners and the Partnership. This
Agreement is not intended for the benefit of non-Partner creditors and no rights
are granted to non-Partner creditors under this Agreement.
8.8 CONSENTS.
Any and all consents, agreements or approvals provided for or
permitted by this Agreement shall be in writing and a signed copy thereof shall
be filed and kept with the books of the Partnership.
8.9 MERGER AND CONSOLIDATION.
(a) The Partnership may merge or consolidate with or into one or more
limited partnerships formed under the Delaware Act or other business entities
pursuant to an agreement of merger or consolidation which has been approved in
the manner contemplated by Section 17-211(b) of the Delaware Act.
(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 General Partners, for any
purpose reasonably related to the Limited Partner's Interest in 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 Limited 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 or address (whether business, residence
or mailing) of any Limited Partner (collectively, "Confidential Information")
without the prior written consent of the General Partners, which consent may be
withheld in their sole discretion.
(c) Each Partner recognizes that in the event that this Section 8.11
is breached by any Partner or any of its principals, partners, members,
directors, officers, employees or agents or any of its affiliates, including any
of such affiliates' principals, partners, members, directors, officers,
employees or agents, irreparable injury may result to the non-breaching Partners
and the Partnership. Accordingly, in addition to any and all other remedies at
law or in equity to which the non-breaching Partners and the Partnership may be
entitled, such Partners also shall 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. If 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.
(d) The General Partners shall have the right to keep confidential
from the Limited Partners for such period of time as the General Partners deem
reasonable, any information which the General Partners reasonably believe to be
in the nature of trade secrets or other information the disclosure of which the
General Partners in good faith believe is not in the best interest of the
Partnership or could damage the Partnership or its business or which the
Partnership is required by law or by agreement with a third party to keep
confidential.
8.12 CERTIFICATION OF NON-FOREIGN STATUS.
Each Limited Partner or transferee of an Interest from a Limited
Partner that is admitted to the Partnership in accordance with this Agreement
shall certify, upon admission to the Partnership and at such other time
thereafter as the General Partners 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 General Partners 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).
8.14 ENTIRE AGREEMENT.
This Agreement (including the Schedules attached hereto which are
incorporated herein) constitutes the entire agreement among the parties hereto
pertaining to the subject matter hereof and supersedes all prior agreements and
understandings pertaining thereto. It is hereby acknowledged and agreed that the
General Partners, without the approval of any Limited Partner may enter into
written agreements ("Other Agreements") with Limited Partners, executed
contemporaneously with the admission of such Limited Partners to the
Partnership, effecting the terms hereof in order to meet certain requirements of
such Limited Partners. The parties hereto agree that any terms contained in an
Other Agreement with a Limited Partner shall govern with respect to such Limited
Partner notwithstanding the provisions of this Agreement.
8.15 DISCRETION.
To the fullest extent permitted by law, whenever in this Agreement, a
person is permitted or required to make a decision (i) in its "sole discretion"
or "discretion" or under a grant of similar authority or latitude, such person
shall be entitled to consider only such interests and factors as it desires,
including its own interests, and shall have no duty or obligation to give any
consideration to any interest of or factors affecting the Partnership or the
Limited Partners, or (ii) in its "good faith" or under another express standard,
then such person shall act under such express standard and shall not be subject
to any other or different standards imposed by this Agreement or any other
agreement contemplated herein or by relevant provisions of law or in equity or
otherwise.
8.16 COUNTERPARTS.
This Agreement may be executed in several counterparts, all of which
together shall constitute one agreement binding on all parties hereto,
notwithstanding that all the parties have not signed the same counterpart.
<PAGE>
THE UNDERSIGNED ACKNOWLEDGES HAVING READ THIS AGREEMENT IN ITS
ENTIRETY BEFORE SIGNING, INCLUDING THE PRE-DISPUTE ARBITRATION CLAUSES SET
FORTH IN SECTION 8.6 ON PAGE 37 AND THE CONFIDENTIALITY CLAUSES SET FORTH IN
SECTION 8.11 ON PAGEA 38 AND 39.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
GENERAL PARTNER:
CONGRESS STREET MANAGEMENT, L.L.C.
By: PW FUND ADVISOR, L.L.C.
Managing Member
By: _______________________________
ORGANIZATIONAL LIMITED PARTNER
/S/ MARK F. VASSALLO
Mark F. Vassallo
MANAGER:
CONGRESS STREET MANAGEMENT, L.L.C.
By: PW FUND ADVISOR, L.L.C.
Managing Member
By: _______________________________
DIRECTORS:
/S/ E. GARRETT BEWKES, JR.
---------------------------
E. Garrett Bewkes, Jr.
/S/ MEYER FELDBERG
---------------------------
Meyer Feldberg
/S/ RICHARD J. STERNE
---------------------------
Richard J. Sterne
LIMITED PARTNERS:
Each person who has signed or has had signed on
its behalf a Limited Partner Signature Page, which
shall constitute a counterpart hereof.
<PAGE>
SCHEDULE I
CONGRESS STREET ASSOCIATES, L.P.
Name and Address Capital Contribution
- ---------------------------------------- -------------------------
GENERAL PARTNERS
----------------
Congress Street Management, L.L.C. $1,000,000
c/o PaineWebber Alternative
Investment Group
1285 Avenue of the Americas
New York, New York 10019
LIMITED PARTNERS
----------------
<PAGE>
SCHEDULE II
DIRECTORS
NAME AND ADDRESS
- ----------------
E. Garrett Bewkes, Jr.
c/o PaineWebber Incorporated
1285 Avenue of the Americas
New York, New York 10019
Meyer Feldberg
c/o Columbia University
101 Uris Hall
New York, New York 10027
Richard J. Sterne
555 Madison Avenue
28th Floor
New York, New York 10021
<PAGE>
APPENDIX B
PERFORMANCE INFORMATION
The Manager expects to employ an investment program for the
Partnership that is substantially similar to the investment program employed by
the personnel of Granum for Granite Capital, L.P. (sometimes referred to as the
"Granite Partnership") and the other Granum Accounts.
Because of the similarity of investment programs, as a general matter,
the Manager will consider participation by the Partnership in all appropriate
investment opportunities that are under consideration by Granum for investment
by the Granite Partnership or the other Granum Accounts. The Manager will
evaluate for the Partnership a variety of factors that may be relevant in
determining whether a particular investment opportunity or strategy to be used
by the Granite Partnership or the other Granum Accounts is appropriate and
feasible for the Partnership at that particular time. Because these
considerations may differ for the Partnership and the Granum Accounts in the
context of any particular investment opportunity, the investment activities of
the Partnership and the Granum Accounts may differ from time to time. See
"CONFLICTS OF INTEREST--Participation in Investment Opportunities."
THE FOLLOWING TABLES SET FORTH THE PERFORMANCE RECORD OF THE GRANITE
PARTNERSHIP AND COMPOSITE PERFORMANCE OF THE GRANUM ACCOUNTS FOR THE PERIODS
INDICATED. THE TABLES SHOULD BE READ IN CONJUNCTION WITH THE NOTES THERETO.
INFORMATION HAS BEEN OBTAINED FROM SOURCES BELIEVED TO BE RELIABLE BUT IS NOT
WARRANTED AS TO ACCURACY OR COMPLETENESS. PAST PERFORMANCE IS NOT NECESSARILY
INDICATIVE OF FUTURE RESULTS. PROSPECTIVE INVESTORS SHOULD RECOGNIZE THAT THERE
ARE CERTAIN DIFFERENCES BETWEEN THE INVESTMENT POLICIES OF THE PARTNERSHIP AND
THOSE OF THE GRANUM ACCOUNTS AND THAT THE PARTNERSHIP'S FEES AND EXPENSES WILL
BE HIGHER. FUTURE PERFORMANCE OF THE PARTNERSHIP WILL DIFFER.
<PAGE>
TABLE 1
Performance Record of Granite Capital, L.P.
GRANITE S&P 500
CAPITAL, L.P.(1) INDEX (2)
1990(3).......................................... 2.4% 1.4%
1991............................................. 49.4% 30.4%
1992............................................. 16.6% 7.6%
1993............................................. 8.5% 10.1%
1994............................................. -15.1% 1.3%
1995............................................. 49.7% 37.6%
1996............................................. 36.8% 23.0%
1997............................................. 31.6% 33.4%
1998(4).......................................... 3.7% 17.1%
------ ------
Cumulative Return(5)(6).......................... 359.2% 321.6%
====== ======
Notes:
1. The above returns represent the performance of Granite Capital, L.P. and is
shown net of fees and expenses and incentive allocations. The returns are
based upon the results an investor would have achieved on an investment
made at the commencement of Granite Capital, L.P. At all times under
consideration, assets of Granite Capital, L.P. were between $6.5 million
and $558.0 million.
2. The S&P 500 Index is an unmanaged index considered to be generally
representative of the U.S. large cap stock market as a whole. The
performance data for the S&P 500 Index assumes the reinvestment of all
dividends, but does not deduct any fees or expenses. The statistical data
for the S&P 500 Index has been obtained from sources believed to be
reliable but which are not warranted as to accuracy or completeness.
Granite Capital, L.P. does not restrict its investments solely to
securities included in the S&P 500 Index.
3. Returns for 1990 are for the period March 5, 1990, the date of inception of
Granite Capital, L.P., through December 31, 1990.
4. Returns for 1998 are for the period January 1, 1998 through June 30, 1998.
5. Cumulative Return is calculated by compounding each year's performance and
is the aggregate return that would have been earned on an investment in
Granite Capital, L.P. since its inception through June 30, 1998.
6. Prospective investors should recognize that Granite Capital, L.P. generally
requires a $2 million minimum investment and charges a 1% management fee
and a 20% incentive allocation, subject to a one year non-cumulative loss
carryforward.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
TABLE 2
Composite Performance of the Granum Accounts
GRANUM S&P 500
COMPOSITE (1) INDEX (2)
------------- ---------
1990(3).................................... 2.4% 1.4%
1991....................................... 49.4% 30.4%
1992....................................... 16.6% 7.6%
1993....................................... 8.3% 10.1%
1994....................................... -15.1% 1.3%
1995....................................... 47.5% 37.6%
1996....................................... 36.8% 23.0%
1997....................................... 30.9% 33.4%
1998(4).................................... 3.9% 17.7%
------ ------
Cumulative Return(5)....................... 350.2% 321.6%
====== ======
Notes:
1. The Granum Composite reflects all accounts managed by Granum Advisors,
L.L.C. and its affiliates ("Granum Managers"), including other investment
funds and separate accounts (the "Granum Accounts"). These returns are
shown net of fees and expenses and incentive allocations, if applicable.
The composite performance for each period is the performance a full-period
investor in each Granum Account would have received, weighted by the
average monthly assets of each Granum Account. At all times under
consideration, assets of the Granum Accounts were between $6.5 million and
$790.7 million.
2. The S&P 500 Index is an unmanaged index considered to be generally
representative of the U.S. large cap stock market as a whole. The
performance data for the S&P 500 Index assumes the reinvestment of all
dividends, but does not deduct any fees or expenses. The statistical data
for the S&P 500 Index has been obtained from sources believed to be
reliable but which are not warranted as to accuracy or completeness. The
Granum Accounts do not restrict their investments solely to securities
included in the S&P 500 Index.
3. Returns for 1990 are for the period March 5, 1990, the date of inception of
Granum Managers' first investment vehicle, Granite Capital L.P., through
December 31, 1990.
4. Returns for 1998 are for the period January 1, 1998 through June 30, 1998.
5. Cumulative Return is calculated by compounding each year's performance.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
<PAGE>
FORM N-2
CONGRESS STREET ASSOCIATES, L.P.
PART C - OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(1) Financial Statements:
Because the Registrant has no assets, financial statements are
omitted.
(2) Exhibits:
(a) (1) Certificate of Limited Partnership.*
(2) Agreement of Limited Partnership.*
(3) Amended and Restated Limited Partnership
Agreement.**
(b) Not Applicable.
(c) Not Applicable.
(d) See Item 24(2)(a)(3).
(e) Not Applicable.
(f) Not Applicable.
(g) See Item 24(2)(a)(3).
(h) Not Applicable.
(i) Not Applicable.
(j) Custodian Services Agreement.
(k) (1) Management and Administration Agreement.
(2) Administration, Accounting and Investor
Services Agreement.
(l) Opinion of Counsel.***
(m) Not Applicable.
(n) Tax Opinion.
(o) Not Applicable.
(p) Not Applicable.
(q) Not Applicable.
(r) Not Applicable.
--------------
* Previously filed on June 5, 1998.
** See Appendix A of Confidential Offering Memorandum.
*** To be filed by amendment.
ITEM 25. MARKETING ARRANGEMENTS
Not Applicable.
<PAGE>
ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Blue Sky fees and expenses (including fees of counsel) $ 20,000
Legal and accounting fees and expenses $275,000
Printing and engraving $ 45,000
Offering expenses $ 50,000
Miscellaneous $ 10,000
--------
TOTAL $400,000
ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL
After completion of the private offering of interests, the Registrant
expects that no person will be directly or indirectly under common control with
the Registrant, except that the Registrant may be deemed to be controlled by
Congress Street Management, L.L.C. (the "Manager"), the general partner of the
Registrant, which, in turn, is controlled by PW Fund Advisor, L.L.C. Information
regarding the ownership of PW Fund Advisor, L.L.C. is set forth in its Form ADV,
as filed with the Commission (File No. 801-55537).
ITEM 28. NUMBER OF HOLDERS OF SECURITIES
Title of Class Number of Record Holders
- -------------- ------------------------
Limited Partnership 1 (The Registrant anticipates
Interests that as a result of the private
offering of interests there will
be more than 100 record holders
of such interests in the future.)
ITEM 29. INDEMNIFICATION
Reference is made to Section 3.9 of the Registrant's Amended and
Restated Limited Partnership Agreement (the "Partnership Agreement") to be filed
as Exhibit 2(a)(3) hereto. The Registrant hereby undertakes that it will apply
the indemnification provision of the Partnership Agreement in a manner
consistent with Release 40-11330 of the Securities and Exchange Commission under
the Investment Company Act of 1940, as amended (the "1940 Act"), so long as the
interpretation therein of Sections 17(h) and 17(i) of the 1940 Act remains in
effect.
The Registrant, in conjunction with the Manager, the Registrant's
directors and other registered investment management companies managed by the
Manager or its affiliates, maintains insurance on behalf of any person who is or
was an independent director, officer, employee, or agent of the Registrant, or
who is or was serving at the request of the Registrant as an, individual general
partner, director, officer, employee or agent of another managed investment
company, against certain liability asserted against and incurred by, or arising
out of, his or her position. However, in no event will the Registrant pay that
portion of the premium, if any, for insurance to indemnify any such person or
any act for which the Registrant itself is not permitted to indemnify.
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 the investment adviser of the
Registrant, and each member, 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 member,
director, officer, employee, partner or trustee, is set forth in the
Registrant's Confidential Memorandum in the section entitled "THE MANAGER, PWFA
AND GRANUM." Information as to the members and officers of PW Fund Advisor,
L.L.C. is included in its Form ADV as filed with the Commission (File No.
801-55537), and is incorporated herein by reference. Information as to the
members and officers of Granum Advisors, L.L.C. is included in its Form ADV as
filed with the Commission (File No. 801-55742), and is incorporated herein by
reference.
ITEM 31. LOCATION OF ACCOUNTS AND RECORDS
The Administrator maintains certain required accounting related and
financial books and records of the Registrant at PFPC Inc., 103 Bellevue
Parkway, 4th Floor, Wilmington, DE 19809. The other required books and records
are maintained by the Manager c/o PW Fund Advisor, L.L.C., 1285 Avenue of the
Americas, New York, New York 10019.
ITEM 32. MANAGEMENT SERVICES
Not Applicable.
ITEM 33. UNDERTAKINGS
Not Applicable.
<PAGE>
FORM N-2
CONGRESS STREET ASSOCIATES, 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 duly authorized, in the City of New York,
and State of New York, on the 11th day of August, 1998.
CONGRESS STREET ASSOCIATES, L.P.
By: Congress Street Management, L.L.C.
General Partner
By: PW Fund Advisor, L.L.C.
Managing Member
By: /S/ PETER ZURKOW
Name: Peter Zurkow
Title: Managing Director
<PAGE>
FORM N-2
CONGRESS STREET ASSOCIATES, L.P.
EXHIBIT INDEX
EXHIBIT NUMBER DOCUMENT DESCRIPTION
(a)(3) Amended and Restated Limited Partnership Agreement.*
(j) Custodian Services Agreement.
(k)(1) Management and Administration Agreement.
(2) Administration, Accounting and Investor Services Agreement.
(n) Tax Opinion.
- ----------------------
* See Appendix A of Confidential Offering Memorandum.
EXHIBIT (J)
CUSTODIAN SERVICES AGREEMENT
THIS AGREEMENT is made as of July 16, 1998 by and between PNC BANK,
NATIONAL ASSOCIATION, a national banking association ("PNC Bank"), and CONGRESS
STREET ASSOCIATES, L.P., a Delaware limited partnership (the "Partnership").
W I T N E S S E T H:
WHEREAS, the Partnership is registered as a closed-end management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, the Partnership wishes to retain PNC Bank to provide
custodian services, and PNC Bank wishes to furnish custodian services, either
directly or through an affiliate or affiliates, as more fully described herein.
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained, and intending to be legally bound
hereby, the parties hereto agree as follows:
1. DEFINITIONS. AS USED IN THIS AGREEMENT:
(a) "1933 ACT" means the Securities Act of 1933, as amended.
(b) "1934 ACT" means the Securities Exchange Act of 1934, as amended.
(c) "AUTHORIZED PERSON" means any person duly authorized by the
Partnership's General Partner or Directors to give Oral
Instructions and Written Instructions on behalf of the
Partnership and listed on the Authorized Persons Appendix
attached hereto and made a part hereof, or any amendment thereto
as may be received by PNC Bank. An Authorized Person's scope of
authority may be limited by the Partnership by setting forth such
limitation in the Authorized Persons Appendix.
(d) "BOOK-ENTRY SYSTEM" means Federal Reserve Treasury book-entry
system for United States and federal agency securities, its
successor or successors, and its nominee or nominees and any
book-entry system maintained by an exchange registered with the
SEC under the 1934 Act.
(e) "CEA" means the Commodities Exchange Act, as amended.
(f) "CODE" means the Internal Revenue Code of 1986, as amended, and
the regulations promulgated thereunder.
(g) "ORAL INSTRUCTIONS" mean oral instructions received by PNC Bank
from an Authorized Person or from a person reasonably believed by
PNC Bank to be an Authorized Person.
(h) "PNC BANK" means PNC Bank, National Association or a subsidiary
or affiliate of PNC Bank, National Association.
(i) "PROPERTY" means:
(i) any and all securities and other investment items which
the Partnership may deposit from time to time, or cause to
be deposited, with PNC Bank or which PNC Bank may hold
from time to time for the Partnership;
(ii) all income in respect of any of such securities or other
investment items;
(iii) all proceeds of the sale of any of such securities or
investment items; and
(iv) all proceeds of the sale of securities issued by the
Partnership, which are received by PNC Bank from time to
time, from or on behalf of the Partnership.
(j) "SEC" means the Securities and Exchange Commission.
(k) "SECURITIES LAWS" mean the 1933 Act, the 1934 Act, the 1940 Act
and the CEA.
(l) "SHARES" mean the limited partnership interests of the
Partnership.
(m) "SHAREHOLDERS" mean the holders of limited partnership interests
of the Partnership.
(n) "SOFTWARE" means all software and electronic data processing
systems used or that will be used by PNC Bank prior to, during or
after the calendar year 2000 in connection with the provision of
services hereunder.
(o) "WRITTEN INSTRUCTIONS" mean written instructions signed by two
Authorized Persons and received by PNC Bank. The instructions may
be delivered by hand, mail, tested telegram, cable, telex or
facsimile sending device.
2. APPOINTMENT. The Partnership hereby appoints PNC Bank to provide
custodian services to the Partnership, on behalf of each of its
investment portfolios (each, a "Portfolio"), and PNC Bank accepts such
appointment and agrees to furnish such services.
3. DELIVERY OF DOCUMENTS. The Partnership has provided or, where
applicable, will provide PNC Bank with the following:
(a) certified or authenticated copies of the resolutions of the
Partnership's General Partner or Directors, approving the
appointment of PNC Bank or its affiliates to provide services;
(b) a copy of the Partnership's most recent effective registration
statement;
(c) a copy of each Portfolio's advisory agreements;
(d) a copy of the placement agency agreement with respect to the
Shares;
(e) a copy of each Portfolio's administration agreement if PNC Bank
is not providing the Portfolio with such services;
(f) copies of any shareholder servicing agreements made in respect of
the Partnership or a Portfolio; and
(g) certified or authenticated copies of any and all amendments or
supplements to the foregoing.
4. COMPLIANCE WITH LAWS.
PNC Bank undertakes to comply with all applicable requirements of the
Securities Laws and any laws, rules and regulations of governmental
authorities having jurisdiction with respect to the duties to be
performed by PNC Bank hereunder. Except as specifically set forth
herein, PNC Bank assumes no responsibility for such compliance by the
Partnership or any Portfolio.
5. INSTRUCTIONS.
(a) Unless otherwise provided in this Agreement, PNC Bank shall
act only upon Oral Instructions and Written Instructions.
(b) PNC Bank shall be entitled to rely upon any Oral Instructions and
Written Instructions it receives from an Authorized Person (or
from a person reasonably believed by PNC Bank to be an Authorized
Person) pursuant to this Agreement. PNC Bank may assume that any
Oral Instructions or Written Instructions received hereunder are
not in any way inconsistent with the provisions of organizational
documents of the Partnership or of any vote, resolution or
proceeding of the Partnership's General Partner, Directors or
Shareholders, unless and until PNC Bank receives Written
Instructions to the contrary.
(c) The Partnership agrees to forward to PNC Bank Written
Instructions confirming Oral Instructions (except where such Oral
Instructions are given by PNC Bank or its affiliates) so that PNC
Bank receives the Written Instructions by the close of business
on the same day that such Oral Instructions are received. The
fact that such confirming Written Instructions are not received
by PNC Bank in no way shall invalidate the transactions or
enforceability of the transactions authorized by the Oral
Instructions. Where Oral Instructions or Written Instructions
reasonably appear to have been received from an Authorized
Person, PNC Bank shall incur no liability to the Partnership in
acting upon such Oral Instructions or Written Instructions,
provided that PNC Bank's actions comply with the other provisions
of this Agreement.
6. RIGHT TO RECEIVE ADVICE.
(a) ADVICE OF THE PARTNERSHIP. If PNC Bank is in doubt as to any
action it should or should not take, PNC Bank may request
directions or advice, including Oral Instructions or Written
Instructions, from the Partnership.
(b) ADVICE OF COUNSEL. If PNC Bank shall be in doubt as to any
question of law pertaining to any action it should or should not
take, PNC Bank may request advice at its own cost from such
counsel of its own choosing (who may be counsel for the
Partnership, the Partnership's investment adviser or PNC Bank, at
the option of PNC Bank).
(c) CONFLICTING ADVICE. In the event of a conflict between
directions, advice or Oral Instructions or Written Instructions
PNC Bank receives from the Partnership and the advice it receives
from counsel, PNC Bank shall be entitled to rely upon and follow
the advice of counsel, provided that such counsel is selected
with reasonable care. In the event PNC Bank so relies on the
advice of counsel, PNC Bank remains liable for any action or
omission on the part of PNC Bank which constitutes willful
misfeasance, bad faith, negligence or reckless disregard by PNC
Bank of any duties, obligations or responsibilities set forth in
this Agreement.
(d) PROTECTION OF PNC BANK. PNC Bank shall be protected in any action
it takes or does not take in reliance upon directions, advice or
Oral Instructions or Written Instructions it receives from the
Partnership or from counsel selected with reasonable care and
which PNC Bank believes, in good faith, to be consistent with
those directions, advice or Oral Instructions or Written
Instructions. Nothing in this section shall be construed so as to
impose an obligation upon PNC Bank (i) to seek such directions,
advice or Oral Instructions or Written Instructions, or (ii) to
act in accordance with such directions, advice or Oral
Instructions or Written Instructions unless, under the terms of
other provisions of this Agreement, the same is a condition of
PNC Bank's properly taking or not taking such action. Nothing in
this subsection shall excuse PNC Bank when an action or omission
on the part of PNC Bank constitutes willful misfeasance, bad
faith, negligence or reckless disregard by PNC Bank of any
duties, obligations or responsibilities set forth in this
Agreement.
7. RECORDS; VISITS. The books and records pertaining to the Partnership
and any Portfolio, which are in the possession or under the control of
PNC Bank, shall be the property of the Partnership, and PNC Bank
agrees to surrender promptly such books and records to the Partnership
on and in accordance with the Partnership's request. Such books and
records shall be prepared, preserved and maintained as required by the
1940 Act and other applicable securities laws, rules and regulations.
The Partnership and Authorized Persons shall have access to such books
and records at all times during PNC Bank's normal business hours. Upon
the reasonable request of the Partnership, copies of any such books
and records shall be provided by PNC Bank to the Partnership or to an
authorized representative of the Partnership at the Partnership's
expense.
8. CONFIDENTIALITY. PNC Bank agrees to keep confidential all records of
the Partnership and information relating to the Partnership, the
Partnership's General Partner and the Shareholders, unless the release
of such records or information is otherwise consented to in writing by
the Partnership. The Partnership agrees that such consent shall not be
unreasonably withheld and may not be withheld where PNC Bank may be
exposed to civil or criminal contempt proceedings or when required to
divulge such information or records to duly constituted authorities.
9. COOPERATION WITH ACCOUNTANTS. PNC Bank shall cooperate with the
Partnership's independent public accountants and shall take all
reasonable action in the performance of its obligations under this
Agreement to ensure that the necessary information is made available
to such accountants for the expression of their opinion, as required
by the Partnership.
10. DISASTER RECOVERY. PNC Bank shall enter into and shall maintain in
effect with appropriate parties one or more agreements making
reasonable provisions for emergency use of electronic data processing
equipment to the extent appropriate equipment is available. In the
event of equipment failures, PNC Bank, at no additional expense to the
Partnership, shall take reasonable steps to minimize service
interruptions. PNC Bank shall have no liability with respect to the
loss of data or service interruptions caused by equipment failure
beyond its control, provided such loss or interruption is not caused
by PNC Bank's own willful misfeasance, bad faith, negligence or
reckless disregard of its duties or obligations under this Agreement.
11. YEAR 2000 COMPATIBILITY. PNC Bank represents and warrants as follows:
(a) All Software is designed to be used prior to, during, and after
calendar year 2000 and such Software will operate during each
such time period without error relating to date data,
specifically including any error relating to, or the conduct of,
date data which represents or references different centuries or
more than one century. Without limiting the generality of the
foregoing, (i) the Software will not abnormally end or provide
invalid or incorrect results as a result of date data, and (ii)
the Software will be capable upon installation of accurately
processing, providing and/or receiving date data from, into, and
between the twentieth and twenty-first centuries, including the
years 1999 and 2000, and leap year calculations.
(b) The Software will lose no functionality with respect to the
introduction of records containing dates falling before, on or
after January 1, 2000, and that the Software will be
interoperable with other software and systems that may deliver
records to, receive records from or otherwise interact with the
Software, including but not limited to, back-up and archived
data, date data, century recognition calculations that
accommodate same century and multi-century formulas and date
values and date data interface values that reflect the century.
12. COMPENSATION. As compensation for custody services rendered by PNC
Bank during the term of this Agreement, the Partnership, on behalf of
each of the Portfolios, will pay to PNC Bank a fee or fees as may be
agreed to in writing from time to time by the Partnership and PNC
Bank.
13. INDEMNIFICATION.
(a) The Partnership, on behalf of each Portfolio, agrees to indemnify
and hold harmless PNC Bank and its affiliates from all taxes,
charges, expenses, assessments, claims and liabilities
(including, without limitation, liabilities arising under the
Securities Laws and any state and foreign securities and blue sky
laws, and amendments thereto, and expenses, including (without
limitation) reasonable attorneys' fees and disbursements
(collectively, "Losses") arising directly or indirectly from any
action which PNC Bank takes or does not take (i) at the request
or on the direction of or in reliance on the advice of the
Partnership or (ii) upon Oral Instructions or Written
Instructions. Neither PNC Bank nor any of its affiliates shall be
indemnified against any liability (or any expenses incident to
such liability) arising out of PNC Bank's or its affiliates' own
willful misfeasance, bad faith, negligence or reckless disregard
of its duties under this Agreement.
(b) Notwithstanding anything in this Agreement to the contrary,
neither the Partnership nor any Portfolio shall be liable to PNC
Bank or its affiliates for any consequential, special or indirect
losses or damages which PNC Bank or its affiliates may incur or
suffer, whether or not the likelihood of such losses or damages
was known by the Partnership.
14. RESPONSIBILITY OF PNC BANK.
(a) PNC Bank shall be under no duty to take any action on behalf of
the Partnership or any Portfolio, except as specifically set
forth herein or as may be specifically agreed to by PNC Bank in
writing. PNC Bank shall be obligated to exercise care and
diligence in the performance of its duties hereunder, to act in
good faith and to use its best efforts, within reasonable limits,
in performing services provided for under this Agreement. PNC
Bank agrees to indemnify and hold harmless the Partnership, the
Partnership's General Partner and the Shareholders from Losses
arising out of PNC Bank's failure to perform its duties under
this agreement to the extent such damages arise out of PNC Bank's
willful misfeasance, bad faith, negligence or reckless disregard
of its duties under this Agreement.
(b) Without limiting the generality of the foregoing or of any other
provision of this Agreement, (i) PNC Bank shall not be under any
duty or obligation to inquire into and shall not be liable for
(A) the validity or invalidity or authority or lack thereof of
any Oral Instruction or Written Instruction, notice or other
instrument which conforms to the applicable requirements of this
Agreement, and which PNC Bank reasonably believes to be genuine;
or (B) subject to Sections 10 and 11 of this Agreement, delays or
errors or loss of data occurring by reason of circumstances
beyond PNC Bank's control, including acts of civil or military
authority, national emergencies, fire, flood, catastrophe, acts
of God, insurrection, war, riots or failure of the mails,
transportation, communication or power supply.
(c) Notwithstanding anything in this Agreement to the contrary,
neither PNC Bank nor its affiliates shall be liable to the
Partnership or to any Portfolio for any consequential, special or
indirect losses or damages which the Partnership may incur or
suffer by or as a consequence of PNC Bank's or its affiliates'
performance of the services provided hereunder, whether or not
the likelihood of such losses or damages was known by PNC Bank or
its affiliates.
15. DESCRIPTION OF SERVICES.
(a) DELIVERY OF THE PROPERTY. The Partnership will deliver or arrange
for delivery to PNC Bank of all of the Property owned by the
Portfolios, including cash received as a result of the
distribution of Shares, during the period that is set forth in
this Agreement. PNC Bank will not be responsible for such
Property until actual receipt.
(b) RECEIPT AND DISBURSEMENT OF MONEY. PNC Bank, acting upon Written
Instructions, shall open and maintain separate accounts in the
Partnership's name using all cash received from or for the
account of the Partnership, subject to the terms of this
Agreement. In addition, upon Written Instructions, PNC Bank shall
open separate custodial accounts for each separate Portfolio of
the Partnership (collectively, the "Accounts") and shall hold in
the Accounts all cash received from or for the Accounts of the
Partnership specifically designated to each separate Portfolio.
PNC Bank shall make cash payments from or for the Accounts of a
Portfolio only for:
(i) purchases of securities in the name of a Portfolio or PNC
Bank or PNC Bank's nominee as provided in sub-section (j)
of this Section and for which PNC Bank has received a copy
of the broker's or dealer's confirmation or payee's
invoice, as appropriate;
(ii) purchase or redemption of Shares delivered to PNC Bank;
(iii) payment of, subject to Written Instructions, interest,
taxes, administration, accounting, distribution, advisory,
management fees or similar expenses which are to be borne
by a Portfolio;
(iv) payment to, subject to Written Instructions, the
Shareholders of an amount equal to the amount of dividends
and distributions stated in the Written Instructions to be
distributed in cash.
(v) payments, upon Written Instructions, in connection with
the conversion, exchange or surrender of securities owned
or subscribed to by the Partnership and held by or
delivered to PNC Bank;
(vi) payments of the amounts of dividends received with respect
to securities sold short;
(vii) payments made to a sub-custodian pursuant to provisions in
sub-section (c) of this Section; and
(viii) payments, upon Written Instructions, made for other proper
Partnership purposes.
PNC Bank hereby is authorized to endorse and collect all checks,
drafts or other orders for the payment of money received as
custodian for the Accounts.
(c) RECEIPT OF SECURITIES; SUBCUSTODIANS.
(i) PNC Bank shall hold all securities received by it for the
Accounts in a separate account that physically segregates
such securities from those of any other persons, firms or
corporations, except for securities held in a Book-Entry
System. All such securities shall be held or disposed of
only upon Written Instructions of the Partnership pursuant
to the terms of this Agreement. PNC Bank shall have no
power or authority to assign, hypothecate, pledge or
otherwise dispose of any such securities or investment,
except upon the express terms of this Agreement and upon
Written Instructions, accompanied by a certified
resolution of the Partnership's General Partner or
Directors, authorizing the transaction. In no case may any
member of the Partnership's General Partner, or any
officer, employee or agent of the Partnership withdraw any
securities.
At PNC Bank's own expense and for its own convenience, PNC
Bank may enter into sub-custodian agreements with other
United States banks or trust companies to perform duties
described in this sub-section (c). Such bank or trust
company shall have an aggregate capital, surplus and
undivided profits, according to its last published report,
of at least one million dollars ($1,000,000) if it is a
subsidiary or affiliate of PNC Bank, or at least twenty
million dollars ($20,000,000) if such bank or trust
company is not a subsidiary or affiliate of PNC Bank. In
addition, such bank or trust company must be qualified to
act as custodian and agree to comply with the relevant
provisions of the 1940 Act and other applicable rules and
regulations. Any such arrangement will not be entered into
without prior written notice to the Partnership.
PNC Bank shall remain responsible for the performance of all of
its duties as described in this Agreement and shall hold the
Partnership and each Portfolio harmless from its own acts or
omissions, under the standards of care provided for herein, or
the acts and omissions of any sub-custodian chosen by PNC Bank
under the terms of this sub-section (c).
(d) TRANSACTIONS REQUIRING INSTRUCTIONS. Upon receipt of Oral
Instructions or Written Instructions and not otherwise, PNC Bank,
directly or through the use of the Book-Entry System, shall:
(i) deliver any securities held for a Portfolio against the
receipt of payment for the sale of such securities;
(ii) execute and deliver to such persons as may be designated
in such Oral Instructions or Written Instructions,
proxies, consents, authorizations, and any other
instruments whereby the authority of a Portfolio as owner
of any securities may be exercised;
(iii) deliver any securities to the issuer thereof, or its
agent, when such securities are called, redeemed, retired
or otherwise become payable; provided that, in any such
case, the cash or other consideration is to be delivered
to PNC Bank;
(iv) deliver any securities held for a Portfolio against
receipt of other securities or cash issued or paid in
connection with the liquidation, reorganization,
refinancing, tender offer, merger, consolidation or
recapitalization of any corporation, or the exercise of
any conversion privilege;
(v) deliver any securities held for a Portfolio to any
protective committee, reorganization committee or other
person in connection with the reorganization, refinancing,
merger, consolidation, recapitalization or sale of assets
of any corporation, and receive and hold under the terms
of this Agreement such certificates of deposit, interim
receipts or other instruments or documents as may be
issued to it to evidence such delivery;
(vi) make such transfer or exchanges of the assets of the
Portfolios and take such other steps as shall be stated in
said Oral Instructions or Written Instructions to be for
the purpose of effectuating a duly authorized plan of
liquidation, reorganization, merger, consolidation or
recapitalization of the Partnership;
(vii) release securities belonging to a Portfolio to any bank or
trust company for the purpose of a pledge or hypothecation
to secure any loan incurred by the Partnership on behalf
of that Portfolio; provided, however, that securities
shall be released only upon payment to PNC Bank of the
monies borrowed, except that in cases where additional
collateral is required to secure a borrowing already made
subject to proper prior authorization, further securities
may be released for that purpose; and repay such loan upon
redelivery to it of the securities pledged or hypothecated
therefor and upon surrender of the note or notes
evidencing the loan;
(viii) release and deliver securities owned by a Portfolio in
connection with any repurchase agreement entered into on
behalf of the Partnership, but only on receipt of payment
therefor; and pay out moneys of the Partnership in
connection with such repurchase agreements, but only upon
the delivery of the securities;
(ix) release and deliver or exchange securities owned by the
Partnership in connection with any conversion of such
securities, pursuant to their terms, into other
securities;
(x) release and deliver securities owned by the Partnership
for the purpose of redeeming in kind shares of the
Partnership upon delivery thereof to PNC Bank; and
(xi) release and deliver or exchange securities owned by the
Partnership for other corporate purposes.
PNC Bank must also receive a certified resolution describing the
nature of the corporate purpose and the name and address of the
person(s) to whom delivery shall be made when such action is
pursuant to this sub-section (d).
(e) USE OF BOOK-ENTRY SYSTEM.
The Partnership shall deliver to PNC Bank certified resolutions
of the Partnership's General Partner or Directors approving,
authorizing and instructing PNC Bank on a continuous basis, to
deposit in the Book-Entry System all securities belonging to the
Portfolios eligible for deposit therein and to utilize the
Book-Entry System to the extent possible in connection with
settlements of purchases and sales of securities by the
Portfolios, and deliveries and returns of securities loaned,
subject to repurchase agreements or used as collateral in
connection with borrowings. PNC Bank shall continue to perform
such duties until it receives Written Instructions or Oral
Instructions authorizing contrary actions.
PNC Bank shall administer the Book-Entry System as follows:
(i) With respect to securities of each Portfolio which are
maintained in the Book-Entry System, the records of PNC
Bank shall identify by book-entry or otherwise those
securities belonging to each Portfolio. PNC Bank shall
furnish to the Partnership a detailed statement of the
Property held for each Portfolio under this Agreement at
least monthly and from time to time and upon written
request.
(ii) Securities and any cash of each Portfolio deposited in the
Book-Entry System will at all times be segregated from any
assets and cash controlled by PNC Bank in other than a
fiduciary or custodian capacity but may be commingled with
other assets held in such capacities. PNC Bank and its
sub-custodian, if any, will pay out money only upon
receipt of securities and will deliver securities only
upon the receipt of money.
(iii) All books and records maintained by PNC Bank which relate
to the Partnership's participation in the Book-Entry
System will be open to the inspection of Authorized
Persons at all times during PNC Bank's regular business
hours, and PNC Bank will furnish to the Partnership
information in respect of the services rendered as it may
require.
PNC Bank also will provide the Partnership with such reports on
its own system of internal control as the Partnership may
reasonably request from time to time.
(f) REGISTRATION OF SECURITIES. All Securities held for a Portfolio
which are issued or issuable only in bearer form, except such
securities held in the Book-Entry System, shall be held by PNC
Bank in bearer form; all other securities held for a Portfolio
may be registered in the name of the Partnership on behalf of
that Portfolio, PNC Bank, the Book-Entry System, a sub-custodian,
or any duly appointed nominees of the Partnership, PNC Bank,
Book-Entry System or sub-custodian. The Partnership reserves the
right to instruct PNC Bank as to the method of registration and
safekeeping of the securities of the Partnership. The Partnership
agrees to furnish to PNC Bank appropriate instruments to enable
PNC Bank to hold or deliver in proper form for transfer, or to
register in the name of its nominee or in the name of the
Book-Entry System, any securities which it may hold for the
Accounts and which may be registered from time to time in the
name of the Partnership on behalf of a Portfolio.
(g) VOTING AND OTHER ACTION. Neither PNC Bank nor its nominee shall
vote any of the securities held pursuant to this Agreement by or
for the account of a Portfolio, except in accordance with Written
Instructions. PNC Bank, directly or through the use of the
Book-Entry System, shall execute in blank and promptly deliver
all notices, proxies and proxy soliciting materials to the
registered holder of such securities. If the registered holder is
not the Partnership on behalf of a Portfolio, then Written
Instructions or Oral Instructions must designate the person who
owns such securities.
(h) TRANSACTIONS NOT REQUIRING INSTRUCTIONS. In the absence of
contrary Written Instructions, PNC Bank is authorized to take the
following actions:
(i) COLLECTION OF INCOME AND OTHER PAYMENTS.
(A) collect and receive for the account of each Portfolio,
all income, dividends, distributions, coupons, option
premiums, other payments and similar items, included or
to be included in the Property, and promptly advise
each Portfolio of such receipt and credit such income,
as collected, to each Portfolio's custodian account;
(B) endorse and deposit for collection, in the name of the
Partnership, checks, drafts or other orders for the
payment of money;
(C) receive and hold for the account of each Portfolio all
securities received as a distribution on the
Portfolio's securities as a result of a stock dividend,
share split-up or reorganization, recapitalization,
readjustment or other rearrangement or distribution of
rights or similar securities issued with respect to any
securities belonging to a Portfolio and held by PNC
Bank hereunder;
(D) present for payment and collect the amount payable upon
all securities which may mature or be called, redeemed
or retired, or otherwise become payable on the date
such securities become payable; and
(E) take any action which may be necessary and proper in
connection with the collection and receipt of such
income and other payments and the endorsement for
collection of checks, drafts and other negotiable
instruments.
(ii) MISCELLANEOUS TRANSACTIONS.
(A) deliver or cause to be delivered Property against
payment or other consideration or written receipt
therefor in the following cases:
(1) for examination by a broker or dealer selling for
the account of a Portfolio in accordance with
street delivery custom;
(2) for the exchange of interim receipts or temporary
securities for definitive securities; and
(3) for transfer of securities into the name of the
Partnership on behalf of a Portfolio or PNC Bank
or nominee of either, or for exchange of
securities for a different number of bonds,
certificates or other evidence, representing the
same aggregate face amount or number of units
bearing the same interest rate, maturity date and
call provisions, if any; provided that, in any
such case, the new securities are to be delivered
to PNC Bank.
(B) Unless and until PNC Bank receives Oral Instructions or
Written Instructions to the contrary, PNC Bank shall:
(1) pay all income items held by it which call for
payment upon presentation and hold the cash
received by it upon such payment for the account
of each Portfolio;
(2) collect interest and cash dividends received, with
notice to the Partnership, to the account of each
Portfolio;
(3) hold for the account of each Portfolio all stock
dividends, rights and similar securities issued
with respect to any securities held by PNC Bank;
and
(4) execute as agent on behalf of the Partnership all
necessary ownership certificates required by the
Code or the Income Tax Regulations of the United
States Treasury Department or under the laws of
any state now or hereafter in effect, inserting
the Partnership's name, on behalf of a Portfolio,
on such certificate as the owner of the securities
covered thereby, to the extent it may lawfully do
so.
(i) SEGREGATED ACCOUNTS.
(i) PNC Bank, upon receipt of Written Instructions or Oral
Instructions, shall establish and maintain segregated
accounts on its records for and on behalf of each
Portfolio. Such accounts may be used to transfer cash and
securities, including securities in the Book-Entry System:
(A) for the purposes of compliance by the Partnership with
the procedures required by a securities or option
exchange, providing such procedures comply with the
1940 Act and any releases of the SEC relating to the
maintenance of segregated accounts by registered
investment companies; and
(B) Upon receipt of Written Instructions, for other proper
corporate purposes.
(ii) PNC Bank shall arrange for the establishment of IRA
custodian accounts for such shareholders holding Shares
through IRA accounts, in accordance with the Partnership's
confidential memorandum, the Code and such other
procedures as are mutually agreed upon from time to time
by and between the Partnership and PNC Bank.
(j) PURCHASES OF SECURITIES. PNC Bank shall settle purchased securities
upon receipt of Oral Instructions or Written Instructions from the
Partnership or its investment advisers that specify:
(i) the name of the issuer and the title of the securities,
including CUSIP number if applicable;
(ii) the number of shares or the principal amount purchased,
and accrued interest, if any;
(iii) the date of purchase and settlement;
(iv) the purchase price per unit;
(v) the total amount payable upon such purchase;
(vi) the Portfolio involved; and
(vii) the name of the person from whom or the broker through
whom the purchase was made. PNC Bank, upon receipt of
securities purchased by or for a Portfolio, shall pay out
of the moneys held for the account of the Portfolio the
total amount payable to the person from whom or the broker
through whom the purchase was made, provided that the same
conforms to the total amount payable as set forth in such
Oral Instructions or Written Instructions.
(k) SALES OF SECURITIES. PNC Bank shall settle sold securities upon
receipt of Oral Instructions or Written Instructions from the
Partnership that specify:
(i) the name of the issuer and the title of the security,
including CUSIP number if applicable;
(ii) the number of shares or principal amount sold, and accrued
interest, if any;
(iii) the date of trade and settlement;
(iv) the sale price per unit;
(v) the total amount payable to the Partnership upon such
sale;
(vi) the name of the broker through whom or the person to whom
the sale was made;
(vii) the location to which the security must be delivered and
delivery deadline, if any; and
(viii) the Portfolio involved.
PNC Bank shall deliver the securities upon receipt of the total amount
payable to the Portfolio upon such sale, provided that the total amount
payable is the same as was set forth in the Oral Instructions or
Written Instructions. Subject to the foregoing, PNC Bank may accept
payment in such form as shall be satisfactory to it, and may deliver
securities and arrange for payment in accordance with the customs
prevailing among dealers in securities.
(l) REPORTS; PROXY MATERIALS.
(i) PNC Bank shall furnish to the Partnership the following
reports:
(A) such periodic and special reports as the
Partnership may reasonably request;
(B) a monthly statement summarizing all
transactions and entries for the account of
each Portfolio, listing each Portfolio,
securities belonging to each Portfolio,
with the adjusted average cost of each
issue and the market value at the end of
such month, and stating the cash account of
each Portfolio, including disbursements;
(C) the reports required to be furnished to the
Partnership pursuant to Rule 17f-4 under the
1940 Act; and
(D) such other information as may be agreed upon
from time to time between the Partnership
and PNC Bank.
(ii) PNC Bank shall transmit promptly to the Partnership any
proxy statement, proxy material, notice of a call or
conversion or similar communication received by it as
custodian of the Property. PNC Bank shall be under no
other obligation to inform the Partnership as to such
actions or events.
(m) COLLECTIONS. All collections of monies or other property in respect,
or which are to become part, of the Property (but not the safekeeping
thereof upon receipt by PNC Bank) shall be at the sole risk of the
Partnership. If payment is not received by PNC Bank within a
reasonable time after proper demands have been made, PNC Bank shall
notify the Partnership in writing, including copies of all demand
letters, any written responses, memoranda of all oral responses and
shall await instructions from the Partnership. PNC Bank shall not be
obliged to take legal action for collection unless and until
reasonably indemnified to its satisfaction. PNC Bank also shall notify
the Partnership as soon as reasonably practicable whenever income due
on securities is not collected in due course and shall provide the
Partnership with periodic status reports of such income collected
after a reasonable time.
16. DURATION AND TERMINATION. This Agreement shall continue until
terminated by the Partnership or by PNC Bank on ninety (90) days'
prior written notice to the other party. In the event this Agreement
is terminated (pending appointment of a successor to PNC Bank or vote
of the shareholders of the Partnership to dissolve or to function
without a custodian of its cash, securities or other property), PNC
Bank shall not deliver cash, securities or other property of the
Portfolios to the Partnership. It may deliver them to a bank or trust
company of PNC Bank's choice, having an aggregate capital, surplus and
undivided profits, as shown by its last published report, of not less
than twenty million dollars ($20,000,000), as a custodian for the
Partnership to be held under terms similar to those of this Agreement.
PNC Bank shall not be required to make any such delivery or payment
until full payment shall have been made to PNC Bank of all of its
fees, compensation, costs and expenses attributable to the relevant
Portfolio(s). PNC Bank shall have a security interest in and shall
have a right of setoff against the Property of such Portfolios(s) as
security for the payment of such fees, compensation, costs and
expenses.
17. NOTICES. All notices and other communications, including Written
Instructions, shall be in writing or by confirming telegram, cable,
telex or facsimile sending device. Notice shall be addressed (a) if to
PNC Bank at Airport Business Center, International Court 2, 200
Stevens Drive, Lester, Pennsylvania 19113, marked for the attention of
the Custodian Services Department (or its successor) (b) if to the
Partnership, at 1285 Avenue of the Americas, New York, New York 10019,
Attn:__________ or (c) if to neither of the foregoing, at such other
address as shall have been given by like notice to the sender of any
such notice or other communication by the other party. If notice is
sent by confirming telegram, cable, telex or facsimile sending device,
it shall be deemed to have been given immediately. If notice is sent
by first-class mail, it shall be deemed to have been given five days
after it has been mailed. If notice is sent by messenger, it shall be
deemed to have been given on the day it is delivered.
18. AMENDMENTS. This Agreement, or any term hereof, may be changed or
waived only by a written amendment, signed by the party against whom
enforcement of such change or waiver is sought.
19. DELEGATION; ASSIGNMENT. PNC Bank may assign its rights and delegate
its duties hereunder to any wholly-owned direct or indirect subsidiary
of PNC Bank, National Association or PNC Bank Corp., provided that (i)
PNC Bank gives the Partnership thirty (30) days' prior written notice;
(ii) the delegate (or assignee) agrees with PNC Bank and the
Partnership to comply with all relevant provisions of the Securities
Laws, and any laws, rules and regulations of governmental authorities
having jurisdiction with respect to the duties to be performed by the
delegate (or assignee) hereunder; and (iii) PNC Bank and such delegate
(or assignee) promptly provide such information as the Partnership may
request, and respond to such questions as the Partnership may ask,
relative to the delegation (or assignment), including (without
limitation) the capabilities of the delegate (or assignee).
20. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
21. FURTHER ACTIONS. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the
purposes hereof.
22. MISCELLANEOUS.
(a) ENTIRE AGREEMENT. This Agreement embodies the entire agreement and
understanding between the parties and supersedes all prior agreements
and understandings relating to the subject matter hereof, provided
that the parties may embody in one or more separate documents their
agreement, if any, with respect to delegated duties and Oral
Instructions.
(b) CAPTIONS. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of
the provisions hereof or otherwise affect their construction or
effect.
(c) GOVERNING LAW. This Agreement shall be deemed to be a contract
made in Delaware and governed by Delaware law, without regard to
principles of conflicts of law.
(d) PARTIAL INVALIDITY. If any provision of this Agreement shall be
held or made invalid by a court decision, statute, rule or otherwise,
the remainder of this Agreement shall not be affected thereby.
(e) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
(f) FACSIMILE SIGNATURES. The facsimile signature of any party to this
Agreement shall constitute the valid and binding execution hereof by
such party.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the day and year first above written.
PNC BANK, NATIONAL ASSOCIATION
By: _____________________________
Name:
Title:
CONGRESS STREET ASSOCIATES, L.P.
By: _____________________________
Name:
Title:
<PAGE>
AUTHORIZED PERSONS APPENDIX
NAME (TYPE) SIGNATURE
ROBERT DISCOLO
- ------------------------------------ ------------------------------------
RUTH S. GOODSTEIN
- ------------------------------------ ------------------------------------
NED SIENKO
- ------------------------------------ ------------------------------------
MITCHELL A. TANZMAN
- ------------------------------------ ------------------------------------
EXHIBIT (K)(1)
MANAGEMENT AND ADMINISTRATION AGREEMENT
BY AND BETWEEN
PW FUND ADVISOR, L.L.C.
AND
CONGRESS STREET ASSOCIATES, L.P.
THIS MANAGEMENT AND ADMINISTRATION AGREEMENT (the "Agreement") is made
as of this 16th day of July, 1998, by and between PW Fund Advisor, L.L.C.
("PWFA") and Congress Street Associates, L.P. (the "Partnership").
WHEREAS, PWFA is in the business of providing, and the Partnership
wishes PWFA to provide, certain management and administrative services;
NOW THEREFORE, in consideration of the terms and conditions herein
contained, the parties agree as follows:
1. APPOINTMENT OF PWFA.
(a) The Partnership hereby appoints, and PWFA hereby accepts
appointment, to serve as the Partnership's management company. In such capacity,
PWFA agrees to provide certain management (but not investment management) and
administrative services to the Partnership. These services shall include:
(i) the provision of office space, telephone and utilities;
(ii) the provision of administrative and secretarial, clerical
and other personnel as necessary to provide the services
required to be provided under this Agreement;
(iii) the general supervision of the entities which are retained
by the Partnership to provide administrative services and
custody services to the Partnership;
(iv) the handling of investor inquiries regarding the
Partnership and providing investors with information
concerning their investment in the Partnership and capital
account balances;
(v) monitoring relations and communications between investors
and the Partnership;
(vi) overseeing the drafting and updating of disclosure
documents relating to the Partnership and assisting in the
distribution of all offering materials to investors;
(vii) maintaining and updating investor information, such as
change of address and employment;
(viii) overseeing the distribution and acceptance of investor
subscription documents and confirming the receipt of such
documents and funds;
(ix) overseeing the provision of investment advice to the
Partnership by Congress Street Management, L.L.C., the
manager of the Partnership (or any successor adviser) (the
"Manager"), and monitoring compliance by the Manager with
applicable investment policies and restrictions of the
Partnership;
(x) coordinating and organizing meetings of the Partnership's
directors (the "Directors");
(xi) preparing materials and reports for use in connection with
meetings of the Directors; and
(xii) reviewing and approving all regulatory filings required
under applicable law.
(b) All other services to be performed, and expenses related
thereto, in the operation of the Partnership shall be borne by the Partnership.
(c) Notwithstanding the appointment of PWFA to provide services
hereunder, the Directors shall remain responsible for supervising and
controlling the management, business and affairs of the Partnership.
2. PWFA FEE; REIMBURSEMENT OF EXPENSES.
(a) In consideration for the provision by PWFA of its services
hereunder, the Partnership will pay PWFA a monthly management fee of .125%
(1.50% on an annualized basis) of the Partnership's "net assets," excluding
assets attributable to the Manager's capital account (the "Fee"). "Net assets"
shall equal the total value of all assets of the Partnership, less an amount
equal to all accrued debts, liabilities and obligations of the Partnership
calculated before giving effect to any repurchase of interests.
(b) The Fee will be computed based on the net assets of the
Partnership as of the start of business on the first business day of each month,
after adjustment for any subscriptions effective on such date, and will be due
and payable in arrears within five days after the end of such month. The Fee
will be charged in each fiscal period to the capital accounts of the
Partnership's limited partners in proportion to their capital accounts at the
beginning of such fiscal period. In the event that the Fee is payable in respect
of a partial month, such fee will be appropriately pro-rated.
(c) PWFA is responsible for all costs and expenses associated
with the provision of its services hereunder. The Partnership shall pay all
other expenses associated with the conduct of its business, including the costs
and expenses of holding any meetings of the Directors that are regularly
scheduled, permitted or required to be held under the terms of the Partnership's
amended and restated limited partnership agreement, the Investment Company Act
of 1940, as amended (the "1940 Act"), or other applicable law, and the fees and
disbursements of any attorneys engaged on behalf of the Partnership.
(d) The Partnership understands that PWFA may pay a portion of
the fees received by it hereunder to an affiliate of Granum Advisors, L.L.C.
3. LIABILITY. PWFA will not be liable for any error of judgment or
mistake of law or for any loss suffered by the Partnership or its partners in
connection with the performance of its duties under this Agreement, except a
loss resulting from willful misfeasance, bad faith or gross negligence on PWFA's
part (or on the part of an officer or employee of PWFA) in the performance of
its duties hereunder or reckless disregard by it of its duties under this
Agreement.
4. EFFECTIVE DATE AND TERMINATION. This Agreement shall become
effective as of the date first noted above, and shall remain in effect for an
initial term of two years from the date of its effectiveness. This Agreement may
be continued in effect from year to year thereafter provided that each such
continuance is approved by the Directors, including the vote of a majority of
the Directors who are not "interested persons" of the Partnership, as defined by
the 1940 Act. This Agreement may be terminated by PWFA, by the Directors or by
vote of a majority of the outstanding voting securities of the Partnership at
any time, in each case upon not less than 60 days' prior written notice. This
Agreement shall also terminate automatically in the event of its "assignment,"
as such term is defined by the 1940 Act.
5. ENTIRE AGREEMENT. This Agreement embodies the entire understanding
of the parties. This Agreement cannot be altered, amended, supplemented, or
abridged, or any provisions waived, except by written agreement of the parties.
6. CHOICE OF LAW. This Agreement shall be construed and enforced in
accordance with the laws of the State of New York and the 1940 Act. In the event
the laws of New York conflict with the 1940 Act, the applicable provisions of
the 1940 Act shall control.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
PW FUND ADVISOR, L.L.C.
By:_______________________________
Name:
Title:
CONGRESS STREET ASSOCIATES, L.P.
By: _______________________________
Name:
Title:
EXHIBIT (K)(2)
ADMINISTRATION, ACCOUNTING AND INVESTOR SERVICES AGREEMENT
THIS AGREEMENT is made as of July 16, 1998 by and between Congress
Street Associates, L.P., a Delaware limited partnership, (the "Partnership"),
and PFPC INC., a Delaware corporation ("PFPC"), which is an indirect,
wholly-owned subsidiary of PNC Bank Corp.
W I T N E S S E T H :
WHEREAS, the Partnership is registered as a closed-end,
non-diversified management investment company under the Investment Company Act
of 1940, as amended (the "1940 Act"); and
WHEREAS, the Partnership wishes to retain PFPC to provide certain
administration, accounting and investor services provided for herein and PFPC
wishes to furnish such services.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, and intending to be legally bound hereby the parties
hereto agree as follows:
1. DEFINITIONS. AS USED IN THIS AGREEMENT:
(a) "1933 Act" means the Securities Act of 1933, as amended.
(b) "1934 Act" means the Securities Exchange Act of 1934, as
amended.
(c) "Authorized Person" means any person duly authorized by the
Partnership's directors to give Oral Instructions and Written Instructions on
behalf of the Partnership and listed on the Authorized Persons Appendix attached
hereto or any amendment thereto as may be received by PFPC from time to time. An
Authorized Person's scope of authority may be limited to the extent set forth in
the Authorized Persons Appendix.
(d) "CEA" means the Commodities Exchange Act, as amended.
(e) "General Partners" and "Limited Partners" shall have the same
meanings as set forth in the Partnership's amended and restated limited
partnership agreement (the "Limited Partnership Agreement").
(f) "Manager" means Congress Street Management, L.L.C.
(g) "Memorandum" means the Partnership's confidential memorandum.
(h) "Oral Instructions" mean oral instructions received by PFPC
from an Authorized Person or from a person reasonably believed by PFPC to be an
Authorized Person.
(i) "SEC" means the Securities and Exchange Commission.
(j) "Securities Laws" means the 1933 Act, the 1934 Act, the 1940
Act and the CEA.
(k) "Software" means all software and electronic data processing
systems used or that will be used by PFPC prior to, during or after the calendar
year 2000 in connection with the provision of services hereunder.
(l) "Written Instructions" mean written instructions signed by an
Authorized Person or a person reasonably believed by PFPC to be an Authorized
Person and received by PFPC. The instructions may be delivered by hand, mail,
tested telegram, cable, telex or facsimile sending device.
2. APPOINTMENT. The Partnership hereby appoints PFPC to provide
administration, accounting and investor services to the Partnership, in
accordance with the terms set forth in this Agreement. PFPC accepts such
appointment and agrees to furnish such services.
3. DELIVERY OF DOCUMENTS. The Partnership has provided or, where
applicable, will provide PFPC with the following:
(a) certified or authenticated copies of the resolutions of the
Partnership's directors, approving the appointment of PFPC or its affiliates to
provide services and approving this Agreement;
(b) a copy of the Partnership's most recent effective
registration statement on Form N-2 under the 1940 Act, as filed with the SEC;
(c) a copy of the Limited Partnership Agreement;
(d) a copy of any distribution agreement with respect to the
Partnership;
(e) a copy of any additional administration agreement with
respect to the Partnership;
(f) a copy of any investor servicing agreement made with respect
to the Partnership; and
(g) copies (certified or authenticated, where applicable) of any
and all amendments or supplements to the foregoing.
4. COMPLIANCE WITH RULES AND REGULATIONS. PFPC undertakes to comply
with all applicable requirements of the Securities Laws, and any laws, rules and
regulations of governmental authorities having jurisdiction with respect to the
duties to be performed by PFPC hereunder. Except as specifically set forth
herein, PFPC assumes no responsibility for such compliance by the Partnership or
any other party.
5. INSTRUCTIONS.
(a) Unless otherwise provided in this Agreement, PFPC shall act
only upon Oral Instructions and Written Instructions.
(b) PFPC shall be entitled to rely upon any Oral Instructions or
Written Instructions it receives from an Authorized Person (or from a person
reasonably believed by PFPC to be an Authorized Person) pursuant to this
Agreement. PFPC may assume that any Oral Instruction or Written Instruction
received hereunder is not in any way inconsistent with the provisions of
organizational documents or this Agreement or of any vote, resolution or
proceeding of the Partnership's directors or of the Partnership's Limited
Partners, unless and until PFPC receives Written Instructions to the contrary.
(c) The Partnership agrees to forward to PFPC Written
Instructions confirming Oral Instructions (except where such Oral Instructions
are given by PFPC or its affiliates) and shall endeavor to ensure that PFPC
receives the Written Instructions by the close of business on the same day that
such Oral Instructions are received. The fact that such confirming Written
Instructions are not received by PFPC shall in no way invalidate the
transactions or enforceability of the transactions authorized by the Oral
Instructions. Where Oral Instructions or Written Instructions reasonably appear
to have been received from an Authorized Person, PFPC shall incur no liability
to the Partnership in acting upon such Oral Instructions or Written Instructions
provided that PFPC's actions comply with the other provisions of this Agreement.
6. RIGHT TO RECEIVE ADVICE.
(a) Advice of the Partnership. If PFPC is in doubt as to any
action it should or should not take, PFPC may request directions or advice,
including Oral Instructions or Written Instructions, from the Partnership.
(b) Advice of Counsel. If PFPC shall be in doubt as to any
question of law pertaining to any action it should or should not take, PFPC may
request advice at its own cost from counsel of its own choosing (who may,
without limitation, be counsel for the Partnership, or PFPC, at the option of
PFPC), provided that such counsel is selected with reasonable care.
(c) Conflicting Advice. In the event of a conflict between
directions, advice or Oral Instructions or Written Instructions PFPC receives
from the Partnership and the advice PFPC receives from counsel selected with
reasonable care, PFPC may rely upon and follow the advice of such counsel. PFPC
shall promptly inform the Partnership of such conflict and PFPC shall refrain
from acting in the event of a conflict unless counsel advises PFPC that a
failure to take action is likely to result in additional loss, liability or
expense. If PFPC relies on the advice of counsel selected with reasonable care,
PFPC will remain liable for any action or omission on the part of PFPC which
constitutes willful misfeasance, bad faith, gross negligence or reckless
disregard by PFPC of any duties, obligations or responsibilities set forth in
this Agreement.
(d) Protection of PFPC. PFPC shall be protected in any action it
takes or does not take in reliance upon directions, advice or Oral Instructions
or Written Instructions it receives from the Partnership or (to the extent
permitted under clause (c) above) from counsel selected with reasonable care and
which PFPC believes, in good faith, to be consistent with those directions,
advice and Oral Instructions or Written Instructions. Nothing in this section
shall be construed so as to impose an obligation upon PFPC (i) to seek such
directions, advice or Oral Instructions or Written Instructions, or (ii) to act
in accordance with such directions, advice or Oral Instructions or Written
Instructions unless, under the terms of other provisions of this Agreement, the
same is a condition of PFPC's properly taking or not taking such action. Nothing
in this subsection shall excuse PFPC when an action or omission on the part of
PFPC constitutes willful misfeasance, bad faith, gross negligence or reckless
disregard by PFPC of any duties, obligations or responsibilities set forth in
this Agreement.
7. RECORDS; VISITS.
(a) The books and records pertaining to the Partnership, which
are in the possession or under the control of PFPC, shall be the property of the
Partnership, and PFPC agrees to surrender promptly such books and records to the
Partnership on and in accordance with the Partnership's request. Such books and
records shall be prepared, preserved and maintained as required by the 1940 Act
and other applicable securities laws, rules and regulations. The Partnership and
Authorized Persons shall have access to such books and records at all times
during PFPC's normal business hours. Upon the reasonable request of the
Partnership, copies of any such books and records shall be provided by PFPC to
the Partnership or to an Authorized Person, at the Partnership's expense.
(b) PFPC shall keep the following records:
(i) all books and records with respect to the
Partnership's books of account;
(ii) records of the Partnership's securities transactions;
and
(iii) all other books and records as the Partnership is
required to maintain pursuant to Rule 31a-1 of the
1940 Act in connection with the services provided by
PFPC hereunder.
(c) Upon termination of this Agreement, PFPC, on and in
accordance with the Partnership's request, shall deliver the books and records
pertaining to the Partnership, which are in the possession or under control of
PFPC, to the Partnership or any other person designated by the Partnership.
8. CONFIDENTIALITY. PFPC agrees to keep confidential all records of
the Partnership and information relating to the Partnership, the General
Partners and the Limited Partners, unless the release of such records or
information is otherwise consented to, in writing, by the Partnership. The
Partnership agrees that such consent shall not be unreasonably withheld. The
Partnership further agrees that, should PFPC be required to provide such
information or records to duly constituted authorities (who may institute civil
or criminal contempt proceedings for failure to comply), PFPC shall not be
required to seek the Partnership's consent prior to disclosing such information.
9. LIAISON WITH ACCOUNTANTS. PFPC shall act as liaison with the
Partnership's independent public accountants and shall provide account analyses,
fiscal year summaries, and other audit-related schedules as the Partnership or
such accountants may reasonably request. PFPC shall take all reasonable action
in the performance of its duties under this Agreement to ensure that the
necessary information is made available to such accountants for the expression
of their opinion, as required by the Partnership.
10. DISASTER RECOVERY. PFPC shall enter into and shall maintain in
effect with appropriate parties one or more agreements making reasonable
provisions for emergency use of electronic data processing equipment to the
extent appropriate equipment is available. In the event of equipment failures,
PFPC shall, at no additional expense to the Partnership, take reasonable steps
to minimize service interruptions. PFPC shall have no liability with respect to
the loss of data or service interruptions caused by equipment failure beyond its
control, provided such loss or interruption is not caused by PFPC's own willful
misfeasance, bad faith, gross negligence or reckless disregard of its duties or
obligations under this Agreement.
11. YEAR 2000 COMPATIBILITY. PFPC represents and warrants as follows:
(a) All Software is designed to be used prior to, during, and
after calendar year 2000 and such Software will operate during each such time
period without error relating to date data, specifically including any error
relating to, or the conduct of, date data which represents or references
different centuries or more than one century. Without limiting the generality of
the foregoing, (i) the Software will not abnormally end or provide invalid or
incorrect results as a result of date data, and (ii) the Software will be
capable upon installation of accurately processing, providing and/or receiving
date data from, into, and between the twentieth and twenty-first centuries,
including the years 1999 and 2000, and leap year calculations.
(b) The Software will lose no functionality with respect to the
introduction of records containing dates falling before, on or after January 1,
2000, and that the Software will be interoperable with other software and
systems that may deliver records to, receive records from or otherwise interact
with the Software, including but not limited to, back- up and archived data,
date data, century recognition calculations that accommodate same century and
multi-century formulas and date values and date data interface values that
reflect the century.
12. COMPENSATION. As compensation for services rendered by PFPC during
the term of this Agreement, the Partnership will pay to PFPC a fee or fees as
may be agreed to in writing by the Partnership and PFPC.
13. INDEMNIFICATION.
(a) The Partnership agrees to indemnify and hold harmless PFPC
and its affiliates from all taxes, charges, expenses, assessments, claims and
liabilities (including, without limitation, liabilities arising under the
Securities Laws and any state or foreign securities and Blue Sky laws, and
amendments thereto), and expenses, including, without limitation, reasonable
attorneys' fees and disbursements (collectively, "Losses") arising directly or
indirectly from any action which PFPC takes or does not take (i) at the request
or on the direction of or in reliance on the advice of the Partnership or (ii)
upon Oral Instructions or Written Instructions. Neither PFPC nor any of its
affiliates shall be indemnified against any liability, or any expenses incident
to such liability, arising out of PFPC's or its affiliates own willful
misfeasance, bad faith, gross negligence or reckless disregard of its duties and
obligations under this Agreement.
(b) Notwithstanding anything in this Agreement to the contrary,
the Partnership shall not be liable to PFPC or its affiliates for any
consequential, special or indirect losses or damages which PFPC or its
affiliates may incur or suffer, whether or not the likelihood of such losses or
damages was known by the Partnership.
14. RESPONSIBILITY OF PFPC.
(a) PFPC shall be under no duty to take any action on behalf of
the Partnership except as necessary to fulfill its duties and obligations as
specifically set forth herein or as may be specifically agreed to by PFPC in
writing. PFPC shall be obligated to exercise care and diligence in the
performance of its duties hereunder, to act in good faith and to use its best
efforts, within reasonable limits, in performing services provided for under
this Agreement. PFPC agrees to indemnify and hold harmless the Partnership, the
General Partners and the Limited Partners from Losses arising out of PFPC's
failure to perform its duties under this Agreement to the extent such damages
arise out of PFPC's willful misfeasance, bad faith, gross negligence or reckless
disregard of such duties.
(b) Without limiting the generality of the foregoing or of any
other provision of this Agreement, (i) PFPC shall not be liable for losses
beyond its control, provided that PFPC has acted in accordance with the standard
of care set forth above; and (ii) PFPC shall not be liable for (A) the validity
or invalidity or authority or lack thereof of any Oral Instruction or Written
Instruction, notice or other instrument which conforms to the applicable
requirements of this Agreement, and which PFPC reasonably believes to be
genuine; or (B) subject to Sections 10 and 11 of this Agreement, delays or
errors or loss of data occurring by reason of circumstances beyond PFPC's
control, including acts of civil or military authority, national emergencies,
labor difficulties, fire, flood, catastrophe, acts of God, insurrection, war,
riots or failure of the mails, transportation, communication or power supply.
(c) Notwithstanding anything in this Agreement to the contrary,
neither PFPC nor its affiliates shall be liable to the Partnership for any
consequential, special or indirect losses or damages which the Partnership may
incur or suffer by or as a consequence of PFPC's or any affiliates' performance
of the services provided hereunder, whether or not the likelihood of such losses
or damages was known by PFPC or its affiliates.
15. DESCRIPTION OF ACCOUNTING SERVICES ON A CONTINUOUS BASIS. PFPC
will perform the following accounting services:
(i) Journalize investment, capital and income and expense
activities;
(ii) Verify investment buy/sell trade tickets when
received from the Manager in accordance with PFPC's
written procedures;
(iii) Maintain individual ledgers for investment
securities;
(iv) Maintain historical tax lots for each security;
(v) Record and reconcile corporate action activity and
all other capital changes with the Manager;
(vi) Reconcile cash and investment balances of the
Partnership with the Custodian, and provide the
Manager with the beginning cash balance available for
investment purposes;
(vii) Update the cash availability throughout the day as
required by the Manager, including details of cash
movements related to securities and payment of
Partnership expenses;
(viii) Calculate contractual expenses (e.g., advisory and
custody fees) in accordance with the Memorandum;
(ix) Maintain expense budget for the Partnership and
notify an officer of the Partnership of any proposed
adjustments;
(x) Control all disbursements and authorize such
disbursements from the Partnership's account at
__________________ upon Written Instructions;
(xi) Calculate capital gains and losses;
(xii) Determine net income;
(xiii) Determine applicable foreign exchange gains and
losses on payables and receivables;
(xiv) Interface with global custodian to monitor collection
of tax reclaims;
(xv) Obtain daily security market quotes from independent
pricing services approved by the Manager, or if such
quotes are unavailable, then obtain such prices from
the Manager, and, in either case, calculate the
market value and the appreciation/depreciation on the
Partnership's investments;
(xvi) Transmit or otherwise send a copy of the daily
portfolio valuation to the Manager;
(xvii) Compute net asset values monthly;
(xviii) Research and recommend portfolio accounting tax
treatment for unique security types; and
(xix) As appropriate, compute yields, total return, expense
ratios, portfolio turnover rate, and, if required,
portfolio average dollar- weighted maturity in
accordance with applicable regulations.
16. DESCRIPTION OF ADMINISTRATION SERVICES ON A CONTINUOUS BASIS. PFPC
will perform the following administration services:
(i) Prepare quarterly broker security transactions
summaries, including principal and agency
transactions and related commissions;
(ii) Prepare monthly security transaction listings;
(iii) Supply various normal and customary Partnership
statistical data as requested on an ongoing basis;
(iv) Provide, to the extent contained in accounting
records, materials required for board reporting as
may be requested from time to time;
(v) Prepare for execution and file the Partnership's
Federal Form 1065 and state tax returns;
(vi) Prepare and file the Partnership's Annual and
Semi-Annual Reports with the SEC on Form N-SAR via
EDGAR;
(vii) Prepare and coordinate the printing of and filing
with the SEC via EDGAR the Partnership's annual,
semi-annual, and quarterly shareholder reports;
(viii) Assist in the preparation of registration statements;
(ix) Transmit or otherwise send, to the extent practicable
and feasible, requested detailed information related
to the Limited Partners, including admission details,
income, capital gains and losses, and performance
detail;
(x) Mail Partnership offering materials to prospective
investors; and
(xi) Mail quarterly reports of the Manager and Semi-Annual
Financial Statements to investors, as well as any
other necessary correspondence.
17. DESCRIPTION OF INVESTOR SERVICES ON A CONTINUOUS BASIS. PFPC will
perform the following functions:
(i) Maintain the register of Limited Partners and enter
on such register all issues, transfers and
repurchases of interests in the Partnership;
(ii) Arrange for the calculation of the issue and
repurchase prices of interests in the Partnership in
accordance with the Limited Partnership Agreement and
the Memorandum; and
(iii) Allocate income, expenses, gains and losses to
individual Limited Partners' capital accounts in
accordance with applicable tax laws and with the
Memorandum;
(iv) Calculate the Incentive Allocation in accordance with
the Memorandum and reallocate corresponding amounts
from the applicable Limited Partners' accounts to the
Manager's account.
(v) Prepare and mail annually to each Partner a Form K-1
in accordance with applicable tax regulations; and
(vi) Mail tender offers to Partners for purposes of
executing repurchases.
18. DURATION AND TERMINATION. This Agreement shall be effective on the
date first above written and shall continue in effect for an initial period of
two years. Thereafter, this Agreement, unless terminated, shall continue
automatically for successive terms of one year. This Agreement may be terminated
by either party upon 60 days' prior written notice to the other party.
19. NOTICES. All notices and other communications, including Written
Instructions, shall be in writing or by confirming telegram, cable, telex or
facsimile sending device. If notice is sent by confirming telegram, cable, telex
or facsimile sending device, it shall be deemed to have been given immediately.
If notice is sent by first-class mail, it shall be deemed to have been given
three days after it has been mailed. If notice is sent by messenger, it shall be
deemed to have been given on the day it is delivered. Notices shall be addressed
(a) if to PFPC, at 400 Bellevue Parkway, Wilmington, Delaware 19809, Attn:
__________________; (b) if to the Partnership, at c/o PaineWebber Incorporated,
1285 Avenue of the Americas, New York, New York 10019, Attn: _______________; or
(c) if to neither of the foregoing, at such other address as shall have been
provided by like notice to the sender of any such notice or other communication
by the other party.
20. AMENDMENTS. This Agreement, or any term thereof, may be changed or
waived only by written amendment, signed by the party against whom enforcement
of such change or waiver is sought.
21. DELEGATION; ASSIGNMENT. PFPC may assign its rights and delegate
its duties hereunder to any wholly-owned direct or indirect subsidiary of PFPC
Inc., PNC Bank, National Association or PNC Bank Corp., provided that (i) PFPC
gives the Partnership 60 days' prior written notice; (ii) the delegate (or
assignee) agrees with PFPC and the Partnership to comply with all relevant
provisions of the Securities Laws, and any laws, rules and regulations of
governmental authorities having jurisdiction with respect to the duties to be
performed by the delegate (or assignee) hereunder; and (iii) PFPC and such
delegate (or assignee) promptly provide such information as the Partnership may
request, and respond to such questions as the Partnership may ask, relative to
the delegation (or assignment), including, without limitation, the capabilities
of the delegate (or assignee).
22. COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
23. FURTHER ACTIONS. Each party agrees to perform such further acts
and execute such further documents as are necessary to effectuate the purposes
hereof.
24. MISCELLANEOUS.
(a) Entire Agreement. This Agreement embodies the entire
agreement and understanding between the parties with respect to the subject
matter hereof and supersedes all prior agreements and understandings relating to
the subject matter hereof.
(b) Captions. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.
(c) Governing Law. This Agreement shall be deemed to be a
contract made in Delaware and governed by Delaware law, without regard to
principles of conflicts of law.
(d) Partial Invalidity. If any provision of this Agreement shall
be held or made invalid by a court decision, statute, rule or otherwise, the
remainder of this Agreement shall not be affected thereby.
(e) Successors and Assigns. This Agreement shall be binding upon
and shall inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
(f) Facsimile Signatures. The facsimile signature of any party to
this Agreement shall constitute the valid and binding execution hereof by such
party.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the day and year first above written.
PFPC INC.
By: -------------------------------
Name:
Title:
CONGRESS STREET ASSOCIATES, L.P.
By: -------------------------------
Name:
Title:
<PAGE>
AUTHORIZED PERSONS APPENDIX
NAME (TYPE) SIGNATURE
ROBERT DISCOLO
- ----------------------------------- -----------------------------------
RUTH S. GOODSTEIN
- ----------------------------------- -----------------------------------
NED SIENKO
- ----------------------------------- -----------------------------------
MITCHELL A. TANZMAN
- ----------------------------------- -----------------------------------
EXHIBIT (N)
STROOCK & STROOCK & LAVAN LLP
180 MAIDEN LANE
NEW YORK, NEW YORK 10038
JONATHAN KUSKO
(212) 806-6004
August 10, 1998
Congress Street Associates, L.P.
Congress Street Management, L.L.C.
1285 Avenue of the Americas
New York, NY 10019
Ladies and Gentlemen:
You have requested our opinion as to whether Congress Street
Associates, L.P. (the "Partnership") will be treated as a partnership rather
than an association or publicly traded partnership taxable as a corporation for
Federal income tax purposes.
The Partnership is a limited partnership organized under the Delaware
Revised Uniform Limited Partnership Act (the "Act"). Its sole general partner is
Congress Street Management, L.L.C., a Delaware limited liability company (the
"General Partner"). The Partnership is registered under the Investment Company
Act of 1940, as amended, as a closed-end, non-diversified, management investment
company.
For the purpose of rendering this opinion, we have examined the
Partnership's Registration Statement and amendments thereto filed with the
Securities and Exchange Commission (the "Registration Statement"), its Amended
and Restated Limited Partnership Agreement (the "Partnership Agreement"), and
such other documents as we have deemed necessary or relevant for the purposes of
this opinion. In rendering this opinion, we have assumed that the Partnership
Agreement is the document pursuant to which the Partnership will operate, and
that the Partnership will be operated in accordance with the Registration
Statement, the Partnership Agreement and the Act. As to various questions of
fact material to this opinion, where relevant facts were not independently
established by us, we have relied upon certain representations made by the
General Partner. We have also examined such matters of law as we have deemed
necessary or appropriate for the purposes of this opinion. We note that our
opinion is based on our examination of such law, our review of the documents
described above, the statements, representations and assumptions referred to the
above and below, the provisions of the Internal Revenue Code of 1986, as amended
(the "Code"), the regulations and published rulings thereunder, and the judicial
interpretations thereof currently in effect. Any change in applicable law or any
of the facts and circumstances described in the Registration Statement, or
inaccuracy of any statements, representations or assumptions on which we have
relied, may affect the continuing validity of our opinion.
Regulations under Section 7701 of the Code provide, insofar as is
relevant here, that an entity formed as a partnership under state law with at
least two members will be treated as a partnership for Federal income tax
purposes unless the entity elects to be classified as an association taxable as
a corporation or the entity is classified as a "publicly traded partnership"
within the meaning of Section 7704 of the Code. The General Partner has
represented that the Partnership will not make an election to be classified as
an association taxable as a corporation or take any other action inconsistent
with its treatment as a partnership for Federal income tax purposes.
Pursuant to Section 7704 of the Code, 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 under Section 7704 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.
The Regulations specifically provide, however, that the fact that a
partnership does not qualify for the safe harbors is disregarded for purposes of
determining whether interests in a partnership are readily tradable on a
secondary market or the substantial equivalent thereof. Rather, in this event
the partnership's status is examined under a general facts and circumstances
test set forth in the Regulations. We believe 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, interests in the Partnership will not be readily tradable on a
secondary market or the substantial equivalent thereof.
Based on the foregoing, we are of the opinion that the Partnership
will be treated as a partnership rather than an association or publicly traded
partnership taxable as a corporation for Federal income tax purposes.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us in the Prospectus included in
the Registration Statement, and to the filing of this opinion as an exhibit to
any application made by or on behalf of the Partnership or any Distributor or
dealer in connection with the registration and qualification of the Partnership
or its limited partnership interests under the securities laws of any state or
jurisdiction. In giving such permission, we do not admit hereby that we come
within the category of persons whose consent is required under Section 7 of the
Securities Act of 1933 or the rules and regulations of the Securities and
Exchange Commission thereunder.
Very truly yours,
STROOCK & STROOCK & LAVAN LLP
