As filed with the U.S. Securities and Exchange Commission on
June 5, 1998
Investment Company Act File No. 811-_________
-----------------------------------------------------------------
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
|_| Amendment No. ___
-------------------------
PW AFTER-TAX EQUITY PARTNERS, 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
PW AFTER-TAX EQUITY PARTNERS, 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 Outside Front Cover of Confidential
Back Cover Page 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 the Summary of Terms; The Partnership;
Registrant Investment Program; Types of
Investments and Related Risk Factors;
Additional Risk Factors
9. Management Summary of Terms; The Partnership; The
Directors; The Manager; The
Subadvisers; Brokerage; Fees and
Expenses; Capital Accounts and
Allocations - Incentive Allocation;
Additional Information and Summary of
Limited Partnership Agreement -
Custodian
10. Capital Stock, Long-Term Summary of Terms; Voting; Capital
Debt, and Other Securities Accounts and Allocations; 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
13. Table of Contents of the Not Applicable
Statement of Additional
Information
PART B
ITEM
NUMBER CAPTION PROSPECTUS CAPTION
- ------- ------- -----------------
14. Cover Page Not Applicable
15. Table of Contents Not Applicable
16. General Information and Not Applicable
History
17. Investment Objective and Summary of Terms; Investment Program;
Policies Types of Investments and Related Risk
Factors; Additional Risk Factors;
Brokerage
18. Management Summary of Terms; Directors
19. Control Persons and The Manager
Principal Holders of
Securities
20. Investment Advisory and Summary of Terms; The Manager; The
Other Services Subadvisers; Fees and Expenses;
Capital Accounts and Allocations -
Incentive Allocations; Additional
Information and Summary of Limited
Partnership Agreement
21. Brokerage Allocation and Conflicts of Interest; Brokerage
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: ________________
----------------------------
PW AFTER-TAX EQUITY PARTNERS, L.P.
----------------------------
CONFIDENTIAL MEMORANDUM
_______ 1998
----------------------------
PW FUND ADVISOR, L.L.C.
INVESTMENT ADVISER
GENERAL PARTNER
----------------------------
1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
(212) 713-2000
IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY UPON THEIR OWN
EXAMINATION OF PW AFTER-TAX EQUITY PARTNERS, 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 CONFIDENTIAL MEMORANDUM ("MEMORANDUM") OR THE
MERITS OF AN INVESTMENT IN THE PARTNERSHIP INTERESTS OFFERED HEREBY. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
TO ALL INVESTORS
THE PARTNERSHIP INTERESTS WHICH ARE DESCRIBED IN THIS MEMORANDUM HAVE
NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "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.
<PAGE>
TABLE OF CONTENTS
PAGE
SUMMARY OF TERMS.............................................................1
THE PARTNERSHIP..............................................................18
STRUCTURE....................................................................18
INVESTMENT PROGRAM...........................................................19
TYPES OF INVESTMENTS AND RELATED RISK FACTORS................................22
ADDITIONAL RISK FACTORS......................................................36
PERFORMANCE INFORMATION......................................................38
THE DIRECTORS................................................................39
THE MANAGER..................................................................40
THE SUBADVISERS..............................................................42
VOTING.......................................................................42
CONFLICTS OF INTEREST........................................................43
BROKERAGE....................................................................46
FEES AND EXPENSES............................................................47
CAPITAL ACCOUNTS AND ALLOCATIONS.............................................50
ALLOCATION OF SPECIAL ITEMS--CERTAIN WITHHOLDING TAXES
AND OTHER EXPENDITURES...................................................53
SUBSCRIPTION FOR INTERESTS...................................................55
REDEMPTIONS, REPURCHASES OF INTERESTS AND TRANSFERS..........................57
TAX ASPECTS..................................................................62
ERISA CONSIDERATIONS.........................................................80
ADDITIONAL INFORMATION AND SUMMARY OF LIMITED
PARTNERSHIP AGREEMENT....................................................82
APPENDIX A -- MODEL PORTFOLIO PERFORMANCE.....................................1
APPENDIX B -- PERFORMANCE INFORMATION.........................................2
APPENDIX C -- INVESTMENT MANAGER FEES AND ALLOCATIONS.........................5
<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 limited partnership agreement (the "Partnership
Agreement"), each of which should be read carefully and retained for future
reference.
THE PARTNERSHIP PW After-Tax Equity Partners, L.P. (the
"Partnership") is a newly organized 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) partnership
interests in the Partnership will be sold in large
minimum denominations in private placements solely
to high net worth individual and institutional
investors, and 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 to
maximize capital appreciation.
The Partnership is a multi-manager fund that seeks
to achieve its objective by deploying its assets
among a select group of asset managers that over
time have produced a track record of superior
after-tax returns in the equity markets over
different economic and market cycles. Special
consideration will be given to asset managers that
employ (a) various investment techniques, such as
short selling, and derivatives to reduce exposure
to market fluctuations when they believe market
conditions warrant and (b) leverage and
derivatives to increase such exposure when they
believe opportunities exist for capital
appreciation.
The asset managers will employ a tax-efficient
investment management approach that generally
involves: (i) selling securities to realize
capital losses that can be used to offset realized
capital gains; (ii) maintaining relatively low
portfolio turnover to minimize short-term and
mid-term capital gains; (iii) selling securities
with holding periods sufficient to qualify for
long-term capital gains treatment and, among
those, the securities with the highest cost basis,
once a decision to sell a particular security has
been made; and (iv) investing in long-term
options.
The Manager has identified the following asset
managers (the "Subadvisers") to which it intends
to allocate up to [85%] of the Partnership's
assets:
* [To be provided]
See "THE SUBADVISERS" and "APPENDIX B--Performance
Information."
To facilitate the efficient investment of the
Partnership's assets, a separate investment
vehicle has been created for each Subadviser in
which the Subadviser serves as general partner and
the Partnership is the sole limited partner. The
Manager will allocate no more than 40% of the
Partnership's assets to any Subadviser. The
Manager intends to invest the remainder of the
Partnership's assets principally in registered and
unregistered investment partnerships which have
investors other than the Partnership and in other
registered investment companies, in each case
advised by an investment manager that meets the
Manager's selection criteria (these investment
managers, together with the Subadvisers, are
referred to as the "Investment Managers," and
their investment vehicles are referred to as the
"Investment Funds"). The Manager will limit its
investment in any Investment Fund that is not
advised by a Subadviser to less than 5% of the
Investment Fund's voting securities.
The Manager will evaluate regularly each
Investment Manager to determine whether its
investment program is consistent with the
Partnership's investment objective and whether its
investment performance is satisfactory. The
Manager may reallocate the Partnership's assets
among the Investment Managers, terminate existing
Investment Managers and select additional
Investment Managers, subject to the condition that
selection of a new Subadviser requires approval of
a majority (as defined in the 1940 Act) of the
Partnership's outstanding voting securities,
unless the Partnership receives an exemption from
certain provisions of the 1940 Act. See "SUMMARY
OF TERMS--Management."
The Manager will select Investment Managers that
principally invest in equity securities of U.S.
issuers but have the ability to invest in
securities markets worldwide. Investment Managers
will not be limited in the markets (either by
location or type, such as large capitalization,
small capitalization or non-U.S. markets) or types
of equity securities in which they invest or the
investment discipline that they may employ (such
as value or growth or bottom-up or top-down
analysis). In addition to investing in equity
securities, each Investment Manager may purchase
fixed-income securities to achieve the
Partnership's investment objective and for
defensive purposes.
Each Investment Manager may use various investment
techniques for hedging and non-hedging purposes.
For example, each Investment Manager may sell
securities short, purchase and sell options and
futures contracts 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 their
investment programs, and involves certain risks to
the Partnership. Each Investment Manager may use
leverage which also entails risk. See "TYPES OF
INVESTMENTS AND RELATED RISK FACTORS." For
purposes of the Partnership's investment
restrictions and certain investment limitations
under the 1940 Act, the Partnership will look
through the Investment Funds managed by the
Subadvisers to their underlying securities.
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.
The Partnership's performance depends upon the
performance of the Investment Managers and the
Manager's ability to select Investment Managers
and effectively allocate and reallocate the
Partnership's assets among them.
Each Investment Manager's use of leverage, short
sales and derivative transactions, in certain
circumstances, can result in significant losses to
its respective Investment Fund, and thus, to the
Partnership. Investments in 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.
Each Investment Manager generally will charge the
Partnership an asset-based fee and some or all of
the Investment Managers will receive
performance-based allocations. The asset-based
fees of the Investment Managers are expected to
range from ____% to ____% and the
performance-based allocations of the Investment
Managers are expected to range from ____% to ____%
of net profits. See "APPENDIX C--Investment
Manager Fees and Allocations."
The performance-based allocation received by an
Investment Manager may create an incentive for the
Investment Manager 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
an Investment Fund's assets, the allocation may be
greater than if it were based solely on realized
gains.
In addition, the Manager will charge the
Partnership an asset-based fee and will receive a
performance-based allocation, which gives rise to
similar risks. 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."
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."
While the Partnership seeks to minimize taxable
income and gains, it nevertheless expects to earn
taxable income and to realize capital gains.
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.
INVESTING IN A MULTI-MANAGER FUND, SUCH AS THE
PARTNERSHIP, INVOLVES ADDITIONAL SPECIAL RISKS,
INCLUDING THE FOLLOWING:
Assuming he or she met the conditions imposed by
the Investment Managers, including investment
minimums that may be considerably higher than
$250,000, an investor could invest directly with
the Investment Managers. By investing in
investment vehicles indirectly through the
Partnership, the investor bears two layers of
asset-based fees and performance-based
allocations--one at the Partnership level and one
at the Investment Fund level. In addition, the
investor bears his or her proportionate share of
the fees and expenses of the Partnership
(including operating costs and administrative
fees) and, indirectly, similar expenses of the
Investment Funds. An investor indirectly may bear
expenses paid by certain Investment Funds related
to the distribution of their shares.
Each Investment Manager will receive any
performance-based allocations to which it is
entitled irrespective of the performance of the
other Investment Managers and the Partnership
generally. Accordingly, an Investment Manager with
positive performance may receive compensation from
the Partnership, and thus indirectly from
investors, even if the Partnership's overall
returns are negative.
Investment decisions of the Investment Funds are
made by the Investment Managers independently of
each other. As a result, at any particular time,
one Investment Fund may be purchasing shares of an
issuer whose shares are being sold by another
Investment Fund. Consequently, the Partnership
could incur indirectly certain transaction costs
without accomplishing any net investment result.
Some of the Investment Funds incur more risks than
others. For example, they may trade their
portfolios more actively (which results in higher
brokerage costs), may engage in investment
practices that entail greater risk, or invest in
companies whose securities and other investments
are more volatile.
MANAGEMENT Investment advice regarding the selection of
Investment Managers will be provided to the
Partnership by the Manager, which also is
responsible for the Partnership's day-to-day
management. The Manager also is the Partnership's
General Partner.
The Manager 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"). The Manager and
its affiliates provide investment advisory
services to registered investment companies,
private investment funds and individual accounts
with aggregate assets in excess of $92 billion.
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."
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.
The Manager 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. See
"CONFLICTS OF INTEREST--The Manager."
CONFLICTS OF INTEREST The investment activities of the Manager and the
Subadvisers for their own accounts and the other
accounts they manage may give rise to conflicts of
interest which may disadvantage the Partnership.
The Partnership's operations may give rise to
other conflicts of interest. See "CONFLICTS OF
INTEREST."
FEES AND EXPENSES The Manager 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 the Manager a monthly
management fee at the annual rate of 1.25% of the
Partnership's net assets, excluding assets
attributable to the Manager's capital account (the
"Fee"). The Fee will be paid to the Manager out of
the Partnership's assets, and debited against
Limited Partners' capital accounts.
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;
establishment of the Investment Funds managed by
the Subadvisers; legal fees; accounting fees;
costs of insurance; organizational and
registration expenses; certain offering costs;
expenses of meetings of Directors and Limited
Partners; and the fee paid to ______________, or
such other administrator including PaineWebber
Incorporated or its affiliates, as may be
appointed by the Directors, for providing certain
administration, accounting and investor services
to the Partnership.
The Investment Funds will bear all expenses
incurred in the business of the Investment Funds,
which are similar to those expenses incurred by
the Partnership in the business of the
Partnership.
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 10% of the net
profits, if any, that exceed the amount the
Limited Partner would have earned for the fiscal
year if it had received an annualized rate of
return of 10% on its opening capital account
balance (appropriately adjusted for contributions
and withdrawals) for such year (the "Hurdle"), and
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
reallocation (the "Incentive Allocation") will be
made only with respect to net profits that exceed
both the Hurdle and any net losses incurred in
prior years that have not been offset by net
profits earned in subsequent years. 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 $________. The Partnership may vary the
investment minimums from time to time. The
Partnership, in its discretion, may suspend
subscriptions for interests at any time. In
addition, because the Partnership may generate
"unrelated business taxable income" ("UBTI"),
charitable remainder trusts may not want to
purchase Partnership interests.
INITIAL CLOSING DATE The initial closing date for subscriptions of
interests in the Partnership is __________, 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.
Beginning in 2000, the Manager expects that
generally 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.
For the Partnership to complete its tax reporting
requirements, it must receive information on a
timely basis from the Investment Managers. An
Investment Manager's delay in providing this
information will delay the Partnership's
preparation of tax information to investors, which
is likely to cause investors to seek extensions on
the time to file their tax returns.
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 Investment Managers may use leverage
in connection with their 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
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 terminated 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.
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THE PARTNERSHIP
The Partnership is registered under the 1940 Act as a non-diversified,
closed-end management investment company. The Partnership was organized as a
limited partnership under the laws of Delaware on 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 (212)
713-2000. 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 an aggressive investment program
without making the more substantial minimum capital commitment that is required
by many private investment partnerships.
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INVESTMENT PROGRAM
The Partnership's investment objective is to maximize capital
appreciation.
The Partnership is a multi-manager fund that seeks to achieve its
objective by deploying its assets among a select group of asset managers that
over time have produced a track record of superior after-tax returns in the
equity markets over different economic and market cycles. Special consideration
will be given to asset managers that employ(a) various investment techniques,
such as short selling, and derivatives to reduce exposure to market fluctuations
when they believe market conditions warrant and (b) leverage and derivatives to
increase such exposure when they believe opportunities exist for capital
appreciation.
The asset managers will employ a tax-efficient investment management
approach that generally involves: (i) selling securities to realize capital
losses that can be used to offset realized capital gains; (ii) maintaining
relatively low portfolio turnover to minimize short-term and mid-term capital
gains; (iii) selling securities with holding periods sufficient to qualify for
long-term capital gains treatment and, among those, the securities with the
highest cost basis, once a decision to sell a particular security has been made;
and (iv) investing in long-term options.
The Manager has identified the following asset managers as Subadvisers
to which it intends to allocate up to [85%] of the Partnership's assets:
* [To be provided]
The Manager's research staff assists in the selection of Investment
Managers using its comprehensive database of asset managers to narrow the
universe of potential candidates. To narrow further the universe, the Manager
uses a range of qualitative and quantitative criteria, including:
* the asset manager's articulation of, and adherence to, a
consistent and disciplined investment philosophy;
* the asset manager's performance history;
* the quality and stability of the asset manager's organization;
* the amount of capital the asset manager has under management;
* whether the asset manager's principal has a significant personal
investment in his or her investment strategy;
* the asset manager's reputation and experience; and
* the asset manager's risk management and internal controls.
To complete its determination, the Manager generally conducts research
on the asset manager's investment process, interviews the asset manager's legal
counsel, accounting firm and prime broker, and contacts select clients of the
asset manager. Once an asset manager is selected as an Investment Manager, the
Manager will continue its oversight of the Investment Manager.
See "THE SUBADVISERS" and "APPENDIX B--Performance Information."
To facilitate the efficient investment of the Partnership's assets, a
separate investment vehicle has been created for each Subadviser in which the
Subadviser serves as general partner and the Partnership is the sole limited
partner. The Manager will allocate no more than 40% of the Partnership's assets
to any Subadviser. The Manager intends to invest the remainder of the
Partnership's assets principally in registered and unregistered investment
partnerships which have investors other than the Partnership and in other
registered investment companies, in each case advised by an investment manager
that meets the Manager's selection criteria. The Manager will limit its
investment in any Investment Fund that is not advised by a Subadviser to less
than 5% of the Investment Fund's voting securities.
The Manager will evaluate regularly each Investment Manager to
determine whether its investment program is consistent with the Partnership's
investment objective and whether its investment performance is satisfactory. The
Manager may reallocate the Partnership's assets among the Investment Managers,
terminate existing Investment Managers and select additional Investment
Managers, subject to the condition that selection of a new Subadviser requires
approval of a majority (as defined in the 1940 Act) of the Partnership's
outstanding voting securities, unless the Partnership receives an exemption from
certain provisions of the 1940 Act. See "THE SUBADVISERS."
The Manager will select Investment Managers that principally invest in
equity securities of U.S. issuers but have the ability to invest in securities
markets worldwide. Investment Managers will not be limited in the markets
(either by location or type, such as large capitalization, small capitalization
or non-U.S. markets) or types of securities in which they invest or the
investment discipline that they may employ (such as value or growth or bottom-up
or top-down analysis). In addition to investing in equity securities, each
Investment Manager may purchase fixed-income securities to achieve the
Partnership's investment objective and for defensive purposes.
Each Investment Manager may use various investment techniques for
hedging and non-hedging purposes. For example, each Investment Manager may use
leverage, sell securities short, purchase and sell options and futures contracts
and engage in other derivative transactions, subject to certain limitations. See
"TYPES OF INVESTMENTS AND RELATED RISK FACTORS--Leverage," "--Short Sales," and
"--Special Investment Instruments and Techniques."
Each Investment Manager 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 Investment Manager deems appropriate under the circumstances. Pending
allocation of the offering proceeds, and thereafter, from time to time, the
Partnership also may invest in these instruments. See "TYPES OF INVESTMENTS AND
RELATED RISK FACTORS--Money Market Instruments."
Additional information about the types of investments that are
expected to be made by the Investment Managers, their 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, THAT ITS INVESTMENT PROGRAM WILL BE SUCCESSFUL OR
THAT IT WILL BE MAXIMALLY TAX-EFFICIENT. IN PARTICULAR, EACH INVESTMENT
MANAGER'S USE OF LEVERAGE, SHORT SALES AND DERIVATIVE TRANSACTIONS, AND 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. INVESTORS COULD LOSE SOME OR ALL OF THEIR
INVESTMENT.
<PAGE>
TYPES OF INVESTMENTS AND RELATED RISK FACTORS
GENERAL
All securities investments risk the loss of capital. To the extent
that the Partnership's portfolio (which, for this purpose, means the aggregate
securities positions held by the Investment Managers) is concentrated in
securities of a single issuer or issuers in a single industry, the risk of any
investment decision is increased. The value of the Partnership's total net
assets should be expected to fluctuate. Each Investment Manager's use of
leverage is likely to cause the Partnership's net assets to appreciate or
depreciate at a greater rate than if leverage were not used.
For purposes of the Partnership's investment restrictions and certain
investment limitations under the 1940 Act, the Partnership will look through the
Investment Funds managed by the Subadvisers to their underlying securities.
EQUITY SECURITIES
Each Investment Manager's investment portfolio may include long and
short positions in common stocks, preferred stocks and convertible securities of
U.S. and foreign issuers, including those in emerging markets. Each Investment
Manager also may invest in depositary receipts relating to foreign securities.
See "TYPES OF INVESTMENTS AND RELATED RISK FACTORS--Foreign Securities." 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.
Each Investment Manager 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 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. Each Investment Manager may purchase
securities in all available securities trading markets, including initial public
offerings and the aftermarket.
FIXED-INCOME SECURITIES
Each Investment Manager may invest in fixed-income securities. The
Investment Managers 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.
Each Investment Manager 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 each Investment Manager is expected to invest principally in
equity securities of publicly traded U.S. companies, the Investment Manager 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 Investment Manager 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
Each Investment Manager 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 Investment Manager has agreed to
buy or sell; or to hedge the U.S. dollar value of securities the Investment
Manager 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 Investment
Manager's purchase of foreign currencies for U.S. dollars or the maintenance of
short positions in foreign currencies, which would involve the Investment
Manager 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 Investment Manager contracted
to receive in the exchange. The Investment Manager's success in these
transactions will depend principally on its ability to predict accurately the
future exchange rates between foreign currencies and the U.S. dollar.
MONEY MARKET INSTRUMENTS
Each Investment Manager 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 Investment Manager deems appropriate under
the circumstances. Pending allocation of the offering proceeds and thereafter,
from time to time, the Partnership also may invest in these instruments. 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.
LEVERAGE
Some or all of the Investment Managers 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 Investment Manager's
equity or debt instruments decline in value, the Investment Manager 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 an Investment Fund's assets, whether
resulting from changes in market value or from redemptions, the Investment
Manager 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
Investment Manager 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 an
investment company's total indebtedness may not exceed one-third the value of
its total assets, including such indebtedness, measured at the time the
investment company incurs the indebtedness.
To obtain "leveraged" market exposure in certain investments and to
increase overall return, an Investment Manager 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
Some or all of the Investment Managers may attempt to limit exposure
to a possible market decline in the value of its portfolio securities through
short sales of securities that the Investment Manager believes possess
volatility characteristics similar to those being hedged. In addition,
Investment Managers may use short sales for non-hedging purposes. To effect a
short sale, an Investment Manager will borrow a security from a brokerage firm
to make delivery to the buyer. The Investment Manager 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 Investment Manager, 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 a sale of a security to a bank
or securities dealer and the Investment Manager's 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
Each Investment Manager may use 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 Investment Managers 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 Investment Managers may use are speculative and involve a high degree of
risk, particularly when used for non-hedging purposes.
DERIVATIVES. Some or all of the Investment Managers 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 an
Investment Manager to increase or decrease the level of risk, or change the
character of the risk, to which its investment portfolio is exposed in much the
same way as the Investment Manager can increase or decrease the level of risk,
or change the character of the risk, of its investment 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 an Investment Manager 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 the Investment Manager's Derivatives were poorly correlated with its
other investments, or if the Investment Manager 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 AND FUTURES. The Investment Managers may invest in options and
futures contracts. The Investment Managers also may invest in so-called
"synthetic" options or other derivative instruments written by broker-dealers.
Options transactions may be effected on securities exchanges or in the
over-the-counter market. When options are purchased over-the-counter, the
Partnership bears the risk that the counterparty that wrote the option will be
unable or unwilling to perform its obligations under the option contract. Such
options may also be illiquid and, in such cases, an Investment Manager may have
difficulty closing out its position. Over-the-counter options purchased and sold
by the Investment Manager also may include options on baskets of specific
securities.
The Investment Managers 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 an Investment Manager owns the underlying security, that is sold by the
Investment Manager exposes the Investment Manager 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 an Investment Manager has segregated cash or liquid securities to
fulfill the obligation undertaken, that is sold by the Investment Manager
exposes the Investment Manager during the term of the option to a decline in
price of the underlying security while depriving the Investment Manager of the
opportunity to invest the segregated assets.
An Investment Manager 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 Investment Manager 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
Investment Manager would ordinarily make a similar "closing sale transaction,"
which involves liquidating the Investment Manager's position by selling the
option previously purchased, although the Investment Manager would be entitled
to exercise the option should it deem it advantageous to do so.
Although the Partnership will not be a commodity pool, Derivatives
subject the Partnership to the rules of the Commodity Futures Trading Commission
("CFTC") which limit investment in certain Derivatives. Some or all of the
Investment Managers may invest in futures contracts and currency futures
contracts, and options with respect thereto for hedging purposes without limit.
However, to comply with CFTC rules, the Subadvisers may not invest in such
contracts and options for other purposes if the sum of the amount of initial
margin deposits and premiums paid for unexpired options with respect to such
contracts, other than for bona fide hedging purposes, exceed 5% of the
liquidation value of the Partnership's assets, after taking into account
unrealized profits and unrealized losses on such contracts and options;
provided, however, that in the case of an option that is in-the-money at the
time of purchase, the in-the-money amount may be excluded in calculating the 5%
limitation. If applicable CFTC rules change, these percentages may change or
different conditions may be applied to the Partnership's use of certain
Derivatives.
The Investment Managers may enter into futures contracts in U.S.
domestic markets or on exchanges located outside the United States. Foreign
markets may offer advantages such as trading opportunities or arbitrage
possibilities not available in the United States. Foreign markets, however, may
have greater risk potential than domestic markets. For example, some foreign
exchanges are principal markets so that no common clearing facility exists and
an investor may look only to the broker for performance of the contract. In
addition, any profits an Investment Manager might realize in trading could be
eliminated by adverse changes in the exchange rate, or the Partnership could
incur losses as a result of those changes. Transactions on foreign exchanges may
include both commodities which are traded on domestic exchanges and those which
are not. Unlike trading on domestic commodity exchanges, trading on foreign
commodity exchanges is not regulated by the CFTC.
Engaging in these transactions involves risk of loss to the
Partnership which could adversely affect the value of the Partnership's net
assets. No assurance can be given that a liquid market will exist for any
particular futures contract at any particular time. Many futures exchanges and
boards of trade limit the amount of fluctuation permitted in futures contract
prices during a single trading day. Once the daily limit has been reached in a
particular contract, no trades may be made that day at a price beyond that limit
or trading may be suspended for specified periods during the trading day.
Futures contract prices could move to the limit for several consecutive trading
days with little or no trading, thereby preventing prompt liquidation of futures
positions and potentially subjecting the Fund to substantial losses.
Successful use of futures by an Investment Manager also is subject to
the Investment Manager's ability to predict correctly movements in the direction
of the relevant market, and, to the extent the transaction is entered into for
hedging purposes, to ascertain the appropriate correlation between the
transaction being hedged and the price movements of the futures contract.
Pursuant to regulations and/or published positions of the SEC, a
Subadviser may be required to segregate permissible liquid assets in connection
with its commodities transactions in an amount generally equal to the value of
the underlying commodity. The segregation of such assets will have the effect of
limiting the Subadviser's ability otherwise to invest those assets.
Some or all of the Investment Managers may purchase and sell stock
index futures contracts. A stock index future obligates an Investment Manager to
pay or receive an amount of cash equal to a fixed dollar amount specified in the
futures contract multiplied by the difference between the settlement price of
the contract on the contract's last trading day and the value of the index based
on the stock prices of the securities that comprise it at the opening of trading
in such securities on the next business day.
Some or all of the Investment Managers may purchase and sell interest
rate futures contracts. An interest rate future obligates an Investment Manager
to purchase or sell an amount of a specific debt security at a future date at a
specific price.
Some or all of the Investment Managers may purchase and sell currency
futures. A currency future obligates an Investment Manager to purchase or sell
an amount of a specific currency at a future date at a specific price.
CALL AND PUT OPTIONS ON SECURITIES INDEXES. Some or all of the
Investment Managers 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
Investment Manager of options on stock indexes will be subject to the Investment
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.
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.
SWAP AGREEMENTS. Some or all of the Investment Managers may enter into
equity, interest rate, index and currency rate swap agreements on behalf of the
Investment Funds. These transactions are entered into in an attempt to obtain a
particular return when it is considered desirable to do so, possibly at a lower
cost than if the Investment Manager had invested directly in the asset that
yielded the desired return. Swap agreements are two-party contracts entered into
primarily by institutional investors for periods ranging from a few weeks to
more than a year. In a standard swap transaction, two parties agree to exchange
the returns (or differentials in rates of return) earned or realized on
particular predetermined investments or instruments, which may be adjusted for
an interest factor. The gross returns to be exchanged or "swapped" between the
parties are generally calculated with respect to a "notional amount," i.e., the
return on or increase in value of a particular dollar amount invested at a
particular interest rate, in a particular foreign currency, or in a "basket" of
securities representing a particular index. Forms of swap agreements include
interest rate caps, under which, in return for a premium, one party agrees to
make payments to the other to the extent interest rates exceed a specified rate
or "cap"; interest rate floors, under which, in return for a premium, one party
agrees to make payments to the other to the extent interest rates fall below a
specified level or "floor"; and interest rate collars, under which a party sells
a cap and purchases a floor or vice versa in an attempt to protect itself
against interest rate movements exceeding given minimum or maximum levels.
Most swap agreements entered into by an Investment Manager would
calculate the obligations of the parties to the agreement on a "net basis."
Consequently, the Investment Fund's current obligations (or rights) under a swap
agreement generally will be equal only to the net amount to be paid or received
under the agreement based on the relative values of the positions held by each
party to the agreement (the "net amount"). The risk of loss with respect to
swaps is limited to the net amount of interest payments that the Investment Fund
is contractually obligated to make. If the other party to a swap defaults, the
Investment Fund's risk of loss consists of the net amount of payments that the
Investment Fund contractually is entitled to receive.
LENDING PORTFOLIO SECURITIES
Some or all of the Investment Managers may lend securities from their
portfolios to brokers, dealers and other financial institutions needing to
borrow securities to complete certain transactions. The Investment Manager
continues to be entitled to payments in amounts equal to the interest, dividends
or other distributions payable on the loaned securities which affords the
Investment Manager an opportunity to earn interest on the amount of the loan and
on the loaned securities' collateral. Loans of portfolio securities by a
Subadviser may not exceed 33-1/3% of the value of the Partnership's total
assets, and, in respect of such transactions, 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 the Investment Manager has
engaged in a portfolio loan transaction breaches its agreement with the
Investment Manager.
WHEN-ISSUED, DELAYED DELIVERY AND FORWARD COMMITMENT SECURITIES
To reduce the risk of changes in interest rates and securities prices,
some or all of the Investment Managers may purchase securities on a forward
commitment or 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 purchase are fixed when an Investment Manager enters into the
commitment, but the Investment Manager does not make payment until it receives
delivery from the counterparty. The Investment Manager will commit to purchase
such securities only with the intention of actually acquiring the securities,
but the Investment Manager may sell these securities before the settlement date
if it is deemed advisable.
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 or when-issued or delayed
delivery basis when an Investment Manager 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 Investment Manager on a forward basis will not honor its
purchase obligation. In such cases, the Partnership may incur a loss.
RESTRICTED AND ILLIQUID INVESTMENTS
Although each Investment Manager will invest primarily in publicly
traded securities, it may invest without limitation 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, an Investment
Manager 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
Investment Manager may be permitted to sell a security under an effective
registration statement. If during such a period adverse market conditions were
to develop, the Investment Manager might obtain a less favorable price than
prevailed when it decided to sell. Restricted securities for which no market
exists and other illiquid investments are valued at fair value as determined in
accordance with procedures approved and periodically reviewed by the Directors.
Investment Managers may be unable to sell restricted and other
illiquid securities at the most opportune times or at prices approximating the
value at which they 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:
(1) Issue senior securities, except that, to the extent
permitted by the 1940 Act, (a) the Investment Managers may
borrow money to finance portfolio transactions and engage in
other transactions involving the issuance by the Partnership
of "senior securities" representing indebtedness, and (b)
the Partnership may borrow money from banks for temporary or
emergency purposes or in connection with repurchases of, or
tenders for, the Partnership's interests.
(2) Underwrite securities of other issuers, except insofar as the
Partnership may be deemed an underwriter under the 1933 Act in
connection with the disposition of its portfolio securities.
(3) 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.
(4) Purchase, hold or deal in real estate, except that the Investment
Managers 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.
(5) Invest in commodities or commodity contracts, except that the
Investment Managers may purchase and sell foreign currency, options,
futures and forward contracts, including those related to indexes, and
options on indexes.
(6) Invest more than 25% of the value of its total assets in the securities
of issuers in any single industry, except that the Investment Managers
may purchase U.S. Government Securities without limitation. For
purposes of this Investment Restriction, the Investment Funds are not
considered part of an industry.
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
ASSET-BASED FEES AND PERFORMANCE-BASED ALLOCATIONS
Each Investment Manager generally will charge the Partnership an
asset-based fee and some or all of the Investment Managers will receive
performance-based allocations. The asset-based fees of the Investment Managers
are expected to range from ____% to ____% and the performance-based allocations
of the Investment Managers are expected to range from ____% to ____% of net
profits. See "APPENDIX C--Investment Manager Fees and Allocations."
The performance-based allocation that will be received by an
Investment Manager may create an incentive for the Investment Manager 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 an Investment Fund's assets, the allocation may be
greater than if it were based solely on realized gains.
In addition, the Manager will charge the Partnership an asset-based
fee and will receive a performance-based allocation, which gives rise to similar
risks. See "FEES AND EXPENSES" and "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."
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. Beginning in 2000, the Manager expects that
generally 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.
SPECIAL RISKS OF MULTI-MANAGER STRUCTURE
Assuming he or she met the conditions imposed by the Investment
Managers, an investor could invest directly with the Investment Managers. These
conditions include investment minimums that may be considerably higher than
$250,000. By investing in investment vehicles indirectly through the
Partnership, the investor bears two layers of asset-based fees and
performance-based allocations--one at the Partnership level and one at the
Investment Fund level. In addition, the investor bears his or her proportionate
share of the fees and expenses of the Partnership (including operating costs and
administrative fees) and, indirectly, similar expenses of the Investment Funds.
An investor indirectly also may bear expenses paid by certain Investment Funds
related to the distribution of their shares.
Each Investment Manager will receive any performance-based allocations
to which it is entitled irrespective of the performance of the other Investment
Managers and the Partnership generally. Accordingly, an Investment Manager with
positive performance may receive compensation from the Partnership, and thus
indirectly from investors, even if the Partnership's returns are negative.
Investment decisions of the Investment Funds are made by the
Investment Managers entirely independently of each other. As a result, at
any particular time, one Investment Fund may be purchasing shares of an issuer
whose shares are being sold by another Investment Fund. Consequently, the
Partnership could incur indirectly certain transaction costs without
accomplishing any net investment result.
Some of the Investment Funds incur more risks than others. For
example, they may trade their portfolios more actively (which results in higher
brokerage costs), may engage in investment practices that entail greater risk,
or invest in companies whose securities and other investments are more volatile.
For the Partnership to complete its tax reporting requirements, it
must receive information on a timely basis from the Investment Managers. An
Investment Manager's delay in providing this information will delay the
Partnership's preparation of tax information to investors, which is likely to
cause investors to seek extensions on the time to file their tax returns.
A noncorporate investor's share of the Partnership's investment
expenses (including the asset-based fees and performance-based allocations at
the Partnership and Investment Fund levels) may be subject to certain
limitations on deductibility for regular Federal income tax purposes and may be
completely disallowed for purposes of determining the noncorporate investor's
alternative minimum tax liability.
PERFORMANCE INFORMATION
Appendix A contains the Manager's anticipated initial allocation of
the Partnership's assets and the theoretical returns that could have been
achieved had such allocation been maintained over various periods in the past.
Appendix B contains composite performance information for all accounts
(including investment funds) managed by the Investment Managers' personnel
pursuant to an investment program that also is substantially similar to the
Partnership's expected investment program. 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.
PRINCIPAL OCCUPATION(S)
NAME, ADDRESS AND AGE DURING PAST 5 YEARS
- --------------------- -----------------------
Each of the Directors was appointed to serve in such position by the
General Partner and, on _____________, 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 continue 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 $2,500
and per meeting fees of $700, 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 $____
during the coming year, and that, together with compensation paid to them by
other registered investment companies advised by affiliates of the Manager,
_____________, _____________ and ____________ will receive aggregate annual
compensation from all such companies of $________, $________ and $________,
respectively, for such year. The Directors do not receive any pension or
retirement benefits from the Partnership.
THE MANAGER
The Manager is the Partnership's General Partner. The Manager intends
initially to allocate the Partnership's assets in certain proportions set forth
in Appendix A and, thereafter, will evaluate regularly each Investment Manager
to determine whether its investment program is consistent with the Partnership's
investment objective and whether its investment performance is satisfactory. The
Manager may reallocate the Partnership's assets among the Investment Managers,
terminate existing Investment Managers and select additional Investment
Managers, subject to the condition that selection of a new Subadviser requires
approval of a majority (as defined in the 1940 Act) of the Partnership's
outstanding voting securities, unless the Partnership receives an exemption from
certain provisions of the 1940 Act. The Manager will perform its duties subject
to any policies established by the Directors. The Manager, was formed as a
Delaware limited liability company on June 25, 1996, is an indirect,
wholly-owned subsidiary of PW Group and is registered as an investment adviser
under the Advisers Act. The Manager and its affiliates provide investment
advisory services to registered investment companies, private investment funds
and individual accounts with aggregate assets in excess of $92 billion.
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.
The offices of the Manager are located at 1285 Avenue of the Americas,
New York, New York 10019, and its telephone number is (212) 713-2000. As of
_____________, 1998, the Manager owned 99% of the outstanding interests in the
Partnership (thereby controlling the Partnership) and was the only person known
by the Partnership to own of record or beneficially 5% or more of the
outstanding interests in the Partnership. The Manager maintains the
Partnership's accounts, books and other documents required to be maintained
under the 1940 Act at [1285 Avenue of the Americas, New York, New York 10019].
The authority of the Manager to serve or act as investment adviser,
and be responsible for the day-to-day management, of the Partnership
(collectively, "Advice and Management"), and the incentive allocation
arrangement between the Partnership and the Manager, as the foregoing are set
forth in the limited partnership agreement of the Partnership (the "Partnership
Agreement"), was initially approved by the Directors, including each Independent
Director, and by vote of Partners holding interests in the Partnership on
____________, 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, including a
majority of the Independent 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 ________________, 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, 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.
THE SUBADVISERS
The Manager has selected the Subadvisers named below to which it
intends to allocate up to [85%] of the Partnership's assets (without taking into
account changes in asset values).
[Descriptions to come]
The Manager will allocate no more than 40% of the Partnership's assets
to any Subadviser and will limit its investment in any Investment Fund that is
not advised by a Subadviser to less than 5% of the Investment Fund's voting
securities.
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
THE MANAGER
The Manager 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. The officers or employees 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. The Manager 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. The Manager 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
an Investment Manager or its affiliates. (All investment funds and other
accounts managed by the Investment Managers or their affiliates, excluding the
Partnership, are referred to collectively as the "Investment Manager Accounts.")
The Manager, its affiliates or PWFA Clients may have an interest in an
account managed by an Investment Manager or its affiliates on terms different
than an interest in the Partnership. In addition, the Investment Managers may
receive research products and services in connection with the brokerage services
that the Manager and its affiliates may provide from time to time (1) to one or
more Investment Manager Accounts or (2) to the Partnership.
PARTICIPATION IN INVESTMENT OPPORTUNITIES
Each Subadviser expects to employ an investment program for its
Investment Fund that is substantially similar to the investment program employed
by the Subadviser for its Investment Manager Accounts. Accordingly, as a general
matter, the Subadviser will consider participation by the Partnership in all
appropriate investment opportunities that are under consideration for investment
by the Subadviser for its Investment Manager Accounts. There may be, however,
circumstances under which a Subadviser will cause its Investment Manager
Accounts to commit a larger percentage of their respective assets to an
investment opportunity than to which the Subadviser will commit the
Partnership's assets. There also may be circumstances under which a Subadviser
will consider participation by its Investment Manager Accounts in investment
opportunities in which the Subadviser does not intend to invest on behalf of the
Partnership, or vice versa.
Each Subadviser will evaluate a variety of factors that may be
relevant in determining whether a particular investment opportunity or strategy
is appropriate and feasible for its respective Investment Fund or Investment
Manager 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
Investment Fund and relevant Investment Manager Accounts in the context of any
particular investment opportunity, the investment activities of the Investment
Fund and Investment Manager Accounts may differ considerably from time to time.
In addition, the fees and expenses of the Investment Fund will differ from those
of the Investment Manager Accounts and the Partnership. Accordingly, prospective
Limited Partners should note that the future performance of the Subadviser and
the Investment Manager Accounts will vary.
When a Subadviser determines that it would be appropriate for its
respective Investment Fund and one or more of its Investment Manager 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 Subadviser 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 each Investment Fund participate, or participate to the same
extent as the Investment Manager Accounts, in all trades. However, no
participating entity or account will receive preferential treatment over any
other and the Subadviser 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 Subadvisers
for the Investment Manager 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 Investment Funds and the Investment Manager
Accounts, thereby limiting the size of the Partnership's position; (2) the
difficulty of liquidating an investment for the Investment Funds and the
Investment Manager 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, each
Subadviser may be legally restricted from entering into a "joint transaction"
(as defined in the 1940 Act) with its Investment Fund or Investment Manager
Accounts with respect to the securities of an issuer without first obtaining
exemptive relief from the SEC. See "CONFLICTS OF INTEREST--Other Matters."
Each Investment Manager and its principals, officers and employees,
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 principals, officers and
employees of the Investment Manager 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, no Subadviser is permitted
to buy securities or other property from, or sell securities or other property
to, its respective Investment Fund. However, the Investment Fund may effect
certain principal transactions in securities with one or more Investment Manager
Accounts, except for accounts in which the Subadviser 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 the Subadviser's appointment as an
investment adviser to the account. Such transactions would be made in
circumstances where the Subadviser has determined it would be appropriate for
the Investment Fund to purchase and an Investment Manager Account to sell, or
the Investment Fund to sell and an Investment Manager Account to purchase, the
same security or instrument on the same day.
Future investment activities of the Investment Managers, or their
affiliates, and the principals, partners, directors, officers or employees of
the foregoing may give rise to additional conflicts of interest.
BROKERAGE
Each Investment Manager is directly responsible for the execution of
its portfolio investment 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 its Investment Fund, each
Subadviser seeks to obtain the best price and execution for the transactions,
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 Subadviser with unaffiliated brokers, the firm's
risk in positioning a block of securities. Although each Subadviser generally
seeks reasonably competitive commission rates, a Subadviser will not necessarily
pay the lowest commission available on each transaction. The Subadvisers have no
obligation to deal with any broker or group or brokers in executing transactions
in portfolio securities.
Following the principle of seeking best price and execution, a
Subadviser may place brokerage business with brokers that provide the Subadviser
and its affiliates 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
Subadviser are not necessarily reduced as a result of the receipt of this
supplemental information, which may be useful to the Subadviser or its
affiliates in providing services to clients other than the Partnership. In
addition, not all of the supplemental information is used by the Subadviser in
connection with the Partnership. Conversely, the information provided to the
Subadviser by brokers and dealers through which other clients of the Subadviser
and its affiliates effect securities transactions may be useful to the
Subadviser in providing services to the Partnership.
Although the Partnership cannot accurately predict the portfolio
turnover rate of the Investment Funds managed by the Subadvisers, the
Partnership expects that their annual portfolio turnover rate will not exceed
____%. A portfolio turnover rate of 100% is equivalent to the Partnership buying
and selling all of the securities in its portfolio once in the course of a year.
Higher portfolio turnover rates usually generate additional brokerage
commissions and transaction costs and the short-term gains realized from these
transactions are taxable to the Limited Partners as ordinary income.
Each Investment Manager may execute portfolio brokerage transactions
through affiliates of the Manager and each Subadviser may effect brokerage
transactions through its affiliates, in each case subject to compliance with the
1940 Act.
FEES AND EXPENSES
The Manager 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 the Manager a monthly management fee at the annual rate of
1.25% 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.
_______ (the "Administrator"), or such other administrator including
PaineWebber Incorporated or its affiliates, as may be appointed by the
Directors, provides administration, accounting and investor services to the
Partnership, which are in addition to the services provided by the Manager to
the Partnership, as described above. In consideration for such services, the
Partnership will pay the Administrator an annual fee (the "Administrator Fee")
that is not anticipated to exceed ______% of the Partnership's net assets, as
defined above, plus reimbursement of certain out-of-pocket expenses.
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 the Manager.
Expenses to be borne by the Partnership include, but are not limited to, the
following:
* all costs and expenses directly related to portfolio
transactions and positions for the Partnership's
account, including, but not limited to, brokerage
commissions, research fees, interest and commitment
fees on loans and debit balances, borrowing charges on
securities sold short, dividends on securities sold but
not yet purchased, custodial fees, 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;
* all costs and expenses associated with the selection of
Investment Managers, including due diligence and
travel-related expenses;
* 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 Fee, the Administrator Fee and 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.
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 $__________. 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.
The Investment Funds will bear all expenses incurred in the business
of the Investment Funds, which are similar to those expenses incurred by the
Partnership in the business of the Partnership. The Investment Managers
generally will charge an asset-based fee to and receive performance-based
allocations from the Investment Funds, which effectively will reduce total
distributions from the Investment Funds to the Partnership.
CAPITAL ACCOUNTS AND ALLOCATIONS
CAPITAL ACCOUNTS
The Partnership will maintain a separate capital account for each
Partner, which will have an opening balance equal to such Partner's initial
contribution to the capital of the Partnership. Each Partner's capital account
will be increased by the sum of the amount of cash and the value of any
securities constituting additional contributions by such Partner to the capital
of the Partnership, plus any amounts credited to such Partner's capital account
as described below. Similarly, each Partner's capital account will be reduced by
the sum of the amount of any repurchase by the Partnership of the interest, or
portion thereof, of such Partner, plus the amount of any distributions to such
Partner which are not reinvested, plus any amounts debited against such
Partner's capital account as described below. To the extent that any debits
would reduce the balance of the capital account of any Limited Partner below
zero, that portion of any such debits will instead be allocated to the capital
account of the Manager; any subsequent credits that would otherwise be allocable
to the capital account of any such Limited Partner will instead be allocated to
the capital account of the Manager in such amounts as are necessary to offset
all previous debits attributable to such Limited Partner.
Capital accounts of Partners are adjusted as of the close of business
on the last day of each fiscal period. Fiscal periods begin on the day after the
last day of the preceding fiscal period and end at the close of business on (1)
the last day of each year, (2) the day preceding the date on which a
contribution to the capital of the Partnership is made, (3) the day on which the
Partnership repurchases any interest or portion of an interest of any Partner,
or (4) the day on which any amount is credited to or debited from the capital
account of any Partner other than an amount to be credited to or debited from
the capital accounts of all Partners in accordance with their respective
partnership percentages. A partnership percentage will be determined for each
Partner as of the start of each fiscal period by dividing the balance of such
Partner's capital account as of the commencement of such 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 excluding the amount of any
items to be allocated among the capital accounts of the Partners other than in
accordance with the Partners' respective partnership percentages.
Allocations for Federal income tax purposes generally will be made
among the Partners so as to reflect equitably amounts credited or debited to
each Partner's capital account for the current and prior fiscal years.
INCENTIVE ALLOCATION
So long as the Manager provides Advice and Management to the
Partnership, the Manager will be entitled to 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 10% of the amount by which
any "allocated gain" during an "allocation period" exceeds the sum of any
unrecovered positive balance in the Limited Partner's "loss recovery account"
and the Hurdle. 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 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 sum of any unrecovered positive balance of a
"loss recovery account" maintained for each Limited Partner and the Hurdle. 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.
The "Hurdle" is the amount that a Limited Partner would have earned
for an "allocation period" if it had received an annualized rate of return of
10% on its opening capital account balance (appropriately adjusted for
contributions and withdrawals) for such period. The Hurdle is not cumulative
from year to year.
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 of such Limited Partner has been transferred or (4)
the day as of which the authority of the Manager to provide Advice and
Management is terminated. The measurement of any Incentive Allocation for an
"allocation period" must take into account any negative performance from a prior
allocation period to the extent reflected in the "loss recovery account."
Therefore, the Incentive Allocation for any allocation period after the initial
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 or futures contracts will be
valued using last sales prices as reported by the exchange with the highest
reported daily volume for such options or futures contracts 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.
The Partnership will value interests in Investment Funds not managed
by the Subadvisers at fair value, which ordinarily will be the value determined
by their Investment Managers in accordance with the policies established by the
relevant Investment Fund.
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 $_______. The Partnership may vary the
investment minimums from time to time. The initial closing date for
subscriptions of interests in the Partnership is , 1998. The Manager, in its
sole discretion, may postpone the closing date for up to 60 days. In addition,
because the Partnership may generate "unrelated business taxable income"
("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.
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 beneficial owners under
certain circumstances, has a net worth immediately prior to the time of
subscription of at least $1 million. Existing Limited Partners who subscribe for
additional interests in the Partnership will be required to represent that the
Limited Partner meets the foregoing eligibility criteria at the time of the
additional subscription. The relevant investor qualifications will be set forth
in a subscription agreement to be provided to prospective investors, which must
be completed by each prospective investor.
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.
Beginning in 2000, the Manager expects that generally 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, although it may allocate to
tendering Partners withdrawal or similar charges imposed by Investment Funds
that are not advised by a Subadviser if the Manager determined to withdraw from
the Investment Fund as a result of a tender and such a charge was imposed on 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 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 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 beneficial owners in certain circumstances, has a
net worth immediately prior to the time of subscription of at least $1 million,
and must be accompanied by a properly completed subscription agreement. 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 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.
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 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 (the
"Regulations") concerning the classification of partnerships as publicly traded
partnerships provide certain safe harbors under which interests in a partnership
will not be considered readily tradable on a secondary market, or the
substantial equivalent thereof. The Partnership will not be eligible for any of
those safe harbors. In particular, it will not qualify under the private
placement safe harbor set forth in the Regulations if, as is anticipated, the
Partnership has more than 100 Partners.
The Regulations specifically provide that the fact that a partnership
does not qualify for the safe harbors is disregarded for purposes of determining
whether interests in a partnership are readily tradable on a secondary market,
or the substantial equivalent thereof. Rather, in this event the partnership's
status is examined under a general facts and circumstances test set forth in the
Regulations. Counsel to the Partnership has also 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. Each Limited Partner will be taxed upon its distributive share of
each item of the Partnership's income, gain, loss and deductions allocated to
the Partnership (from investments in other partnerships) for each taxable year
of the Partnership ending with or within the Limited Partner's taxable year.
Each item will have the same character to a Limited Partner, and will generally
have the same source (either United States or foreign), as though the Limited
Partner realized the item directly. Limited Partners must report these items
regardless of the extent to which, or whether, the Partnership or Limited
Partners receive cash distributions for such taxable year, and thus may incur
income tax liabilities unrelated to any distributions to or from the
Partnership.
ALLOCATION OF PROFITS AND LOSSES. Under the Partnership Agreement, the
Partnership's net capital appreciation or net capital depreciation for each
accounting period is allocated among the Partners and to their capital accounts
without regard to the amount of income or loss actually recognized by the
Partnership for Federal income tax purposes. The Partnership Agreement provides
that items of income, deduction, gain, loss or credit actually recognized by the
Partnership for each fiscal year generally are to be allocated for income tax
purposes among the Partners pursuant to Regulations issued under Sections 704(b)
and 704(c) of the Code, based upon amounts of the Partnership's net capital
appreciation or net capital depreciation allocated to each Partner's capital
account for the current and prior fiscal years. A Partner that contributes
property other than cash, including amounts of accrued interest, to the
Partnership will be specifically allocated items of income, deduction, gain,
loss or credit attributable to such property to the extent of the difference, if
any, between the book value and the adjusted tax basis at the time of such
contribution.
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, mid-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 which a withdrawing Limited Partner would
recognize ordinary income. 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 or mid-term capital gain recognized during the tax year in which it
receives its liquidating distribution upon withdrawal.
Distributions of property other than cash, whether in complete or
partial liquidation of a Limited Partner's interest in the Partnership,
generally will not result in the recognition of taxable income or loss to the
Limited Partner, except to the extent such distribution is treated as made in
exchange for such Limited Partner's share of the Partnership's unrealized
receivables.1
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1 It should be noted, however, that gain generally must be recognized where
the distribution consists of marketable securities unless the distributing
partnership is an "investment partnership" and the recipient is an
"eligible partner" as defined in Section 731(c) of the Code. While there
can be no assurance, the Manager anticipates that the Partnership will
qualify as an "investment partnership." Thus, if a Limited Partner is an
"eligible partner", which term should include a Limited Partner whose sole
contributions to the Partnership consisted of cash, the nonrecognition rule
described above should apply.
TAX TREATMENT OF PARTNERSHIP INVESTMENTS
IN GENERAL. The Partnership through the Investment Funds 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, 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, mid-term or short-term
depending, in general, upon the length of time a particular investment position
is maintained and, in some cases, upon the nature of the transaction. Property
held for more than one year but less than 18 months generally will be eligible
for mid-term capital gain or loss treatment, and property held for more than 18
months 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 holding period for a security is
determined or may otherwise affect the characterization as long-term, mid-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.
The maximum ordinary income tax rate for individuals is 39.6%, the
maximum individual income tax rate for long-term capital gains is 20% and the
maximum individual income tax rate for mid-term capital gains is 28%, 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 through the Investment Funds 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 through the Investment Funds also may 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. 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, also may constitute ordinary income or loss. Moreover, gain
recognized from certain "conversion transactions" will be treated as ordinary
income.2
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2 Generally, a conversion transaction is one of several enumerated
transactions where substantially all of the taxpayer's return is
attributable to the time value of the net investment in the
transaction. The enumerated transactions are (i) the holding of any
property, whether or not actively traded, and entering into a contract
to sell such property, or substantially identical property, at a price
determined in accordance with such contract, but only if such property
was acquired and such contract was entered into on a substantially
contemporaneous basis, (ii) certain straddles, (iii) generally any
other transaction that is marketed or sold on the basis that it would
have the economic characteristics of a loan but the interest-like
return would be taxed as capital gain or (iv) any other transaction
specified in Regulations.
CURRENCY FLUCTUATIONS--"SECTION 988" GAINS OR LOSSES. The amount of
gain or loss on securities denominated in a foreign currency 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 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 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 taxpayer accrues interest or other receivables or accrues expenses or
other liabilities denominated in a foreign currency and the time the taxpayer
actually collects such receivables or pays such liabilities may be treated as
ordinary income or ordinary loss.
The Partnership through the Investment Funds may acquire foreign
currency forward contracts. See "TYPES OF INVESTMENTS AND RELATED RISK
FACTORS--Foreign Currency Transactions." Generally, any gain or loss with
respect to any forward currency contracts will be ordinary, unless (i) the
contract is a capital asset in the hands of the holder and is not a part of a
straddle transaction and (ii) the holder 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 regulated
futures contracts, certain foreign currency forward contracts and certain
options contracts, held at the end of each taxable year are treated for Federal
income tax purposes as if they were sold by the holder 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 holder in computing its taxable income for
such year. If a Section 1256 Contract held at the end of a taxable year is sold
in the following year, the amount of any gain or loss realized on such sale will
be adjusted to reflect the gain or loss previously taken into account under the
"mark to market" rules.
Capital gains and losses from such Section 1256 contracts generally
are characterized as short-term capital gains or losses to the extent of 40%
thereof and as long-term capital gains or losses to the extent of 60% thereof.
Such gains and losses will be taxed under the general rules described above.
Gains and losses from certain foreign currency transactions will be treated as
ordinary income and losses. See "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.
Temporary Regulations provide for the establishment of 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, and
therefore, there can be no assurance that a mixed straddle account election in
the circumstances here 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 taxpayer's hands. Except with
respect to certain situations where the property used 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 taxpayer. 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 taxpayer for more than
one year.
The Taxpayer Relief Act of 1997 included constructive sale provisions
that generally will apply if the taxpayer 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
taxpayer generally will recognize gain as if the appreciated financial position
were sold at its fair market value on the date it 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.
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3 However, Section 67(e) of the Code provides that, in the case of a
trust or an estate, such limitation does not apply to deductions or
costs which are paid or incurred in connection with the administration
of the estate or trust and would not have been incurred if the
property were not held in such trust or estate. The Federal Court of
Appeals for the Sixth Circuit, reversing a Tax Court decision, has
held that the investment advisory fees incurred by a trust were exempt
under Section 67(e) from the 2% of adjusted gross income floor on
deductibility. The Service, however, has stated that it will not
follow this decision outside of the Sixth Circuit. Limited Partners
that are trusts or estates should consult their tax advisers as to the
applicability of this case to the investment expenses that are
allocated to them.
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 any asset-gained
management fees incurred by the Partnership or the Investment Funds. Although
the Partnership intends to treat the performance-gained incentive allocation to
the Manager or the Investment Managers 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 through the Investment Funds 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 from
sources within foreign countries will be subject to withholding taxes imposed by
such countries. In addition, some foreign countries may impose capital gains
taxes on certain securities transactions involving foreign issuers. Tax treaties
between certain countries and the United States may reduce or eliminate such
taxes.
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, 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
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; and 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. 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
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4 With certain exceptions, tax-exempt organizations which are private
foundations are subject to a 2% Federal excise tax on their "net
investment income." The rate of the excise tax for any taxable year may
be reduced to 1% if the private foundation meets certain distribution
requirements for the taxable year. A private foundation will be
required to make payments of estimated tax with respect to this excise
tax.
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 through the Investment Funds may incur "acquisition
indebtedness" with respect to certain transactions, such as the purchase of
securities on margin.5 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, short sales of securities will be treated as not involving
"acquisition indebtedness" and therefore not generating UBTI. The percentage of
income (i.e., dividends and interest) from securities with respect to which
there is "acquisition indebtedness" during a taxable year 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.
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5 Moreover, income realized from option writing and futures contract
transactions generally would not constitute UBTI.
The percentage of 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 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 debt-financed property is taken into account. Thus, for instance, a
percentage of capital losses from debt-financed securities, based on the
debt/basis percentage calculation described above, would offset gains treated as
UBTI.
Since the calculation of the Partnership's "unrelated debt-financed
income" is complex and will depend in large part on the amount of leverage, if
any, used by the Investment Funds 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).
- --------
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.
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
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."
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7 Certain exempt organizations which realize UBTI in a taxable year will
not constitute "qualified organizations" for purposes of Section
514(c)(9)(B)(vi)(I) of the Code, pursuant to which, in limited
circumstances, income from certain real estate partnerships in which
such organizations invest might be treated as exempt from UBTI. A
prospective tax-exempt Limited Partner should consult its tax adviser
in this regard.
CERTAIN ISSUES PERTAINING TO SPECIFIC EXEMPT ORGANIZATIONS
PRIVATE FOUNDATIONS. Private foundations and their managers are
subject to excise taxes if they invest "any amount in such a manner as to
jeopardize the carrying out of any of the foundation's exempt purposes." This
rule requires a foundation manager, in making an investment, to exercise
"ordinary business care and prudence" under the facts and circumstances
prevailing at the time of making the investment, in providing for the short-term
and long-term needs of the foundation to carry out its exempt purposes. The
factors which a foundation manager may take into account in assessing an
investment include the expected rate of return, both income and capital
appreciation, the risks of rising and falling price levels, and the needs for
diversification within the foundation's portfolio.
In order to avoid the imposition of an excise tax, a private
foundation may be required to distribute on an annual basis its "distributable
amount," which includes, among other things, the private foundation's "minimum
investment return," defined as 5% of the excess of the fair market value of its
nonfunctionally related assets, assets not used or held for use in carrying out
the foundation's exempt purposes, over certain indebtedness incurred by the
foundation in connection with such assets. It appears that a foundation's
investment in the Partnership would most probably be classified as a
nonfunctionally related asset. A determination that an interest in the
Partnership is a nonfunctionally related asset could conceivably cause cash flow
problems for a prospective Limited Partner which is a private foundation. Such
an organization could be required to make distributions in an amount determined
by reference to unrealized appreciation in the value of its interest in the
Partnership. Of course, this factor would create less of a problem to the extent
that the value of the investment in the Partnership is not significant in
relation to the value of other assets held by a foundation.
In some instances, an investment in the Partnership by a private
foundation may be prohibited by the "excess business holdings" provisions of the
Code. For example, if a private foundation, either directly or together with a
"disqualified person," acquires more than 20% of the capital interest or profits
interest of the Partnership, the private foundation may be considered to have
"excess business holdings." If this occurs, such foundation may be required to
divest itself of its interest in the Partnership in order to avoid the
imposition of an excise tax.
A substantial percentage of investments of certain "private operating
foundations" may be restricted to assets directly devoted to their tax-exempt
purposes. Otherwise, generally, rules similar to those discussed above govern
their operations.
QUALIFIED RETIREMENT PLANS. Employee benefit plans subject to the
provisions of ERISA, Individual Retirement Accounts ("IRA's") and Keogh Plans
should consult their counsel as to the implications of such an investment under
ERISA. See, "ERISA CONSIDERATIONS."
ENDOWMENT FUNDS. Investment managers of endowment funds should
consider whether the acquisition of an Interest is legally permissible. This is
not a matter of Federal law, but is 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.
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8 New York State, but not New York City, generally exempts from corporate
franchise tax a non-New York corporation which (i) does not actually or
constructively own a 1% or greater limited partnership interest in a
partnership doing business in New York and (ii) has a tax basis in such
limited partnership interest not greater than $1 million.
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.
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.
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 return to the Partnership amounts
distributed to him in accordance with the Partnership Agreement in certain
circumstances where after giving effect to the distribution, certain liabilities
of the Partnership exceed the fair market value of the Partnership's assets.
DUTY OF CARE OF 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 be approved by the Directors.
POWER OF ATTORNEY
By subscribing for an interest in the Partnership, each Partner will
appoint the Manager 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 as part of each Partner's subscription
agreement is a special power-of-attorney coupled with an interest in favor of
the Manager 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
its status as manager, unless as to either event
both (A) the Directors, and (B) 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 either a
person has been admitted to the Partnership as the
Manager or one or more General Partners have
agreed to make such contributions to the capital
of the Partnership as are required to be made by
the Manager;
* upon the expiration of any 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 liquidation of the Partnership, its assets are to be
distributed (1) first to satisfy the debts, liabilities and obligations of the
Partnership, other than debts to Partners, including actual or anticipated
liquidation expenses, (2) next to repay debts owing to the Partners, and (3)
finally to the Partners proportionately in accordance with the balances in their
respective capital accounts. Assets may be distributed in kind on a pro rata
basis if the General 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 also will 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 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 and its affiliates. Each of such counsel from time to time may serve
as counsel to one or more Subadvisers.
CUSTODIAN
_____________________ ("Custodian") serves as the primary custodian of
the assets of the Partnership and the Investment Funds managed by the
Subadviser, and may maintain custody of such 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 and
Investment Funds are not held by the Manager or Subadvisers, respectively, 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 __________________.
INQUIRIES
Inquiries concerning the Partnership and interests in the Partnership,
including information concerning subscription and withdrawal procedures, should
be directed to:
PW Fund Advisor, L.L.C.
1285 Avenue of the Americas
New York, New York 10019
Telephone: 212-713-2000
Telecopier: [To be Provided]
For additional information contact:
_________________________________
_________________________________
* * * * *
All potential investors in the Partnership are encouraged to consult
appropriate legal and tax counsel.
<PAGE>
APPENDIX A
MODEL PORTFOLIO PERFORMANCE
The Manager intends initially to allocate the Partnership's assets in
the following proportions:
PERCENTAGE
NAME OF INVESTMENT FUND/INVESTMENT MANAGER OF ASSETS
Were this allocation to have been maintained for the past ___ years,
the Partnership's annual and aggregate total returns would have been as follows.
THIS INFORMATION IS HYPOTHETICAL AND THE PARTNERSHIP HAD NOT COMMENCED
OPERATIONS DURING THIS PERIOD.
YEAR TOTAL RETURN*
1993 %
1994
1995
1996
1997
Aggregate Total Return: %
Average Annual Return: %
- ------------------
* Net of the Fee and the Incentive Allocation.
NO ASSURANCE CAN BE GIVEN THAT THE INITIAL ALLOCATION MAY NOT BE
CHANGED BY THE TIME THE PARTNERSHIP COMMENCES OPERATIONS OR THAT AN ALLOCATION
WILL BE MAINTAINED FOR ANY PERIOD OF TIME. PAST PERFORMANCE DOES NOT GUARANTEE
FUTURE RESULTS.
<PAGE>
APPENDIX B
PERFORMANCE INFORMATION
______________ expects to employ an investment program for the portion
of the Partnership's assets to which it is allocated that is substantially
similar to the investment program employed by ______________ and certain of the
investment professionals who are principals of or employed by ______________ or
its affiliates (collectively with ______________, the "______________ Managers")
for and all accounts (including investment funds) (together, the "______________
Accounts") managed by ______________'s personnel pursuant to an investment
program that also is substantially similar to the Partnership's expected
investment program.
Because of the similarity of investment programs, as a general matter,
______________ will consider participation by its Investment Fund in all
appropriate investment opportunities that are under consideration by
______________ for investment by the ______________ Accounts. ______________
will evaluate for its Investment Fund a variety of factors that may be relevant
in determining whether a particular investment opportunity or strategy to be
used by its Investment Fund or the other ______________ Accounts is appropriate
and feasible for its Investment Fund at that particular time. Because these
considerations may differ for its Investment Fund and the ______________
Accounts in the context of any particular investment opportunity, the investment
activities of its Investment Fund and the ______________ Accounts may differ
from time to time. See "CONFLICTS OF INTEREST--Participation in Investment
Opportunities."
THE FOLLOWING TABLE SETS FORTH THE COMPOSITE PERFORMANCE FOR THE
______________ ACCOUNTS FOR THE PERIODS INDICATED. THE TABLE SHOULD BE READ IN
CONJUNCTION WITH THE NOTES THERETO. THE PERFORMANCE INFORMATION HAS BEEN
OBTAINED FROM SOURCES BELIEVED TO BE RELIABLE BUT IS NOT WARRANTED AS TO
ACCURACY OR COMPLETENESS. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS.
<PAGE>
COMPOSITE
PERFORMANCE RECORD OF
______________ ACCOUNTS
YEAR __________ COMPOSITE S&P 500
1987 % %
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
Cumulative Return
1987 - 1997
The above ______________ composite returns are shown net of certain
expenses, including advisory fees, paid to ______________ by the accounts
included in the composite. These advisory fees are asset-based fees plus
performance-based fees or, in certain cases, asset-based fees in lieu of
performance-based fees in years where performance-based fees were not earned.
The composite reflects the performance of all accounts (including investment
funds), that were managed during the periods shown by ______________ in
accordance with an investment program which is substantially similar to the
Partnership's expected investment program. In circumstances where the investment
program being used for an account changed, either as a result of a client's
direction or as a result of a decision made by ______________ in light of a
change in the client's investment goals or risk tolerance, so as to no longer be
the same as the investment program used for other accounts in the composite,
that account was removed prospectively from the composite. All determinations as
to the accounts included in the composite, as well as the performance
information and composite methodology, were made by ______________. The
composite returns are dollar-weighted averages of the individual returns of the
accounts included in the composite. At all times under consideration, the
______________ Accounts' assets under management were between $___ million and
$___ million. Performance of the S&P 500 is provided for comparison purposes.
The accounts, however, do not restrict their investments in securities only to
those securities comprising the S&P 500. Cumulative return is calculated by
using a compounded, time-weighted return. PAST PERFORMANCE IS NO GUARANTEE OF
FUTURE RESULTS.
<PAGE>
APPENDIX C
INVESTMENT MANAGER FEES AND ALLOCATIONS
Name of Investment Asset-Based Fee (As Performance-Based
Manager and a Percentage of the Allocation (As a
Investment Fund Investment Fund's Percentage of Net
Net Assets) Profits of the
Partnership's
Capital Account)
<PAGE>
FORM N-2
PW AFTER-TAX EQUITY PARTNERS, 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) Custody Agreement.*
(k) (1) Management and Administration Agreement.*
(2) Administration, Accounting and Investor
Services Agreement.*
(l) Not Applicable.
(m) Not Applicable.
(n) Not Applicable.
(o) Not Applicable.
(p) Not Applicable.
(q) Not Applicable.
(r) Not Applicable.
--------------
* To be filed by Amendment.
ITEM 25. MARKETING ARRANGEMENTS
Not Applicable.
ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Blue Sky fees and expenses (including fees of
counsel) $
Legal and accounting fees and expenses
Printing and engraving
Offering expenses
Miscellaneous
$
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 PW
Fund Advisor, L.L.C. (the "Manager"), the general partner of the Registrant.
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 that as
Interests 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."
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.
ITEM 31. LOCATION OF ACCOUNTS AND RECORDS
The Administrator maintains certain required accounting related and
financial books and records of the Registrant at _________________. 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
PW AFTER-TAX EQUITY PARTNERS, L.P.
SIGNATURES
Pursuant to the requirements of the Investment Company Act of 1940,
the Registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York,
and State of New York, on the 5th day of June, 1998.
PW AFTER-TAX EQUITY PARTNERS, L.P.
By: PW Fund Advisor, L.L.C.
General Partner
By: /S/ PETER ZURKOW
------------------------
Name: Peter Zurkow
Title: Managing Director
<PAGE>
FORM N-2
PW AFTER-TAX EQUITY PARTNERS, L.P.
EXHIBIT INDEX
EXHIBIT NUMBER DOCUMENT DESCRIPTION
(a) (1) Certificate of Limited Partnership.
(2) Agreement of Limited Partnership.
(3) Amended and Restated Limited Partnership Agreement.*
(c) Not Applicable.
(d) See Exhibit (a)(3).
(e) Not Applicable.
(f) Not Applicable.
(g) See Exhibit (a)(3).
(h) Not Applicable.
(i) Not Applicable.
(j) Custodian Agreement.*
(k) (1) Management and Administration Agreement.*
(2) Administration, Accounting and Investor Services
Agreement.*
(l) Not Applicable.
(m) Not Applicable.
(n) Not Applicable.
(o) Not Applicable.
(p) Not Applicable.
(q) Not Applicable.
- ----------------------
* To be filed by Amendment.
Exhibit 24 (2)(a)(1)
CERTIFICATE OF LIMITED PARTNERSHIP
OF
PW AFTER-TAX EQUITY PARTNERS, L.P.
THIS Certificate of Limited Partnership of PW After-Tax Equity
Partners, L.P. (the "Partnership"), dated as of June 5, 1998, is being duly
executed and filed by PW Fund Advisor, L.L.C., a Delaware limited liability
company, as general partner, to form a limited partnership under the Delaware
Revised Uniform Limited Partnership Act (6 DEL.C. ss.17-101, ET SEQ.).
1. NAME. The name of the limited partnership formed hereby is PW
After-Tax Equity Partners, L.P.
2. REGISTERED OFFICE. The address of the registered office of the
Partnership in the State of Delaware is c/o The Corporation Service Company,
1013 Centre Road, Wilmington, New Castle County, Delaware 19805.
3. REGISTERED AGENT. The name and address of the registered agent for
service of process on the Partnership in the State of Delaware is The
Corporation Service Company, 1013 Centre Road, Wilmington, New Castle County,
Delaware 19805.
4. GENERAL PARTNER. The name and business address of the sole general
partner of the Partnership is PW Fund Advisor, L.L.C., 1285 Avenue of the
Americas, New York, New York 10019.
IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Limited Partnership as of the date first-above written.
GENERAL PARTNER:
PW FUND ADVISOR, L.L.C.
By: /S/ PETER ZURKOW
------------------------
Name: Peter Zurkow
Title: Managing Director
Exhibit (a)(2)
AGREEMENT OF LIMITED PARTNERSHIP
OF
PW AFTER-TAX EQUITY PARTNERS, L.P.
This Agreement of Limited Partnership of PW After-Tax Equity Partners,
L.P. (this "Agreement"), is entered into by and between PW Fund Advisor, L.L.C.,
as general partner (the "General Partner"), and Mark F. Vassallo, as limited
partner (the "Initial Limited Partner").
The General Partner and the Initial Limited Partner hereby form a
limited partnership pursuant to and in accordance with the Delaware Revised
Uniform Limited Partnership Act (6 DEL.C. ss.17-101, ET SEQ.), as amended from
time to time (the "Act"), and hereby agree as follows:
1. NAME. The name of the limited partnership formed hereby is PW
After-Tax Equity Partners, L.P. (the "Partnership").
2. PURPOSE. The Partnership is formed for the object and purpose of,
and the nature of the business to be conducted and promoted by the Partnership
is, engaging in any lawful act or activity for which limited partnerships may be
formed under the Act and engaging in any and all activities necessary or
incidental to the foregoing.
3. REGISTERED OFFICE. The registered office of the Partnership in the
State of Delaware is c/o The Corporation Service Company, 1013 Centre Road,
Wilmington, New Castle County, Delaware 19805.
4. REGISTERED AGENT. The name and address of the registered agent of
the Partnership for service of process on the Partnership for service of process
on the Partnership in the State of Delaware is The Corporation Service Company,
1013 Centre Road, Wilmington, New Castle County, Delaware 19805.
5. PARTNERS. The names and the business, residence or mailing
addresses of the General Partner and the Initial Limited Partner are as follows:
GENERAL PARTNER:
PW Fund Advisor, L.L.C.
1285 Avenue of the Americas
New York, New York 10019
INITIAL LIMITED PARTNER:
Mark F. Vassallo
c/o PaineWebber Incorporated
1285 Avenue of the Americas
New York, New York 10019
6. POWERS. The powers of the General Partner include all powers,
statutory and otherwise, possessed by general partners under the laws of the
State of Delaware.
7. DISSOLUTION. The Partnership shall dissolve, and its affairs shall
be wound up, at such time as (a) all of the partners of the Partnership approve
in writing, (b) an event of withdrawal of a general partner has occurred under
the Act, or (c) an entry of a decree of judicial dissolution has occurred under
ss.17-802 of the Act; PROVIDED, HOWEVER, the Partnership shall not be dissolved
or required to be wound up upon an event of withdrawal of a general partner
described in Section 7(b) if (i) at the time of such event of withdrawal, there
is at least one (1) other general partner of the Partnership who carries on the
business of the Partnership (any remaining general partner being hereby
authorized to carry on the business of the Partnership), or (ii) within ninety
days after the occurrence of such event of withdrawal, all remaining partners
agree in writing to continue the business of the Partnership and the
appointment, effective as of the date of the event of withdrawal, of one or more
additional general partners of the Partnership.
8. CAPITAL CONTRIBUTIONS. The partners of the Partnership have
contributed the following amounts, in cash, and no other property, to the
Partnership:
GENERAL PARTNER:
PW Fund Advisor, L.L.C. $99.00
INITIAL LIMITED PARTNER:
Mark F. Vassallo $1.00
9. ADDITIONAL CONTRIBUTIONS. No partner of the Partnership is required
to make any additional capital contribution to the Partnership.
10. ALLOCATION OF PROFITS AND LOSSES. The Partnership's profits and
losses shall be allocated in proportion to the capital contributions of the
partners of the Partnership.
11. DISTRIBUTIONS. Distributions shall be made to the partners of the
Partnership at the times and in the aggregate amounts determined by the General
Partner. Such distributions shall be allocated among the partners of the
Partnership in the same proportion as their then capital account balances.
12. ASSIGNMENTS.
(a) The Initial Limited Partner may assign all or any part of its
partnership interest in the Partnership and may withdraw from the Partnership
only with the consent of the General Partner.
(b) The General Partner may assign all or any part of its partnership
interest in the Partnership and may withdraw from the Partnership without the
consent of the Initial Limited Partner.
13. WITHDRAWAL. Except to the extent set forth in Section 12, no right
is given to any partner of the Partnership to withdraw from the Partnership.
14. ADMISSION OF ADDITIONAL OR SUBSTITUTE PARTNERS.
(a) One or more additional or substitute limited partners of the
Partnership may be admitted to the Partnership with only the consent of the
General Partner.
(b) One or more additional or substitute general partners of the
Partnership may be admitted to the Partnership with only the consent of the
General Partner.
15. LIABILITY OF INITIAL LIMITED PARTNER. The Initial Limited Partner
shall not have any liability for the obligations or liabilities of the
Partnership except to the extent provided in the Act.
16. GOVERNING LAW. This Agreement shall be governed by, and construed
under, the laws of the State of Delaware, all rights and remedies being governed
by said laws.
IN WITNESS WHEREOF, the undersigned, intending to be legally bound
hereby, have duly executed this Agreement of Limited Partnership as of the 5th
day of June, 1998.
GENERAL PARTNER:
PW FUND ADVISOR, L.L.C.
By: /S/ PETER ZURKOW
--------------------------
Name: Peter Zurkow
Title: Managing Director
INITIAL LIMITED PARTNER:
/S/ MARK F. VASSALLO
---------------------------
Mark F. Vassallo
