<PAGE> 1
As filed with the Securities and Exchange Commission on August 18, 1998
Investment Company Act File No. 811-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM N-2
(CHECK APPROPRIATE BOX OR BOXES)
[ ] REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[ ] Pre-Effective Amendment No. _______________
[ ] Post-Effective Amendment No. ______________
and/or
[X] REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
---------------------
WYNSTONE PARTNERS, L.P.
(Exact name of Registrant as specified in Charter)
CIBC Oppenheimer Tower
One World Financial Center
31st Floor
200 Liberty Street
New York, New York 10281
(Address of principal executive offices)
Registrant's Telephone Number, including Area Code: (212) 667-4225
---------------------
c/o HOWARD M. SINGER
Managing Director
CIBC Oppenheimer Corp.
CIBC Oppenheimer Tower
One World Financial Center
31st Floor
200 Liberty Street
New York, New York 10281
(Name and address of agent for service)
Copy to:
KENNETH S. GERSTEIN, ESQ.
Schulte Roth & Zabel LLP
900 Third Avenue
New York, New York 10022
---------------------------------------------
This Registration Statement has been filed by Registrant pursuant to Section
8(b) of the Investment Company Act of 1940, as amended. Partnership interests in
the Registrant are not being registered under the Securities Act of 1933, as
amended (the "1933 Act"), and 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 Registrant may only be made 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 Registrant.
<PAGE> 2
FORM N-2
WYNSTONE PARTNERS, L.P.
CROSS REFERENCE SHEET
Pursuant to Rule 495(a)
<TABLE>
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PART A
ITEM NUMBER CAPTION PROSPECTUS CAPTION
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<S> <C> <C>
1. Outside Front Cover Outside Front Cover of Confidential Memorandum
2. Inside Front and Outside Back Cover Outside Front Cover of Confidential Memorandum
Page
3. Fee Table and Synopsis Summary of Terms; Fees and Expenses; Capital
Accounts and Allocations - Incentive Allocation
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 Registrant Summary of Terms; The Partnership; Investment
Program; Types of Investments and Related Risk
Factors; Additional Risk Factors
9. Management Summary of Terms; The Partnership; Individual General
Partners; The Adviser, CIBC Opco and KBW Asset
Management, Inc.; Brokerage; Fees and Expenses;
Additional Information and Summary of Limited
Partnership Agreement - Custodian
</TABLE>
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<TABLE>
<CAPTION>
PART A
ITEM NUMBER CAPTION PROSPECTUS CAPTION
----------- ------- ------------------
<S> <C> <C>
10. Capital Stock, Long-Term Debt, and Summary of Terms; Voting; Capital Accounts and
Other Securities Allocations; Subscription for Interests; Tax Aspects;
Additional Information and Summary of Limited
Partnership Agreement
11. Defaults and Arrears on Senior Not Applicable
Securities
12. Legal Proceedings Not Applicable
13. Table of Contents of the Statement of Not Applicable
Additional Information
</TABLE>
<TABLE>
<CAPTION>
PART B
ITEM NUMBER CAPTION STATEMENT OF ADDITIONAL INFORMATION CAPTION
----------- ------- -------------------------------------------
<S> <C> <C>
14. Cover Page Not Applicable
15. Table of Contents Not Applicable
16. General Information and History Not Applicable
17. Investment Objective and Policies Summary of Terms; Investment Program; Types of
Investments and Related Risk Factors; Additional Risk
Factors; Brokerage
18. Management Summary of Terms; Individual General Partners
19. Control Persons and Principal Holders Individual General Partners
of Securities
</TABLE>
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<TABLE>
<CAPTION>
PART B
ITEM NUMBER CAPTION STATEMENT OF ADDITIONAL INFORMATION CAPTION
----------- ------- -------------------------------------------
<S> <C> <C>
20. Investment Advisory and Other Services Summary of Terms; The Adviser, CIBC Opco and KBW
Asset Management, Inc.; Fees and Expenses; Capital
Accounts and Allocations - Incentive Allocations;
Additional Information and Summary of Limited
Partnership Agreement
21. Brokerage Allocation and Other Conflicts of Interest; Brokerage
Practices
22. Tax Status Summary of Terms; Tax Aspects
23. Financial Statements Because Registrant has no assets, financial
statements are omitted.
</TABLE>
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Copy Number: ________________
WYNSTONE PARTNERS, L.P.
CONFIDENTIAL MEMORANDUM
[SEPTEMBER] 1998
CIBC OPPENHEIMER ADVISERS, L.L.C.
INVESTMENT ADVISER
CIBC OPPENHEIMER TOWER
ONE WORLD FINANCIAL CENTER, 31ST FLOOR
200 LIBERTY STREET
NEW YORK, NEW YORK 10281
(212) 667-4225
IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY UPON THEIR OWN EXAMINATION
OF WYNSTONE PARTNERS, L.P. AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS
AND RISKS INVOLVED. THE PARTNERSHIP INTERESTS OF WYNSTONE PARTNERS, L.P. HAVE
NOT BEEN REGISTERED WITH OR APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY OTHER FEDERAL OR STATE GOVERNMENTAL AGENCY OR
REGULATORY AUTHORITY OR ANY NATIONAL SECURITIES EXCHANGE. NO AGENCY, AUTHORITY
OR EXCHANGE HAS PASSED UPON THE ACCURACY OR ADEQUACY OF THIS CONFIDENTIAL
MEMORANDUM OR THE MERITS OF AN INVESTMENT IN THE PARTNERSHIP INTERESTS OF
WYNSTONE PARTNERS, L.P. OFFERED HEREBY. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE> 6
TO ALL INVESTORS
THE INTERESTS ARE NOT INSURED OR GUARANTEED BY THE UNITED STATES FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY. THE INTERESTS ARE NOT
DEPOSITS OR OTHER OBLIGATIONS OF CANADIAN IMPERIAL BANK OF COMMERCE OR ANY OTHER
BANK. THE INTERESTS ARE SUBJECT TO INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS
OF THE FULL AMOUNT INVESTED.
THE INTERESTS OF WYNSTONE PARTNERS, L.P. WHICH ARE DESCRIBED IN THIS
CONFIDENTIAL MEMORANDUM HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY OF THE STATES
OF THE UNITED STATES. THE OFFERING CONTEMPLATED BY THIS CONFIDENTIAL MEMORANDUM
WILL BE MADE IN RELIANCE UPON AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT OF 1933, AS AMENDED, FOR OFFERS AND SALES OF SECURITIES WHICH
DO NOT INVOLVE ANY PUBLIC OFFERING, AND ANALOGOUS EXEMPTIONS UNDER STATE
SECURITIES LAWS.
THIS CONFIDENTIAL MEMORANDUM SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF PARTNERSHIP
INTERESTS IN WYNSTONE PARTNERS, L.P. IN ANY JURISDICTION IN WHICH SUCH OFFER,
SOLICITATION OR SALE IS NOT AUTHORIZED OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER, SOLICITATION OR SALE. NO PERSON HAS BEEN AUTHORIZED TO MAKE
ANY REPRESENTATIONS CONCERNING WYNSTONE PARTNERS, L.P. THAT ARE INCONSISTENT
WITH THOSE CONTAINED IN THIS CONFIDENTIAL MEMORANDUM. PROSPECTIVE INVESTORS
SHOULD NOT RELY ON ANY INFORMATION NOT CONTAINED IN THIS CONFIDENTIAL MEMORANDUM
OR THE EXHIBITS HERETO.
THIS CONFIDENTIAL MEMORANDUM IS INTENDED SOLELY FOR THE USE OF THE PERSON TO
WHOM IT HAS BEEN DELIVERED FOR THE PURPOSE OF EVALUATING A POSSIBLE INVESTMENT
BY THE RECIPIENT IN THE LIMITED PARTNERSHIP INTERESTS DESCRIBED HEREIN, AND IS
NOT TO BE REPRODUCED OR DISTRIBUTED TO ANY OTHER PERSONS (OTHER THAN
PROFESSIONAL ADVISERS OF THE PROSPECTIVE INVESTOR RECEIVING THIS DOCUMENT).
PROSPECTIVE INVESTORS SHOULD NOT CONSTRUE THE CONTENTS OF THIS CONFIDENTIAL
MEMORANDUM AS LEGAL, TAX OR FINANCIAL ADVICE. EACH PROSPECTIVE INVESTOR SHOULD
CONSULT HIS OR HER OWN PROFESSIONAL ADVISERS AS TO THE LEGAL, TAX, FINANCIAL OR
OTHER MATTERS RELEVANT TO THE SUITABILITY OF AN INVESTMENT IN WYNSTONE PARTNERS,
L.P. FOR SUCH INVESTOR.
THESE SECURITIES ARE SUBJECT TO SUBSTANTIAL RESTRICTIONS ON TRANSFERABILITY AND
RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE
LIMITED PARTNERSHIP AGREEMENT OF WYNSTONE PARTNERS, L.P., THE SECURITIES ACT OF
1933, AS AMENDED, AND APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION
OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO
BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR UP TO TWO (2) YEARS FROM THE
DATE THAT A REPURCHASE REQUEST HAS BEEN MADE BY AN INVESTOR.
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<PAGE> 7
FOR GEORGIA RESIDENTS ONLY
THESE SECURITIES HAVE BEEN ISSUED OR SOLD IN RELIANCE ON PARAGRAPH (13) OF CODE
SECTION 10-5-9 OF THE GEORGIA SECURITIES ACT OF 1973, AND MAY NOT BE SOLD OR
TRANSFERRED EXCEPT IN A TRANSACTION WHICH IS EXEMPT UNDER SUCH ACT OR PURSUANT
TO AN EFFECTIVE REGISTRATION UNDER SUCH ACT.
-ii-
<PAGE> 8
TABLE OF CONTENTS
<TABLE>
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PAGE
<S> <C>
SUMMARY OF TERMS............................................................................................
THE PARTNERSHIP..............................................................................................
STRUCTURE....................................................................................................
INVESTMENT PROGRAM...........................................................................................
TYPES OF INVESTMENTS AND RELATED RISK FACTORS................................................................
ADDITIONAL RISK FACTORS.....................................................................................
PERFORMANCE INFORMATION.....................................................................................
INDIVIDUAL GENERAL PARTNERS.................................................................................
THE ADVISER, CIBC OPCO AND KBW ASSET MANAGEMENT, INC........................................................
VOTING......................................................................................................
CONFLICTS OF INTEREST.......................................................................................
BROKERAGE...................................................................................................
FEES AND EXPENSES...........................................................................................
CAPITAL ACCOUNTS AND ALLOCATIONS............................................................................
SUBSCRIPTION FOR INTERESTS..................................................................................
REDEMPTIONS, REPURCHASES OF INTERESTS AND TRANSFERS.........................................................
TAX ASPECTS.................................................................................................
ERISA CONSIDERATIONS........................................................................................
ADDITIONAL INFORMATION AND SUMMARY OF LIMITED PARTNERSHIP AGREEMENT.........................................
APPENDIX A - LIMITED PARTNERSHIP AGREEMENT.................................................................
APPENDIX B - PERFORMANCE INFORMATION.......................................................................
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<PAGE> 9
SUMMARY OF TERMS
The following summary is qualified entirely by the detailed
information appearing elsewhere in this Confidential
Memorandum and by the terms and conditions of the limited
partnership agreement of Wynstone Partners, L.P. (the
"Partnership Agreement"), each of which should be read
carefully and retained by any prospective investor.
The Partnership Wynstone Partners, L.P. (the "Partnership") is a
newly organized Delaware limited partnership,
registered under the Investment Company Act of 1940
(the "1940 Act") as a closed-end, non-diversified,
management investment company.
The Partnership is a specialized investment vehicle
that may be referred to as a registered private
investment partnership. The Partnership is similar to
an unregistered private investment partnership in
that (i) the Partnership's portfolio may be more
actively managed than most other investment
companies, (ii) limited partnership interests in the
Partnership will be sold in large minimum
denominations in private placements solely to high
net worth individual and institutional investors, and
thus will be restricted as to transfer, and (iii) the
capital accounts of persons who purchase interests in
the Partnership offered hereby ("Limited Partners")
will be subject to both asset-based charges and
performance-based allocations in connection with the
Partnership's activities. Unlike a private investment
partnership but like other registered investment
companies, however, the Partnership has registered
under the 1940 Act to be able to offer its interests
without limiting the number of investors that can
participate in its investment program.
Investment Program The Partnership's investment objective is to seek
superior capital appreciation. The Partnership will
pursue this objective by investing its assets
primarily in the equity securities of U.S. companies
engaged in the financial services industry. These
companies include: commercial and industrial banks;
savings and loan associations, savings banks and
other thrift institutions; consumer and industrial
finance and leasing companies; securities brokerage
and investment advisory firms; and insurance
companies. Investments may include long and short
positions in equity securities, fixed-income
securities and various derivatives, including options
on securities and stock index options.
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<PAGE> 10
CIBC Oppenheimer Advisers, L.L.C., the investment
adviser of the Partnership, will rely primarily on
investment research and fundamental analysis of
company financial data in seeking to identify
attractive investment opportunities for the
Partnership. The research process involves company
visits, continuous updating of valuation models,
review and analysis of published research and
discussions with industry sources.
Among the sources of information upon which the
Adviser will rely will be investment research and
related analysis generated by Keefe, Bruyette &
Woods, Inc. ("KBW"), an affiliate of KBW Asset
Management, Inc. ("KBWAM"), a non-managing member of
the Adviser whose investment professionals will
manage the Partnership's investment portfolio on
behalf of the Adviser. Other research sources will
also be used.
The Adviser will invest the Partnership's assets in
the equity and equity-related securities of financial
services issuers that the Adviser believes are
undervalued or that, in the judgment of the Adviser,
offer other opportunities for capital appreciation
based on consideration of relevant company-,
industry- and market-specific factors and trends. For
example, the Adviser will seek to identify securities
of financial services companies in particular market
sectors that are undervalued relative to other
issuers in the same sector or which have
characteristics making the issuer an acquisition
target.
The Partnership will generally invest 75% or more of
the value of its total assets in the securities of
U.S. companies engaged in the financial services
industry. Generally, the Partnership will maintain a
long position in these companies. During periods of
adverse market conditions in the financial services
industry or in the U.S. equity securities markets
generally, the Partnership may temporarily invest 25%
or less of the value of its total assets in the
securities of these issuers. At such times, all or
any portion of the Partnership's assets may either be
invested in equity securities of issuers not engaged
in the financial services industry or in high quality
fixed-income securities, including money market
instruments, or held as cash. The Partnership may
also invest in money market instruments or hold cash
for liquidity purposes.
In pursuing its investment objective, or for hedging
purposes, the Partnership may use various investment
techniques and strategies. These may include the use
of leverage, short sales of
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<PAGE> 11
securities, the purchase and sale of options on
securities and stock indices, subject to certain
limitations described elsewhere in this Confidential
Memorandum. The use of these investment techniques
and instruments involves certain risks. (See "Types
of Investments and Related Risk Factors.")
Risk Factors The Partnership's investment program is speculative
and entails substantial risks. There can be no
assurance that the Partnership's investment objective
will be achieved. In particular, the Partnership's
use of leverage, short sales and derivative
transactions and limited diversification can, in
certain circumstances, result in significant losses
to the Partnership. Additionally, because the
Partnership will normally invest primarily in the
securities of companies engaged in the financial
services industry, the Partnership's investments and
its performance will be affected by risk factors
particular to the financial services industry,
including those relating to extensive government
regulation and a changing regulatory environment, as
well as general market and economic conditions
affecting the securities markets generally.
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. However, the 1940 Act
imposes limitations on the percentage of the total
assets of the Partnership that may be invested in
certain financial services issuers. The Partnership
intends to invest no more than 15% of the value of
its total assets in the securities of any one issuer.
However, while seeking desirable investments the
Partnership may temporarily exceed this limitation.
As a result, its investment portfolio may be subject
to greater risk and volatility than if investments
had been made in the securities of a broader range of
issuers.
The Partnership will invest primarily in the
securities of U.S. issuers but may invest a portion
of its assets in the securities of foreign issuers.
Investments in foreign securities are affected by
risk factors generally not thought to be present in
the U.S., including, among other things, increased
political, regulatory, contractual and economic risk
and exposure to currency fluctuations. Certain other
types of investments, such as derivatives and
illiquid investments, also involve particular risks
as described herein.
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<PAGE> 12
The Incentive Allocation (defined below) that may be
debited to the capital account of each Limited
Partner and credited to the Special Advisory Account
(defined below) of the Adviser may create an
incentive for the Adviser to cause the Partnership to
make investments that are riskier or more speculative
than would be the case in the absence of the
Incentive Allocation. In addition, because the
Incentive Allocation is calculated on a basis that
includes unrealized appreciation of the Partnership's
assets, the allocation may be greater than if it were
based solely on realized gains.
There are special tax risks associated with an
investment in the Partnership.
The Partnership is a newly formed entity and has no
operating history upon which investors can evaluate
its performance. The personnel of the members of the
Adviser responsible for managing the Partnership's
investment portfolio, however, have substantial
experience in managing investments, private
investment partnerships and the financial services
industry.
Interests in the Partnership will not be traded on
any securities exchange or other market and are
subject to substantial restrictions on transfer.
Although the Partnership may offer to repurchase
Partnership 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 "Types of
Investments and Related Risk Factors," "Tax Aspects,"
and "Redemptions, Repurchases of Interests and
Transfers.")
Management The individual general partners of the Partnership
(the "Individual General Partners") have overall
responsibility for the management and supervision of
the operations of the Partnership. None of the
Individual General Partners is affiliated with CIBC
Oppenheimer Corp. ("CIBC Opco") or is an "interested
person," as defined by the 1940 Act, of CIBC Opco or
the Adviser. The initial Individual General Partners
have been elected by the organizational Limited
Partner of the Partnership (which is not affiliated
with CIBC Opco). By signing the Partnership Agreement
of the Partnership, each Limited Partner will be
deemed to have voted for the election of each of the
initial Individual General Partners. Any vacancy may
be filled by the remaining Individual General
Partners, or, if required by the 1940 Act, by a vote
of a majority of the outstanding voting securities of
the Partnership (other than any
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<PAGE> 13
such securities held by the Limited Partners
affiliated with CIBC Opco). (See "Individual General
Partners" and "Voting.")
Adviser CIBC Oppenheimer Advisers, L.L.C. (the "Adviser"), a
Delaware limited liability company, serves as the
investment adviser of the Partnership and will be
responsible for managing the Partnership's investment
portfolio pursuant to the terms of an investment
advisory agreement with the Partnership. CIBC Opco is
the managing member and controlling person of the
Adviser and KBWAM is a non-managing member of the
Adviser. Investment professionals employed by KBWAM
will manage the Partnership's investment portfolio on
behalf of the Adviser under supervision of CIBC Opco.
The Adviser holds a non-voting Special Advisory
Limited Partner interest (the "Special Advisory
Account") in the Partnership solely for the purpose
of receiving the Incentive Allocation. The Adviser
also will make a capital contribution to the
Partnership as a Limited Partner in the approximate
amount of 1% of the aggregate outstanding capital
account balances of all Limited Partners. (See
"Additional Information And Summary Of Limited
Partnership Agreement - Limited Partner Interests.")
CIBC Opco (directly or through affiliates, including
the Adviser) provides investment advisory services to
registered investment companies, private investment
partnerships and individual client accounts. KBWAM is
an affiliate of KBW, an institutionally-oriented
securities broker-dealer and full-service investment
bank specializing in the banking and financial
services industry. KBWAM provides investment advisory
services to several institutional and individual
investors. As of June 30, 1998, KBWAM had
approximately $225 million of assets under
management.
The Partnership has entered into an investment
advisory agreement (the "Investment Advisory
Agreement") with the Adviser which is effective for
an initial term expiring [September 2,] 2000, and
may be continued in effect from year to year
thereafter if the continuance is approved annually
by the Individual General Partners. The Individual
General Partners may terminate the Investment
Advisory Agreement on 60 days' prior written notice
to the Adviser.
Placement Agent CIBC Opco acts as the non-exclusive placement agent
for the Partnership, without special compensation
from the
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<PAGE> 14
Partnership, and will bear its own costs associated
with its activities as placement agent. The
Individual General Partners may terminate CIBC Opco
as placement agent upon 30 days' prior written
notice. CIBC Opco intends to compensate its account
executives for their ongoing servicing of clients
with whom they have placed interests in the
Partnership. This 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 clients' assets invested in
the Partnership. (See "Conflicts Of Interest - CIBC
Opco.")
Conflicts of Interest Certain conflicts of interest may arise from the
following: (i) CIBC Opco, KBWAM and their respective
affiliates may each engage in investment management
activities for their own accounts and the accounts of
others in which the Partnership has no interest and
may have actual or potential conflicts of interest
with respect to investments made by the Adviser on
behalf of the Partnership; (ii) KBWAM and its
affiliates will manage accounts (in which the
Partnership has no interest) of certain other persons
in accordance with an investment program that is
substantially similar to the Partnership's investment
program, but (a) these accounts may commit a larger
percentage of their respective assets to an
investment opportunity than the Adviser may commit of
the Partnership's assets and (b) there may be
circumstances under which KBWAM and its affiliates
will consider participation by such accounts in
investment opportunities in which the Adviser does
not intend to invest on behalf of the Partnership;
(iii) situations may occur where the Partnership
could be disadvantaged because of the investment
activities conducted by KBWAM and its affiliates for
the other accounts they manage; (iv) the Partnership
may enter into certain transactions with one or more
accounts that are managed by KBWAM or its affiliates,
but only in accordance with the 1940 Act; (v) the
Adviser, KBWAM and any of their respective affiliates
may in the future provide investment advisory
services from time to time to private investment
partnerships or other entities or accounts that are
advised by CIBC Opco, KBWAM or their respective
affiliates; (vi) KBWAM and its affiliates may receive
research products and services in connection with the
brokerage services that CIBC Opco and its affiliates
may provide from time to time (a) to one or more
entities managed by KBWAM or its affiliates or (b) to
the Partnership; (vii) from time to time, in the
ordinary course of their brokerage, investment or
dealer activities, CIBC Opco, KBWAM and their
respective affiliates may trade, position or
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<PAGE> 15
invest in, for its own account, the same securities
as those in which the Partnership invests; (viii) the
investment banking and corporate finance activities
of CIBC Opco, Canadian Imperial Bank of Commerce, the
parent company of CIBC Opco, KBW or their respective
affiliates may restrict the ability of the
Partnership to purchase or sell certain securities;
and (ix) the Adviser, CIBC Opco and affiliates of
CIBC Opco are subject to regulation under the Bank
Holding Company Act and to restrictions imposed by
the Board of Governors of the Federal Reserve System
on their transactions and relationships with the
Partnership and these restrictions may affect the
investments made by the Partnership. Future
activities of CIBC Opco, KBWAM, including the
respective directors, principals, officers and
employees of the foregoing, or of their respective
affiliates, may give rise to additional conflicts of
interest. (See "Conflicts Of Interest.")
Fees and Expenses CIBC Opco provides certain administration and
investor services to the Partnership, including,
among other things, providing office space and other
support services to the Partnership, maintaining and
preserving certain records of the Partnership,
preparing and filing various materials with state and
Federal regulators, providing legal and regulatory
advice in connection with administrative functions
and reviewing and arranging for payment of the
Partnership's expenses. In consideration for these
services, the Partnership will pay CIBC Opco a
monthly management fee of 0.08333% (1% on an
annualized basis) of the Partnership's net assets for
the month (the "CIBC Opco Fee"). The CIBC Opco Fee
will be paid to CIBC Opco out of the Partnership's
assets, and debited against Limited Partners' capital
accounts (but not the Special Advisory Account). A
portion of the CIBC Opco Fee will be paid by CIBC
Opco to KBWAM.
The Partnership will bear all expenses incurred in
the business of the Partnership, including, but not
limited to, the following: all costs and expenses
related to portfolio transactions and positions for
the Partnership's account; legal fees; accounting
fees; costs of insurance; organizational and
registration expenses; certain offering expenses;
expenses of meetings of Individual General Partners
and Limited Partners (collectively, the "Partners");
and fees payable to PFPC Inc. for providing certain
administration, accounting and investor services to
the Partnership. (See "Fees and Expenses.") These
expenses will not be charged to the Special Advisory
Account.
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<PAGE> 16
Allocation of Profit The net profits or net losses of the Partnership
and Loss (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 Limited Partners at the end of each fiscal
period in accordance with their respective
partnership percentages for the period. Each Limited
Partner's partnership percentage will be determined
by dividing as of the start of a fiscal period the
balance of the Limited Partner's capital account by
the sum of the balances of the capital accounts of
all Limited Partners. (See "Capital Accounts and
Allocations - Allocation of Net Profits and Net
Losses.")
Incentive Allocation Generally at the end of each fiscal year, an
incentive allocation of 20% of the net profits, if
any, that have been credited to the capital account
of the Limited Partner during the period (an
"Incentive Allocation") will be debited from the
Limited Partner's capital account and credited to the
Special Advisory Account. The Incentive Allocation
will be charged to a Limited Partner only to the
extent that cumulative net profits with respect to
the Limited Partner through the close of any period
exceeds the highest level of cumulative net profits
with respect to the Limited Partner through the close
of any prior period. The Incentive Allocation will be
adjusted for repurchases of interests by the
Partnership. The Adviser may withdraw any Incentive
Allocation credited to its Special Advisory Account
by the last business day of the month following the
date on which the Incentive Allocation was made. (See
"Capital Accounts and Allocations - Incentive
Allocation.")
Subscription for For the first six months from the date of
Interests commencement of operations of the Partnership, the
Individual General Partners may accept initial and
additional subscriptions for interests by eligible
investors as of the first day of each month upon 10
days' prior written notice to the Individual General
Partners (subject to the discretion of the Individual
General Partners to waive such notice), subject to
the receipt of cleared funds on or before the
acceptance date. Thereafter, both initial and
additional subscriptions for interests by eligible
investors may be accepted by the Individual General
Partners as of the first day of each calendar quarter
upon similar notice (subject to the discretion of the
Individual General Partners to waive such notice),
subject to the receipt of cleared funds on or before
the acceptance date. The Individual General Partners
reserve the
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<PAGE> 17
right to reject any subscription for interests in the
Partnership. The minimum initial investment in the
Partnership is $150,000 and the minimum additional
investment in the Partnership is $25,000, subject to
the discretion of the Individual General Partner to
accept initial and additional investments in lesser
amounts. The Individual General Partners may, in
their sole discretion, suspend subscriptions for
interests at any time. Interests may not be purchased
by nonresident aliens, foreign corporations, foreign
partnerships, foreign trusts or foreign estates, all
as defined in the Internal Revenue Code of 1986, as
amended (the "Code"). In addition, because the
Partnership may generate "unrelated business taxable
income" ("UBTI"), charitable remainder trusts may not
want to purchase interests in the Partnership.
Initial Closing Date The initial closing date for subscriptions of
interests in the Partnership is November 2, 1998. The
Partnership, in its sole discretion, may postpone the
closing date for up to 90 days.
Transfer Restrictions Interests in the Partnership held by Limited Partners
may be transferred only (i) by operation of law
pursuant to the death, bankruptcy, insolvency or
dissolution of a Limited Partner or (ii) under
certain limited circumstances, with the written
consent of the Individual General Partners (which may
be withheld in their sole and absolute discretion and
is expected to be granted, if at all, only under
extenuating circumstances). The Individual General
Partners generally will not consent to a transfer
unless the following conditions are met: (i) the
transferring Limited Partner has been a Limited
Partner for at least six months; (ii) the proposed
transfer is to be made on the effective date of an
offer by the Partnership to repurchase interests; and
(iii) the transfer does not constitute a change in
beneficial ownership. The foregoing permitted
transferees will not be allowed to become substituted
Limited Partners without the consent of the
Individual General Partners, which may be withheld in
their sole and absolute discretion. A Limited Partner
who transfers an interest may be charged reasonable
expenses, including attorneys' and accountants' fees,
incurred by the Partnership in connection with the
transfer. (See "Redemptions, Repurchases of Interests
and Transfers - Transfers of Interests.")
Withdrawals and No Limited Partner will have the right to require the
Repurchases of Interests Partnership to redeem its Partnership interest. The
by the Partnership Partnership may from time to time offer to repurchase
interests pursuant to written
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tenders by Partners. Repurchases will be made at such
times and on such terms as may be determined by the
Individual General Partners, in their complete and
exclusive discretion. In determining whether the
Partnership should repurchase interests or portions
thereof from Partners pursuant to written tenders,
the Individual General Partners will consider the
recommendation of the Adviser. The Adviser expects
that it will recommend to the Individual General
Partners that the Partnership offer to repurchase
interests from Partners at the end of 1999.
Thereafter, the Adviser expects that generally it
will recommend to the Individual General Partners
that the Partnership offer to repurchase interests
from Partners twice each year, effective at the end
of the second fiscal quarter and again at the end of
the year. The Individual General Partners will also
consider the following factors, among others, in
making this 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 economic condition of
the securities markets; and (vii) the anticipated tax
consequences of any proposed repurchases of interests
or portions 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 the
request.
Summary of Taxation Counsel to the Partnership will render 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 also will render 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
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annual tax return such Limited Partner's 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.
(See "Tax Aspects.")
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 with the
approval of the Individual General Partners. The
Partnership may utilize leverage in connection with
its trading activities. Therefore, a tax-exempt
Limited Partner may incur income tax liability with
respect to its share of the net profits from these
leveraged transactions to the extent they are treated
as giving rise to "unrelated business taxable
income." The Partnership will provide to tax-exempt
Limited Partners such accounting information as they
require to report their "unrelated business taxable
income" for income tax purposes.
Investment in the Partnership by tax-exempt entities
requires special consideration. Trustees or
administrators of these entities are urged to
carefully review the matters discussed in this
Confidential Memorandum.
Term The Partnership's term is perpetual unless the
Partnership is otherwise terminated under the terms
of the Partnership Agreement.
Reports to Limited
Partners The Partnership will furnish to Limited Partners as
soon as practicable after the end of each taxable
year such information as is necessary for them to
complete Federal and state income tax or information
returns, along with any other tax information
required by law. The Partnership will also send
Limited Partners an unaudited semi-annual and an
audited annual report within 60 days after the close
of the period for which the report is being made.
Limited Partners also will be sent quarterly reports
regarding the Partnership's operations during each
quarter.
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Fiscal Year Year The 12-month period ending December 31. The
first fiscal year of the Partnership will commence on
the date of the initial closing and will end on
December 31, 1998.
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THE PARTNERSHIP
Wynstone Partners, L.P. (the "Partnership") is registered under the
Investment Company Act of 1940 (the "1940 Act") as a non-diversified, closed-end
management investment company. The Partnership was organized as a limited
partnership under the laws of Delaware in June, 1998, and has no operating
history. The Partnership's principal office is located at CIBC Oppenheimer
Tower, One World Financial Center, 31st Floor, 200 Liberty Street, New York, New
York 10281, and its telephone number is (212) 667-4225. CIBC Oppenheimer
Advisers, L.L.C. (the "Adviser"), a Delaware limited liability company, serves
as the investment adviser to the Partnership and is responsible for the
Partnership's investment activities pursuant to an investment advisory
agreement. Responsibility for the overall management and supervision of the
operations of the Partnership is vested in the individuals who serve as
individual General Partners of the Partnership (the "Individual General
Partners"). (See "Individual General Partners.")
STRUCTURE
The Partnership is a specialized investment vehicle that combines many
of the features of a private investment partnership with those of a closed-end
investment company. Private investment partnerships are unregistered, commingled
asset pools that are often aggressively managed and offered in large minimum
denominations (often over $1 million) through private placements to a limited
number of high net worth individual and institutional investors. The general
partners of these partnerships are typically compensated through asset-based
fees and performance-based allocations. Closed-end investment companies are 1940
Act registered pools typically organized as corporations or business trusts that
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 are typically 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 interests in the
Partnership will be sold in comparatively large minimum denominations ($150,000)
in private placements solely to high net worth individual and institutional
investors, whose capital accounts will be subject to both asset-based fees and
performance-based allocations. However, the Partnership, like other closed-end
investment companies, has registered under the 1940 Act to be able to offer its
interests without limiting the number of investors that can participate in its
investment program. This 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.
INVESTMENT PROGRAM
The Partnership's investment objective is to seek superior capital
appreciation. The Partnership will pursue this objective by investing its assets
primarily in the equity securities of U.S. companies engaged in the financial
services industry. For this purpose, equity securities
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include common and preferred stocks, convertible preferred and debt securities,
options, rights and warrants. Companies engaged in the financial services
industry include: commercial and industrial banks; savings and loan
associations, savings banks and other thrift institutions; consumer and
industrial finance and leasing companies; securities brokerage and investment
advisory firms; and insurance companies. Generally, the Partnership will invest
75% or more of the value of its total assets in the securities of companies
engaged in the financial services industry and will maintain long positions in
these companies.
The Partnership's investments, however, may include long and short
positions in equity securities, fixed-income securities and various derivatives,
including options on securities and stock index options. It is expected that,
initially, a substantial portion of the Partnership's assets will be in
securities issued by commercial banks and thrift institutions. (See "Types of
Investments and Related Risk Factors - Equity Securities" and "- Bonds and Other
Fixed-Income Securities." The Partnership will invest primarily in the
securities of U.S. issuers, but may invest up to 25% of the value of its total
assets in the securities of foreign issuers, including depositary receipts
relating to foreign securities. (See "Types of Investments and Related Risk
Factors - Foreign Securities.")
In managing the investments of the Partnership, the Adviser will rely
primarily on investment research and fundamental analysis of company financial
data in seeking to identify attractive investment opportunities. The research
process involves company visits, continuous updating of valuation models, review
and analysis of published research and discussions with industry sources.
Among the sources of information upon which Adviser will rely will be
investment research and related analysis generated by Keefe, Bruyette & Woods,
Inc., ("KBW"), an affiliate of KBW Asset Management, Inc. ("KBWAM"), a
non-managing member of the Adviser whose investment professionals will manage
the Partnership's investment portfolio on behalf of the Adviser. Other research
sources will also be used.
The Adviser will invest the Partnership's assets in the equity and
equity-related securities of financial services issuers that the Adviser
believes are undervalued or that, in the judgment of the Adviser, offer other
opportunities for capital appreciation based on consideration of relevant
company-, industry- and market-specific factors and trends. For example, the
Adviser will seek to identify securities of financial services companies in
particular market sectors that are undervalued relative to other issuers in the
same sector or which have characteristics making the issuer an acquisition
target. In addition, the Adviser may cause the Partnership to sell short the
securities of an issuer that it believes to be overvalued relative to similar
issuers. In this regard, the Adviser may engage in "pairs trading," which would
involve the Partnership's purchase of the equity securities of an issuer in a
market sector trading at lower than expected price/earnings ratios and the
simultaneous short sale by the Partnership of the equity securities of another
issuer in the same market sector where those securities are trading at higher
than expected price/earnings ratios.
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The Partnership may also invest in non-convertible bonds and other
non-convertible fixed-income securities when the Adviser believes that these
securities offer opportunities for capital appreciation, and may invest in share
accounts of savings and loan associations and other mutual savings institutions
to the extent that conversions of those organizations to stock companies offer
capital appreciation potential.
During periods of adverse market conditions in the financial services
industry or in the U.S. equity securities markets generally, the Partnership may
deviate from its investment objective and temporarily invest 25% or less of the
value of its total assets in the securities of issuers engaged in the financial
services industry. In these circumstances, all or any portion of the
Partnership's assets may be invested in equity securities of issuers not engaged
in the financial services industry or in high quality fixed-income securities,
including money market instruments, or held as cash. The Partnership may also
invest in money market instruments or hold cash for liquidity purposes. (See
"Types of Investments and Related Risk Factors - Temporary Investments.")
In pursuing its investment objective, or for hedging purposes, the
Partnership may use various investment techniques and strategies. These may
include the use of leverage, short sales of securities and the purchase and sale
of options on securities and stock indices, subject, however, to certain
limitations described elsewhere in this Confidential Memorandum, including any
policies that may be established by the Individual General Partners. The use of
these investment techniques and instruments involves certain risks. (See "Types
of Investments and Related Risk Factors.") The Partnership will comply with
applicable regulatory requirements, including the asset coverage requirements
under the 1940 Act, in connection with its use of these strategies.
The Adviser believes that there has been and will continue to be a
rapid and prolonged consolidation in the financial services industry generally
and in the banking and thrift industries in particular. This trend will, in the
Adviser's view, result in numerous acquisitions of smaller financial services
companies by larger competitors and, increasingly, acquisitions and mergers
between larger institutions. According to the Federal Deposit Insurance
Corporation (the "FDIC"), there were over 18,000 banks and thrifts in the United
States in 1985. The number decreased to under 11,000 by the end of 1997. The
Adviser believes that the consolidation in the industry will accelerate
substantially over the next five years due to a variety of factors including
increased efforts at costs savings in technology through economies of scale,
excess capital generation and a desire to expand into new markets and regions,
and a favorable economic and regulatory environment. The industry-wide
consolidation is expected to create numerous opportunities for capital
appreciation through investment in the securities of financial institutions that
become targets for consolidation.
The Adviser believes that the trend of consolidation will manifest
itself with increased frequency across all sectors within the financial services
industry. The most recent notable example of this is the recently announced
proposed merger of Citicorp and Travelers Group Inc. A significant further
impetus to this trend could occur if Congress enacts legislation, which is
presently pending, to reduce the required separation among commercial banking,
investment banking and insurance underwriting. If enacted, this legislation,
combined with other changes
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currently ongoing within the financial services industry, will likely serve as a
catalyst for additional consolidations.
Additional information about the types of investments that will be made
by the Partnership, its investment practices and related risk factors is
provided below. Except as otherwise indicated, the Partnership's investment
policies and restrictions are not fundamental and may be changed without a vote
of Limited Partners (together with the Individual General Partners, the
"Partners"). (See "Types of Investments and Related Risk Factors - Fundamental
Investment Policies.")
THE PARTNERSHIP'S INVESTMENT PROGRAM IS SPECULATIVE AND ENTAILS
SUBSTANTIAL RISKS. THERE CAN BE NO ASSURANCE THAT THE PARTNERSHIP'S INVESTMENT
OBJECTIVE WILL BE ACHIEVED. IN PARTICULAR, THE PARTNERSHIP'S USE OF LEVERAGE,
SHORT SELLING AND DERIVATIVES TRANSACTIONS, AND ITS LIMITED DIVERSIFICATION CAN,
IN CERTAIN CIRCUMSTANCES, RESULT IN SIGNIFICANT LOSSES TO THE PARTNERSHIP.
TYPES OF INVESTMENTS AND RELATED RISK FACTORS
FINANCIAL SERVICES INDUSTRY AND INDUSTRY CONCENTRATION
Because the Partnership will generally invest 75% or more of the value
of its total assets in the securities of companies engaged in the financial
services industry, the Partnership's investments and its performance will be
affected by risk factors particular to the financial services industry, as well
as general market and economic conditions affecting the securities markets
generally. Financial services companies are subject to extensive government
regulation. This regulation may limit both the amount and types of loans and
other financial commitments a financial services company can make, and the
interest rates and fees it can charge. These limitations may have a significant
impact on the profitability of a financial services company since profitability
is attributable, at least in part, to the company's ability to make financial
commitments such as loans. Profitability of a financial services company is
largely dependent upon the availability and cost of the company's funds, and can
fluctuate significantly when interest rates change. The financial difficulties
of borrowers can negatively impact the industry to the extent that borrowers may
not be able to repay loans made by financial service companies.
Insurance companies may be subject to severe price competition, claims
activity, marketing competition and general economic conditions. Particular
insurance lines will also be influenced by specific matters. Property and
casualty insurer profits may be affected by certain weather catastrophes and
other disasters. Life and health insurer profits may be affected by mortality
risks and morbidity rates. Individual insurance companies may be subject to
material risks including inadequate reserve funds to pay claims and the
inability to collect from the insurance companies which insure insurance
companies, so-called reinsurance carriers.
Congress is currently considering legislation that would reduce the
separation among commercial banks, investment banks and insurance companies.
Commercial banks typically have been limited to certain non-securities
activities such as making loans and accepting deposits. Investment banks have
typically engaged in more extensive securities activities. On
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May 13, 1998, the U.S. House of Representatives narrowly approved a bill that
would permit common ownership of commercial banks, brokerage firms and insurance
companies. If enacted, this and other proposed legislation could significantly
impact the industry and the Partnership. While banks may be able to expand the
services which they offer if legislation broadening bank powers is enacted,
expanded powers could expose banks to competition from well-established
companies now engaged primarily in other businesses, particularly as the
historical distinctions between banks and other financial institutions erode. In
addition, the financial services industry is an evolving and competitive
industry that is undergoing significant change. These changes have resulted from
mergers and other consolidations of companies, as well as from the continual
development of new products, structures and a regulatory framework that is
anticipated to be subject to further change.
EQUITY SECURITIES
A significant portion of the Partnership's investment portfolio
normally will consist of long and short positions in common stocks and other
equity securities. The value of the Partnership's equity securities varies in
response to many factors, including, but not limited to, the activities and
financial condition of individual companies, the business market in which
individual companies compete and general market and economic conditions.
The Partnership's investments in equity securities of U.S. companies
will include securities that are listed on U.S. securities exchanges as well as
unlisted securities that are traded over-the-counter. Equity securities of
companies traded over-the-counter may not be traded in the volumes typically
found on a national securities exchange. Consequently, the Partnership may be
required to dispose of these securities over a longer (and potentially less
favorable) period of time than is required to dispose of the securities of
exchange listed companies. There is no minimum required market capitalization of
the companies in which the Partnership may invest. Thus, the Partnership may
invest a portion of its assets in securities of companies having smaller market
capitalization. These companies may not be well known to the investing public,
may not have significant institutional ownership and may have cyclical, static
or only moderate growth prospects. Additionally, the securities of these
companies may be more volatile in price and have less liquidity than the
securities of companies having larger market capitalization.
COMMON STOCKS. Common stocks are shares of a corporation or other
entity that entitle the holder to a pro rata share of the profits, if any, of
the entity without preference over any other shareholder or claim of
shareholders, after making required payments to holders of the entity's
preferred stock and other senior equity. Common stock usually carries with it
the right to vote and frequently an exclusive right to do so.
PREFERRED STOCKS. Preferred stock generally has a preference as to
dividends and upon the event of liquidation, over an issuer's common stock, but
it ranks junior to debt securities in an issuer's capital structure. Preferred
stock generally pays dividends in cash (or additional shares of preferred stock)
at a defined rate, but unlike interest payments on debt securities, preferred
stock dividends are payable only if declared by the issuer's board of directors.
Dividends on preferred stock may be cumulative, meaning that, in the event the
issuer fails to make one or
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more dividend payments on the preferred stock, no dividends may be paid on the
issuer's common stock until all unpaid preferred stock dividends have been paid.
Preferred stock may also be subject to optional or mandatory redemption
provisions.
CONVERTIBLE SECURITIES. Convertible securities are bonds, debentures,
notes, preferred stocks or other securities that may be converted into or
exchanged for a specified amount of common stock of the same or different issuer
within a particular period of time at a specified price or formula. A
convertible security entitles the holder to receive interest that is generally
paid or accrued on debt or a dividend that is paid or accrued on preferred stock
until the convertible security matures or is redeemed, converted or exchanged.
Convertible securities have unique investment characteristics, in that they
generally (1) have higher yields than common stocks, but lower yields than
comparable non-convertible securities, (2) are less subject to fluctuation in
value than the underlying common stock due to their fixed-income characteristics
and (3) provide the potential for capital appreciation if the market price of
the underlying common stock increases.
The value of a convertible security is a function of its "investment
value" (determined by its yield in comparison with the yields of other
securities of comparable maturity and quality that do not have a conversion
privilege) and its "conversion value" (the security's worth, at market value, if
converted into the underlying common stock). The investment value of a
convertible security is influenced by changes in interest rates, with investment
value declining as interest rates increase and increasing as interest rates
decline. The credit standing of the issuer and other factors may also have an
effect on the convertible security's investment value. The conversion value of a
convertible security is determined by the market price of the underlying common
stock. If the conversion value is low relative to the investment value, the
price of the convertible security is governed principally by its investment
value. Generally, the conversion value decreases as the convertible security
approaches maturity. To the extent the market price of the underlying common
stock approaches or exceeds the conversion price, the price of the convertible
security will be increasingly influenced by its conversion value. A convertible
security generally will sell at a premium over its conversion value by the
extent to which investors place value on the right to acquire the underlying
common stock while holding a fixed-income security.
A convertible security may be subject to redemption at the option of
the issuer at a price established in the convertible security's governing
instrument. If a convertible security held by the Partnership is called for
redemption, the Partnership will be required to permit the issuer to redeem the
security, convert it into the underlying common stock or sell it to a third
party. Any of these actions could have an adverse effect on the Partnership's
ability to achieve its investment objective.
BONDS AND OTHER FIXED-INCOME SECURITIES
GENERALLY. The Partnership may invest in bonds and other fixed-income
securities. The Adviser (subject to any policies established by the Individual
General Partners) will invest in these securities when they offer opportunities
for capital appreciation and may also invest in
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these securities for temporary defensive purposes and to maintain liquidity.
Fixed-income securities include, among other securities: 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") or by a foreign government; 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 price volatility due to such factors as interest rate
sensitivity, market perception of the creditworthiness of the issuer and general
market liquidity (i.e., market risk).
The Partnership may invest in both investment grade and non-investment
grade debt securities. Investment grade debt securities are securities that have
received a rating from at least one nationally recognized statistical rating
organization ("NRSRO") in one of the four highest rating categories or, if not
rated by any NRSRO, have been determined by the Adviser to be of comparable
quality. Non-investment grade debt securities (typically called "junk bonds")
are securities that have received a rating from a NRSRO of below investment
grade or have been given no rating, and are considered by the NRSRO to be
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal. Non-investment grade debt securities in the lowest rating
categories may involve a substantial risk of default or may be in default.
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. An economic downturn
affecting an issuer of non-investment grade debt securities may result in an
increased incidence of default. In addition, the market for lower grade debt
securities may be thinner and less active than for higher grade debt securities.
The Partnership will not invest more than 20% of its total assets in
non-convertible fixed-income securities which have not received an investment
grade rating from at least one NRSRO.
LIMITED DIVERSIFICATION
The Partnership is a "non-diversified" investment company. Thus, there
are no percentage limitations on the percentage of the Partnership's assets that
may be invested in the securities of any one issuer. However, the 1940 Act
imposes certain limitations on the percentage of the total assets of the
Partnership that may be invested in the securities of certain financial services
issuers. (See "Types of Investments and Related Risk Factors - Fundamental
Investment Policies.") To the extent that a relatively high percentage of the
Partnership's assets are invested in the securities of a limited number of
issuers within the financial services industry, and within particular sectors of
that industry, the Partnership's investment portfolio will be more susceptible
to any single economic, political or regulatory occurrence than the portfolio of
a diversified investment company which does not concentrate its investments in a
particular industry.
The Partnership intends to invest no more than 15% of the value of its
total assets in the securities of any one issuer. However, while seeking
desirable investments the Partnership may temporarily exceed this limitation
subject to other applicable policies and restrictions.
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FOREIGN SECURITIES
Although the Partnership will invest primarily in the securities of
publicly traded U.S. issuers, it may invest up to 25% of the value of its total
assets in securities of foreign issuers and in depositary receipts, such as
American Depositary Receipts ("ADRs"), that represent indirect interests in
securities of foreign issuers. Foreign securities in which the Partnership may
invest may be listed on foreign securities exchanges or traded in foreign
over-the-counter markets. Investments in foreign securities are affected by risk
factors generally not thought to be present in the U.S. These factors include,
but are not limited to, the following: varying custody, brokerage and settlement
practices; difficulty in pricing; less public information about issuers of
foreign securities; less governmental regulation and supervision over the
issuance and trading of securities than in the U.S.; the unavailability of
financial information regarding the foreign issuer or the difficulty of
interpreting financial information prepared under foreign accounting standards;
less liquidity and more volatility in foreign securities markets; the
possibility of expropriation or nationalization; the imposition of withholding
and other taxes; adverse political, social or diplomatic developments;
limitations on the movement of funds or other assets of the Partnership between
different countries; difficulties in invoking legal process abroad and enforcing
contractual obligations; and the difficulty of assessing economic trends in
foreign countries. Moreover, governmental issuers of foreign securities may be
unwilling to repay principal and interest due, and may require that the
conditions for payment be renegotiated. Investment in foreign countries also
involves higher brokerage and custodian expenses than does investment in
domestic securities.
Other risks of investing in foreign securities include changes in
currency exchange rates (in the case of securities that are not denominated in
U.S. dollars) and currency exchange control regulations or other foreign or U.S.
laws or restrictions, or devaluations of foreign currencies. A decline in the
exchange rate would reduce the value of certain of the Partnership's foreign
currency denominated portfolio securities irrespective of the performance of the
underlying investment. In addition, the Partnership may incur costs in
connection with conversion between various currencies. The foregoing risks may
be greater in emerging industrialized and less developed countries.
The Partnership may enter into forward currency exchange contracts
("forward contracts") for hedging purposes and non-hedging purposes to pursue
its investment objective. Forward contracts are transactions involving the
Partnership's obligation to purchase or sell a specific currency at a future
date at a specified price. Forward contracts may be used by the Partnership for
hedging purposes to protect against uncertainty in the level of future foreign
currency exchange rates, such as when the Partnership anticipates purchasing or
selling a foreign security. This technique would allow the Partnership to "lock
in" the U.S. dollar price of the security. Forward contracts may also be used to
attempt to protect the value of the Partnership's existing holdings of foreign
securities. There may be, however, imperfect correlation between the
Partnership's foreign securities holdings and the forward contracts entered into
with respect to those holdings. Forward contracts may also be used for
non-hedging purposes to pursue the Partnership's investment objective (subject
to any policies established by the Individual General Partners), such as when
the Adviser anticipates that particular foreign currencies will appreciate
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or depreciate in value, even though securities denominated in those currencies
are not then held in the Partnership's investment portfolio.
LEVERAGE
The Partnership may make margin purchases of securities and, in that
regard, borrow money from brokers and banks for investment purposes. This
practice, which is known as "leverage," involves certain risks. The Partnership
may also borrow money for temporary or emergency purposes or in connection with
the repurchase of interests in the Partnership.
Trading equity securities on margin involves an initial cash
requirement representing at least 50% of the underlying security's value with
respect to transactions in U.S. markets and varying (typically lower)
percentages with respect to transactions in foreign markets. Borrowings to
purchase equity securities typically will be secured by the pledge of those
securities. The financing of securities purchases may also be effected through
reverse repurchase agreements with banks, brokers and other financial
institutions. This involves the transfer by the Partnership of the underlying
security to a counterparty in exchange for cash proceeds based on a percentage
(which can be as high as 95% to 100%) of the value of the debt instrument.
Although leverage 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 those funds, the use of leverage will decrease investment
return if the Partnership fails to earn as much on investments purchased with
borrowed funds as it pays for the use of those funds. The use of leverage will
therefore magnify the volatility of the value of the Partnership's investment
portfolio. In the event that the Partnership's equity or debt instruments
decline in value, the Partnership could be subject to a "margin call" or
"collateral call," pursuant to which the Partnership must either deposit
additional collateral with the lender or suffer mandatory liquidation of the
pledged securities to compensate for the decline in value. In the event of a
sudden, precipitous drop in value of the Partnership's assets, the Partnership
might not be able to liquidate assets quickly enough to pay off its borrowing.
Money borrowed for leveraging will be subject to interest costs that may or may
not be recovered by return on the securities purchased. The Partnership also may
be required to maintain minimum average balances in connection with its
borrowings or to pay a commitment or other fee to maintain a line of credit;
either of these requirements would increase the cost of borrowing over the
stated interest rate.
The 1940 Act requires the Partnership to satisfy an asset coverage
requirement of 300% of its indebtedness, including amounts borrowed, measured at
the time the Partnership incurs the indebtedness (the "Asset Coverage
Requirement"). This means that the value of the Partnership's total indebtedness
may not exceed one-third the value of its total assets (including such
indebtedness), measured at the time the Partnership incurs the indebtedness. The
staff of the SEC's Division of Investment Management (the "SEC Staff") takes the
position that short sales of securities, reverse repurchase agreements, use of
margin, sales of put and call options on specific securities or indices,
investments in certain other types of instruments (including certain derivatives
such as swap agreements), and the purchase and sale of securities on a
when-issued or forward
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commitment basis, may be deemed to constitute indebtedness subject to the Asset
Coverage Requirement.
The SEC Staff has stated, however, that it will not deem a portfolio
position involving such instruments to be subject to the Asset Coverage
Requirement if an investment company "covers" its position by segregating liquid
securities on its books or in an account with its custodian in amounts
sufficient to offset the liability associated with the position. Generally, in
conjunction with portfolio positions that are deemed to constitute senior
securities, the Partnership must: (1) observe the Asset Coverage Requirement;
(2) maintain daily a segregated account in cash or liquid securities at such a
level that the amount segregated plus any amounts pledged to a broker as
collateral will equal the current value of the position; or (3) otherwise cover
the portfolio position with offsetting portfolio securities. Segregation of
assets or covering portfolio positions with offsetting portfolio securities may
limit the Partnership's ability to otherwise invest those assets or dispose of
those securities.
In order to obtain "leveraged" market exposure in certain investments
and to increase the overall return to the Partnership of various investments,
the Partnership may purchase options and other synthetic instruments that do not
constitute "indebtedness" for purposes of the Asset Coverage Requirement. These
instruments may nevertheless involve significant economic leverage and therefore
may, in some cases, involve significant risks of loss.
SHORT SALES
The Partnership may attempt to limit exposure to a possible market
decline in the value of its portfolio securities through short sales of
securities that the Adviser (subject to any policies established by the
Individual General Partners) believes possess volatility characteristics similar
to those being hedged. In addition, the Partnership may use short sales for
non-hedging purposes to pursue its investment objective. To effect a short sale,
the Partnership will borrow a security from a brokerage firm to make delivery to
the buyer. The Partnership is then obligated to replace the borrowed security by
purchasing it at the market price at the time of replacement. Until the security
is replaced, the Partnership is required to pay to the brokerage firm any
accrued interest or dividend and may be required to pay a premium.
The Partnership will realize a gain if the borrowed security declines
in price between the date of the short sale and the date on which the
Partnership replaces the security. The Partnership will incur a loss if the
price of the borrowed security increases between those dates. This loss can
increase rapidly and without effective limit. The amount of any gain will be
decreased, and the amount of any loss increased, by the amount of any premium or
interest the Partnership may be required to pay in connection with a short sale.
There is a risk that the borrowed securities would need to be returned to the
brokerage firm on short notice. If a request for return of securities occurs at
a time when other short sellers of the subject security are receiving similar
requests, a "short squeeze" can occur, wherein the Partnership might be
compelled, at the most disadvantageous time, to replace borrowed securities
previously sold short with purchases on the open market, possibly at prices
significantly in excess of the price at which the securities were sold short.
The successful use of short selling may be adversely affected by imperfect
correlation between movements in the price
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of the security sold short and the securities being hedged. Short selling may
exaggerate the volatility of the Partnership's investment portfolio. Short
selling may also produce higher than normal portfolio turnover and may result in
increased transaction costs to the Partnership.
The Partnership may also make short sales against-the-box, in which it
sells short securities it owns or has the right to obtain without payment of
additional consideration. If the Partnership makes a short sale against-the-box,
it will be required to set aside securities equivalent in kind and amount to the
securities sold short (or securities convertible or exchangeable into those
securities) and will be required to hold those securities while the short sale
is outstanding. The Partnership will incur transaction costs, including interest
expenses, in connection with opening, maintaining and closing short sales
against-the-box.
REVERSE REPURCHASE AGREEMENTS
Reverse repurchase agreements involve the Partnership's sale of a
security to a bank or securities dealer and the Partnership's simultaneous
agreement to repurchase that 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 transactions are a form of leverage which may
also increase the volatility of the Partnership's investment portfolio. The
Partnership has adopted procedures designed to minimize certain of the risks of
loss associated with reverse repurchase transactions.
SPECIAL INVESTMENT INSTRUMENTS AND TECHNIQUES
The Partnership may utilize a variety of special investment instruments
and techniques (described below) to hedge its investment portfolio against
various risks (such as changes in interest rates or other factors that affect
security values) or for non-hedging purposes to pursue the Partnership's
investment objective. These strategies may be executed through derivative
transactions. The instruments the Partnership may use and the particular manner
in which they may be used may change over time as new instruments and techniques
are developed or regulatory changes occur. Certain of the special investment
instruments and techniques that the Partnership may use are speculative and
involve a high degree of risk, particularly in the context of non-hedging
transactions to pursue the Partnership's investment objective.
CALL AND PUT OPTIONS ON INDIVIDUAL SECURITIES. The Partnership may
purchase call and put options in respect of specific securities, and may write
and sell covered or uncovered call and put options for hedging purposes and
non-hedging purposes to pursue its investment objective. A put option gives the
purchaser of the option the right to sell, and obligates the writer to buy, the
underlying security at a stated exercise price at any time prior to the
expiration of the option. Similarly, a call option gives the purchaser of the
option the right to buy, and obligates the writer to sell, the underlying
security at a stated exercise price at any time prior to the expiration of the
option.
A covered call option written by the Partnership is a call option with
respect to which the Partnership owns the underlying security. The sale of such
an option exposes the Partnership
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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
written by the Partnership is a put option with respect to which cash or liquid
securities have been placed in a segregated account on the Partnership's books
or with the Partnership's custodian to fulfill the obligation undertaken. The
sale of such an option exposes the Partnership during the term of the option to
a decline in price of the underlying security while depriving the Partnership of
the opportunity to invest the segregated assets.
The Partnership may close out a position when writing options by
purchasing an option on the same security with the same exercise price and
expiration date as the option that it has previously written on the security.
The Partnership will realize a profit or loss if the amount paid to purchase an
option is less or more, as the case may be, than the amount received from the
sale thereof. To close out a position as a purchaser of an option, the
Partnership would ordinarily make a similar "closing sale transaction," which
involves liquidating the Partnership's position by selling the option previously
purchased, although the Partnership would be entitled to exercise the option
should it deem it advantageous to do so. The Partnership may also invest in
so-called "synthetic" options or other derivative instruments written by
broker-dealers.
Options transactions may be effected on securities exchanges or in the
over-the-counter market. When options are purchased over-the-counter, the
Partnership bears the risk that the counterparty that wrote the option will be
unable or unwilling to perform its obligations under the option contract. These
options may also be illiquid and, in such cases, the Partnership may have
difficulty closing out its position. Over-the-counter options purchased and sold
by the Partnership may also include options on baskets of specific securities.
WARRANTS AND RIGHTS. Warrants are derivative instruments that permit,
but do not obligate, the holder to subscribe for other securities or
commodities. Rights are similar to warrants, but normally have a shorter
duration and are offered or distributed to shareholders of a company. Warrants
and rights 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 and
rights may be considered more speculative than certain other types of
equity-like securities. In addition, the values of warrants and rights do not
necessarily change with the value of the underlying securities or commodities
and these instruments cease to have value if they are not exercised prior to
their expiration dates.
CALL AND PUT OPTIONS ON SECURITIES INDICES. The Partnership may
purchase and sell call and put options on stock indices (such as the Standard &
Poor's Composite Index of 500 Stocks (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 non-hedging purposes to pursue
its investment objective. A stock index fluctuates with changes in the market
values of the stocks included in the index. The effectiveness of purchasing or
writing stock index options for hedging purposes will depend upon the extent to
which price movements in the Partnership's portfolio correlate with price
movements of the stock index selected. Because the value of an index option
depends upon movements in the level of the index rather than the price of a
particular stock,
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whether the Partnership will realize a gain or loss from the purchase or writing
of options on an index depends upon movements in the level of stock prices in
the stock market generally or, in the case of certain indexes, in an industry or
market segment, rather than movements in the price of a particular stock.
Accordingly, successful use by the Partnership of options on stock indexes will
be subject to the Adviser's ability to predict correctly movements in the
direction of the stock market generally or of a particular industry or market
segment. This requires different skills and techniques than predicting changes
in the price of individual stocks. In addition, KBW maintains the Keefe Banking
Index ("KBI"), an index of geographically diverse national money center banks
and regional institutions, which KBW believes is representative of the banking
industry. A derivation of the KBI, the KBW Bank Sector Index, is a listed option
traded on the Philadelphia Stock Exchange. The component banks of the KBI are
generally modified only to the extent a bank is merged out of existence. At such
time, the KBW Bank Sector Index would also be revised by the Philadelphia Stock
Exchange. From time to time, the Adviser may purchase and sell call and put
options on the KBW Bank Sector Index as an alternative to direct investment in
the securities comprising the index or to hedge an equity position.
LENDING PORTFOLIO SECURITIES
The Partnership may lend its portfolio securities to domestic and
foreign brokers, dealers and financial institutions. These loans will be secured
by collateral (consisting of cash, U.S. Government Securities or irrevocable
letters of credit) maintained in an amount equal to at least 100% of the market
value, determined daily, of the loaned securities. The Partnership may at any
time call the loan and obtain the return of the securities loaned. The
Partnership will be entitled to payments equal to the interest and dividends on
the loaned security and may receive a premium for lending the securities.
Lending portfolio securities may result in income to the Partnership, but there
may be delays in the recovery of the loaned securities or a loss of rights in
the collateral supplied should the borrower fail financially. Securities lending
involves a form of leverage, and the Partnership may incur a loss if securities
purchased with the collateral from securities loans decline in value.
WHEN-ISSUED AND FORWARD COMMITMENT SECURITIES
The Partnership may purchase securities on a "when-issued" basis and
may purchase or sell securities on a "forward commitment" basis in order to
hedge against anticipated changes in interest rates and prices. These
transactions involve a commitment by the Partnership to purchase or sell
securities at a future date (ordinarily one or two months later). The price of
the underlying securities, which is generally expressed in terms of yield, is
fixed at the time the commitment is made, but delivery and payment for the
securities takes place at a later date. No income accrues on securities that
have been purchased pursuant to a forward commitment or on a when-issued basis
prior to delivery to the Partnership. When-issued securities and forward
commitments may be sold prior to the settlement date. If the Partnership
disposes of the right to acquire a when-issued security prior to its acquisition
or disposes of its right to deliver or receive against a forward commitment, it
may incur a gain or loss. These transactions will be subject to the
Partnership's limitation on indebtedness unless, at the time the Partnership
enters into such a transaction, a segregated account consisting of cash, U.S.
Government Securities or liquid
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securities equal to the value of the when-issued or forward commitment
securities is established and maintained. There is a risk that securities
purchased on a when-issued basis may not be delivered and that the purchaser of
securities sold by the Partnership on a forward basis will not honor its
purchase obligation. In such cases, the Partnership may incur a loss.
RESTRICTED AND ILLIQUID INVESTMENTS
Although the Partnership will invest primarily in publicly traded
securities, it may invest up to 15% of the value of its total assets in
restricted securities and other investments which are illiquid. Restricted
securities are securities that may not be sold to the public without an
effective registration statement under the Securities Act of 1933 ("1933 Act")
or, if they are unregistered, may be sold only in a privately negotiated
transaction or pursuant to an exemption from registration. In recognition of the
increased size and liquidity of the institutional markets for unregistered
securities and the importance of institutional investors in the formation of
capital, the SEC has adopted Rule 144A under the 1933 Act, which is designed to
further facilitate efficient trading among qualified institutional investors by
permitting the sale of certain unregistered securities to qualified
institutional buyers. The Partnership will be eligible to purchase securities in
Rule 144A transactions if and when it owns at least $100 million of securities
of unaffiliated issuers. To the extent privately placed securities held by the
Partnership qualify under Rule 144A, and an institutional market develops for
those securities, the Partnership likely will be able to dispose of the
securities without registering them under the 1933 Act. To the extent that
qualified institutional buyers become, for a time, uninterested in purchasing
these securities, investing in Rule 144A securities could have the effect of
increasing the level of the Partnership's illiquidity. The Partnership may adopt
procedures under which certain Rule 144A securities will not be deemed to be
illiquid, if certain criteria are satisfied with respect to those securities and
the market therefor. Foreign securities that can be freely sold in the markets
in which they are principally traded are not considered by the Partnership to be
restricted. Regulation S under the 1933 Act permits the sale abroad of
securities that are not registered for sale in the United States. Repurchase
agreements with maturities of more than seven days will be treated as illiquid.
Where registration is required to sell a security, the Partnership may
be obligated to pay all or part of the registration expenses, and a considerable
period may elapse between the decision to sell and the time the Partnership may
be permitted to sell a security under an effective registration statement. If,
during such period, adverse market conditions were to develop, the Partnership
might obtain a less favorable price than prevailed when it decided to sell.
Restricted securities for which no market exists and other illiquid investments
are valued at fair value as determined in accordance with procedures approved
and periodically reviewed by the Individual General Partners.
Restricted securities and other illiquid investments involve the risk
that the securities will not be able to be sold at the time desired by the
Adviser or at prices approximating the value at which the Partnership is
carrying the securities.
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TEMPORARY INVESTMENTS
For defensive purposes, the Partnership may temporarily invest all or a
substantial portion of its assets in high quality fixed-income securities and
money market instruments, or may temporarily hold cash or cash equivalents in
such amounts as the Adviser deems appropriate under the circumstances.
Securities will be deemed to be of high quality if they are rated in the top
three categories or better by an NRSRO or, if unrated, are determined to be of
comparable quality by the Adviser. 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 banker's acceptances issued by domestic
branches of United States banks that are members of the Federal Deposit
Insurance Corporation; and repurchase agreements for U.S. Government Securities.
In lieu of purchasing money market instruments, the Partnership may purchase
shares of money market mutual funds that invest primarily in U.S. Government
Securities and repurchase agreements involving those securities, subject to
certain limitations imposed by the 1940 Act.
The Partnership may also invest in money market instruments or purchase
shares of money market mutual funds pending investment of its assets in equity
securities or non-money market fixed-income securities, or to maintain such
liquidity as may be necessary to effect repurchases of interests from Limited
Partners or for other purposes.
Repurchase agreements are agreements under which the Partnership
purchases securities from a bank that is a member of the Federal Reserve System,
a foreign bank or a securities dealer that agrees to repurchase the securities
from the Partnership at a higher price on a designated future date. If the
seller under a repurchase agreement becomes insolvent, the Partnership's right
to dispose of the securities may be restricted, or the value of the securities
may decline before the Partnership is able to dispose of them. In the event of
the commencement of bankruptcy or insolvency proceedings with respect to the
seller of the securities before the repurchase of the securities under a
repurchase agreement is accomplished, the Partnership may encounter a delay and
incur costs, including a decline in the value of the securities, before being
able to sell the securities. If the seller defaults, the value of the securities
may decline before the Partnership is able to dispose of them. If the
Partnership enters into a repurchase agreement that is subject to foreign law
and the other party defaults, the Partnership may not enjoy protections
comparable to those provided to certain repurchase agreements under U.S.
bankruptcy law, and may suffer delays and losses in disposing of the collateral
as a result. The Partnership has adopted procedures designed to minimize certain
of the risks of loss from the Partnership's repurchase agreement transactions.
FUNDAMENTAL INVESTMENT POLICIES
The Partnership has adopted the following six fundamental investment
policies, which cannot be changed without the vote of a majority of the
Partnership's outstanding voting securities (as defined by the 1940 Act):
(1) The Partnership will not invest more than 25% of the value of
its total assets in the securities (other than U.S. Government
Securities) of issuers engaged in any single
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industry; provided, however, that the Partnership will invest
more than 25% of the value of its total assets in the
securities of issuers engaged in the financial services
industry, except during temporary periods of adverse market
conditions in the financial services industry or in the U.S.
equity securities markets generally.
(2) The Partnership will not issue senior securities representing
stock, but may borrow money from banks, brokers and other
lenders, and may engage in transactions involving the issuance
by the Partnership of "senior securities" representing
indebtedness, to the extent permitted by the 1940 Act.
(3) The Partnership will not underwrite securities of other
issuers, except insofar as the Partnership may be deemed an
underwriter under the 1933 Act in connection with the
disposition of its portfolio securities.
(4) The Partnership will not make loans of money or securities to
other persons, except through purchasing fixed-income
securities, lending portfolio securities or entering into
repurchase agreements in a manner consistent with the
Partnership's investment policies.
(5) The Partnership will not purchase or sell commodities or
commodity contracts, but the Partnership may purchase and sell
foreign currency and enter into foreign currency forward
contracts, and may engage in other transactions in financial
instruments, in each case to the extent permitted under the
Partnership's investment policies as in effect from time to
time.
(6) The Partnership will not purchase, hold or deal in real
estate, but may invest in securities that are secured by real
estate or that are issued by companies that invest or deal in
real estate.
The investment objective of the Partnership is also fundamental and may not be
changed without a vote of a majority of the Partnership's outstanding voting
securities.
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
an annual or a special meeting of the security holders of the company duly
called, (A) of 67 percent or more of the voting securities present at the
meeting, if the holders of more than 50 percent of the outstanding voting
securities of the company are present or represented by proxy; or (B) of more
than 50 percent of the outstanding voting securities of the company, whichever
is less.
With respect to these investment restrictions, and other policies
described in this Confidential 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 the restriction or policy. In addition to the restrictions
contained in the fundamental investment policies stated above, the Partnership
is subject to certain restrictions imposed by the 1940 Act on registered
investment companies, including restrictions with respect to its investment in
the
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securities of other investment companies, insurance companies and companies
engaged in certain securities related businesses.
Generally, the Partnership may not purchase or otherwise acquire the
securities of any company that derives more than 15% of its gross revenues from
securities related activities, which means activities as a broker, dealer,
underwriter or registered investment adviser (a "Securities Related Issuer"),
unless it complies with the following conditions: (i) immediately after a
purchase of equity securities of a Securities Related Issuer, the Partnership
not own more than 5% of the outstanding securities of any class of equity
securities of the issuer; (ii) immediately after the purchase of a debt security
of a Securities Related Issuer, the Partnership not own more than 10% of the
outstanding principal amount of the issuer's debt securities; and (iii)
immediately after any such purchase, the Partnership not have invested more than
5% of its total assets in securities of the Securities Related Issuer. Under
applicable rules, the Partnership may not purchase any securities of a
Securities Related Issuer which is the investment adviser or principal
underwriter of the Partnership or is an affiliated person of the adviser or
principal underwriter.
The Partnership is also generally prohibited from purchasing or
otherwise acquiring: (i) more than 3% of the outstanding voting securities of
any other investment company; (ii) securities issued by another investment
company having an aggregate value in excess of 5% of the total assets of the
Partnership; and (iii) securities of all investment companies having an
aggregate value in excess of 10% of the total assets of the Partnership.
In addition, the Partnership generally is prohibited from purchasing or
otherwise acquiring any security (not limited to equity or debt individually)
issued by any insurance company if the Partnership and any company controlled by
the Partnership own in the aggregate or, as a result of the purchase, will own
in the aggregate more than 10% of the total outstanding voting stock of the
insurance company. Certain state insurance laws impose similar limitations.
The Partnership is also generally prohibited from purchasing or
otherwise acquiring more than 10% of the voting securities of any issuer that is
a bank, bank holding company, thrift or thrift holding company subject to the
Change in Bank Control Act unless the presumption of control under the statute
is rebutted, and generally will not purchase or otherwise acquire more than 5%
of the voting securities of any such issuer. In the event that the Partnership
were to acquire 10% or more of the voting securities of any such issuer, the
Partnership would be required to receive approvals from the appropriate
regulators. The Partnership will generally not purchase voting securities of an
issuer such that the Partnership becomes a bank or thrift holding company.
Finally, while CIBC Oppenheimer Corp. ("CIBC Opco") believes that it does not
control the Partnership under the banking laws, in the event that it were
determined that the CIBC Opco controls the Partnership, additional regulatory
requirements and limitations on acquisitions of voting securities would be
imposed on the Partnership.
The Adviser will not cause the Partnership to make loans to or receive
loans from the Adviser or its affiliates, except to the extent permitted by the
1940 Act or as otherwise permitted by applicable law. The Partnership may effect
brokerage transactions through the affiliates of the
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Adviser, subject to compliance with the 1940 Act. (See "Conflicts Of Interest -
CIBC Opco," " -- KBWAM," and "Brokerage.")
ADDITIONAL RISK FACTORS
INCENTIVE ALLOCATION
The special allocation of 20% of net profits to the Special Advisory
Account (defined below) of the Adviser may create an incentive for the Adviser
to cause the Partnership to make investments that are riskier or more
speculative than would be the case in the absence of the Incentive Allocation.
In addition, because the allocation is calculated on a basis that includes
unrealized appreciation of the Partnership's assets, the Incentive Allocation
may be greater than if it were based solely on realized gains. (See "Capital
Accounts and Allocations - Incentive Allocation.")
TAX RISKS
Counsel to the Partnership has rendered an opinion that the Partnership
will be treated as a partnership and not as an association taxable as a
corporation for Federal income tax purposes. Counsel to the Partnership has also
rendered its opinion that, under a "facts and circumstances" test set forth in
regulations adopted by the U.S. Treasury Department, the Partnership will not be
treated as a "publicly traded partnership" taxable as corporation. If it were
determined that the Partnership should be treated as an association or publicly
traded partnership taxable as a corporation (as a result of a successful
challenge to the opinions rendered by counsel to the Partnership or otherwise),
the taxable income of the Partnership would be subject to corporate income tax
and distributions of profits from the Partnership would be treated as dividends.
(See "Tax Aspects - Tax Treatment of Partnership Operations - Classification of
the Partnership.")
LACK OF OPERATING HISTORY
The Partnership is a newly formed entity and has no operating history
upon which investors can evaluate the performance of the Partnership. However,
as discussed below, the principal members of the Adviser responsible for
managing the Partnership's investment portfolio (including the members'
officers, employees and affiliates) have substantial experience in managing
investment portfolios, private investment partnerships and providing advisory
and investment banking services to the financial services industry. Moreover,
KBW, an affiliate of KBWAM, a non-managing member of the Adviser, has experience
managing a portfolio of investments in the equity securities of issuers engaged
in the financial services industry. (See "Performance Information," "The
Adviser, CIBC Opco and KBW Asset Management, Inc." and "Conflicts of Interest -
Participation in Investment Opportunities.")
LIQUIDITY RISKS
Interests in the Partnership will not be traded on any securities
exchange or other market and are subject to substantial restrictions on
transfer. Although the Partnership may offer to repurchase Partnership interests
from time to time, a Limited Partner may not be able to liquidate
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its interest in the Partnership for up to two years. The Adviser expects that it
will recommend to the Individual General Partners that the Partnership offer to
repurchase interests from Partners at the end of 1999, and, for each year
thereafter, twice each year, effective at the end of the second fiscal quarter
and again at the end of the year. (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
Individual General Partners.
PERFORMANCE INFORMATION
Appendix B contains performance information for the equity portion of
the Keefe Bruyette & Woods, Inc. Profit Sharing Plan (the "Account") that has
been managed primarily by Charles Howell Lott, in accordance with an investment
program that is similar to the Partnership's expected investment program.
Investors should note that although the equity portion of the Account has been
principally invested in securities of banks, thrifts and similar entities, it
has been managed as an employee benefit plan subject to the applicable rules and
regulations under ERISA. The general goal of managing the Account has been to
achieve capital appreciation within prudent standards for managing a retirement
fund for employees of KBW. In addition, the banking industry has in the past
several years undergone substantial consolidation, in many cases resulting in
substantial premiums being paid for the equity securities of acquired companies.
This consolidation has had a beneficial effect on the performance of the equity
portion of the Account. There can be no assurance that the same level of
consolidation and related payment of market premiums will continue through
future periods. In addition, the Partnership may invest a portion of its assets
in particular sectors of the financial services industry, such as insurance and
brokerage stocks, in which the Account has not invested. The Partnership may
also engage in certain investment techniques, such as use of leverage or certain
derivative products, which have not historically been used in the management of
the Account. Accordingly, historical investment goals and management of the
Account differ in certain respects from the investment program of the
Partnership. The future investment performance of the Account may differ
substantially from the investment performance of the Partnership. (See
"Conflicts of Interest Participation in Investment Opportunities.") PAST
PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS.
INDIVIDUAL GENERAL PARTNERS
The Individual General Partners have overall responsibility for the
overall management and supervision of the operations of the Partnership and have
approved the Partnership's investment program. They exercise the same powers,
authority and responsibilities on behalf of the Partnership as are customarily
exercised by the directors of a registered investment company
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organized as a corporation, and they have complete and exclusive authority to
oversee and to establish policies regarding the management, conduct and
operation of the Partnership's business. None of the Individual General Partners
is (or will be) affiliated with CIBC Opco, and none is (or will be) an
"interested person" (as defined in the 1940 Act) of the Partnership. Individual
General Partners will not contribute to the capital of the Partnership in their
capacity as Individual General Partners, but may subscribe for interests in the
Partnership, subject to the eligibility requirements described in this
Confidential Memorandum.
The identity of the Individual General Partners, and brief biographical
information regarding each Individual General Partner, is set forth below.
<TABLE>
<CAPTION>
<S> <C>
NAME, ADDRESS AND AGE PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
Jesse H. Ausubel Director, Program for the
Human Environment and Senior Research
Associate, The Rockefeller University
(1993 to present); Program Director,
Alfred P. Sloan Foundation (1994 to
present); Adjunct Scientist, Woods Hole
Oceanographic Institution (1995 to
present).
Paul Belica Adviser, Salomon Smith Barney (1988 to
present); Director, Deck Honse Inc. (1970
to present); Director, Central European
Value Fund (1994 to present); Director,
Surety Loan Funding Corporation (1998 to
present).
Jeswald W. Salacuse Henry J. Braker Professor of Commercial Law, Fletcher
School of Law and Diplomacy, Tufts University; July 1986
through September 1994, Dean of the Fletcher School.
</TABLE>
Each of the Individual General Partners was elected by the
organizational Limited Partner of the Partnership (which is not affiliated with
CIBC Opco). By signing the Partnership Agreement of the Partnership, each
Limited Partner will be deemed to have voted for the election of each of the
Individual General Partners.
The Individual General Partners serve for terms of indefinite duration.
An Individual General Partner's position in that capacity will terminate if the
Individual General Partner is removed, resigns or is subject to various
disabling events such as death, incapacity or bankruptcy. An Individual General
Partner may resign, subject to giving 90 days' prior written notice to the other
Individual General Partners if such resignation is likely to affect adversely
the tax status of the Partnership, and may be removed either by vote of
two-thirds (2/3) of the Individual General Partners not subject to the removal
vote or by a vote of the Limited Partners holding not less than two-thirds (2/3)
of the total number of votes eligible to be cast by all Limited Partners. In the
event of any vacancy in the position of an Individual General Partner, the
remaining Individual General Partners may appoint an individual to serve as an
Individual General Partner, so long as immediately after the appointment at
least two-thirds (2/3) of the Individual General Partners then serving would
have been elected by the Limited Partners. The Individual General Partners may
call
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<PAGE> 41
a meeting of Limited Partners to fill any vacancy in the position of an
Individual General Partner, and must do so within 60 days after any date on
which Individual General Partners who were elected by the Limited Partners cease
to constitute a majority of the Individual General Partners then serving. Any
Individual General Partner appointed in the future will not be affiliated with
CIBC Opco.
The Individual General Partners are each currently paid an annual
retainer of $5,000 and per meeting fees of $700 (or $100 in the case of
telephonic meetings) by the Partnership. All Individual General Partners are
reimbursed by the Partnership for their reasonable out-of-pocket expenses. It is
estimated that the aggregate annual compensation paid by the Partnership to each
Individual General Partner will be approximately $7,800 during the coming year.
The Individual General Partners do not receive any pension or retirement
benefits from the Partnership.
THE ADVISER, CIBC OPCO AND
KBW ASSET MANAGEMENT, INC.
The Adviser serves as the Partnership's investment adviser and has been
given the responsibility to manage the investment portfolio of the Partnership,
subject to the ultimate supervision of and subject to any policies collectively
established by the Individual General Partners, including the Partnership's
fundamental investment policies, pursuant to the terms of an investment advisory
agreement entered into between the Partnership and the Adviser dated [ ],
1998 (the "Investment Advisory Agreement").
The Adviser was formed as a Delaware limited liability company in
October, 1997 and, upon commencement of the Partnership's operations, will be
registered as an investment adviser under the Investment Advisers Act of 1940
(the "Advisers Act"). The Adviser serves or will serve as an investment adviser
and/or general partner of other registered and private investment companies. The
offices of the Adviser are located at CIBC Oppenheimer Tower, One World
Financial Center, 31st Floor, 200 Liberty Street, New York, New York 10281, and
its telephone number is (212) 667-4225.
CIBC Opco is the managing member of (and therefore controls) the
Adviser and oversees the Adviser's provision of investment advice to the
Partnership. KBWAM is a non-managing member of the Adviser and provides the
Adviser with use of and access to such of its personnel, research and facilities
as the Adviser requires to manage the Partnership's investment portfolio, and
such personnel have the responsibility, subject only to the supervision of the
personnel of CIBC Opco and the Individual General Partners, for the investment
advisory services provided to the Partnership. The interests of CIBC Opco and
KBWAM in the Adviser have been established as a separate series of interests
relating specifically to the Adviser's business of providing services provided
to the Partnership. Pursuant to applicable law, the debts, liabilities and
obligations of the Adviser related to that series of interests are enforceable
against the assets of that series only, and not against the assets of any other
series or of the Adviser generally. Similarly, the debts liabilities and
obligations of the Adviser relating to any other series of interests are not
enforceable against the assets of the series relating to the Partnership.
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<PAGE> 42
CIBC Opco is a member of the New York Stock Exchange and other
principal securities exchanges. As a registered broker-dealer, CIBC Opco is
subject to the informational requirements of the U.S. Securities Exchange Act of
1934, as amended, and in accordance therewith files reports with the Securities
and Exchange Commission (the "SEC"). Such reports filed by CIBC Opco with the
SEC will be made available to any prospective investor upon request. Canadian
Imperial Bank of Commerce ("CIBC"), the parent company of CIBC Opco, and its
affiliates, including CIBC Opco, are subject to the Bank Holding Company Act
("BHCA") and the rules and regulations of the Board of Governors of the Federal
Reserve. CIBC Opco is registered as an investment adviser with the SEC pursuant
to the Advisers Act.
CIBC Opco is the U.S. corporate, investment, institutional and private
client banking arm of CIBC, which currently is the second-largest bank in
Canada, with assets of approximately U.S. $185 billion as of April 30, 1998.
Although CIBC has conducted business in the United States for over a century,
the CIBC Opco name was adopted in November, 1997 when CIBC Wood Gundy Securities
Corp. acquired Oppenheimer & Co., Inc., one of the largest privately owned,
full-service securities firms in the U.S. At the time of the acquisition, the
combined company was renamed "CIBC Oppenheimer Corp." Known globally under the
marketing name CIBC World Markets, this worldwide business offers a complete
range of investment and corporate banking, capital markets, asset management and
brokerage activities. There are approximately 4,500 employees in the United
States and 8,500 worldwide.
In April 1998, CIBC and Toronto-Dominion Bank announced a definitive
agreement to merge, subject to shareholder and regulatory approval. The combined
company would have assets of approximately $320 billion, making it the
tenth-largest bank in North America. Full approval of the proposed merger is not
expected to occur for up to 12 months.
KBWAM, an affiliate of KBW that was organized in 1973, provides
investment advisory services to several institutional and individual investors.
As of June 30, 1998, KBWAM had approximately $225 million of assets under
management. KBW is an institutionally-oriented securities broker-dealer and a
full service investment bank specializing in the banking and financial services
industries. A New York Stock Exchange-member firm, KBW serves investors, banks
and thrifts through its research, trading, corporate finance and advisory work.
KBW was founded in 1962 and is an employee-owned firm. In recent surveys of
institutional investors, KBW's equity research on bank and thrift stocks
consistently ranks at or near the top among major Wall Street firms.
The personnel of KBWAM who have the primary responsibility for the
investment advisory services provided on behalf of the Adviser to the
Partnership are:
CHARLES H. LOTT -- Charles Lott is presently Chairman of KBWAM and Vice
Chairman of KBW. Mr. Lott joined KBW in July 1962 (the year of the KBW's
inception) as Director of Research. In April 1967, he was elected a member of
the Board of Directors. During his career at KBW, he has served as Senior Vice
President, President and Co-Chief Executive Officer of KBW, and was elected
Chairman and Chief Executive Officer in September 1990, in which capacity he
served until stepping down in December 1997.
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<PAGE> 43
Prior to joining KBW, Mr. Lott was associated with Tucker, Anthony &
R.L. Day; First National Bank, Somerset County, New Jersey; and First National
Bank, Trenton, New Jersey.
Mr. Lott attended Duke University from 1948 to 1951, at which time he
joined the U.S. Air Force. He was discharged in January 1955 and entered Rutgers
University, graduating with a B.A. Degree in 1956.
MICHAEL T. O'BRIEN -- Michael O'Brien is currently President of KBWAM
and Senior Vice President of KBW. Mr. O'Brien joined KBW in April 1985, and has
served as a senior institutional equity salesman covering the United Kingdom and
the New York and Philadelphia markets.
Prior to joining KBW, Mr. O'Brien managed a team of consultants for
Data Resources Inc., an economic consulting firm now owned by DRI/McGraw-Hill.
Mr. O'Brien graduated with a B.A. from Trinity College in 1976. In
addition, he earned an M.B.A. from the Stanford University Graduate School of
Business in 1982.
CRAIG W. STAUB -- Craig Staub is presently Vice President of both KBWAM
and KBW. Mr. Staub rejoined KBW in February 1998 from Langdon Street Capital, a
money management firm. Mr. Staub was a Partner at Langdon Street Capital, from
January 1994 to January 1998, where he was responsible for investing in bank and
thrift securities and special situations. Mr. Staub began his career at KBW in
June of 1992, and left in January 1994 after serving as Assistant Vice
President-Equity Sales. He graduated from Boston University in 1992 with a B.S.,
summa cum laude, in Business Administration.
Pursuant to the Investment Advisory Agreement, the Adviser is
responsible, subject to the supervision of the Individual General Partners, for
the management of the Partnership's investment portfolio in accordance with the
investment objective and policies of the Partnership. The Adviser formulates a
continuing investment program for the Partnership. It makes all decisions
regarding investments to be purchased or sold for the Partnership (subject to
the supervision of the Individual General Partners) and places all orders for
the purchase and sale of investments.
The Investment Advisory Agreement was approved by the Individual
General Partners (each of whom is an individual who is not an "interested
person," as defined by the 1940 Act), at a meeting held in person on [September
2], 1998, and was also approved on such date by [ ], the then sole Limited
Partner of the Partnership. The Investment Advisory Agreement is terminable
without penalty, on 60 days' prior written notice: by the Individual General
Partners; by vote of a majority (as defined by the 1940 Act) of the outstanding
voting securities of the Partnership; or by the Adviser. The initial term of the
Investment Advisory Agreement expires on [September 2], 2000. However, the
agreement may be continued in effect from year to year thereafter if such
continuance is approved annually by either the Individual General Partners or
the vote of a majority (as defined by the 1940 Act) of the outstanding voting
securities of the Partnership; provided that in either event the continuance is
also approved by a majority of the Individual General Partners who are not
"interested persons" of the Partnership or the Adviser by vote cast in person at
a meeting called for the purpose of voting on such approval. The Investment
Advisory
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<PAGE> 44
Agreement also provides that it will terminate automatically in the event of its
"assignment," as defined by the 1940 Act and the rules thereunder.
The Investment Advisory Agreement provides that, in the absence of
willful misfeasance, bad faith, gross negligence or reckless disregard of its
obligations to the Partnership, the Adviser and any member, director, officer or
employee thereof, or any of their affiliates, executors, heirs, assigns,
successors or other legal representative, will not be liable to the Partnership
for any error of judgment, for any mistake of law or for any act or omission by
such person in connection with the performance of services to the Partnership.
The Investment Advisory Agreement also provides for indemnification, to the
fullest extent permitted by law, by the Partnership of the Adviser, or any
member, director, officer or employee thereof, and any of their affiliates,
executors, heirs, assigns, successors or other legal representatives, against
any liability or expense to which such person may be liable which arise in
connection with the performance of services to the Partnership, provided that
the liability or expense is not incurred by reason of the person's willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations to the Partnership.
The Investment Advisory Agreement provides that in consideration of the
services provided by the Adviser, the Adviser shall be entitled to be the
Special Advisory Limited Partner of the Partnership. In such capacity, the
Adviser is entitled to receive the Incentive Allocation. (See "Capital Accounts
and Allocations Incentive Allocation.") The incentive allocation arrangement
between the Partnership and the Adviser was also initially approved by the
Individual General Partners, and by vote of [ ], as the then sole Limited
Partner of the Partnership, on [September 2], 1998.
VOTING
Each Limited Partner will have the right to cast a number of votes
based on the value of the Limited Partner's respective capital account at any
meeting of Limited Partners called by the Individual General Partners or by
Limited Partners holding 25% or more of the total number of votes eligible to be
cast. Limited Partners will be entitled to vote on any matter on which
shareholders of a registered investment company organized as a corporation would
normally be entitled to vote, including election of Individual General Partners,
approval of the agreement with the investment adviser of the Partnership, and
approval of the Partnership's auditors, and on certain other matters. Except for
the exercise of their voting privileges, Limited Partners in their capacity as
such 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. The
Interest of the Special Advisory Limited Partner is non-voting.
CONFLICTS OF INTEREST
CIBC OPCO
In addition to serving as the managing member of the Adviser, CIBC Opco
(directly or through its affiliates, including the Adviser) carries on
substantial investment activities for its own account and for other registered
investment companies, private investment partnerships, institutions
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<PAGE> 45
and individual clients (collectively, "CIBC Opco Clients"). The Partnership has
no interest in these activities. As a result of the foregoing, CIBC Opco and its
officers or employees who assist CIBC Opco in its oversight of the Adviser will
be engaged in substantial activities other than on behalf of the Adviser and may
have conflicts of interest in allocating their time and activity between the
Adviser and CIBC Opco Clients. Nevertheless, CIBC Opco and its officers and
employees will devote so much time to the affairs of the Adviser as in their
judgment is necessary and appropriate.
CIBC Opco acts as the non-exclusive placement agent for the Partnership
and will bear costs associated with its activities as placement agent. CIBC
Opco, as managing member of the Adviser and in its capacity as placement agent
for the Partnership, intends to compensate its account executives for their
ongoing servicing of CIBC Opco clients with whom they have placed interests in
the Partnership. CIBC Opco intends to compensate its account executives based
upon a formula that takes into account the amount of client assets being
serviced as well as the investment results attributable to clients' assets
invested in the Partnership. (See "Fees and Expenses" and "Capital Accounts and
Allocations - Incentive Allocation.")
Situations may arise in which accounts affiliated with CIBC Opco, KBWAM
or their respective affiliates have purchased securities which would have been
suitable for investment by the Partnership but which the Partnership, for
various reasons, did not choose to purchase. This could affect the availability
(or price) of investments to the Partnership at a later time. From time to time,
in the course of its brokerage, investment or dealer activities, CIBC Opco,
KBWAM or their respective affiliates may trade, position or invest in, for its
own account, the same securities, as those in which the Partnership invests.
This could have an adverse impact on the Partnership's investment performance.
CIBC Opco, KBW and their respective affiliates may provide brokerage
and other services from time to time to one or more accounts or entities managed
by KBWAM or one of its affiliates.
KBWAM
KBWAM, its affiliates and certain of the investment professionals who
are principals of or employed by KBWAM or its affiliates (collectively with
KBWAM, the "KBWAM Affiliates") carry on substantial investment activities for
other advised accounts and for their own accounts. In addition, the KBWAM
Affiliates in the future may also advise (and/or serve as general partner of)
pooled investment vehicles (such as registered investment companies or private
investment partnerships) established by KBWAM or others, with investment
programs similar to that of the Partnership. (All accounts managed by the KBWAM
Affiliates, excluding the Partnership, are referred to collectively as the
"KBWAM Accounts.") The Partnership has no interest in these activities. As a
result of the foregoing, KBWAM and the investment professionals of KBWAM who, on
behalf of the Adviser, will manage the Partnership's investment portfolio will
be engaged in substantial activities other than on behalf of the Adviser and may
have conflicts of interest in allocating their time and activity between the
Partnership and
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<PAGE> 46
the KBWAM Accounts. These persons will devote only so much time to the affairs
of the Adviser as in their judgment is necessary and appropriate.
KBW regularly serves as an investment bank and financial advisor to
issuers within the financial services industry. In addition, certain officers,
directors and employees of KBW and its affiliates may, from time to time, serve
as directors of financial services companies. Securities of issuers for which
KBW serves as an investment bank or financial advisor or for which an officer,
director or employee of KBW or its affiliates serves as director may be held or
eligible for purchase by the Partnership. KBWAM has established certain
procedures designed to ensure that material, non-public information that is
obtained by KBW by virtue of its investment banking or advisory relationships or
directorships is not disseminated to KBWAM. To the extent KBWAM has obtained
material, non-public information with respect to an issuer, the Partnership will
not be permitted to purchase or sell the securities of such issuer until such
time as the information is no longer material or has become publicly known. This
could adversely affect the Partnership's investment performance because the
Partnership may (i) hold securities of an issuer with respect to which the
Adviser has adverse information, or (ii) not purchase securities of an issuer
with respect to which the Adviser has favorable information.
In addition, the KBWAM Affiliates may receive research products and
services in connection with the brokerage services that CIBC Opco and its
affiliates may provide from time to time (i) to one or more KBWAM Accounts or
(ii) to the Partnership.
PARTICIPATION IN INVESTMENT OPPORTUNITIES
The Adviser and the KBWAM Affiliates serve or may serve as the
investment adviser for certain private investment companies and may be appointed
in the future to serve as the investment adviser to other registered investment
companies, private investment partnerships or managed accounts which may pursue
an investment strategy similar to that of the Partnership (the "Other
Accounts"). As a general matter, the Adviser (subject to any policies
established by the Individual General Partners) will consider participation by
the Partnership in all appropriate investment opportunities that are under
consideration for investment for the Other Accounts or by the KBWAM Affiliates
for the KBWAM Accounts. There may be circumstances, however, under which the
Adviser will cause one or more of the Other Accounts, or the KBWAM Affiliates
will cause one or more KBWAM Accounts, to commit a larger percentage of their
respective assets to an investment opportunity than to which the Adviser will
commit the Partnership's assets. There may also be circumstances under which the
Adviser will consider participation by the Other Accounts, or the KBWAM
Affiliates will consider participation by the KBWAM Accounts, in investment
opportunities in which the Adviser does not intend to invest on behalf of the
Partnership.
The Adviser will evaluate for the Partnership, and it is anticipated
that the KBWAM Affiliates will evaluate for each KBWAM Account, a variety of
factors that may be relevant in determining whether, and to what extent, a
particular investment opportunity or strategy is appropriate and feasible for
the Partnership or a KBWAM Account at a particular time, including, but not
limited to, the following: (1) the nature of the investment opportunity taken in
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<PAGE> 47
the context of the other investments at the time; (2) the liquidity of the
investment relative to the needs of the particular entity or account; (3) the
availability of the opportunity (i.e., size of obtainable position); (4) the
transaction costs involved; and (5) the investment or regulatory limitations
applicable to the particular entity or account. Because these considerations may
differ for the Partnership and the KBWAM Accounts in the context of any
particular investment opportunity, the investment activities of the Partnership
and the KBWAM Accounts may differ from time to time. In addition, the fees and
expenses of the Partnership may differ from those of the KBWAM Accounts.
Accordingly, prospective Limited Partners should note that the future
performance of the Partnership and the KBWAM Accounts or Other Accounts may
vary.
When the Adviser and the KBWAM Affiliates determine that it would be
appropriate for the Partnership and one or more KBWAM Accounts, respectively, to
participate in an investment opportunity at the same time, they will aggregate,
place and allocate orders on a basis that the Adviser believes to be fair and
equitable, consistent with its responsibilities under the Advisers Act and the
1940 Act. Decisions in this regard are necessarily subjective and there is no
requirement that the Partnership participate, or participate to the same extent
as the KBWAM Accounts, in all trades. However, no participating entity or
account will receive preferential treatment over any other and the Adviser and
the KBWAM Affiliates will take steps to ensure that no participating entity or
account (including the Partnership) 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 KBWAM
Affiliates for the KBWAM Accounts. These situations may be based on, among other
things, the following: (1) legal restrictions on the combined size of positions
that may be taken for the Partnership and the KBWAM Accounts, thereby limiting
the size of the Partnership's position; (2) the difficulty of liquidating an
investment for the Partnership and the KBWAM Accounts where KBWAM 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 these options or other instruments. In
particular, the Partnership may be legally restricted from entering into a
"joint transaction" (as defined in the 1940 Act) with the KBWAM Accounts with
respect to the securities of an issuer without first obtaining exemptive relief
from the SEC. (See "Conflicts Of Interest - Other Matters.")
The members of the Adviser, and their directors, 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 directors,
officers and employees of CIBC Opco or KBWAM, or by the KBWAM Affiliates for the
KBWAM Accounts, that are the same, different or made at a different time than
positions taken for the Partnership. In order to mitigate the possibility that
the Partnership will be adversely affected by this personal trading, the
Partnership and the Adviser have adopted a Joint Code of Ethics in compliance
with Section 17(j) of the 1940 Act that restricts securities trading in the
personal accounts of investment professionals and others who normally come into
possession of information regarding the Partnership's portfolio transactions.
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<PAGE> 48
OTHER MATTERS
The Adviser and its members (and affiliated persons of its members)
will not purchase securities or other property from, or sell securities or other
property to, the Partnership. However, CIBC Opco and its affiliated
broker-dealers and KBW may act as broker for the Partnership in effecting
securities transactions. (See "Brokerage.") In addition, the Partnership may
effect certain principal transactions in securities with one or more KBWAM
Accounts, except for accounts in which KBWAM 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 KBWAM's or any affiliate's appointment as an
investment adviser to the account). These transactions would be effected in
circumstances where the Adviser has determined that it would be appropriate for
the Partnership to purchase and a KBWAM Account to sell, or the Partnership to
sell and a KBWAM Account to purchase, the same security or instrument on the
same day. The purchases and sales would be made pursuant to procedures adopted
by the Partnership pursuant to Rule 17a-7 under the 1940 Act. Among other
things, those procedures are intended to ensure that: (1) each transaction will
be effected for cash consideration at the current market price of the particular
securities; (2) no transaction will involve restricted securities or securities
for which market quotations are not readily available; and (3) no brokerage
commissions, fees (except for customary transfer fees) or other remuneration
will be paid in connection with the transaction.
The Partnership is not permitted to purchase or sell securities of any
issuer as to which the Adviser has obtained material, non-public information,
until such time as the information is no longer material or has become publicly
known. This policy could adversely affect the Partnership's investment
performance because the Partnership may (i) hold securities of an issuer with
respect to which the Adviser has adverse information, or (ii) not purchase
securities of any issuer with respect to which the Adviser has favorable
information.
As a result of the investment banking and corporate finance activities
of CIBC Opco or KBW, the Partnership may be subject to future restrictions on
its ability to purchase or sell certain securities. Additionally, the
Partnership may purchase securities during the existence of an underwriting or
selling syndicate in which CIBC Opco, or any of its affiliates, or any KBWAM
affiliate is participating as an underwriter only subject to certain conditions.
This could have an adverse impact on the Partnership's investment performance.
Under the BHCA, or other U.S. banking laws, and the rules, regulations,
guidelines and policies of the regulatory agencies and the staff thereof, CIBC
Opco and its affiliates are subject to restrictions on the transactions which it
may make with the Partnership, and their restrictions may affect the investments
made by the Partnership.
KBW regularly publishes research on financial services companies.
However, KBW and its affiliates are under no obligation to provide to the
Partnership or KBWAM all of the services and research which may be made
available from time to time to certain other clients but which are not generally
made available to the public. Further, KBW and its affiliates may enter into
certain investment banking relationships which may preclude KBW, from time to
time, from publishing timely research on certain companies in which the
Partnership has invested or is considering investing.
Future investment activities of CIBC Opco (or its affiliates) or KBWAM
(or its affiliates) and their principals, partners, directors, officers or
employees may give rise to additional conflicts of interest.
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BROKERAGE
The Adviser is responsible for the execution of the Partnership's
portfolio transactions and the allocation of brokerage. Transactions on U.S.
stock exchanges and on some foreign stock exchanges involve the payment of
negotiated brokerage commissions. On the great majority of foreign stock
exchanges, commissions are fixed. No stated commission is generally applicable
to securities traded in over-the-counter markets, but the prices of those
securities include undisclosed commissions or mark-ups.
In executing transactions on behalf of the Partnership, the Adviser
seeks to obtain the best price and execution for the Partnership, taking into
account factors such as price, size of order, difficulty of execution and
operational facilities of a brokerage firm, and in the case of transactions
effected by the Partnership with unaffiliated brokers, the firm's risk in
positioning a block of securities. Although the Adviser generally seeks
reasonably competitive commission rates, the Partnership will not necessarily
pay the lowest commission available on each transaction. The Partnership has no
obligation to deal with any broker or group or brokers in executing transactions
in portfolio securities.
Consistent with the principle of seeking best price and execution, the
Adviser may place brokerage business on behalf of the Partnership with brokers
(including affiliates of CIBC Opco or KBWAM) that provide the Adviser, its
affiliates and KBWAM 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 Adviser
are not necessarily reduced as a result of the receipt of this supplemental
information, which may be useful to the Adviser and its affiliates in providing
services to clients other than the Partnership. In addition, not all of the
supplemental information is used by the Adviser in connection with the
Partnership. Conversely, the information provided to the Adviser by brokers and
dealers through which other clients of the Adviser and its affiliates effect
securities transactions may be useful to the Adviser in providing services to
the Partnership.
KBW makes markets in various over-the-counter ("OTC") securities of
financial services issuers. The 1940 Act prohibits principal transactions
between a registered investment company and its adviser or its affiliates. As
most transactions for OTC issues are conducted on a principal basis with the
market maker, the Adviser, when purchasing or selling securities on behalf of
the Partnership, will be required to use an unaffiliated market maker or
broker (acting as agent in respect of transactions with unaffiliated market
makers) when purchasing or selling OTC securities in which KBW makes a market.
In such circumstances, the Partnership may be disadvantaged if the prices at
which the OTC securities can be purchased from or sold to the unaffiliated
brokers are not as favorable as the prices offered by KBW.
Although the Partnership cannot accurately predict its portfolio
turnover, the Partnership generally expects that its annual portfolio turnover
rate will not exceed 100%. Higher portfolio turnover rates usually generate
additional brokerage commissions and expenses and the short-
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<PAGE> 50
term gains realized from these transactions are taxable to the Limited Partners
as ordinary income.
The Partnership may execute portfolio brokerage transactions through
CIBC Opco or its affiliates or KBW or its affiliates. These transactions would
be effected pursuant to procedures adopted by the Partnership pursuant to
Section 17(e) of the 1940 Act and Rule 17e-1 thereunder. Among other things,
those procedures provide that when acting as broker for the Partnership in
connection with the sale of securities to or by the Partnership, neither CIBC
Opco nor KBW nor any of their affiliates may receive any compensation exceeding
the following limits: (1) if the sale is effected on a securities exchange, the
compensation may not exceed the "usual and customary broker's commission" (as
defined in Rule 17e-1 under the 1940 Act); (2) if the sale is effected in
connection with a secondary distribution of securities, the compensation cannot
exceed 2% of the sale price; and (3) the compensation for sales otherwise
effected cannot exceed 1% of the sales price. Rule 17e-1 defines a "usual and
customary broker's commission" as one that is fair compared to the commission
received by other brokers in connection with comparable transactions involving
similar securities being purchased or sold on an exchange during a comparable
period of time.
FEES AND EXPENSES
CIBC Opco provides certain administration and investor services to the
Partnership, including, among other things, providing office space and other
support services to the Partnership, screening potential investors, preparing
marketing and investor communications, maintaining and preserving certain
records of the Partnership, preparing and filing various materials with state
and Federal regulators, providing legal and regulatory advice in connection with
administrative functions and reviewing and arranging for payment of the
Partnership's expenses. In consideration for these services, the Partnership
will pay CIBC Opco a monthly fee of 0.08333% (1% on an annualized basis) of the
Partnership's net assets (the "CIBC Opco Fee"). Net assets means the total value
of all assets of the Partnership, less an amount equal to all accrued debts,
liabilities and obligations of the Partnership, calculated before giving effect
to any repurchases of interests. The CIBC Opco Fee will be computed based on the
net assets of the Partnership as of the start of business on the first business
day of each month, after adjustment for any subscriptions effective on that
date, and will be due and payable in arrears within five business days after the
end of that month. The CIBC Opco Fee will be charged in each fiscal period to
the capital accounts of all Limited Partners (except the Special Advisory
Account (defined below)) in proportion to their capital accounts at the
beginning of that fiscal period. A portion of the CIBC Opco Fee will be paid by
CIBC Opco to KBWAM.
PFPC Inc. ("PFPC") provides administration, accounting and investor
services to the Partnership, which are in addition to the services provided by
CIBC Opco to the Partnership, as described above. In consideration for these
services, the Partnership will pay PFPC a fee (the "PFPC Fee") that is not
anticipated to exceed 0.35% (annualized) of the Partnership's net assets (as
defined above), plus reimbursement of certain out-of-pocket expenses.
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In addition, the capital accounts of Limited Partners (except the
Special Advisory Account (defined below)) 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 CIBC Opco.
Expenses to be borne by the Partnership include, but are not limited to, the
following:
- all costs and expenses directly related to portfolio
transactions and positions for the Partnership's account,
including, but not limited to, brokerage commissions, research
fees, interest and commitment fees on loans and debit
balances, borrowing charges on securities sold short,
dividends on securities sold but not yet purchased, custodial
fees, 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;
- Attorneys' fees and disbursements associated with updating the
Partnership's Confidential Memorandum and subscription
documents (the "Offering Materials"); the costs of printing
the Offering Materials; the costs of distributing the Offering
Materials to prospective investors; and attorneys' fees and
disbursements associated with the review of subscription
documents executed and delivered to the Partnership in
connection with offerings of interests in the Partnership;
- the costs and expenses of holding meetings of Individual
General Partners and any meetings of Limited Partners;
- fees and disbursements of any attorneys, accountants, auditors
and other consultants and professionals engaged on behalf of
the Partnership;
- the CIBC Opco Fee and the fees of custodians and persons (such
as PFPC) providing administrative services to the Partnership;
- the costs of a fidelity bond and any liability insurance
obtained on behalf of the Partnership or the Individual
General Partners;
- all expenses of computing the Partnership's net asset value,
including any equipment or services obtained for these
purposes;
- all charges for equipment or services used in communicating
information regarding the Partnership's transactions among the
Adviser and any custodian or other agent engaged by the
Partnership; and
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- such other types of expenses as may be approved from time to
time by the Individual General Partners.
The Adviser will be reimbursed by the Partnership for any of the above expenses
that it pays on behalf of the Partnership.
The Partnership's organizational expenses are estimated at $350,000,
and the Partnership will also bear certain expenses, not to exceed $50,000,
associated with the initial offering of interests in the Partnership. Before a
recent change to the guidelines followed by the American Institute of Certified
Public Accountants applicable to the Partnership, the Partnership would have
been able to amortize the organizational expenses over a 60 month period.
Because of that change, however, the organizational expenses now must be
expensed as incurred. In order to achieve a more equitable distribution of the
impact of those expenses among the Partnership's Limited Partners, an amount
equal to the organizational expenses incurred by the Partnership will be
allocated among and credited to or debited against the capital accounts
(described below) of all Limited Partners based on the percentage that a Limited
Partner's contributed capital to the Partnership bears to the total capital
contributed to the Partnership by all Limited Partners as of the relevant
allocation date. An initial allocation of organizational costs will be made as
of the first date on which capital contributions of Limited Partners are made.
These allocations will thereafter be adjusted as of the first day of each month
(for the first six months following the commencement of operations) and as of
the first day of each calendar quarter thereafter, until [October 1, 1999],
unless no additional capital is contributed to the Partnership by Limited
Partners as of those dates. Offering costs cannot be deducted by the Partnership
or the Limited Partners.
CAPITAL ACCOUNTS AND ALLOCATIONS
CAPITAL ACCOUNTS
The Partnership will maintain a separate capital account for each
Limited Partner (including the Adviser in respect of the Adviser's capital
contribution to the Partnership, as Limited Partner), which will have an opening
balance equal to the Limited Partner's initial contribution to the capital of
the Partnership. Each Limited 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 the Limited Partner to the capital of the
Partnership, plus any amounts credited to the Limited Partner's capital account
as described above with respect to organization expenses or as described below.
Similarly, each Limited 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 the Limited Partner, plus the amount of any distributions to the
Limited Partner which are not reinvested, plus any amounts debited against the
Limited Partner's capital account as described above with respect to
organization expenses or as described below.
Capital accounts of Limited 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
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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 Limited Partner, or (4) the day on which any amount is credited to or
debited from the capital account of any Limited Partner other than an amount to
be credited to or debited from the capital accounts of all Limited Partners in
accordance with their respective partnership percentages. A partnership
percentage will be determined for each Limited Partner as of the start of each
fiscal period by dividing the balance of the Limited Partner's capital account
as of the commencement of the period by the sum of the balances of all capital
accounts of all Limited Partners as of that date.
The Partnership will maintain a "Special Advisory Account" for the
Adviser solely for the purpose of receiving the Incentive Allocation, as
described below.
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 Limited Partners (but not the Special Advisory Account) as of the last
day of each fiscal period in accordance with Partners' respective partnership
percentages for the 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 (including organizational
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 Limited Partners
other than in accordance with the Limited Partners' respective partnership
percentages.
Allocations for Federal income tax purposes generally will be made
among the Limited Partners so as to reflect equitably amounts credited or
debited to each Limited Partner's capital account for the current and prior
fiscal years. (See "Tax Aspects - Allocation of Profits and Losses.")
INCENTIVE ALLOCATION
So long as the Adviser serves as the investment adviser of the
Partnership, the Adviser will be entitled to be the Special Advisory Limited
Partner of the Partnership. In such capacity, the Adviser will be entitled to
receive an incentive allocation (the "Incentive Allocation"), charged to the
capital account of each Limited Partner as of the last day of each "allocation
period," of 20% of the amount by which any "allocated gain" during an
"allocation period" exceeds the positive balance in the Limited Partner's "loss
recovery account." The Incentive Allocation will be credited to the Special
Advisory Account of the Adviser.
For purposes of calculating the Incentive Allocation, "allocated gain"
means the excess of the balance of a 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 the Limited Partner's 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 the "allocation period."
Consequently, any Incentive Allocation to be credited to the
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Adviser will be increased by a portion of the amount of any net unrealized
appreciation, as well as net realized gains, allocable to a Limited Partner.
An Incentive Allocation will be charged only with respect to any
"allocated gain" in excess of the positive balance of a "loss recovery account"
maintained for each Limited Partner. A "loss recovery account" is a memorandum
account maintained by the Partnership for each Limited Partner, which has an
initial balance of zero and is (1) increased after the close of each "allocation
period" by the amount of any negative performance for the Limited Partner during
the "allocation period," and (2) decreased (but not below zero) after the close
of each "allocation period" by the amount of any allocated gain for the Limited
Partner during the "allocation period." Any positive balance in a Limited
Partner's "loss recovery account" would be reduced as the result of a repurchase
or certain transfers with respect to the Limited Partner's interest in the
Partnership in proportion to the reduction of the Limited Partner's capital
account attributable to the repurchase or transfer.
An "allocation period" as to each Limited Partner is a period
commencing on the admission of the Limited Partner to the Partnership, and
thereafter each period commencing as of the day following the last day of the
preceding allocation period with respect to such Limited Partner, and ending 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 the Limited Partner, (3) the day as of which the Partnership
admits as a substitute Limited Partner a person to whom the entire interest of
the Limited Partner has been transferred or (4) the day as of which the
Investment Advisory Agreement terminates. 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 allocation period in effect is a reflection of the extent to
which cumulative performance achieved with respect to a Limited Partner's
account since the Partner's admission to the Partnership exceeds the highest
previous level of performance achieved through the close of any prior allocation
period. Because the initial allocation period will be approximately two months
long, beginning on the date the Partnership commences operations and ending as
of the last business day of 1998, it is possible that the Adviser will receive
an incentive allocation that would not otherwise have been received if the
"allocated gain" of the Partnership were measured over a longer period of time.
By the last business day of the month following the date on which an
Incentive Allocation is made, the Adviser may withdraw up to 100% of the
Incentive Allocation (computed on the basis of unaudited data) that was credited
to the Special Advisory Account and debited from the Limited Partner's capital
account with respect to the allocation period. Within 30 days after the
completion of the audit of the Partnership's books, the Partnership will pay to
the Adviser any additional amount determined to be owed to the Adviser based
upon the audit, and the Adviser will pay to the Partnership any excess amount
determined to be owed to the Partnership.
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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 that Partner as of the close of the fiscal period during which the
Partnership paid those obligations, and any amounts then or thereafter
distributable to the Partner will be reduced by the amount of those taxes. If
the amount of those taxes is greater than the distributable amounts, then the
Partner and any successor to the Partner's interest is required to pay upon
demand to the Partnership, as a contribution to the capital of the Partnership,
the amount of the excess. The Partnership is not obligated to apply for or
obtain a reduction of or exemption from withholding tax on behalf of any
Partner, although in the event that the Partnership determines that a Partner is
eligible for a refund of any withholding tax, it may, at the request and expense
of that Partner, assist the Partner in applying for a refund.
Generally, any expenditures payable by the Partnership, to the extent
paid or withheld on behalf of, or by reason of particular circumstances
applicable to, one or more, but fewer than all of the Partners, will be charged
to only those Partners on whose behalf the payments are made or whose particular
circumstances gave rise to the payments. These charges shall be debited to the
capital accounts of the applicable Partners as of the close of the fiscal period
during which the items were paid or accrued by the Partnership.
RESERVES
Appropriate reserves may be created, accrued and charged against net
assets and proportionately against the capital accounts of the Partners for
contingent liabilities as of the date the 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 the reserve is created, increased or
decreased, as the case may be; provided, however, that if the 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 those Partners, the amount of the
reserve, increase, or decrease shall instead be charged or credited to those
investors who were Partners at the time, as determined by the Partnership, of
the act or omission giving rise to the contingent liability for which the
reserve was established, increased or decreased in proportion to their capital
accounts at that time.
NET ASSET VALUATION
The value of the net assets of the Partnership will be determined as of
the close of business at the end of any fiscal period in accordance with the
procedures set forth below or as may be determined from time to time pursuant to
policies established by the Individual General Partners.
Domestic exchange traded and Nasdaq listed equity securities will be
valued at their last composite sale prices as reported on the exchanges where
those securities are traded. If no sales of those 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 those exchanges. Securities traded on a foreign
securities exchange will be valued at
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their last sale prices on the exchange where the 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 that exchange. Listed options will be
valued using last sales prices as reported by the exchange with the highest
reported daily volume for those options or, in the absence of any sales on a
particular day, at their bid prices as reported by the exchange with the highest
volume on the last day a trade was reported. Other securities for which market
quotations are readily available will be valued at their bid prices (or ask
prices in the case of securities held short) as obtained from one or more
dealers making markets for those 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 Individual General
Partners.
Debt securities will be valued in accordance with the procedures
described above, which with respect to these securities may include the use of
valuations furnished by a pricing service which employs a matrix to determine
valuations for normal institutional size trading units. The Individual General
Partners will periodically monitor the reasonableness of valuations provided by
the pricing service. Debt securities with remaining maturities of 60 days or
less will, absent unusual circumstances, be valued at amortized cost, so long as
this method of valuation is determined by the Individual General Partners to
represent fair value.
All assets and liabilities initially expressed in foreign currencies
will be converted into U.S. dollars using foreign exchange rates provided by a
pricing service compiled as of 4:00 p.m. London time. Trading in foreign
securities generally is completed, and the values of foreign 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 foreign securities and exchange rates may be affected by events occurring
between the time as of which determination of values or exchange rates are made
and the time as of which the net asset value of the Partnership is determined.
When an event materially affects 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
Individual General Partners.
Prospective investors should be aware that situations involving
uncertainties as to the valuation of portfolio positions could have an adverse
effect on the Partnership's net assets if the Individual General Partners'
judgments regarding appropriate valuations should prove incorrect.
SUBSCRIPTION FOR INTERESTS
SUBSCRIPTION TERMS
For the first six months from the date of commencement of operations of
the Partnership, the Individual General Partners may accept initial and
additional subscriptions for interest by eligible investors (as described below)
as of the first day of each month upon 10 days' prior written notice to the
Individual General Partners (subject to the discretion of the Individual General
Partners to waive such notice). Thereafter, both initial and additional
subscriptions for interests by eligible investors may be accepted by the
Individual General Partners as of the first day of each calendar quarter upon
similar notice (subject to the discretion of the Individual General Partners to
waive such notice). The Individual General Partners may, in their discretion,
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suspend subscriptions for interests at any time. The Individual General Partners
reserve the right to reject any subscription for interests in the Partnership.
The minimum required initial investment in the Partnership from each investor is
$150,000, and the minimum additional investment in the Partnership is $25,000,
subject to the discretion of the Individual General Partners to accept initial
and additional investments in lesser amounts. The initial closing date for
subscriptions of interests in the Partnership is November 2, 1998. The
Individual General Partners, in their sole discretion, may postpone the closing
date for up to 90 days. Interests may not be purchased by nonresident aliens,
foreign corporations, foreign partnerships, foreign trusts or foreign estates,
all as defined in the Code. In addition, because the Partnership may generate
"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 Individual General Partners,
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 the time and in such the 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 at least
three business days prior to the proposed acceptance of the contribution,
although the Individual General Partners may accept, in their discretion, a
subscription prior to its receipt of cleared funds.
Each new Limited Partner will be obligated to agree to be bound by all
of the terms of the Partnership Agreement. Each potential investor will also be
obligated to represent and warrant in a subscription agreement, among other
things, that the investor is purchasing an interest for its own account, and not
with a view to the distribution, assignment, transfer or other disposition of
the interest.
If and when the Individual General Partners determine to accept
securities as a contribution to the capital of the Partnership, the Partnership
will charge each Partner making a contribution of securities an amount
determined by the Individual General Partners and not exceeding 2% of the value
of the contribution in order to reimburse the Partnership for any costs it
incurs in liquidating and accepting the securities. This 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 the 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
the 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 or such greater amounts as may be required by applicable law
or by the Individual General Partners, in their sole discretion. Existing
Limited Partners who subscribe for additional interests in the Partnership will
be required to meet 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.
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REDEMPTIONS, REPURCHASES OF
INTERESTS AND TRANSFERS
NO RIGHT OF REDEMPTION
No Limited Partner or other person holding an interest or a portion of
an interest acquired from a Limited Partner will have the right to require the
Partnership to redeem that interest or portion thereof. There is no public
market for interests in the Partnership, and none is expected to develop.
Consequently, investors may not be able to liquidate their investment other than
as a result of repurchases of interests by the Partnership, as described below.
(The Adviser will have certain rights to withdraw amounts from its Special
Advisory Account.)
REPURCHASES OF INTERESTS
The Individual General Partners may, from time to time and in their
complete and exclusive discretion, determine to cause the Partnership to
repurchase interests or portions thereof from Limited Partners other than the
Adviser in its capacity as the Special Advisory Limited Partner pursuant to
written tenders by Partners on such terms and conditions as they may determine.
In determining whether the Partnership should repurchase interests or portions
thereof from Partners pursuant to written tenders, the Individual General
Partners will consider the recommendation of the Adviser. The Adviser expects
that it will recommend to the Individual General Partners that the Partnership
offer to repurchase interests from Partners at the end of 1999. Thereafter, the
Adviser expects that generally it will recommend to the Individual General
Partners that the Partnership offer to repurchase interests from Partners twice
in each year, effective at the end of the second fiscal quarter and again at the
end of the year. The Individual General Partners will also consider the
following factors, among others, in making their determination:
- whether any Limited Partners have requested to tender
interests or portions thereof to the Partnership;
- the liquidity of the Partnership's assets;
- the investment plans and working capital requirements
of the Partnership;
- the relative economies of scale with respect to the
size of the Partnership;
- the history of the Partnership in repurchasing
interests or portions thereof;
- the economic condition of the securities markets; and
- the anticipated tax consequences of any proposed
repurchases of interests or portions thereof.
The Individual General Partners will determine that the Partnership
repurchase interests or portions thereof from Partners pursuant to written
tenders only on the terms and conditions they determine to be fair to the
Partnership and to all Partners or persons holding interests acquired from
Partners, or to one or more classes of Partners, as applicable. When the
Individual General Partners
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determine that the Partnership shall repurchase interests in the Partnership or
portions thereof, notice will be provided to Partners describing the terms
thereof, containing information Partners should consider in deciding whether to
participate in the repurchase opportunity and containing information on how to
participate. Partners who are deciding whether to tender their interests or
portions thereof during the period that a repurchase offer is open may ascertain
the net asset value of their interest in the Partnership from PFPC during the
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 Partnership, in part or in
whole for cash or for securities of equivalent value and shall be effective
after receipt by the Partnership of all eligible written tenders of interests or
portions thereof from Partners. The amount due to any Partner whose interest or
portion thereof is repurchased shall be equal to the value of 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 that 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 this amount will be made promptly after the
expiration date (the "cash payment") in accordance with the terms of any written
offer from the Partnership to repurchase interests. Generally, payment pursuant
to a tender will also consist of a promissory note that neither bears interest
nor is transferable (the "note") entitling the holder thereof to a contingent
payment equal to the excess, if any, of (a) the net asset value of the interests
tendered as of the expiration date, determined based on the audited financial
statements of the Partnership, over (b) the cash payment. The note would be
delivered to the tendering Partner promptly after the expiration date and would
be payable in cash promptly after completion of the audit of the financial
statements of the Partnership. The audit of the Partnership's financial
statements will be completed within 60 days after the end of each year. The
Partnership does not impose any charges on a repurchase of interests or portion
of interests in the Partnership.
The Partnership intends to maintain daily a segregated account on its
books or with its custodian consisting of cash or liquid securities in an amount
equal to the aggregate estimated dollar amount of the notes. Payment for
repurchased interests may require the Partnership to liquidate portfolio
holdings earlier than the Adviser would otherwise liquidate these holdings,
potentially resulting in losses, and may increase the Partnership's portfolio
turnover. The Adviser intends to take measures (subject to such policies as may
be established by the Individual General Partners) to attempt to avoid or
minimize potential losses and turnover resulting from the repurchase of
interests.
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A Limited Partner who tenders for repurchase only a portion of such
Limited Partner's interest will be required to maintain a capital account
balance equal to the greater of: (1) $150,000, net of the Incentive Allocation,
if any, that would be debited against the capital account if the date of
repurchase of the interest or portion thereof were a date on which an Incentive
Allocation would otherwise be made (the "Tentative Incentive Allocation") or (2)
the amount of the Tentative Incentive Allocation.
The Partnership may repurchase an interest in the Partnership or
portion thereof of a Partner or any person acquiring an interest or portion
thereof from or through a Partner in the event that:
- the interest or a portion thereof has been transferred or the
interest or a 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 the 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 the interest may be harmful or
injurious to the business or reputation of the Partnership,
the Individual General Partners or the Adviser, 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 the interest or a portion thereof.
In the event that the Adviser holds any interests in its capital
account in its capacity as a Limited Partner, such interest or a portion thereof
may be tendered for repurchase in connection with any repurchase offer made by
the Partnership. The Adviser is also entitled to withdraw its interests from its
Special Advisory Account at the times described under "Capital Accounts And
Allocations - Incentive Allocation."
TRANSFERS OF INTERESTS
Except as otherwise described below, no person shall become a
substituted Limited Partner without the written consent of the Individual
General Partners, which consent may be withheld for any reason in their and
absolute discretion. Interests in the Partnership held by Limited Partners may
be transferred only (i) by operation of law pursuant to the death, bankruptcy,
insolvency or dissolution of a Limited Partner or (ii) under certain limited
circumstances, with the written consent of the Individual General Partners
(which may be withheld in their sole and absolute discretion and is expected to
be granted, if at all, only under extenuating circumstances). The
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Individual General Partners generally will not consent to a transfer unless the
following conditions are met: (i) the transferring Limited Partner has been a
Limited Partner for at least six months; (ii) the proposed transfer is to be
made on the effective date of an offer by the Partnership to repurchase
interests; and (iii) the transfer does not constitute a change in beneficial
ownership. Notice to the Partnership of any proposed transfer must include
evidence satisfactory to the Individual General Partners 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 $1.5 million or
such greater amounts as may be required by applicable law or by the Individual
General Partners, in their sole discretion, and must be accompanied by a
properly completed subscription agreement. The Individual General Partners are
not authorized under the Partnership Agreement to consent to a transfer of an
interest or portion thereof of a Limited Partner unless the entire interest of
the Limited Partner is transferred to a single transferee and after the transfer
the balance of the capital account of the transferee (and any Partner
transferring less than its entire interest) is not less than $150,000. A Limited
Partner who transfers an interest may be charged reasonable expenses, including
attorneys' and accountants' fees, incurred by the Partnership in connection with
the transfer.
Any transferee that acquires an interest or portion thereof in the
Partnership by operation of law as the result of the death, dissolution,
bankruptcy or incompetency of a Limited Partner or otherwise, shall be entitled
to the allocations and distributions allocable to the interest so acquired and
to transfer the interest in accordance with the terms of the Partnership
Agreement, but shall not be entitled to the other rights of a Limited Partner
unless and until the 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 Individual General
Partners, the Partnership shall promptly take all necessary actions so that each
transferee or successor to whom the interest or portion thereof is transferred
is admitted to the Partnership as a Limited Partner. Each Limited Partner and
transferee may be charged for all expenses, including attorneys' and
accountants' fees, incurred by the Partnership in connection with the transfer.
By subscribing for an interest in the Partnership, each Limited Partner
has agreed to indemnify and hold harmless the Partnership, the Individual
General Partners, the Adviser, 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 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 that Limited Partner in violation of these provisions or any
misrepresentation made by that Limited Partner in connection with any such
transfer.
The Adviser may not transfer its interest as the Special Advisory
Limited Partner. Individual General Partners may not transfer their interests as
Individual General Partners.
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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 Federal 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 Internal Revenue Code of 1986, as amended (the
"Code"), judicial decisions, Treasury Regulations (the "Regulations") and
rulings in existence on the date hereof, all of which are subject to change.
This summary does not discuss the impact of various proposals to amend the Code
which could change certain of the tax consequences of an investment in the
Partnership. This summary also does not discuss all of the tax consequences that
may be relevant to a particular investor or to certain investors subject to
special treatment under the Federal income tax laws, such as insurance
companies.
EACH PROSPECTIVE LIMITED PARTNER SHOULD CONSULT WITH ITS OWN TAX
ADVISER IN ORDER FULLY TO UNDERSTAND THE FEDERAL, STATE, LOCAL AND FOREIGN
INCOME TAX CONSEQUENCES OF AN INVESTMENT IN THE PARTNERSHIP.
In addition to the particular matters set forth in this section,
tax-exempt organizations should review carefully those sections of the
Memorandum regarding liquidity and other financial matters to ascertain whether
the investment objectives of the Partnership are consistent with their overall
investment plans. Each prospective tax-exempt Limited Partner is urged to
consult its own counsel regarding the acquisition of Interests.
Tax Treatment of Partnership Operations
Classification of the Partnership. The Partnership will receive an
opinion of Schulte Roth & Zabel LLP, counsel to the Partnership, that under the
provisions of the Code and the Regulations, as in effect on the date of the
opinion, as well as under the relevant authority interpreting the Code and the
Regulations, and based upon certain representations of the Individual General
Partners, the Partnership will be treated as a partnership for Federal income
tax purposes and not as an association taxable as a corporation.
Under Section 7704 of the Code, "publicly traded partnerships" are
generally treated as corporations for Federal income tax purposes. A publicly
traded partnership is any partnership the interests in which are traded on an
established securities market or which are readily tradable on a secondary
market (or the substantial equivalent thereof). Interests in the Partnership
will not be traded on an established securities market. Regulations concerning
the classification of partnerships as publicly traded partnerships (the "Section
7704 Regulations") 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 may not be eligible for
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any of those safe harbors. In particular, it will not qualify under the private
placement safe harbor set forth in the Section 7704 Regulations if the
Partnership has more than 100 Partners.
The Section 7704 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 Section 7704 Regulations. Schulte Roth & Zabel LLP also
will render its opinion that, under this "facts and circumstances" test, and
based upon the anticipated operations of the Partnership as well as the
legislative history to Section 7704, the text of the Section 7704 Regulations
and certain representations of the Individual General Partners, the interests in
the Partnership will not be readily tradable on a secondary market (or the
substantial equivalent thereof) and, therefore, that the Partnership will not be
treated as a publicly traded partnership taxable as a corporation.
Neither of the opinions of counsel described above, 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 Interests, would be treated as dividend
income when received by the Partners to the extent of the current or accumulated
earnings and profits of the Partnership; and Partners would not be entitled to
report profits or losses realized by the Partnership.
As a partnership, the Partnership is not itself subject to Federal
income tax. The Partnership files an annual partnership information return with
the Service which reports the results of operations. Each Partner is required to
report separately on its income tax return its distributive share of the
Partnership's net long-term capital gain or loss, net short-term capital gain or
loss and all other items of ordinary income or loss. Each Partner is taxed on
its distributive share of the Partnership's taxable income and gain regardless
of whether it has received or will receive a distribution from the Partnership.
Recently enacted legislation generally allows certain partnerships with
100 or more partners to elect to have a special set of rules and procedures
apply that are intended to simplify the calculation and reporting of certain
partnership items, and the handling of partnership audits. Among the items that
would be affected by the election are the calculation of long-term capital gains
and the tax treatment of expenses, if any, that are treated as itemized
deductions by the partners. If the Partnership is eligible, the Individual
General Partners may elect to have such rules and procedures apply to the
Partnership if it believes that they may be beneficial to a majority of the
Partners. Once the election is made, it cannot be revoked without the consent of
the Service. There can be no assurance that, if such an election is made, the
anticipated benefits will be realized. Furthermore, in certain cases, it is
possible that the election would have an adverse effect on the Limited Partners.
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Allocation of Profits and Losses. Under the Partnership Agreement, the
Partnership's net capital appreciation or net capital depreciation for each
accounting period is allocated among the Partners and to their capital accounts
without regard to the amount of income or loss actually recognized by the
Partnership for Federal income tax purposes. The Partnership Agreement provides
that items of income, deduction, gain, loss or credit actually recognized by the
Partnership for each fiscal year generally are to be allocated for income tax
purposes among the Partners pursuant to Regulations issued under Sections 704(b)
and 704(c) of the Code, based upon amounts of the Partnership's net capital
appreciation or net capital depreciation allocated to each Partner's capital
account for the current and prior fiscal years.
Under the Partnership Agreement, the Individual General Partners have
the discretion to allocate specially an amount of the Partnership's capital gain
and loss for Federal income tax purposes to the Special Advisory Limited Partner
and to a withdrawing Partner, in either case to the extent that such Partner's
capital account exceeds, or is less than, as the case may be, its Federal income
tax basis in its partnership interest. There can be no assurance that, if the
Individual General Partners make any such special allocations, the Service will
accept such allocations. If such allocations are successfully challenged by the
Service, the Partnership's gains or losses 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 Special Advisory Limited
Partner in respect of the initial Incentive Allocation. The Individual General
Partners, in their 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 Individual General Partners, in their 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
Individual General Partners presently do not intend to make such election.
The Individual General Partners decide 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 limited
partnership level in a single proceeding rather than by individual audits of the
Partners.
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An Individual General Partner, designated as the "Tax Matters Partner," has
considerable authority to make decisions affecting the tax treatment and
procedural rights of all Partners. In addition, the Tax Matters Partner has the
authority to bind certain Partners to settlement agreements and the right on
behalf of all Partners to extend the statute of limitations relating to the
Partners' tax liabilities with respect to Partnership items.
Tax Consequences to a Withdrawing Limited Partner
A Limited Partner receiving a cash liquidating distribution from the
Partnership, in connection with a complete withdrawal from the Partnership,
generally will recognize capital gain or loss to the extent of the difference
between the proceeds received by such Limited Partner and such Limited Partner's
adjusted tax basis in its partnership interest. Such capital gain or loss will
be short-term or long-term depending upon the Limited Partner's holding period
for its interest in the Partnership. However, a withdrawing Limited Partner will
recognize ordinary income to the extent such Limited Partner's allocable share
of the Partnership's "unrealized receivables" exceeds the Limited Partner's
basis in such unrealized receivables (as determined pursuant to the
Regulations). For these purposes, accrued but untaxed market discount, if any,
on securities held by the Partnership will be treated as an unrealized
receivable, with respect to 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
Individual General Partners may specially allocate items of Partnership capital
gain and loss to a withdrawing Partner to the extent its capital account would
otherwise exceed or be less than, as the case may be, its adjusted tax basis in
its partnership interest. Such a special allocation of gain may result in the
withdrawing Partner recognizing capital gain, which may include short-term gain,
in the Partner's last taxable year in the Partnership, thereby reducing the
amount of long-term capital gain recognized during the tax year in which it
receives its liquidating distribution upon withdrawal. Such a special allocation
of loss may result in the withdrawing Partner recognizing capital loss, which
may include long-term loss, in the Partner's last taxable year in the
Partnership, thereby reducing the amount of short-term loss recognized during
the tax year in which it receives its liquidating distribution upon withdrawal.
Distributions of Property. A partner's receipt of a distribution of
property from a partnership is generally not taxable. However, under Section 731
of the Code, a distribution consisting of marketable securities generally is
treated as a distribution of cash (rather than property) unless the distributing
partnership is an "investment partnership" within the meaning of Section
731(c)(3)(C)(i) and the recipient is an "eligible partner" within the meaning of
Section 731(c)(3)(C)(iii). The Partnership will determine at the appropriate
time whether it qualifies as an "investment partnership." Assuming it so
qualifies, if a Limited Partner is an "eligible partner," which term should
include a Limited Partner whose contributions to the Partnership consisted
solely of cash, the recharacterization rule described above would not apply.
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Tax Treatment of Partnership Investments
In General. The Partnership expects to act as a trader or investor, and
not as a dealer, with respect to its securities transactions. A trader and an
investor are persons who buy and sell securities for their own accounts. A
dealer, on the other hand, is a person who purchases securities for resale to
customers rather than for investment or speculation.
Generally, the gains and losses realized by a trader or investor on the
sale of securities are capital gains and losses. Thus, subject to the treatment
of certain currency exchange gains as ordinary income (see "Currency
Fluctuations - 'Section 988' Gains or Losses" below) and certain other
transactions described below, the Partnership expects that its gains and losses
from its securities transactions typically will be capital gains and capital
losses. These capital gains and losses may be long-term or short-term depending,
in general, upon the length of time the Partnership maintains a particular
investment position and, in some cases, upon the nature of the transaction.
Property held for more than one year generally will be eligible for long-term
capital gain or loss treatment. The application of certain rules relating to
short sales, to so-called "straddle" and "wash sale" transactions and to Section
1256 Contracts (defined below) may serve to alter the manner in which the
Partnership's holding period for a security is determined or may otherwise
affect the characterization as short-term or long-term (and, if long-term, the
applicable capital gains tax rate), and also the timing of the realization, of
certain gains or losses. Moreover, the straddle rules and short sale rules may
require the capitalization of certain related expenses of the Partnership.
The maximum ordinary income tax rate for individuals is 39.6% and, in
general, and the maximum individual income tax rate for long-term capital gains
is 20% for capital assets held for more than one year (unless the taxpayer
elects to be taxed at ordinary rates - see "Limitation on Deductibility of
Interest" below), although in all cases the actual rates may be higher due to
the phase out of certain tax deductions, exemptions and credits. The excess of
capital losses over capital gains may be offset against the ordinary income of
an individual taxpayer, subject to an annual deduction limitation of $3,000. For
corporate taxpayers, the maximum income tax rate is 35%. Capital losses of a
corporate taxpayer may be offset only against capital gains, but unused capital
losses may be carried back three years (subject to certain limitations) and
carried forward five years.
The Partnership may realize ordinary income from accruals of interest
and dividends on securities. The Partnership may hold debt obligations with
"original issue discount." In such case, the Partnership would be required to
include amounts in taxable income on a current basis even though receipt of such
amounts may occur in a subsequent year. The Partnership may also acquire debt
obligations with "market discount." Upon disposition of such an obligation, the
Partnership generally would be required to treat gain realized as interest
income to the extent of the market discount which accrued during the period the
debt obligation was held by the Partnership. Income or loss from transactions
involving certain derivative instruments, such as swap transactions, will also
generally constitute ordinary income or loss. In addition, periodic amounts, if
any, payable by the Partnership in connection with equity swaps, interest rate
swaps, caps, floors and collars likely would be considered "miscellaneous
itemized deductions" which,
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for a noncorporate Limited Partner, may be subject to restrictions on their
deductibility. See "Deductibility of Partnership Investment Expenditures by
Noncorporate Limited Partners" below. Moreover, gain recognized from certain
"conversion transactions" will be treated as ordinary income.(1)
Currency Fluctuations - "Section 988" Gains or Losses. To the extent
that its investments are made in securities denominated in a foreign currency,
gain or loss realized by the Partnership frequently will be affected by the
fluctuation in the value of such foreign currencies relative to the value of the
dollar. Generally, gains or losses with respect to the Partnership's investments
in common stock of foreign issuers will be taxed as capital gains or losses at
the time of the disposition of such stock. However, under Section 988 of the
Code, gains and losses of the Partnership on the acquisition and disposition of
foreign currency (e.g., the purchase of foreign currency and subsequent use of
the currency to acquire stock) will be treated as ordinary income or loss.
Moreover, under Section 988, gains or losses on disposition of debt securities
denominated in a foreign currency to the extent attributable to fluctuation in
the value of the foreign currency between the date of acquisition of the debt
security and the date of disposition will be treated as ordinary income or loss.
Similarly, gains or losses attributable to fluctuations in exchange rates that
occur between the time the Partnership accrues interest or other receivables or
accrues expenses or other liabilities denominated in a foreign currency and the
time the Partnership actually collects such receivables or pays such liabilities
may be treated as ordinary income or ordinary loss.
As indicated above (See "Types of Investments and Related Risk Factors
- - Foreign Securities"), the Partnership may acquire foreign currency forward
contracts. Generally, any gain or loss realized by the Partnership with respect
to forward currency contracts will be ordinary, unless (i) the contract is a
capital asset in the hands of the Partnership and is not a part of a straddle
transaction and (ii) the Partnership makes an election (by the close of the day
the transaction is entered into) to treat the gain or loss attributable to such
contract as capital gain or loss.
Section 1256 Contracts. In the case of Section 1256 Contracts, the Code
generally applies a "mark to market" system of taxing unrealized gains and
losses on such contracts and otherwise provides for special rules of taxation. A
Section 1256 Contract includes certain regulated futures contracts, certain
foreign currency forward contracts, and certain options contracts. Under these
rules, Section 1256 Contracts held by the Partnership at the end of each taxable
year of the Partnership are treated for Federal income tax purposes as if they
were sold by the Partnership for their fair market value on the last business
day of such taxable year. The net
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(1) Generally, a conversion transaction is one of several enumerated
transactions where substantially all of the taxpayer's return is
attributable to the time value of the net investment in the
transaction. The enumerated transactions are (i) the holding of any
property (whether or not actively traded) and entering into a contract
to sell such property (or substantially identical property) at a price
determined in accordance with such contract, but only if such property
was acquired and such contract was entered into on a substantially
contemporaneous basis, (ii) certain straddles, (iii) generally any
other transaction that is marketed or sold on the basis that it would
have the economic characteristics of a loan but the interest-like
return would be taxed as capital gain or (iv) any other transaction
specified in Regulations.
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gain or loss, if any, resulting from such deemed sales (known as "marking to
market"), together with any gain or loss resulting from actual sales of Section
1256 Contracts, must be taken into account by the Partnership in computing its
taxable income for such year. If a Section 1256 Contract held by the Partnership
at the end of a taxable year is sold in the following year, the amount of any
gain or loss realized on such sale will be adjusted to reflect the gain or loss
previously taken into account under the "mark to market" rules.
Capital gains and losses from such Section 1256 Contracts generally are
characterized as short-term capital gains or losses to the extent of 40% thereof
and as long-term capital gains or losses to the extent of 60% thereof. Such
gains and losses will be taxed under the general rules described above. Gains
and losses from certain foreign currency transactions will be treated as
ordinary income and losses. (See "Currency Fluctuations - 'Section 988' Gains or
Losses.") If an individual taxpayer incurs a net capital loss for a year, the
portion thereof, if any, which consists of a net loss on Section 1256 Contracts
may, at the election of the taxpayer, be carried back three years. Losses so
carried back may be deducted only against net capital gain to the extent that
such gain includes gains on Section 1256 Contracts.
Mixed Straddle Election. The Code allows a taxpayer to elect to offset
gains and losses from positions which are part of a "mixed straddle." A "mixed
straddle" is any straddle in which one or more but not all positions are Section
1256 Contracts. Pursuant to Temporary Regulations, the Partnership may be
eligible to elect to establish one or more mixed straddle accounts for certain
of its mixed straddle trading positions. The mixed straddle account rules
require a daily "marking to market" of all open positions in the account and a
daily netting of gains and losses from positions in the account. At the end of a
taxable year, the annual net gains or losses from the mixed straddle account are
recognized for tax purposes. The application of the Temporary Regulations' mixed
straddle account rules is not entirely clear. Therefore, there is no assurance
that a mixed straddle account election by the Partnership will be accepted by
the Service.
Short Sales. Gain or loss from a short sale of property is generally
considered as capital gain or loss to the extent the property used to close the
short sale constitutes a capital asset in the Partnership's hands. Except with
respect to certain situations where the property used to close a short sale has
a long-term holding period on the date of the short sale, special rules would
generally treat the gains on short sales as short-term capital gains. These
rules may also terminate the running of the holding period of "substantially
identical property" held by the Partnership. Moreover, a loss on a short sale
will be treated as a long-term capital loss if, on the date of the short sale,
"substantially identical property" has been held by the Partnership for more
than one year.
Effect of Straddle Rules on Partners' Securities Positions. The Service
may treat certain positions in securities held (directly or indirectly) by a
Partner and its indirect interest in similar securities held by the Partnership
as "straddles" for Federal income tax purposes. The application of the
"straddle" rules in such a case could affect a Partner's holding period for the
securities involved and may defer the recognition of losses with respect to such
securities.
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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
Limited Partners. Investment expenses (e.g., investment advisory fees) of an
individual, trust or estate are deductible only to the extent they exceed 2% of
adjusted gross income.(2) 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.
It is unclear whether all or a portion of the Partnership's operations
will qualify as trading -- rather than investment -- activities, the expenses
for which would not be treated as investment
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(2) However, Section 67(e) of the Code provides that, in the case of a
trust or an estate, such limitation does not apply to deductions or
costs which are paid or incurred in connection with the administration
of the estate or trust and would not have been incurred if the property
were not held in such trust or estate. The Federal Court of Appeals for
the Sixth Circuit, reversing a Tax Court decision, has held that the
investment advisory fees incurred by a trust were exempt (under Section
67(e)) from the 2% of adjusted gross income floor on deductibility. The
Service, however, has stated that it will not follow this decision
outside of the Sixth Circuit. Limited Partners that are trusts or
estates should consult their tax advisors as to the applicability of
this case to the investment expenses that are allocated to them.
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expenses. Therefore, pursuant to Temporary Regulations issued by the Treasury
Department, these limitations on deductibility may apply to a noncorporate
Limited Partner's share of the expenses of the Partnership, including the CIBC
Opco Fee.
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 investment and
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 such income and gain from the
Partnership.
"Phantom Income" From Partnership Investments. Pursuant to various
"anti-deferral" provisions of the Code (the "Subpart F," "passive foreign
investment company" and "foreign personal holding company" provisions),
investments (if any) by the Partnership in certain foreign corporations may
cause a Limited Partner to (i) recognize taxable income prior to the
Partnership's receipt of distributable proceeds, (ii) pay an interest charge on
receipts that are deemed as having been deferred or (iii) recognize ordinary
income that, but for the "anti-deferral" provisions, would have been treated as
long-term or short-term capital gain.
Foreign Taxes
It is possible that certain dividends and interest received by the
Partnership from sources within foreign countries will be subject to withholding
taxes imposed by such countries. In addition, the Partnership may also be
subject to capital gains taxes in some of the foreign countries where it
purchases and sells securities. Tax treaties between certain countries and the
United States may reduce or eliminate such taxes. It is impossible to predict in
advance the rate of foreign tax the Partnership will pay since the amount of the
Partnership's assets to be invested in various countries is not known.
The Partners will be informed by the Partnership as to their
proportionate share of the foreign taxes paid by the Partnership which they will
be required to include in their income. The Limited Partners generally will be
entitled to claim either a credit (subject to the limitations discussed below
and provided that, in the case of dividends, the foreign stock is held for the
requisite holding period) or, if they itemize their deductions, a deduction
(subject to the limitations generally applicable to deductions) for their share
of such foreign taxes in computing their Federal income taxes. A Limited 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
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Limited Partner's share of the Partnership's dividends and interest from
non-U.S. securities generally will qualify as foreign source income. Generally,
the source of income realized upon the sale of personal property, such as
securities, will be based on the residence of the seller. In the case of a
partnership, the determining factor is the residence of the partner. Thus,
absent a tax treaty to the contrary, the gains from the sale of securities
allocable to a Partner that is a U.S. resident will be treated as derived from
U.S. sources (even though the securities are sold in foreign countries).
However, proposed regulations would generally provide that certain securities
losses realized by U.S. residents would be recharacterized as foreign source to
the extent of certain dividends and other deemed inclusions of income taken into
account by that U.S. resident in respect of the shares during the two-year
period ending on the date of the sale. Certain currency fluctuation gains,
including fluctuation gains from foreign currency denominated debt securities,
receivables and payables, will also be treated as ordinary income derived from
U.S. sources.
The limitation on the foreign tax credit is applied separately to
foreign source passive income, such as dividends and interest. In addition, the
foreign tax credit is allowed to offset only 90% of the alternative minimum tax
imposed on corporations and individuals. Furthermore, for foreign tax credit
limitation purposes, the amount of a Partner's foreign source income is reduced
by various deductions that are allocated and/or apportioned to such foreign
source income. One such deduction is interest expense, a portion of which will
generally reduce the foreign source income of any Partner who owns (directly or
indirectly) foreign assets. For these purposes, foreign assets owned by the
Partnership will be treated as owned by the investors in the Partnership and
indebtedness incurred by the Partnership will be treated as incurred by
investors in the Partnership.
Because of these limitations, Limited 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,
Limited 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.(3) This type of income is exempt even if
it is realized from securities trading activity which constitutes a trade or
business.
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(3) With certain exceptions, tax-exempt organizations which are private
foundations are subject to a 2% Federal excise tax on their "net
investment income." The rate of the excise tax for any taxable year may
be reduced to 1% if the private foundation meets certain distribution
requirements for the taxable year. A private foundation will be
required to make payments of estimated tax with respect to this excise
tax.
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This general exemption from tax does not apply to the "unrelated
business taxable income" ("UBTI") of an exempt organization. UBTI includes
"unrelated debt-financed income," which generally consists of (i) income derived
by an exempt organization (directly or through a partnership) from
income-producing property with respect to which there is "acquisition
indebtedness" at any time during the taxable year, and (ii) gains derived by an
exempt organization (directly or through a partnership) from the disposition of
property with respect to which there is "acquisition indebtedness" at any time
during the twelve-month period ending with the date of such disposition.
The Partnership may incur "acquisition indebtedness" with respect to
certain of its transactions, such as the purchase of securities on margin. Based
upon a published ruling issued by the Service which generally holds that income
and gain with respect to short sales of publicly traded stock does not
constitute income from debt financed property for purposes of computing UBTI,
the Partnership will treat its short sales of securities as not involving
acquisition indebtedness and therefore not resulting in UBTI.(4) To the extent
the Partnership recognizes income (i.e., dividends and interest) from securities
with respect to which there is "acquisition indebtedness" during a taxable year,
the percentage of such income which will be treated as UBTI generally will be
based on the percentage which the "average acquisition indebtedness" incurred
with respect to such securities is of the "average amount of the adjusted basis"
of such securities during the taxable year.
To the extent the Partnership recognizes capital gain from securities
with respect to which there is "acquisition indebtedness" at any time during the
twelve-month period ending with the date of their disposition, the percentage of
such gain which will be treated as UBTI will be based on the percentage which
the highest amount of such "acquisition indebtedness" is of the "average amount
of the adjusted basis" of such securities during the taxable year. In
determining the unrelated debt-financed income of the Partnership, an allocable
portion of deductions directly connected with the Partnership's debt-financed
property is taken into account. Thus, for instance, a percentage of capital
losses from debt-financed securities (based on the debt/basis percentage
calculation described above) would offset gains treated as UBTI.
Since the calculation of the Partnership's "unrelated debt-financed
income" is complex and will depend in large part on the amount of leverage, if
any, used by the Partnership from time to time,(5) 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).
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(4) Moreover, income realized from option writing and futures contract
transactions generally would not constitute UBTI.
(5) The calculation of a particular exempt organization's UBTI would also
be affected if it incurs indebtedness to finance its investment in the
Partnership. An exempt organization is required to make estimated tax
payments with respect to UBTI.
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To the extent that the Partnership generates UBTI, the applicable
Federal tax rate for such a Limited Partner generally would be either the
corporate or trust tax rate depending upon the nature of the particular exempt
organization. An exempt organization may be required to support, to the
satisfaction of the Service, the method used to calculate its UBTI. The
Partnership will be required to report to a Partner which is an exempt
organization information as to the portion of its income and gains from the
Partnership for each year which will be treated as UBTI. The calculation of such
amount with respect to transactions entered into by the Partnership is highly
complex, and there is no assurance that the Partnership's calculation of UBTI
will be accepted by the Service.
In general, if UBTI is allocated to an exempt organization such as a
qualified retirement plan or a private foundation, the portion of the
Partnership's income and gains which is not treated as UBTI will continue to be
exempt from tax, as will the organization's income and gains from other
investments which are not treated as UBTI. Therefore, the possibility of
realizing UBTI from its investment in the Partnership generally should not
affect the tax-exempt status of such an exempt organization.(6) However, a
charitable remainder trust will not be exempt from Federal income tax under
Section 664(c) of the Code for any year in which it has UBTI. A title-holding
company will not be exempt from tax if it has certain types of UBTI. Moreover,
the charitable contribution deduction for a trust under Section 642(c) of the
Code may be limited for any year in which the trust has UBTI. A prospective
investor should consult its tax adviser with respect to the tax consequences of
receiving UBTI from the Partnership. (See "ERISA Considerations.")
Certain Issues Pertaining to Specific Exempt Organizations
Private Foundations. Private foundations and their managers are subject
to excise taxes if they invest "any amount in such a manner as to jeopardize the
carrying out of any of the foundation's exempt purposes." This rule requires a
foundation manager, in making an investment, to exercise "ordinary business care
and prudence" under the facts and circumstances prevailing at the time of making
the investment, in providing for the short-term and long-term needs of the
foundation to carry out its exempt purposes. The factors which a foundation
manager may take into account in assessing an investment include the expected
rate of return (both income and capital appreciation), the risks of rising and
falling price levels, and the need 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
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(6) Certain exempt organizations which realize UBTI in a taxable year will
not constitute "qualified organizations" for purposes of Section
514(c)(9)(B)(vi)(I) of the Code, pursuant to which, in limited
circumstances, income from certain real estate partnerships in which
such organizations invest might be treated as exempt from UBTI. A
prospective tax-exempt Limited Partner should consult its tax adviser
in this regard.
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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. However, the excise tax will not apply if at least
95% of the gross income from the Partnership is "passive" within the applicable
provisions of the Code and Regulations. Although there can be no assurance, the
Individual General Partners believe that the Partnership will meet this 95%
gross income test.
A substantial percentage of investments of certain "private operating
foundations" may be restricted to assets directly devoted to their tax-exempt
purposes. Otherwise, generally, rules similar to those discussed above govern
their operations.
Qualified Retirement Plans. Employee benefit plans subject to the
provisions of ERISA, Individual Retirement Accounts 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.
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The Partnership should not be subject to the New York City
unincorporated business tax, which is not imposed on a partnership which
purchases and sells securities for its "own account." By reason of a similar
"own account" exemption, it is also expected that a nonresident individual
Partner should not be subject to New York State personal income tax with respect
to his share of income or gain realized directly by the Partnership. A
nonresident individual Partner will not be subject to New York City earnings tax
on nonresidents with respect to his investment in the Partnership.
Individual Limited Partners who are residents of New York State and New
York City should be aware that the New York State and New York City personal
income tax laws limit the deductibility of itemized deductions for individual
taxpayers at certain income levels. These limitations may apply to a Limited
Partner's share of some or all of the Partnership's expenses. Prospective
Limited Partners are urged to consult their tax advisers with respect to the
impact of these provisions and the Federal limitations on the deductibility of
certain itemized deductions and investment expenses on their New York State and
New York City tax liability.
For purposes of the New York State corporate franchise tax and the New
York City general corporation tax, a corporation generally is treated as doing
business in New York State and New York City, respectively, and is subject to
such corporate taxes as a result of the ownership of a partnership interest in a
partnership which does business in New York State and New York City,
respectively.(7) Each of the New York State and New York City corporate taxes
are imposed, in part, on the corporation's taxable income or capital allocable
to the relevant jurisdiction by application of the appropriate allocation
percentages. Moreover, a non-New York corporation which does business in New
York State may be subject to a New York State license fee. A corporation which
is subject to New York State corporate franchise tax solely as a result of being
a limited partner in a New York partnership may, under certain circumstances,
elect to compute its New York State corporate franchise tax by taking into
account only its distributive share of such partnership's income and loss. There
is currently no similar provision in effect for purposes of the New York City
general corporation tax.
Regulations under both the New York State corporate franchise tax and
the New York City general corporation tax, however, provide an exception to this
general rule in the case of a "portfolio investment partnership," which is
defined, generally, as a partnership which meets the gross income requirements
of Section 851(b)(2) of the Code. New York State (but not New York City) has
adopted regulations that also include income and gains from commodity
transactions described in Section 864(b)(2)(B)(iii) as qualifying gross income
for this purpose. The Partnership's qualification as such a portfolio investment
partnership must be determined on an annual basis and, with respect to a taxable
year, the Partnership may not qualify as a portfolio investment partnership.
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(7) New York State (but not New York City) generally exempts from corporate
franchise tax a non-New York corporation which (i) does not actually or
constructively own a 1% or greater limited partnership interest in a
partnership doing business in New York and (ii) has a tax basis in such
limited partnership interest not greater than $1 million.
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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.
Each prospective corporate Partner should consult its tax adviser with
regard to the New York State and New York City tax consequences of an investment
in the Partnership.
ERISA CONSIDERATIONS
Persons who are fiduciaries with respect to an employee benefit plan,
IRA, Keogh plan or other arrangement subject to the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") or the Code (an "ERISA Plan") should
consider, among other things, the matters described below before determining
whether to invest in the Partnership.
ERISA imposes certain general and specific responsibilities on persons
who are fiduciaries with respect to an ERISA Plan, including prudence,
diversification, prohibited transaction and other standards. In determining
whether a particular investment is appropriate for an ERISA Plan, Department of
Labor ("DOL") regulations provide that a fiduciary of an ERISA Plan must give
appropriate consideration to, among other things, the role that the investment
plays in the ERISA Plan's portfolio, taking into consideration whether the
investment is designed reasonably to further the ERISA Plan's purposes, an
examination of the risk and return factors, the portfolio's composition with
regard to diversification, the liquidity and current return of the total
portfolio relative to the anticipated cash flow needs of the ERISA Plan, the
income tax consequences of the investment (see "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 his responsibilities with
regard to selecting an investment or an investment course of action for such
ERISA Plan, the fiduciary may be held personally liable for losses incurred by
the ERISA Plan as a result of such breach.
Because the Partnership will register as an investment company under
the 1940 Act, the underlying assets of the Partnership should not be considered
to be "plan assets" of the ERISA Plans investing in the Partnership for purposes
of ERISA's fiduciary responsibility and prohibited transaction rules. Thus,
neither the Adviser nor the Individual General Partners will be fiduciaries
within the meaning of ERISA.
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The Individual General Partners will require an ERISA Plan proposing to
invest in the Partnership to represent that it, and any fiduciaries responsible
for the Plan's investments, are aware of and understand the Partnership's
investment objective, policies and strategies, that the decision to invest plan
assets in the Partnership was made with appropriate consideration of relevant
investment factors with regard to the ERISA Plan and is consistent with the
duties and responsibilities imposed upon fiduciaries with regard to their
investment decisions under ERISA.
Certain prospective Plan investors may currently maintain relationships
with the Adviser or the Individual General Partners, or with other entities
which are affiliated with the Adviser or the Individual General Partners. Each
of such persons may be deemed to be a party in interest to and/or a fiduciary of
any ERISA Plan to which it provides investment management, investment advisory
or other services. ERISA prohibits ERISA Plan assets to be used for the benefit
of a party in interest and also prohibits an ERISA Plan fiduciary from using its
position to cause the ERISA Plan to make an investment from which it or certain
third parties in which such fiduciary has an interest would receive a fee or
other consideration. ERISA Plan investors should consult with counsel to
determine if participation in the Partnership is a transaction which is
prohibited by ERISA or the Code. 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 are duly authorized to make such investment decision and that have not
relied on any individualized advice or recommendation of such affiliated
persons, as a primary basis for the decision to invest in the Partnership.
The provisions of ERISA are subject to extensive and continuing
administrative and judicial interpretation and review. The discussion of ERISA
contained in this Confidential Memorandum, is, of necessity, general and may be
affected by future publication of regulations and rulings. Potential investors
should consult with their legal advisors regarding the consequences under ERISA
of the acquisition and ownership of interests.
ADDITIONAL INFORMATION AND SUMMARY OF
LIMITED PARTNERSHIP AGREEMENT
The following is a summary description of additional items and of
select provisions of the Partnership Agreement which are not described elsewhere
in this Confidential Memorandum. The description of such items and provisions is
not definitive and reference should be made to the complete text of the
Partnership Agreement, which is attached hereto as Appendix A.
LIMITED PARTNER INTERESTS
Persons who purchase interests in the Partnership in the offering being
made hereby will be Limited Partners. The Adviser and its affiliates may
contribute capital to and maintain an investment in the Partnership in an amount
not exceeding 4.9% of the total outstanding capital of the Partnership, and to
that extent will be a Limited Partner of the Partnership. The Adviser, or its
successor as investment adviser of the Partnership, will also be a Special
Advisory Limited Partner of the Partnership. In that regard, the Partnership has
established a Special Advisory Account solely for the purpose of receiving the
Incentive Allocation. The interest of the Special Advisory Limited Partner has
no right to participate in the income or gains of the Partnership, no voting
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rights and no right to a share of the assets of the Partnership upon its
liquidation, except to the extent that the Special Advisory Limited Partner has
received or is entitled to receive the Incentive Allocation credited to the
Special Advisory Account and all or a portion of that allocation has not been
withdrawn. The Adviser may not contribute to the Partnership as Special Advisory
Limited Partner.
LIABILITY OF LIMITED PARTNERS
Pursuant to applicable Delaware law, Limited Partners are not generally
personally liable for obligations of the Partnership unless, in addition to the
exercise of their rights and powers as Limited Partners, they participate in the
control of the business of the Partnership. Any such Limited Partner would be
liable only to persons who transact business with the Partnership reasonably
believing, based on the 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 may exercise the right to vote on matters requiring approval under the 1940
Act and on certain other matters. Although this right to vote should not
constitute taking part in the control of the Partnership's business under
applicable Delaware law, there is no specific statutory or other authority for
the existence or exercise of some or all of these powers in some other
jurisdictions. To the extent that the Partnership is subject to the jurisdiction
of courts in jurisdictions other than the State of Delaware, it is possible that
these courts may not apply Delaware law to the question of the limited liability
of the Limited Partners.
Under Delaware law and the Partnership Agreement, each Limited Partner
may be liable up to the amount of any contributions to the capital of the
Partnership (plus any accretions in value thereto prior to withdrawal) and a
Limited Partner may be obligated to return to the Partnership amounts
distributed to him in accordance with the Partnership Agreement in certain
circumstances where after giving effect to the distribution, certain liabilities
of the Partnership exceed the fair market value of the Partnership's assets.
DUTY OF CARE OF GENERAL PARTNERS
The Partnership Agreement provides that an Individual 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
Individual General Partner's services as such in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of the Individual General Partner's office. The
Partnership Agreement also contains provisions for the indemnification, to the
extent permitted by law, of an Individual General Partner by the Partnership
(but not by the Limited Partners individually) against any liability and expense
to which the Individual General Partner may be liable as a general partner which
arise in connection with the performance of the Individual General Partner's
activities on behalf of the Partnership. Individual General Partners shall not
be personally liable to any Limited Partner for the repayment of any positive
balance in the Limited Partner's capital account or for contributions by the
Limited Partner to the capital of the Partnership or by reason of any change in
the Federal or state income tax laws applicable to the Partnership or its
investors. The rights of indemnification and exculpation provided under the
Partnership Agreement shall not be construed so as to provide for
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indemnification of an Individual General Partner for any liability (including
liability under Federal securities laws which, under certain circumstances,
impose liability even on persons that act in good faith), to the extent (but
only to the extent) that such indemnification would be in violation of
applicable law, but shall be construed so as to effectuate the applicable
provisions of the Partnership Agreement to the fullest extent permitted by law.
AMENDMENT OF THE PARTNERSHIP AGREEMENT
The Partnership Agreement may generally be amended, in whole or in
part, with the approval of the Individual General Partners (subject to the
approval of a majority of the Individual General Partners who are not
"interested persons," as defined by the 1940 Act, of the Partnership, if
required by the 1940 Act) without the approval of other Partners and if required
by the 1940 Act, the approval of the Limited Partners by such vote as is
required by the 1940 Act. In addition, certain amendments to the Partnership
Agreement involving capital accounts and allocations thereto may not be made
without the written consent of any Partner adversely affected thereby or unless
each Limited Partner has received written notice of the amendment and any
Limited Partner objecting to the amendment has been allowed a reasonable
opportunity (pursuant to any procedures as may be prescribed by the Individual
General Partners) to tender its entire interest for repurchase by the
Partnership. However, the Individual General Partners may at any time, without
the consent of the other Partners of the Partnership, amend the Partnership
Agreement, among other things, to satisfy the requirements or to reflect any
relaxation of such requirements in the future of the Bank Holding Company Act or
other U.S. or Canadian banking laws or any regulations, guidelines or policies
or interpretations of the banking regulatory agencies or the staff thereof, or
to accept subscriptions for interests more frequently then quarterly.
POWER OF ATTORNEY
By subscribing for an interest in the Partnership, each Partner will
appoint each of the Individual General Partners his attorney-in-fact for
purposes of filing required certificates and documents relating to the formation
and maintenance of the Partnership as a Limited Partnership under Delaware law
or signing all instruments effecting authorized changes in the Partnership or
the Partnership Agreement and conveyances and other instruments deemed necessary
to effect the dissolution or termination of the Partnership.
The power-of-attorney granted as part of each Partner's subscription
agreement is a special power-of-attorney and is coupled with an interest in
favor of the Individual General Partners and as such shall be irrevocable and
will continue in full force and effect notwithstanding the subsequent death or
incapacity of any Limited Partner granting the power-of-attorney, and shall
survive the delivery of a transfer by a Partner of the whole or any portion of
the Partner's interest, except that where the transferee thereof has been
approved by the Individual General Partners for admission to the Partnership as
a substitute Partner, or upon the withdrawal of a Partner from the Partnership
pursuant to a periodic tender or otherwise this power-of-attorney given by the
transferor shall terminate.
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TERM, DISSOLUTION AND LIQUIDATION
The Partnership shall be dissolved:
- upon the affirmative vote to dissolve the Partnership by: (1)
the Individual General Partners or (2) Limited Partners
holding at least two-thirds (2/3) of the total number of votes
eligible to be cast by all Limited Partners;
- upon the expiration of any two year period which commences on
the date on which any Limited Partner has submitted a written
notice to the Partnership requesting to tender its entire
interest for repurchase by the Partnership if that interest
has not been repurchased by the Partnership;
- upon the failure of Limited Partners to elect successor
Individual General Partners at a meeting called by the Adviser
when no Individual General Partner remains to continue the
business of the Partnership; or
- as required by operation of law.
Upon the occurrence of any event of dissolution, the Individual General
Partners or CIBC Opco, acting as liquidator under appointment by the Individual
General Partners (or another liquidator, if the Individual General Partners do
not appoint CIBC Opco to act as liquidator or are unable to perform this
function) are charged with winding up the affairs of the Partnership and
liquidating its assets. Net profits or net loss during the fiscal period
including the period of liquidation will be allocated as described in the
section titled "Capital Accounts And Allocations - Allocation of Net Profits
and Net Loss."
Upon the liquidation of the Partnership, its assets are to be
distributed (1) first to satisfy the debts, liabilities and obligations of the
Partnership (other than debts to Partners) including actual or anticipated
liquidation expenses, (2) next to repay debts owing to the Partners, and (3)
finally to the Partners proportionately in accordance with the balances in their
respective capital accounts. Assets may be distributed in kind on a pro rata
basis if the Individual General Partners or liquidator determines that the
distribution of assets in kind would be in the interests of the Partners in
facilitating an orderly liquidation.
REPORTS TO LIMITED PARTNERS
The Partnership will furnish to Limited Partners as soon as practicable
after the end of each taxable year such information as is necessary for them to
complete Federal and state income tax or information returns, along with any
other tax information required by law. The Partnership will send to Limited
Partners an unaudited 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 regarding the Partnership's
operations during the period will also be sent to Limited Partners.
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FISCAL YEAR
The Partnership's fiscal year is the 12-month period ending on December
31. The first fiscal year of the Partnership will commence on the date of the
initial closing and will end on December 31, 1998.
ACCOUNTANTS AND LEGAL COUNSEL
The Individual General Partners have selected Ernst & Young LLP as the
independent public accountants of the Partnership. Ernst & Young LLP's principal
business address is located at 787 Seventh Avenue, 15th Floor, New York, New
York.
Schulte Roth & Zabel LLP, New York, New York, acts as legal counsel to
the Partnership and to the Adviser in connection with this Confidential
Memorandum and as legal counsel to the Adviser, CIBC Opco and its affiliates
with respect to certain other matters. Stroock & Stroock & Lavan LLP, New York,
New York, acts as legal counsel to the Individual General Partners.
CUSTODIAN
Morgan Stanley Trust Company ("Morgan Stanley") serves as the primary
custodian of the Partnership's assets, and may maintain custody of the
Partnership's assets with domestic and foreign subcustodians (which may be
banks, trust companies, securities depositories and clearing agencies), approved
by the Individual General Partners of the Partnership in accordance with the
requirements set forth in Section 17(f) of the 1940 Act and the rules adopted
thereunder. Assets of the Partnership are not held by the Adviser 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 a custodian. Morgan Stanley's principal business
address is One Evertrust Plaza, Jersey City, New Jersey 07302.
INQUIRIES
Inquiries concerning the Partnership and interests in the Partnership
(including information concerning subscription and withdrawal procedures) should
be directed to:
CIBC Oppenheimer Advisers, L.L.C.
c/o CIBC Oppenheimer Corp.
CIBC Oppenheimer Tower
One World Financial Center
31st Floor
200 Liberty Street
New York, New York 10281
Telephone: 212-667-4225
Telecopier: 212-667-5689
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For additional information contact:
Howard M. Singer
Managing Director
CIBC Oppenheimer Corp.
* * * * *
All potential investors in the Partnership are encouraged to consult
appropriate legal and tax counsel.
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APPENDIX A
LIMITED PARTNERSHIP AGREEMENT
[to come]
A-1
<PAGE> 84
APPENDIX B
PERFORMANCE INFORMATION
CIBC Oppenheimer Advisers, L.L.C. (the "Adviser") expects to employ an
investment program for the Partnership that is similar to the investment program
employed by Keefe, Bruyette & Woods, Inc. for the equity portion of its
profit-sharing plan (the "Account").
Because of the similarity of investment programs, as a general matter,
the Adviser (subject to policies established by the Individual General Partners)
will consider participation by the Partnership in all appropriate investment
opportunities that are under consideration for investment by the Account. The
Adviser will evaluate for the Partnership a variety of factors that may be
relevant in determining whether a particular investment opportunity or strategy
to be used by the Account is appropriate and feasible for the Partnership at
that particular time. Because these considerations may differ for the
Partnership and the Account in the context of any particular investment
opportunity, the investment activities (and resulting performance) of the
Partnership and the Account may differ from time to time.
THE FOLLOWING TABLE SETS FORTH THE PERFORMANCE RECORD OF THE ACCOUNT
FOR THE PERIODS INDICATED. THE TABLE SHOULD BE READ IN CONJUNCTION WITH THE
NOTES THERETO. THE PERFORMANCE AND THE STATISTICAL INFORMATION INCLUDED HEREIN
HAVE BEEN OBTAINED FROM SOURCES BELIEVED TO BE RELIABLE BUT ARE NOT WARRANTED AS
TO ACCURACY OR COMPLETENESS.
THE INFORMATION IS PROVIDED SOLELY TO ILLUSTRATE THE HISTORICAL
PERFORMANCE OF THE ACCOUNT, AN INVESTMENT PORTFOLIO MANAGED PRIMARILY BY CHARLES
HOWELL LOTT OF KBW THAT INVESTED IN SECURITIES OF COMPANIES ENGAGED IN THE
FINANCIAL SERVICES INDUSTRY, PRINCIPALLY BANKS, THRIFTS AND SIMILAR ENTITIES.
THE PARTNERSHIP, HOWEVER, MAY INVEST A PORTION OF ITS ASSETS IN PARTICULAR
SECTORS OF THE FINANCIAL SERVICES INDUSTRY, SUCH AS INSURANCE AND BROKERAGE
STOCKS, IN WHICH THE ACCOUNT HAS NOT INVESTED. IN ADDITION, THE OBJECTIVES,
POLICIES AND LIMITATIONS APPLICABLE TO THE INVESTMENTS BY THE ACCOUNT DIFFER
FROM THE OBJECTIVES, POLICIES AND LIMITATIONS APPLICABLE TO THE PARTNERSHIP. FOR
THESE REASONS, AMONG OTHERS, THE PERFORMANCE INFORMATION THAT FOLLOWS IS NOT
INTENDED TO REPRESENT THE EXPECTED PERFORMANCE OF THE PARTNERSHIP. FUTURE
PERFORMANCE OF THE PARTNERSHIP AND THE ACCOUNT MAY DIFFER. PAST PERFORMANCE DOES
NOT GUARANTEE FUTURE RESULTS.
Prospective investors should recognize that there are certain
differences between the investment policies of the Partnership and those of the
Account, including the use of leverage and short sales, and that their fees and
expenses differ, and that the investment results of the Account are not intended
to predict or suggest the returns that may be experienced by the Partnership. In
addition, the Account was not subject to certain investment limitations imposed
upon the Partnership by the 1940 Act. Consequently, the performance results of
the Account could have been adversely affected if the Account had been
regulated as an investment company under the 1940 Act.
B-1
<PAGE> 85
PERFORMANCE RECORD OF
KEEFE, BRUYETTE & WOODS, INC.
PROFIT-SHARING PLAN
(Equity portion only)
QUARTERLY RESULTS
<TABLE>
<CAPTION>
KBW PLAN
NET OF
PRO FORMA STANDARD &
INCENTIVE S&P POORS
ALLOCATION AND BANKS 500
PERIOD MANAGEMENT FEE COMPOSITE INDEX
------ -------------- --------- -----
<S> <C> <C> <C> <C>
1988
1Q 10.84% --- 5.69%
2Q 4.41% --- 6.66%
3Q 3.21% --- 0.34%
4Q 0.16% --- 3.09%
1988 19.63% --- 16.61%
1989
1Q 4.56% --- 7.09%
2Q 4.81% --- 8.83%
3Q 5.92% --- 10.71%
4Q 0.10% --- 2.06%
1989 16.19% --- 31.69%
1990
1Q -2.68% 1.49%* -3.01%
2Q 1.54% - 0.48% 6.29%
3Q -3.66% - 31.76% -13.74%
4Q 2.28% 11.66% 8.96%
1990 -2.62% - 25.30% -3.10%
1991
1Q 2.01% 25.32% 14.53%
2Q 4.94% 14.69% -0.23%
3Q 5.09% 5.27% 5.35%
4Q 7.90% 3.36% 8.38%
1991 21.38% 56.38% 30.47%
1992
1Q 6.86% 8.54% -2.53%
2Q 5.87% 7.31% 1.90%
3Q 3.00% -4.20% 3.15%
4Q 11.80% 14.65% 5.04%
1992 30.28% 27.93% 7.62%
</TABLE>
* The inception date of the S&P Banks Composite was February 1, 1990.
The performance results for the first quarter of 1990 therefore reflect results
only for February and March 1990.
B-2
<PAGE> 86
PERFORMANCE RECORD OF
KEEFE, BRUYETTE & WOODS, INC.
PROFIT-SHARING PLAN
(Equity portion only)
QUARTERLY RESULTS
<TABLE>
<CAPTION>
KBW PLAN
NET OF
PRO FORMA STANDARD &
INCENTIVE S&P POORS
ALLOCATION AND BANKS 500
PERIOD MANAGEMENT FEE COMPOSITE INDEX
------ -------------- --------- -----
<S> <C> <C> <C> <C>
1993
1Q 3.17% 11.13% 4.37%
2Q 7.39% -1.76% 0.49%
3Q 4.78% 4.43% 2.59%
4Q 1.17% -6.07% 2.32%
1993 17.45% 7.08% 10.08%
1994
1Q 1.96% -3.69% -3.79%
2Q 4.44% 6.69% 0.42%
3Q 1.41% -3.40% 4.89%
4Q -1.18% -7.79% -0.02%
1994 6.73% -8.47% 1.32%
1995
1Q 9.66% 11.30% 9.74%
2Q 8.30% 14.08% 9.55%
3Q 10.37% 15.23% 7.95%
4Q 6.38% 5.06% 6.02%
1995 39.44% 53.72% 37.58%
1996
1Q 3.93% 10.35% 5.36%
2Q 3.47% -0.58% 4.49%
3Q 5.87% 11.39% 3.09%
4Q 8.88% 12.37% 8.34%
1996 23.95% 37.31% 22.96%
1997
1Q 7.23% 4.68% 2.68%
2Q 7.85% 12.98% 17.46%
3Q 11.27% 13.46% 7.50%
4Q 7.78% 5.13% 2.87%
1997 38.67% 41.06% 33.36%
1998
1Q 5.08% 11.94% 13.95%
2Q -1.73% 1.05% 3.30%
YTD
1998 3.26% 13.11% 17.71%
CUMULATIVE TOTAL RETURN 564.04% -- 518.82%
</TABLE>
B-3
<PAGE> 87
Unlike the Partnership, the Account does not pay a management fee and
does not have an incentive allocation. In addition, the Partnership will bear
certain expenses which are not borne by the Account. The above hypothetical
returns are based upon the results that would have been achieved by a plan
participant having a $1 million participant account beginning in 1988, after
the deduction of the 20% incentive allocation and a 1% management fee from the
Account. They do not reflect deductions for any other expenses. The Account has
been in existence since 1964. At all times under consideration, the Account's
assets under management were between $11 million and $53 million.
The Standard & Poor's Banks Composite (the "Banks Composite") is a
capitalization-weighted index of all stocks in the Standard & Poor's Composite
Index of 500 Stocks (the "S&P 500 Index") that are involved in the business of
banking. The inception date of the Banks Composite was February 1, 1990.
Consequently, performance information for the Banks Composite is provided from
its inception through the second calender quarter of 1998. The S&P 500 Index is
a well known, broad-based stock market index which contains only seasoned
equity securities. Although the equity portion of the Account has been
principally invested in securities of banks, thrifts and similar entities, it
does not restrict its investments in securities only to those securities
comprising the Banks Composite, nor does the Account restrict its investments
in securities only to those securities comprising the S&P 500 Index.
Performance of the Banks Composite and the S&P 500 Index is provided for
comparison purposes only.
Cumulative return is calculated by using a compounded, time-weighted
return. The KBW Plan performance net of pro forma incentive allocation and
management fees reflects the Account's performance adjusted to reflect an
incentive allocation and management fees, comparable to the expected incentive
allocation and management fees of the Partnership. PAST PERFORMANCE IS NO
GUARANTEE OF FUTURE RESULTS.
The Account invested in both debt and equity securities during the
time period shown. For purposes of comparison with the Partnership however, the
performance results of only the equity portion of the Account's portfolio is
shown.
B-4
<PAGE> 88
FORM N-2
WYNSTONE PARTNERS, L.P.
PART C - OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(1) Financial Statements:
Because Registrant has no assets, financial
statements are omitted.
(2) Exhibits:
(a) (1) Certificate of Limited Partnership.
(2) Form of Limited Partnership Agreement.
(b) Not Applicable.
(c) Not Applicable.
(d) See Item 24(2)(a)(2) above.
(e) Not Applicable.
(f) Not Applicable.
(g) Form of Investment Advisory Agreement.
(h) Form of Placement Agency Agreement.
(i) Not Applicable.
(j) Custody Agreement.*
(k) (1) Form of Administrative Services 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.
-4-
<PAGE> 89
ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Blue Sky Fees and Expenses (including fees
of counsel)......................................
Transfer Agent fees................................
Accounting fees and expenses.......................
Legal fees and expenses............................
Printing and engraving.............................
Miscellaneous......................................
---------
$
=========
ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL
After completion of the private offering of interests, Registrant
expects that no person will be directly or indirectly under common control with
Registrant.
ITEM 28. NUMBER OF HOLDERS OF SECURITIES
Title of Class Number of Record Holders
-------------- ------------------------
Limited Partnership Interests 1 (Registrant anticipates that
as a result of the initial
private offering of interests
there will be more than 100
record holders of such
interests.)
ITEM 29. INDEMNIFICATION
Reference is made to Section 3.7 of Registrant's Form of Limited
Partnership Agreement (the "Partnership Agreement") filed as Exhibit 2(a)(2)
hereto. 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, so long as the interpretation therein of Sections 17(h) and 17(i)
of such Act remains in effect.
Registrant, in conjunction with the Adviser and Registrant's Individual
General Partners will maintain insurance on behalf of any person who is or was
an Independent General Partner, officer, employee, or agent of Registrant
against him or her and incurred by him or her or arising out of his or her
position. However, in no event will Registrant pay that portion of the premium,
if any, for insurance to indemnify any such person or any act for which
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
Registrant, and each director, executive officer, or member of any such
investment adviser, is or has been, at any time during the past two fiscal
-5-
<PAGE> 90
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 Registrant's
Confidential Memorandum in the sections entitled "THE ADVISER, CIBC OPCO AND KBW
ASSET MANAGEMENT, INC." Information as to the directors and officers of CIBC
Oppenheimer Advisers, L.L.C. (the "Adviser") is included in its Form ADV as
filed with the Commission (File No. 801-55640), 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 Registrant at PFPC Inc., 400 Bellevue Parkway,
Wilmington, Delaware 19809. The other required books and records are maintained
by the Adviser, the investment adviser of Registrant, CIBC Oppenheimer Tower,
One World Financial Center, 200 Liberty Street, New York, New York 10281; except
for records required to be maintained by paragraphs (b)(5), (b)(9), (b)(10) and
(b)(11) of Rule 31a-1 under the Investment Company Act of 1940, as amended, are
maintained by KBW Asset Management, Inc., a non-managing member of the Adviser,
Two World Trade Center, 85th Floor, New York, New York 10048.
ITEM 32. MANAGEMENT SERVICES
Not applicable.
ITEM 33. UNDERTAKINGS
Not Applicable.
-6-
<PAGE> 91
FORM N-2
WYNSTONE PARTNERS, L.P.
SIGNATURES
Pursuant to the requirements of the Investment Company Act of 1940,
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 14th day of August, 1998.
WYNSTONE PARTNERS, L.P.
By: /s/ PAUL BELICA
---------------------------------
Name: Paul Belica
Title: Individual General Partner
-7-
<PAGE> 92
FORM N-2
WYNSTONE PARTNERS, L.P.
EXHIBIT INDEX
EXHIBIT NUMBER DOCUMENT DESCRIPTION
(a) (1) Certificate of Limited Partnership
(2) Form of Limited Partnership Agreement
(c) Not Applicable
(d) See Exhibit (a)(2) above
(e) Not Applicable
(f) Not Applicable
(g) Form of Investment Advisory Agreement
(h) Form of Placement Agency Agreement
(i) Not Applicable
(j) Custody Agreement*
(k) (1) Form of Administrative Services 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.
-8-
<PAGE> 1
EXHIBIT (a)(1)
CERTIFICATE OF LIMITED PARTNERSHIP
OF
WYNSTONE PARTNERS, L.P.
This Certificate of Limited Partnership of Wynstone Partners, L.P. (the
"Partnership") is being duly executed and filed by the undersigned general
partner (the "General Partner") to form a limited partnership under the Delaware
Revised Uniform Limited Partnership Act (6 Del. C. Section 17-101, et seq.).
1. The name of the limited partnership formed hereby is
Wynstone Partners, L.P.
2. The address of the Partnership's registered office in the
state of Delaware is Corporation Service Company, 1013 Centre Road,
County of New Castle, City of Wilmington, State of Delaware 19805-1297.
The name of the Partnership's registered agent for service of process
on the Partnership in the State of Delaware is Corporation Service
Company, 1013 Centre Road, Wilmington, Delaware 19805-1297.
3. The name and business address of the General Partner of the
Partnership is as follows:
Paul Belica
359 Cedar Drive West
Briarcliff Manor, N.Y. 10510
4. IN WITNESS WHEREOF, the undersigned has executed this
Certificate of Limited Partnership of Wynstone Partners, L.P., this
13th day of August, 1998.
Wynstone Partners, L.P.
By: /s/ Paul Belica
-------------------------
Paul Belica
General Partner
<PAGE> 1
EXHIBIT (a)(2)
WYNSTONE PARTNERS, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
------------------------------------
LIMITED PARTNERSHIP AGREEMENT
DATED AS OF [SEPTEMBER ___], 1998
-------------------------------------
CIBC OPPENHEIMER TOWER
ONE WORLD FINANCIAL CENTER, 31ST FLOOR
200 LIBERTY STREET
NEW YORK, NEW YORK 10281
(212) 667-4225
<PAGE> 2
TABLE OF CONTENTS
PAGE
ARTICLE I DEFINITIONS......................................................
ARTICLE II ORGANIZATION; ADMISSION OF PARTNERS..............................
2.1 Formation of Limited Partnership....................................
2.2 Name................................................................
2.3 Principal and Registered Office.....................................
2.4 Duration............................................................
2.5 Objective and Business of the Partnership...........................
2.6 General Partners....................................................
2.7 Limited Partners....................................................
2.8 Special Advisory Limited Partner....................................
2.9 Organizational Limited Partner......................................
2.10 Both General and Limited Partner....................................
2.11 Limited Liability...................................................
ARTICLE III MANAGEMENT.......................................................
3.1 Management and Control..............................................
3.2 Actions by Individual General Partners..............................
3.3 Meetings of Partners................................................
3.4 Custody of Assets of the Partnership................................
3.5 Other Activities of Partners........................................
3.6 Duty of Care........................................................
3.7 Indemnification.....................................................
3.8 Fees, Expenses and Reimbursement....................................
-i-
<PAGE> 3
ARTICLE IV TERMINATION OF STATUS OF ADVISER AND INDIVIDUAL GENERAL
PARTNERS, TRANSFERS AND REPURCHASES............................
4.1 Termination of Status of the Adviser................................
4.2 Termination of Status of an Individual General Partner..............
4.3 Removal of Individual General Partners..............................
4.4 Transfer of Interests of Individual General Partners................
4.5 Transfer of Interests of Limited Partners...........................
4.6 Transfer of Interests of Special Advisory Limited Partner...........
4.7 Repurchase of Interests.............................................
ARTICLE V CAPITAL............................................................
5.1 Contributions to Capital............................................
5.2 Rights of Partners to Capital.......................................
5.3 Capital Accounts....................................................
5.4 Allocation of Net Profit and Loss...................................
5.5 Allocation of Insurance Premiums and Proceeds.......................
5.6 Allocation of Certain Withholding Taxes and Other Expenditures......
5.7 Reserves............................................................
5.8 Incentive Allocation................................................
5.9 Allocation of Organizational Expenses...............................
5.10 Tax Allocations.....................................................
5.11 Distributions.......................................................
5.12 Foreign Withholding.................................................
ARTICLE VI DISSOLUTION AND LIQUIDATION......................................
6.1 Dissolution.........................................................
6.2 Liquidation of Assets...............................................
ARTICLE VII ACCOUNTING, VALUATIONS AND BOOKS AND RECORDS....................
-ii-
<PAGE> 4
7.1 Accounting and Reports..............................................
7.2 Determinations By Individual General Partners.......................
7.3 Valuation of Assets.................................................
ARTICLE VIII MISCELLANEOUS PROVISIONS........................................
8.1 Amendment of Partnership Agreement..................................
8.2 Special Power of Attorney...........................................
8.3 Notices.............................................................
8.4 Agreement Binding Upon Successors and Assigns.......................
8.5 Applicability of 1940 Act and Form N-2..............................
8.6 Choice of Law; Arbitration..........................................
8.7 Not for Benefit of Creditors........................................
8.8 Consents............................................................
8.9 Merger and Consolidation............................................
8.10 Pronouns............................................................
8.11 Confidentiality.....................................................
8.12 Certification of Non-Foreign Status.................................
8.13 Severability........................................................
8.14 Filing of Returns...................................................
8.15 Tax Matters Partner.................................................
8.16 Section 754 Election................................................
-iii-
<PAGE> 5
WYNSTONE PARTNERS, L.P.
LIMITED PARTNERSHIP AGREEMENT
THIS LIMITED PARTNERSHIP AGREEMENT of Wynstone Partners, L.P. (the
"Partnership") is dated as of [September 2,] 1998 by and among Jesse H. Ausubel,
Paul Belica and Jeswald Salacuse as the Individual General Partners, CIBC
Oppenheimer Advisers, L.L.C., as the Special Advisory Limited Partner, and those
persons hereinafter admitted as General Partners and as Limited Partners.
W I T N E S S E T H :
WHEREAS, the Partnership has heretofore been formed as a limited
partnership under the Delaware Revised Uniform Limited Partnership Act pursuant
to an initial Certificate of Limited Partnership (the "Certificate") dated and
filed with the Secretary of State of Delaware on August 13, 1998;
NOW, THEREFORE, for and in consideration of the foregoing and the
mutual covenants hereinafter set forth, it is hereby agreed as follows:
ARTICLE I
DEFINITIONS
For purposes of this Agreement:
ADVISER CIBC Oppenheimer Advisers, L.L.C., a limited
liability company organized under Delaware law,
or any person who may hereinafter serve as the
investment adviser to the Partnership pursuant
to an Investment Advisory Agreement.
ADVISERS ACT The Investment Advisers Act of 1940 and the
rules, regulations and orders thereunder, as
amended from time to time, or any successor law.
AFFILIATE An affiliated person of a person as such term is
defined in the 1940 Act.
AGREEMENT This Limited Partnership Agreement, as amended
from time to time.
<PAGE> 6
ALLOCATION CHANGE With respect to each Limited Partner for each
Allocation Period, the difference between:
(1) the sum of (a) the balance of such Limited
Partner's Capital Account as of the close of
the Allocation Period (after giving effect
to all allocations to be made to such
Limited Partner's Capital Account as of such
date other than any Incentive Allocation to
be debited against such Limited Partner's
Capital Account), plus (b) any debits to
such Limited Partner's Capital Account
during the Allocation Period to reflect any
actual or deemed distributions or
repurchases with respect to such Limited
Partner's Interest, plus (c) any debits to
such Limited Partner's Capital Account
during the Allocation Period to reflect any
Insurance premiums allocable to such Limited
Partner, plus (d) any debits to such Limited
Partner's Capital Account during the
Allocation Period to reflect any items
allocable to such Limited Partner's Capital
Account pursuant to Section 5.6 hereof other
than Management Fees; and
(2) the sum of (a) the balance of such Limited
Partner's Capital Account as of the
commencement of the Allocation Period, plus
(b) any credits to such Limited Partner's
Capital Account during the Allocation Period
to reflect any contributions by such Limited
Partner to the capital of the Partnership,
plus (c) any credits to such Limited
Partner's Capital Account during the
Allocation Period to reflect any Insurance
proceeds allocable to such Limited Partner.
If the amount specified in clause (1) exceeds
the amount specified in clause (2), such
difference shall be a POSITIVE ALLOCATION
CHANGE, and if the amount specified in clause
(2) exceeds the amount specified in clause (1),
such difference shall be a NEGATIVE ALLOCATION
CHANGE.
-2-
<PAGE> 7
ALLOCATION PERIOD With respect to each Limited Partner, the period
commencing as of the date of admission of such
Limited Partner to the Partnership, and
thereafter each period commencing as of the day
following the last day of the preceding
Allocation Period with respect to such Limited
Partner, and ending at the close of business on
the first to occur of the following:
(1) the last day of a Fiscal Year;
(2) the day as of which the Partnership
repurchases the entire Interest of such
Limited Partner;
(3) the day as of which the Partnership admits
as a substituted Limited Partner a person to
whom the Interest of such Limited Partner
has been Transferred (unless there is no
change of beneficial ownership); and
(4) the day as of which the Adviser's status as
the Special Advisory Limited Partner is
terminated pursuant to Section 4.1 hereof.
CAPITAL ACCOUNT With respect to each Partner, the capital
account established and maintained on behalf of
each Partner pursuant to Section 5.3 hereof.
CAPITAL PERCENTAGE A percentage established for each Limited
Partner on the Partnership's books as of each
Expense Allocation Date. The Capital Percentage
of a Limited Partner on an Expense Allocation
Date shall be determined by dividing the amount
of capital contributed to the Partnership by the
Limited Partner pursuant to Section 5.1 hereof
by the sum of the capital contributed to the
Partnership by each Limited Partner pursuant to
Section 5.1 hereof on or prior to such Expense
Allocation Date. The sum of the Capital
Percentages of all Limited Partners on each
Expense Allocation Date shall equal 100%.
CERTIFICATE The Certificate of Limited Partnership of the
Partnership and any amendments thereto as filed
with the office of the Secretary of State of
Delaware.
CIBC OPCO CIBC Oppenheimer Corp., or any successor
thereto.
-3-
<PAGE> 8
CIBC OPCO SERVICES Such administrative services as CIBC Opco shall
provide to the Partnership pursuant to a
separate written agreement with the Partnership
as contemplated by Section 3.9(a) hereof.
CLOSING DATE The first date on or as of which a Limited
Partner other than the Organizational Limited
Partner is admitted to the Partnership.
CODE The United States Internal Revenue Code of 1986,
as amended and as hereafter amended from time to
time, or any successor law.
DELAWARE ACT The Delaware Revised Uniform Limited Partnership
Act as in effect on the date hereof and as
amended from time to time, or any successor law.
EXPENSE ALLOCATION DATE The Closing Date, and thereafter each day on or
before [October 1, 1999,] as of which a
contribution to the capital of the Partnership
is made pursuant to Section 5.1 hereof.
FISCAL PERIOD The period commencing on the Closing Date, and
thereafter each period commencing on the day
immediately following the last day of the
preceding Fiscal Period, and ending at the close
of business on the first to occur of the
following dates:
(1) the last day of a Fiscal Year;
(2) the day preceding any day as of which a
contribution to the capital of the
Partnership is made pursuant to Section 5.1;
or
(3) any day (other than one specified in clause
(2) above) as of which this Agreement
provides for any amount to be credited to or
debited against the Capital Account of any
Partner, other than an amount to be credited
to or debited against the Capital Accounts
of all Partners in accordance with their
respective Partnership Percentages.
-4-
<PAGE> 9
FISCAL YEAR The period commencing on the Closing Date and
ending on December 31, 1998, and thereafter each
period commencing on January 1 of each year and
ending on December 31 of each year (or on the
date of a final distribution pursuant to Section
6.2 hereof), unless the Individual General
Partners shall elect another fiscal year for the
Partnership that is a permissible taxable year
under the Code.
FORM N-2 The Partnership's Registration Statement on Form
N-2 filed with the Securities and Exchange
Commission, as amended from time to time.
GENERAL PARTNERS The Individual General Partners in such persons'
capacity as general partners of the Partnership.
INCENTIVE ALLOCATION With respect to each Limited Partner, 20% of the
amount, determined as of the close of each
Allocation Period with respect to such Limited
Partner, by which such Limited Partner's
Positive Allocation Change for such Allocation
Period, if any, exceeds any positive balance in
such Limited Partner's Loss Recovery Account as
of the most recent prior date as of which any
adjustment has been made thereto.
INDEPENDENT GENERAL Those Individual General Partners who are not
PARTNERS "interested persons" of the Partnership as such
term is defined in the 1940 Act.
INDIVIDUAL GENERAL Those natural persons admitted to the
PARTNERS Partnership as General Partners.
INSURANCE One or more "key man" insurance policies on the
life of any principal of a member of the
Adviser, the benefits of which are payable to
the Partnership.
INTEREST The entire ownership interest in the Partnership
at any particular time of a Limited Partner or
the Special Advisory Limited Partner, or other
person to whom an Interest of a Limited Partner
or portion thereof has been transferred pursuant
to Sections 4.4 or 4.5 hereof, including the
rights and obligations of such Limited Partner
or other person under this Agreement and the
Delaware Act.
-5-
<PAGE> 10
INVESTMENT ADVISORY A separate written agreement entered into by the
AGREEMENT Partnership pursuant to which the Adviser
provides investment advisory services to the
Partnership.
LIMITED PARTNER Any person who shall have been admitted to the
Partnership as a limited partner (including any
General Partner in such person's capacity as a
limited partner of the Partnership but excluding
any General Partner in such person's capacity as
a general partner of the Partnership) until the
Partnership repurchases the entire Interest of
such person as a limited partner pursuant to
Section 4.7 hereof or a substituted Limited
Partner or Limited Partners are admitted with
respect to any such person's entire Interest as
a limited partner pursuant to Section 4.5
hereof; such term includes the Adviser to the
extent the Adviser makes a capital contribution
to the Partnership and shall have been admitted
to the Partnership as a limited partner, and
shall not include the Special Advisory Limited
Partner.
LOSS RECOVERY A memorandum account to be recorded in the books
ACCOUNT and records of the Partnership with respect to
each Limited Partner, which shall have an
initial balance of zero and which shall be
adjusted as follows:
(1) As of the first day after the close of each
Allocation Period for such Limited Partner,
the balance of the Loss Recovery Account
shall be increased by the amount, if any, of
such Limited Partner's Negative Allocation
Change for such Allocation Period and shall
be reduced (but not below zero) by the
amount, if any, of such Limited Partner's
Positive Allocation Change for such
Allocation Period.
(2) The balance of the Loss Recovery Account
shall be reduced (but not below zero) as of
the first date as of which the Capital
Account balance of any Limited Partner is
reduced as a result of repurchase or
transfer with respect to such Limited
Partner's Interest by an amount determined
by multiplying (a) such positive balance by
(b) a fraction, (i) the numerator of which
is equal to the amount of the repurchase or
transfer, and (ii) the denominator of which
is equal to the balance of such Limited
Partner's
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Capital Account immediately before giving
effect to such repurchase or transfer.
No transferee of any Interest shall succeed to
any Loss Recovery Account balance or portion
thereof attributable to the transferor unless
the Transfer by which such transferee received
such Interest did not involve a change of
beneficial ownership.
NEGATIVE ALLOCATION The meaning given such term in the definition of
CHANGE Allocation Change.
NET ASSETS The total value of all assets of the
Partnership, less an amount equal to all accrued
debts, liabilities and obligations of the
Partnership, calculated before giving effect to
any repurchases of Interests.
NET PROFIT OR NET LOSS The amount by which the Net Assets as of the
close of business on the last day of a Fiscal
Period exceed (in the case of Net Profit) or are
less than (in the case of Net Loss) the Net
Assets as of the commencement of the same Fiscal
Period (or, with respect to the initial Fiscal
Period of the Partnership, at the close of
business on the Closing Date), such amount to be
adjusted to exclude:
(1) the amount of any Insurance premiums or
proceeds to be allocated among the Capital
Accounts of the Partners pursuant to Section
5.5 hereof;
(2) any items to be allocated among the Capital
Accounts of the Partners on a basis which is
not in accordance with the respective
Partnership Percentages of all Partners as
of the commencement of such Fiscal Period
pursuant to Sections 5.6 and 5.7 hereof; and
(3) Organizational Expenses allocated among the
Capital Accounts of the Limited Partners
pursuant to Section 5.9 hereof.
1940 ACT The Investment Company Act of 1940 and the
rules, regulations and orders thereunder, as
amended from time to time, or any successor law.
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1934 ACT The Securities Exchange Act of 1934 and the
rules, regulations and orders thereunder, as
amended from time to time, or any successor law.
ORGANIZATIONAL EXPENSES The expenses incurred by the Partnership in
connection with its formation, its initial
registration as an investment company under the
1940 Act, and the initial offering of Interests.
ORGANIZATIONAL LIMITED [____________________]
PARTNER
PARTNERS The General Partners, the Limited Partners and
the Special Advisory Limited Partner,
collectively.
PARTNERSHIP The limited partnership governed hereby, as such
limited partnership may from time to time be
constituted.
PARTNERSHIP PERCENTAGE A percentage established for each Limited
Partner on the Partnership's books as of the
first day of each Fiscal Period. The Partnership
Percentage of a Limited Partner for a Fiscal
Period shall be determined by dividing the
balance of the Limited Partner's Capital Account
as of the commencement of such Fiscal Period by
the sum of the Capital Accounts of all of the
Limited Partners as of the commencement of such
Fiscal Period. The sum of the Partnership
Percentages of all Limited Partners for each
Fiscal Period shall equal 100%.
POSITIVE ALLOCATION The meaning given such term in the definition of
CHANGE Allocation Change.
SECURITIES Securities (including, without limitation,
equities, debt obligations, options, and other
"securities" as that term is defined in Section
2(a)(36) of the 1940 Act) and any contracts for
forward or future delivery of any security, debt
obligation or currency, or commodity, all manner
of derivative instruments and any contracts
based on any index or group of securities, debt
obligations or currencies, or commodities, and
any options thereon.
SPECIAL ADVISORY ACCOUNT A capital account established and maintained on
behalf of the Special Advisory Limited Partner
pursuant to Section 5.3 hereof solely for the
purpose of receiving the Incentive Allocation.
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SPECIAL ADVISORY LIMITED The Adviser in its capacity as the investment
PARTNER adviser to the Partnership.
TRANSFER The assignment, transfer, sale, encumbrance,
pledge or other disposition of all or any
portion of an Interest, including any right to
receive any allocations and distributions
attributable to an Interest.
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ARTICLE II
ORGANIZATION; ADMISSION OF PARTNERS
2.1 FORMATION OF LIMITED PARTNERSHIP.
The General Partners shall execute and file in accordance with the
Delaware Act any amendment to the Certificate and shall execute and file with
applicable governmental authorities any other instruments, documents and
certificates which, in the opinion of the Partnership's legal counsel, may from
time to time be required by the laws of the United States of America, the State
of Delaware or any other jurisdiction in which the Partnership shall determine
to do business, or any political subdivision or agency thereof, or which such
legal counsel may deem necessary or appropriate to effectuate, implement and
continue the valid existence and business of the Partnership.
2.2 NAME.
The name of the Partnership shall be "Wynstone Partners, L.P." or
such other name as the Individual General Partners may hereafter adopt upon (i)
causing an appropriate amendment to the Certificate to be filed in accordance
with the Delaware Act and (ii) sending notice thereof to each Partner.
2.3 PRINCIPAL AND REGISTERED OFFICE.
The Partnership shall have its principal office at CIBC Oppenheimer
Tower, One World Financial Center, 31st Floor, 200 Liberty Street, New York, New
York 10281, or at such other place designated from time to time by the
Individual General Partners.
The Partnership shall have its registered office in Delaware at 1013
Center Road, Wilmington, Delaware 19805-1297, and shall have Corporation Service
Company as its registered agent for service of process in Delaware, unless a
different registered office or agent is designated from time to time by the
Individual General Partners.
2.4 DURATION.
The term of the Partnership commenced on the filing of the
Certificate with the Secretary of State of Delaware and shall continue until the
Partnership is dissolved pursuant to Section 6.1 hereof.
2.5 OBJECTIVE AND BUSINESS OF THE PARTNERSHIP.
(a) The objective and business of the Partnership is to purchase,
sell (including short sales), invest and trade in Securities, on margin or
otherwise, and to engage in any financial or
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derivative transactions relating thereto or otherwise. The Partnership may
execute, deliver and perform all contracts, agreements and other undertakings
and engage in all activities and transactions as may in the opinion of the
Individual General Partners be necessary or advisable to carry out its objective
or business.
(b) The Partnership shall operate as a closed-end,
non-diversified, management investment company in accordance with the 1940 Act
and subject to any fundamental policies and investment restrictions set forth in
the Form N-2.
2.6 GENERAL PARTNERS.
(a) Prior to the Closing Date, the Organizational Limited Partner
may admit such persons who shall agree to be bound by all of the terms of this
Agreement to serve as the initial Individual General Partners, subject to the
election of such persons prior to the Closing Date by the Organizational Limited
Partner. By signing this Agreement or the signature page of the Partnership's
subscription agreement, a Limited Partner admitted on the Closing Date shall be
deemed to have voted for the election of each of the initial Individual General
Partners. After the Closing Date, the Individual General Partners may, subject
to the provisions of paragraphs (a) and (b) of this Section 2.6 with respect to
the number of and vacancies in the position of Individual General Partners and
the provisions of Section 3.3 hereof with respect to the election of Individual
General Partners by Partners, admit any person who shall agree to be bound by
all of the terms of this Agreement as an Individual General Partner. The names
and mailing addresses of the Individual General Partners shall be set forth in
the books and records of the Partnership. The number of Individual General
Partners shall be fixed from time to time by the Individual General Partners
but, at the Closing Date, shall not be less than three. At and after the Closing
Date, all of the Individual General Partners shall be Independent General
Partners.
(b) Each Individual General Partner admitted to the Partnership
shall serve for the duration of the term of the Partnership, unless his status
as an Individual General Partner shall be sooner terminated pursuant to Section
4.2 hereof. In the event of any vacancy in the position of an Individual General
Partner, the remaining Individual General Partners may appoint an individual to
serve in such capacity, so long as immediately after such appointment at least
two-thirds (2/3) of the Individual General Partners then serving would have been
elected by the Partners. The Individual General Partners may call a meeting of
Limited Partners to fill any vacancy in the position of an Individual General
Partner, and shall do so within 60 days after any date on which Individual
General Partners who were elected by the Limited Partners cease to constitute a
majority of the Individual General Partners then serving.
(c) In the event that no Individual General Partner remains to
continue the business of the Partnership, the Adviser shall promptly call a
meeting of the Limited Partners, to be held within 60 days after the date on
which the last Individual General Partner ceased to act in that capacity, for
the purpose of determining whether to continue the business of the Partnership
and, if the business shall be continued, of electing the required number of
Individual General Partners. If the Limited Partners shall determine at such
meeting not to continue the business of the Partnership or if the required
number of Individual General Partners is not elected within 60 days after the
date
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on which the last Individual General Partner ceased to act in that capacity,
then the Partnership shall be dissolved pursuant to Section 6.1 hereof and the
assets of the Partnership shall be liquidated and distributed pursuant to
Section 6.2 hereof.
2.7 LIMITED PARTNERS.
For the first six months from the date of commencement of operations
of the Partnership, the Individual General Partners may admit one or more
Limited Partners as of the beginning of each calendar month. Thereafter, the
Individual General Partners may admit one or more Limited Partners as of the
beginning of each calendar quarter. Subject to the foregoing terms, Limited
Partners may be admitted to the Partnership subject to the condition that each
such Limited Partner shall execute an appropriate signature page of this
Agreement or of the Partnership's subscription agreement pursuant to which such
Limited Partner agrees to be bound by all the terms and provisions hereof. The
Individual General Partners may in their absolute discretion reject
subscriptions for limited partnership Interests in the Partnership. The
admission of any person as a Limited Partner shall be effective upon the
revision of the books and records of the Partnership to reflect the name and the
contribution to the capital of the Partnership of such additional Limited
Partner.
2.8 SPECIAL ADVISORY LIMITED PARTNER.
Upon signing this Agreement, the Adviser shall be admitted to the
Partnership as the Special Advisory Limited Partner, subject to due approval, in
accordance with the requirements of the 1940 Act, of the Investment Advisory
Agreement. The Interest of the Special Advisory Limited Partner shall be
non-voting. If at anytime the Investment Advisory Agreement between the
Partnership and the person then serving as Adviser terminates, the Individual
General Partners shall admit as a substitute Special Advisory Limited Partner,
upon its signing this Agreement, such person as may be retained by the
Partnership to provide investment advisory services pursuant to an Investment
Advisory Agreement, subject to the due approval of such Investment Advisory
Agreement in accordance with the requirements of the 1940 Act.
2.9 ORGANIZATIONAL LIMITED PARTNER.
Upon the admission of any Limited Partner, the Organizational
Limited Partner shall withdraw from the Partnership as the Organizational
Limited Partner and shall be entitled to the return of his Capital Contribution,
if any, without interest or deduction.
2.10 BOTH GENERAL AND LIMITED PARTNER.
A Partner may at the same time be an Individual General Partner and
a Limited Partner, or a Special Advisory Limited Partner and Limited Partner, in
which event such Partner's rights and obligations in each capacity shall be
determined separately in accordance with the terms and provisions hereof or as
provided in the Delaware Act.
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2.11 LIMITED LIABILITY.
Except as provided under applicable law, a Limited Partner and the
Special Advisory Limited Partner shall not be liable for the Partnership's
obligations in any amount in excess of the capital account balance of such
Partner, plus such Partner's share of undistributed profits and assets.
--------------------------
ARTICLE III
MANAGEMENT
--------------------------
3.1 MANAGEMENT AND CONTROL.
(a) Management and control of the business of the Partnership
shall be vested in the Individual General Partners, who shall have the right,
power and authority, on behalf of the Partnership and in its name, to exercise
all rights, powers and authority of general partners under the Delaware Act and
to do all things necessary and proper to carry out the objective and business of
the Partnership and their duties hereunder. No Individual General Partner shall
have the authority individually to act on behalf of or to bind the Partnership
except within the scope of such Individual General Partner's authority as
delegated by the IGPs. The parties hereto intend that, except to the extent
otherwise expressly provided herein, (i) each Individual General Partner shall
be vested with the same powers, authority and responsibilities on behalf of the
Partnership as are customarily vested in each director of a Delaware corporation
and (ii) each Independent General Partner shall be vested with the same powers,
authority and responsibilities on behalf of the Partnership as are customarily
vested in each director of a closed-end management investment company registered
under the 1940 Act that is organized as a Delaware corporation who is not an
"interested person" of such company as such term is defined in the 1940 Act.
During any period in which the Partnership shall have no Individual General
Partners, the Adviser shall continue to serve as the Adviser to the Partnership.
During such time period, CIBC Opco shall continue to provide the CIBC Opco
Services to the Partnership.
(b) An Individual General Partner shall be the designated tax
matters partner for purposes of Section 6231(a)(7) of the Code. Each Partner
agrees not to treat, on his personal return or in any claim for a refund, any
item of income, gain, loss, deduction or credit in a manner inconsistent with
the treatment of such item by the Partnership. The Individual General Partners
shall have the exclusive authority and discretion to make any elections required
or permitted to be made by the Partnership under any provisions of the Code or
any other revenue laws.
(c) Limited Partners shall have no right to participate in and
shall take no part in the management or control of the Partnership's business
and shall have no right, power or authority to act for or bind the Partnership.
Limited Partners shall have the right to vote on any matters only as provided in
this Agreement or on any matters that require the approval of the holders of
voting securities under the 1940 Act or as otherwise required in the Delaware
Act.
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(d) The Individual General Partners may delegate to any other
person any rights, power and authority vested by this Agreement in the
Individual General Partners to the extent permissible under applicable law.
3.2 ACTIONS BY INDIVIDUAL GENERAL PARTNERS.
(a) Unless provided otherwise in this Agreement, the Individual
General Partners shall act only: (i) by the affirmative vote of a majority of
the Individual General Partners (which majority shall include any requisite
number of Independent General Partners required by the 1940 Act) present at a
meeting duly called at which a quorum of the Individual General Partners shall
be present (in person or, if in person attendance is not required by the 1940
Act, by telephone) or (ii) by unanimous written consent of all of the Individual
General Partners without a meeting, if permissible under the 1940 Act.
(b) The Individual General Partners may designate from time to
time a Principal Individual General Partner who shall preside at all meetings.
Meetings of the Individual General Partners may be called by the Principal
Individual General Partner or by any two Individual General Partners, and may be
held on such date and at such time and place as the Individual General Partners
shall determine. Each Individual General Partner shall be entitled to receive
written notice of the date, time and place of such meeting within a reasonable
time in advance of the meeting. Notice need not be given to any Individual
General Partner who shall attend a meeting without objecting to the lack of
notice or who shall execute a written waiver of notice with respect to the
meeting. Individual General Partners may attend and participate in any meeting
by telephone except where in person attendance at a meeting is required by the
1940 Act. A majority of the Individual General Partners shall constitute a
quorum at any meeting.
3.3 MEETINGS OF LIMITED PARTNERS.
(a) Actions requiring the vote of the Limited Partners may be
taken at any duly constituted meeting of the Limited Partners at which a quorum
is present. Meetings of the Limited Partners may be called by the Individual
General Partners or by Limited Partners holding 25% or more of the total number
of votes eligible to be cast by all Limited Partners, and may be held at such
time, date and place as the Individual General Partners shall determine. The
Individual General Partners shall arrange to provide written notice of the
meeting, stating the date, time and place of the meeting and the record date
therefor, to each Limited Partner entitled to vote at the meeting within a
reasonable time prior thereto. Failure to receive notice of a meeting on the
part of any Limited Partner shall not affect the validity of any act or
proceeding of the meeting, so long as a quorum shall be present at the meeting.
Only matters set forth in the notice of a meeting may be voted on by the Limited
Partners at a meeting. The presence in person or by proxy of Limited Partners
holding a majority of the total number of votes eligible to be cast by all
Limited Partners as of the record date shall constitute a quorum at any meeting.
In the absence of a quorum, a meeting of the Limited Partners may be adjourned
by action of a majority of the Limited Partners present in person or by proxy
without additional notice to the Limited Partners. Except as otherwise required
by any provision of this Agreement or of the 1940 Act, (i) those candidates
receiving a plurality of the votes cast at any meeting of Limited Partners shall
be elected as Individual General Partners and
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(ii) all other actions of the Limited Partners taken at a meeting shall require
the affirmative vote of Partners holding a majority of the total number of votes
eligible to be cast by those Limited Partners who are present in person or by
proxy at such meeting.
(b) Each Limited Partner shall be entitled to cast at any meeting
of Limited Partners a number of votes equivalent to such Limited Partner's
Partnership Percentage as of the record date for such meeting. The Individual
General Partners shall establish a record date not less than 10 nor more than 60
days prior to the date of any meeting of Limited Partners to determine
eligibility to vote at such meeting and the number of votes which each Limited
Partner will be entitled to cast thereat, and shall maintain for each such
record date a list setting forth the name of each Limited Partner and the number
of votes that each Limited Partner will be entitled to cast at the meeting.
(c) A Limited Partner may vote at any meeting of Limited Partners
by a proxy properly executed in writing by the Limited Partner and filed with
the Partnership before or at the time of the meeting. A proxy may be suspended
or revoked, as the case may be, by the Limited Partner executing the proxy by a
later writing delivered to the Partnership at any time prior to exercise of the
proxy or if the Limited Partner executing the proxy shall be present at the
meeting and decide to vote in person. Any action of the Limited Partners that is
permitted to be taken at a meeting of the Limited Partners may be taken without
a meeting if consents in writing, setting forth the action taken, are signed by
Limited Partners holding a majority of the total number of votes eligible to be
cast or such greater percentage as may be required in order to approve such
action.
3.4 CUSTODY OF ASSETS OF THE PARTNERSHIP.
The physical possession of all funds, Securities or other properties
of the Partnership shall at all times, be held, controlled and administered by
one or more custodians retained by the Partnership in accordance with the
requirements of the 1940 Act and the rules thereunder.
3.5 OTHER ACTIVITIES OF PARTNERS.
(a) The Individual General Partners shall not be required to
devote full time to the affairs of the Partnership, but shall devote such time
as may reasonably be required to perform their obligations under this Agreement.
(b) Any Partner, and any Affiliate of any Partner, may engage in
or possess an interest in other business ventures or commercial dealings of
every kind and description, independently or with others, including, but not
limited to, acquisition and disposition of Securities, provision of investment
advisory or brokerage services, serving as directors, officers, employees,
advisors or agents of other companies, partners of any partnership, members of
any limited liability company, or trustees of any trust, or entering into any
other commercial arrangements. No Partner shall have any rights in or to such
activities of any other Partner, or any profits derived therefrom.
3.6 DUTY OF CARE.
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(a) An Individual General Partner shall not be liable to the
Partnership or to any of its Partners for any loss or damage occasioned by any
act or omission in the performance of his services under this Agreement, unless
it shall be determined by final judicial decision on the merits from which there
is no further right to appeal that such loss is due to an act or omission of
such Individual General Partner constituting willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
such Individual General Partner's office.
(b) Limited Partners not in breach of any obligation hereunder or
under any agreement pursuant to which the Limited Partner subscribed for an
Interest shall be liable to the Partnership, any Partner or third parties only
as provided under the Delaware Act.
3.7 INDEMNIFICATION.
(a) To the fullest extent permitted by law, the Partnership shall,
subject to Section 3.7(b) hereof, indemnify each Individual General Partner
(including for this purpose their executors, heirs, assigns, successors or other
legal representatives), against all losses, claims, damages, liabilities, costs
and expenses, including, but not limited to, amounts paid in satisfaction of
judgments, in compromise, or as fines or penalties, and reasonable counsel fees,
incurred in connection with the defense or disposition of any action, suit,
investigation or other proceeding, whether civil or criminal, before any
judicial, arbitral, administrative or legislative body, in which such indemnitee
may be or may have been involved as a party or otherwise, or with which such
indemnitee may be or may have been threatened, while in office or thereafter, by
reason of being or having been a general partner of the Partnership or the past
or present performance of services to the Partnership by such indemnitee, except
to the extent such loss, claim, damage, liability, cost or expense shall have
been finally determined in a decision on the merits in any such action, suit,
investigation or other proceeding to have been incurred or suffered by such
indemnitee by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of such indemnitee's
office. The rights of indemnification provided under this Section 3.7 shall not
be construed so as to provide for indemnification of an Individual General
Partner for any liability (including liability under federal securities laws
which, under certain circumstances, impose liability even on persons that act in
good faith) to the extent (but only to the extent) that such indemnification
would be in violation of applicable law, but shall be construed so as to
effectuate the applicable provisions of this Section 3.7 to the fullest extent
permitted by law.
(b) Expenses, including reasonable counsel fees, so incurred by
any such indemnitee (but excluding amounts paid in satisfaction of judgments, in
compromise, or as fines or penalties), may be paid from time to time by the
Partnership in advance of the final disposition of any such action, suit,
investigation or proceeding upon receipt of an undertaking by or on behalf of
such indemnitee to repay to the Partnership amounts so paid if it shall
ultimately be determined that indemnification of such expenses is not authorized
under Section 3.7(a) hereof; provided, however, that (i) such indemnitee shall
provide security for such undertaking, (ii) the Partnership shall be insured by
or on behalf of such indemnitee against losses arising by reason of such
indemnitee's failure to fulfill his or its undertaking, or (iii) a majority of
the Independent General Partners (excluding any Individual General Partner who
is either seeking advancement of expenses hereunder or is or has been a party to
any other action, suit, investigation or proceeding involving
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claims similar to those involved in the action, suit, investigation or
proceeding giving rise to a claim for advancement of expenses hereunder) or
independent legal counsel in a written opinion shall determine based on a review
of readily available facts (as opposed to a full trial-type inquiry) that there
is reason to believe such indemnitee ultimately will be entitled to
indemnification.
(c) As to the disposition of any action, suit, investigation or
proceeding (whether by a compromise payment, pursuant to a consent decree or
otherwise) without an adjudication or a decision on the merits by a court, or by
any other body before which the proceeding shall have been brought, that an
indemnitee is liable to the Partnership or its Partners by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties
involved in the conduct of such indemnitee's office, indemnification shall be
provided pursuant to Section 3.7(a) hereof if (i) approved as in the best
interests of the Partnership by a majority of the Independent General Partners
(excluding any Individual General Partner who is either seeking indemnification
hereunder or is or has been a party to any other action, suit, investigation or
proceeding involving claims similar to those involved in the action, suit,
investigation or proceeding giving rise to a claim for indemnification
hereunder) upon a determination based upon a review of readily available facts
(as opposed to a full trial-type inquiry) that such indemnitee acted in good
faith and in the reasonable belief that such actions were in the best interests
of the Partnership and that such indemnitee is not liable to the Partnership or
its Partners by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of such indemnitee's
office, or (ii) the Individual General Partners secure a written opinion of
independent legal counsel based upon a review of readily available facts (as
opposed to a full trial-type inquiry) to the effect that such indemnification
would not protect such indemnitee against any liability to the Partnership or
its Partners to which such indemnitee would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of such indemnitee's office.
(d) Any indemnification or advancement of expenses made pursuant
to this Section 3.7 shall not prevent the recovery from any indemnitee of any
such amount if such indemnitee subsequently shall be determined in a decision on
the merits in any action, suit, investigation or proceeding involving the
liability or expense that gave rise to such indemnification or advancement of
expenses to be liable to the Partnership or its Partners by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties
involved in the conduct of such indemnitee's office. In (i) any suit brought by
an Individual General Partner (or other person entitled to indemnification
hereunder) to enforce a right to indemnification under this Section 3.7 it shall
be a defense that, and (ii) in any suit in the name of the Partnership to
recover any indemnification or advancement of expenses made pursuant to this
Section 3.7 the Partnership shall be entitled to recover such expenses upon a
final adjudication that, the Individual General Partner or other person claiming
a right to indemnification under this Section 3.7 has not met the applicable
standard of conduct set forth in this Section 3.7. In any such suit brought to
enforce a right to indemnification or to recover any indemnification or
advancement of expenses made pursuant to this Section 3.7, the burden of proving
that the Individual General Partner or other person claiming a right to
indemnification is not entitled to be indemnified, or to any indemnification or
advancement of expenses, under this Section 3.7 shall be on the Partnership (or
any Partner acting derivatively or otherwise on behalf of the Partnership or its
Partners).
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(e) An indemnitee may not satisfy any right of indemnification or
advancement of expenses granted in this Section 3.7 or to which he or it may
otherwise be entitled except out of the assets of the Partnership, and no
Partner shall be personally liable with respect to any such claim for
indemnification or advancement of expenses.
(f) The rights of indemnification provided hereunder shall not be
exclusive of or affect any other rights to which any person may be entitled by
contract or otherwise under law. Nothing contained in this Section 3.7 shall
affect the power of the Partnership to purchase and maintain liability insurance
on behalf of any Individual General Partner or other person.
3.8 FEES, EXPENSES AND REIMBURSEMENT.
(a) So long as CIBC Opco provides CIBC Opco Services to the
Partnership, it shall be entitled to receive fees for such services as may be
agreed to by CIBC Opco and the Partnership pursuant to a separate written
agreement.
(b) The Individual General Partners may cause the Partnership to
compensate each Individual General Partner for his services as such. In
addition, the Individual General Partners shall be reimbursed by the Partnership
for reasonable out-of-pocket expenses incurred by them in performing their
duties under this Agreement.
(c) The Partnership shall bear all expenses incurred in the
business of the Partnership other than those specifically required to be borne
by the Adviser pursuant to the Investment Advisory Agreement or by CIBC Opco
pursuant to the agreement referred to in Section 3.8(a) hereof. Expenses to be
borne by the Partnership include, but are not limited to, the following:
(1) all costs and expenses related to portfolio transactions
and positions for the Partnership's account, including,
but not limited to, brokerage commissions, research
fees, interest and commitment fees on loans and debit
balances, borrowing charges on Securities sold short,
dividends on Securities sold short but not yet
purchased, custodial fees, margin fees, transfer taxes
and premiums, taxes withheld on foreign dividends and
indirect expenses from investments in investment funds;
(2) all costs and expenses associated with the organization
and registration of the Partnership, certain offering
costs and the costs of compliance with any applicable
federal or state laws;
(3) Attorneys' fees and disbursements associated with
updating the Partnership's Confidential Memorandum and
subscription documents (the "Offering Materials"); the
costs of printing the Offering Materials; the costs of
distributing the Offering Materials to prospective
investors; and attorneys' fees and disbursements
associated with the review of subscription documents
executed and
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delivered to the Partnership in connection with
offerings of interests in the Partnership;
(4) the costs and expenses of holding meetings of Individual
General Partners and any meetings of Limited Partners;
(5) fees and disbursements of any attorneys, accountants,
auditors and other consultants and professionals engaged
on behalf of the Partnership;
(6) the costs of a fidelity bond and any liability insurance
obtained on behalf of the Partnership or its General
Partners;
(7) any fees payable to CIBC Opco for CIBC Opco Services and
the fees of custodians and persons providing
administrative services to the Partnership;
(8) all expenses of computing the Partnership's net asset
value, including any equipment or services obtained for
such purposes;
(9) all charges for equipment or services used in
communicating information regarding the Partnership's
transactions among the Adviser and any custodian or
other agent engaged by the Partnership; and
(10) such other types of expenses as may be approved from
time to time by the Individual General Partners, other
than those required to be borne by the Adviser or CIBC
Opco.
The Adviser shall be entitled to reimbursement from the Partnership for any of
the above expenses that it pays on behalf of the Partnership.
(d) Subject to procuring any required regulatory approvals, from
time to time the Partnership may, alone or in conjunction with other accounts
for which the Adviser, or any Affiliate of the Adviser, acts as general partner
or investment adviser, purchase Insurance in such amounts, from such insurers
and on such terms as the Individual General Partners shall determine.
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---------------------------------
ARTICLE IV
TERMINATION OF STATUS OF ADVISER AND INDIVIDUAL GENERAL
PARTNERS, TRANSFERS AND REPURCHASES
---------------------------------
4.1 TERMINATION OF STATUS OF THE ADVISER.
The status of the Adviser as the Special Advisory Limited Partner
shall terminate if the Investment Advisory Agreement with the Adviser terminates
and the Partnership does not enter into a new Investment Advisory Agreement with
the Adviser, effective as of the date of such termination.
4.2 TERMINATION OF STATUS OF AN INDIVIDUAL GENERAL PARTNER.
The status of an Individual General Partner shall terminate if the
Individual General Partner (i) shall die; (ii) shall be adjudicated incompetent;
(iii) shall voluntarily withdraw as an Individual General Partner (upon not less
than 90 days' prior written notice to the other Individual General Partners);
(iv) shall be removed; (v) shall be certified by a physician to be mentally or
physically unable to perform his duties hereunder; (vi) shall be declared
bankrupt by a court with appropriate jurisdiction, file a petition commencing a
voluntary case under any bankruptcy law or make an assignment for the benefit of
creditors; (vii) shall have a receiver appointed to administer the property or
affairs of such Partner; or (viii) shall otherwise cease to be a general partner
of the Partnership under the Delaware Act.
4.3 REMOVAL OF INDIVIDUAL GENERAL PARTNERS.
Any Individual General Partner may be removed either by (a) the vote
or written consent of at least two-thirds (2/3) of the Individual General
Partners not subject to the removal vote or (b) the vote or written consent of
Limited Partners holding not less than two-thirds (2/3) of the total number of
votes eligible to be cast by all Partners.
4.4 TRANSFER OF INTERESTS OF INDIVIDUAL GENERAL PARTNERS.
Individual General Partners may not Transfer their Interests as
Individual General Partners.
4.5 TRANSFER OF INTERESTS OF LIMITED PARTNERS.
(a) An Interest or portion thereof of a Limited Partner may be
Transferred only (i) by operation of law pursuant to the death, bankruptcy,
insolvency or dissolution of such Limited Partner or (ii) with the written
consent of the Individual General Partners (which may be withheld in their sole
and absolute discretion), provided, however, that the Individual General
Partners may not consent to any Transfer other than a Transfer (i) in which the
tax basis of the interest in the
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hands of the transferee is determined, in whole or in part, by reference to its
tax basis in the hands of the transferor (e.g., certain Transfers to affiliates,
gifts and contributions to family partnerships), (ii) to members of the
Partner's immediate family (brothers, sisters, spouse, parents and children), or
(iii) a distribution from a qualified retirement plan or an individual
retirement account, unless it consults with counsel to the Partnership and
counsel to the Partnership confirms that such Transfer will not cause the
Partnership to be treated as a "publicly traded partnership" taxable as a
corporation.
(b) The Individual General Partners may not consent to a Transfer
of an Interest or a portion thereof of a Limited Partner unless: (i) the person
to whom such Interest is Transferred (or each of such person's beneficial owners
if such a person is a "private investment company" as defined in paragraph
(d)(3) of Rule 205-3 under the Advisers Act) is a person whom the Individual
General Partners believe meets the requirements of paragraph (d)(1) of Rule
205-3 under the Advisers Act or successor rule thereto; (ii) the entire Interest
of the Limited Partner is Transferred to a single transferee; and (iii) after
the Transfer, the balance of the Capital Account of the Transferee is not less
than $150,000. Any transferee which acquires an Interest by operation of law as
the result of the death, bankruptcy, insolvency or dissolution of a Limited
Partner or otherwise, shall be entitled to the allocations and distributions
allocable to the Interest so acquired and to Transfer such Interest in
accordance with the terms of this Agreement, but shall not be entitled to the
other rights of a Limited Partner unless and until such transferee becomes a
substituted Limited Partner. If a Limited Partner transfers an Interest with the
approval of the Individual General Partners, the Individual General Partners
shall promptly take all necessary actions so that the transferee to whom such
Interest is transferred is admitted to the Partnership as a Limited Partner.
Each Limited Partner effecting a Transfer and its transferee agree to pay all
expenses, including attorneys' and accountants' fees, incurred by the
Partnership in connection with such Transfer.
(c) Each Limited Partner shall indemnify and hold harmless the
Partnership, the Individual General Partners, the Adviser, each other Limited
Partner and any Affiliate of the foregoing against all losses, claims, damages,
liabilities, costs and expenses (including legal or other expenses incurred in
investigating or defending against any such losses, claims, damages,
liabilities, costs and expenses or any judgments, fines and amounts paid in
settlement), joint or several, to which such persons may become subject by
reason of or arising from (i) any Transfer made by such Limited Partner in
violation of this Section 4.5 and (ii) any misrepresentation by such Limited
Partner in connection with any such Transfer.
4.6 TRANSFER OF INTERESTS OF SPECIAL ADVISORY LIMITED PARTNER.
The Adviser may not Transfer its Interest as the Special Advisory
Limited Partner.
4.7 REPURCHASE OF INTERESTS.
(a) Except as otherwise provided in this Agreement, no Partner or
other person holding an Interest or portion thereof shall have the right to
withdraw or tender to the Partnership for repurchase that Interest or portion
thereof. The Individual General Partners may from time to time, in their
complete and exclusive discretion and on such terms and conditions as they may
determine, cause the Partnership to repurchase Interests or portions thereof
pursuant to written
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tenders. However, the Partnership shall not offer to repurchase Interests on
more than two occasions during any one Fiscal Year unless it has received an
opinion of counsel to the effect that such more frequent offers would not cause
any adverse tax consequences to the Partnership or the Limited Partners. In
determining whether to cause the Partnership to repurchase Interests or portions
thereof pursuant to written tenders, the Individual General Partners shall
consider the recommendation of the Adviser, and shall also consider the
following factors, among others:
(1) whether any Partners have requested to tender Interests
or portions thereof to the Partnership;
(2) the liquidity of the Partnership's assets;
(3) the investment plans and working capital requirements of
the Partnership;
(4) the relative economies of scale with respect to the size
of the Partnership;
(5) the history of the Partnership in repurchasing Interests
or portions thereof;
(6) the economic condition of the securities markets; and
(7) the anticipated tax consequences of any proposed
repurchases of Interests or portions thereof.
The Individual General Partners shall cause the Partnership to repurchase
Interests or portions thereof pursuant to written tenders only on terms fair to
the Partnership and to all Partners or one or more classes of Partners
(including persons holding Interests acquired from Partners), as applicable.
(b) A Limited Partner who tenders for repurchase only a portion of
such Limited Partner's Interest shall be required to maintain a Capital Account
balance equal to the greater of (i) $150,000, net of the Incentive Allocation,
if any, that would be debited against such Capital Account if the date of
repurchase of such Interest or portion thereof were a date on which an Incentive
Allocation would otherwise be made (the "Tentative Incentive Allocation") or
(ii) the amount of the Tentative Incentive Allocation.
(c) The Adviser may tender its Interest or a portion thereof as a
Limited Partner or Special Advisory Limited Partner of the Partnership under
Section 4.7(a) hereof.
(d) If the Adviser's status as Special Advisory Limited Partner is
terminated pursuant to Section 4.1 hereof, it (or its trustee or other legal
representative) may, by written notice to the Individual General Partners within
60 days of the effective date of such termination, tender to the Partnership for
repurchase all or any portion of its Special Advisory Account. Not later than
thirty (30) days after the receipt of such notice, the Individual General
Partners shall cause such tendered portion of the Special Advisory Account to be
repurchased by the Partnership for cash.
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(e) The Individual General Partners may cause the Partnership to
repurchase an Interest or portion thereof of a Limited Partner or any person
acquiring an Interest or portion thereof from or through a Limited Partner in
the event that the Individual General Partners determine or have reason to
believe that:
(1) such an Interest or portion thereof has been transferred
in violation of Section 4.5 hereof, or such an Interest
or portion thereof has vested in any person by operation
of law as the result of the death, dissolution,
bankruptcy or incompetency of a Partner;
(2) ownership of such an Interest by a Partner or other
person will cause the Partnership to be in violation of,
or require registration of any Interest or portion
thereof under, or subject the Partnership to additional
registration or regulation under, the securities laws of
the United States or any other relevant jurisdiction;
(3) continued ownership of such an Interest may be harmful
or injurious to the business or reputation of the
Partnership, the Individual General Partners or the
Adviser, or may subject the Partnership or any of the
Partners to an undue risk of adverse tax or other fiscal
consequences;
(4) any of the representations and warranties made by a
Partner in connection with the acquisition of an
Interest or portion thereof was not true when made or
has ceased to be true; or
(5) it would be in the best interests of the Partnership, as
determined by the Individual General Partners in their
absolute discretion, for the Partnership to repurchase
such an Interest or portion thereof.
(f) Repurchases of Interests or portions thereof by the
Partnership shall be payable promptly after the effective date of such
repurchase in accordance with the terms of the Partnership's repurchase offer.
Payment of the purchase price shall consist of: (i) cash in an aggregate amount
equal to such percentage, as may be determined by the Individual General
Partners, of the estimated unaudited net asset value of Interests repurchased by
the Partnership determined as of the effective date of such repurchase (the
"Cash Payment"); and, if determined to be necessary or appropriate by the
Individual General Partners, (ii) a promissory note entitling the holder thereof
to a contingent payment equal to the excess, of any, of (x) the net asset value
of the Interests repurchased by the Partnership as of the effective date of such
repurchases, determined based on the audited financial statements of the
Partnership for the Fiscal Year in which such repurchases were effective, over
(y) the Cash Payment. Notwithstanding anything in the foregoing to the contrary,
the Individual General Partners, in their discretion, may pay any portion of the
purchase price in marketable Securities (or any combination of marketable
Securities and cash) having a value, determined as of the date of repurchase,
equal to the amount to be repurchased. All such repurchases shall be subject to
any and all conditions as the Individual General Partners may impose in their
sole discretion and shall be effective as of a date set by the Individual
General
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Partners which is not less than 60 days after receipt by the Partnership
of all eligible written tenders of Interests or portion thereof. The amount due
to any Partner whose Interest or portion thereof is repurchased shall be equal
to the value of such Partner's Capital Account or portion thereof as applicable
as of the effective date of repurchase, after giving effect to all allocations
to be made to such Partner's Capital Account as of such date.
------------------------------------
ARTICLE V
CAPITAL
------------------------------------
5.1 CONTRIBUTIONS TO CAPITAL.
(a) The minimum initial contribution of each Partner to the
capital of the Partnership shall be such amount as the Individual General
Partners, in their discretion, may determine from time to time, but in no event
shall be less than $150,000. The amount of the initial contribution of each
Partner shall be recorded on the books and records of the Partnership upon
acceptance as a contribution to the capital of the Partnership. Individual
General Partners shall not be entitled to make voluntary contributions of
capital to the Partnership as general partners of the Partnership, but may make
voluntary contributions to the capital of the Partnership as limited partners.
The Adviser may make voluntary contributions to the capital of the Partnership
as a limited partner.
(b) The Limited Partners and the Adviser, as a Limited Partner,
may make additional contributions to the capital of the Partnership of at least
$25,000, effective as of such times as the Individual General Partners in their
discretion may permit, subject to Section 2.7 hereof, but no Limited Partner
shall be obligated to make any additional contribution to the capital of the
Partnership except to the extent provided in Section 5.7 hereof.
(c) Except as otherwise permitted by the Individual General
Partners, (i) initial and any additional contributions to the capital of the
Partnership by any Partner shall be payable in cash or in such Securities that
the Individual General Partners, in their absolute discretion, may agree to
accept on behalf of the Partnership, and (ii) initial and any additional
contributions in cash shall be payable in readily available funds at the date of
the proposed acceptance of the contribution. The Partnership shall charge each
Partner making a contribution in Securities to the capital of the Partnership
such amount as may be determined by the Individual General Partners not
exceeding 2% of the value of such contribution in order to reimburse the
Partnership for any costs incurred by the Partnership by reason of accepting
such Securities, and any such charge shall be due and payable by the
contributing Partner in full at the time the contribution to the capital of the
Partnership to which such charges relate is due. The value of contributed
Securities shall be determined in accordance with Section 7.3 hereof as of the
date of contribution.
(d) The minimum initial and additional contributions set forth in
(a) and (b) of this Section 5.1 may be reduced by the Individual General
Partners.
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5.2 RIGHTS OF PARTNERS TO CAPITAL.
No Partner shall be entitled to interest on his contribution to the
capital of the Partnership, nor shall any Partner be entitled to the return of
any capital of the Partnership except (i) upon the repurchase by the Partnership
of a part or all of such Partner's Interest pursuant to Section 4.7 hereof, (ii)
pursuant to the provisions of Section 5.7(c) hereof or (iii) upon the
liquidation of the Partnership's assets pursuant to Section 6.2 hereof. No
Partner shall be liable for the return of any such amounts. No Partner shall
have the right to require partition of the Partnership's property or to compel
any sale or appraisal of the Partnership's assets.
5.3 CAPITAL ACCOUNTS.
(a) The Partnership shall maintain a separate Capital Account for
each Limited Partner.
(b) Each Limited Partner's Capital Account shall have an initial
balance equal to the amount of cash and the value of any Securities (determined
in accordance with Section 7.3 hereof) constituting such Limited Partner's
initial contribution to the capital of the Partnership.
(c) Each Limited Partner's Capital Account shall be increased by
the sum of (i) the amount of cash and the value of any Securities (determined in
accordance with Section 7.3 hereof) constituting additional contributions by
such Limited Partner to the capital of the Partnership permitted pursuant to
Section 5.1 hereof, plus (ii) all amounts credited to such Limited Partner's
Capital Account pursuant to Sections 5.4 through 5.7 or 5.9 hereof.
(d) Each Limited Partner's Capital Account shall be reduced by the
sum of (i) the amount of any repurchase of the Interest, or portion thereof, of
such Limited Partner or distributions to such Limited Partner pursuant to
Sections 4.7, 5.11 or 6.2 hereof which are not reinvested, plus (ii) any amounts
debited against such Capital Account pursuant to Sections 5.4 through 5.9
hereof.
(e) The Partnership shall maintain a Special Advisory Account for
the Adviser in its capacity as Special Advisory Limited Partner solely for
purposes of receiving the Incentive Allocation pursuant to Section 5.8 hereof.
The Special Advisory Account shall have an initial balance of zero.
5.4 ALLOCATION OF NET PROFIT AND LOSS.
As of the last day of each Fiscal Period, any Net Profit or Net Loss
for the Fiscal Period shall be allocated among and credited to or debited
against the Capital Accounts of the Partners in accordance with their respective
Partnership Percentages for such Fiscal Period.
5.5 ALLOCATION OF INSURANCE PREMIUMS AND PROCEEDS.
(a) Any premiums payable by the Partnership for Insurance
purchased pursuant to Section 3.9(d) hereof shall be apportioned evenly over
each Fiscal Period or portion thereof
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falling within the period to which such premiums relate under the terms of such
Insurance, and the portion of the premiums so apportioned to any Fiscal Period
shall be allocated among and debited against the Capital Accounts of each
Partner who is a partner of the Partnership during such Fiscal Period in
accordance with such Partner's Partnership Percentage for such Fiscal Period.
(b) Proceeds, if any, to which the Partnership may become entitled
pursuant to such Insurance shall be allocated among and credited to the Capital
Accounts of each Partner who is a partner of the Partnership during the Fiscal
Period in which the event which gives rise to recovery of proceeds occurs in
accordance with such Partner's Partnership Percentage for such Fiscal Period.
5.6 ALLOCATION OF CERTAIN WITHHOLDING TAXES AND OTHER EXPENDITURES.
(a) If the Partnership incurs a withholding tax or other tax
obligation with respect to the share of Partnership income allocable to any
Limited Partner, then the Individual General Partners, without limitation of any
other rights of the Partnership or the General Partners, shall cause the amount
of such obligation to be debited against the Capital Account of such Partner
when the Partnership pays such obligation, and any amounts then or thereafter
distributable to such Partner shall be reduced by the amount of such taxes. If
the amount of such taxes is greater than any such distributable amounts, then
such Partner and any successor to such Partner's Interest shall pay to the
Partnership as a contribution to the capital of the Partnership, upon demand of
the Individual General Partners, the amount of such excess. The Individual
General Partners shall not be obligated to apply for or obtain a reduction of or
exemption from withholding tax on behalf of any Limited Partner that may be
eligible for such reduction or exemption; provided, that in the event that the
Individual General Partners determine that a Limited Partner is eligible for a
refund of any withholding tax, the Individual General Partners may, at the
request and expense of such Partner, assist such Partner in applying for such
refund.
(b) Except as otherwise provided for in this Agreement and unless
prohibited by the 1940 Act, any expenditures payable by the Partnership, to the
extent determined by the Individual General Partners to have been paid or
withheld on behalf of, or by reason of particular circumstances applicable to,
one or more but fewer than all of the Partners, shall be charged to only those
Partners on whose behalf such payments are made or whose particular
circumstances gave rise to such payments. Such charges shall be debited from the
Capital Accounts of such Partners as of the close of the Fiscal Period during
which any such items were paid or accrued by the Partnership.
5.7 RESERVES.
(a) Appropriate reserves may be created, accrued and charged
against Net Assets and proportionately against the Capital Accounts of the
Limited Partners for contingent liabilities, if any, as of the date any such
contingent liability becomes known to the Adviser or the Individual General
Partners, such reserves to be in the amounts which the Individual General
Partners in their sole discretion deem necessary or appropriate. The Individual
General Partners may increase or reduce any such reserves from time to time by
such amounts as the Individual General Partners in their sole discretion deem
necessary or appropriate. The amount of any such
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reserve, or any increase or decrease therein, shall be proportionately charged
or credited, as appropriate, to the Capital Accounts of those parties who are
Limited Partners at the time when such reserve is created, increased or
decreased, as the case may be; provided, however, that if any such individual
reserve item, adjusted by any increase therein, exceeds the lesser of $500,000
or 1% of the aggregate value of the Capital Accounts of all such Partners, the
amount of such reserve, increase, or decrease shall instead be charged or
credited to those parties who were Limited Partners at the time, as determined
by the Individual General Partners in their sole discretion, of the act or
omission giving rise to the contingent liability for which the reserve was
established, increased or decreased in proportion to their Capital Accounts at
that time.
(b) If at any time an amount is paid or received by the
Partnership (other than contributions to the capital of the Partnership,
distributions or repurchases of Interests or portions thereof) and such amount
exceeds the lesser of $500,000 or 1% of the aggregate value of the Capital
Accounts of all Limited Partners at the time of payment or receipt and such
amount was not accrued or reserved for but would nevertheless, in accordance
with the Partnership's accounting practices, be treated as applicable to one or
more prior Fiscal Periods, then such amount shall be proportionately charged or
credited, as appropriate, to those parties who were Limited Partners during such
prior Fiscal Period or Periods.
(c) If any amount is required by paragraph (a) or (b) of this
Section 5.7 to be charged or credited to a party who is no longer a Limited
Partner, such amount shall be paid by or to such party, as the case may be, in
cash, with interest from the date on which the Individual General Partners
determine that such charge or credit is required. In the case of a charge, the
former Limited Partner shall be obligated to pay the amount of the charge, plus
interest as provided above, to the Partnership on demand; provided, however,
that (i) in no event shall a former Partner be obligated to make a payment
exceeding the amount of such Partner's Capital Account at the time to which the
charge relates; and (ii) no such demand shall be made after the expiration of
three years since the date on which such party ceased to be a Partner. To the
extent that a former Limited Partner fails to pay to the Partnership, in full,
any amount required to be charged to such former Partner pursuant to paragraph
(a) or (b), whether due to the expiration of the applicable limitation period or
for any other reason whatsoever, the deficiency shall be charged proportionately
to the Capital Accounts of the Limited Partners at the time of the act or
omission giving rise to the charge to the extent feasible, and otherwise
proportionately to the Capital Accounts of the current Limited Partners.
5.8 INCENTIVE ALLOCATION.
(a) So long as the Adviser serves as the Special Advisory Limited
Partner of the Partnership, the Incentive Allocation shall be debited against
the Capital Account of each Limited Partner as of the last day of each
Allocation Period with respect to such Limited Partner and the amount so debited
shall simultaneously be credited to the Special Advisory Account or, subject to
compliance with the 1940 Act and the Advisers Act, to the Capital Accounts of
such Partners as have been designated in any written notice delivered by the
Adviser to the Individual General Partners within 90 days after the close of
such Allocation Period.
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(b) By the last business day of the month following the date on
which an Incentive Allocation is made, the Special Advisory Limited Partner may
withdraw up to 100% of the Incentive Allocation (computed on the basis of
unaudited data) that was credited to the Special Advisory Account. Within 30
days after the completion of the audit of the books of the Partnership for the
year in which allocations to the Special Advisory Account are made, the
Partnership shall pay to the Special Advisory Limited Partner any additional
amount of Incentive Allocation determined to be owed to the Special Advisory
Limited Partner based on the audit, and the Special Advisory Limited Partner
shall pay to the Partnership any excess amount of Incentive Allocation
determined to be owed to the Partnership.
5.9 ALLOCATION OF ORGANIZATIONAL EXPENSES.
(a) As of the first Expense Allocation Date, Organizational
Expenses shall be allocated among and debited against the Capital Accounts of
the Limited Partners in accordance with their respective Capital Percentages on
such Expense Allocation Date.
(b) As of each Expense Allocation Date following the first Expense
Allocation Date, all amounts previously debited against the Capital Account of a
Limited Partner pursuant to this Section 5.9 on the preceding Expense Allocation
Date will be credited to the Capital Account of such Limited Partner, and
Organizational Expenses shall then be re-allocated among and debited against the
Capital Accounts of all Limited Partners in accordance with their respective
Capital Percentages on such Expense Allocation Date.
5.10 TAX ALLOCATIONS.
For each fiscal year, items of income, deduction, gain, loss or
credit shall be allocated for income tax purposes among the Partners in such
manner as to reflect equitably amounts credited or debited to each Partner's
Capital Account for the current and prior fiscal years (or relevant portions
thereof). Allocations under this Section 5.10 shall be made pursuant to the
principles of Sections 704(b) and 704(c) of the Internal Revenue Code of 1986,
as amended (the "Code"), and in conformity with Regulations Sections
1.704-1(b)(2)(iv)(f), 1.704-1(b)(4)(i) and 1.704-3(e) promulgated thereunder, as
applicable, or the successor provisions to such Section and Regulations.
Notwithstanding anything to the contrary in this Agreement, there shall be
allocated to the Partners such gains or income as shall be necessary to satisfy
the "qualified income offset" requirement of Treasury Regulation Section
1.704-1(b)(2)(ii)(d).
If the Partnership realizes capital gains (including short-term
capital gains) for Federal income tax purposes ("gains") for any fiscal year
during or as of the end of which one or more Positive Basis Partners (as
hereinafter defined) withdraw from the Partnership pursuant to Articles IV or
VI, the Individual General Partners, unless otherwise determined by the
Individual General Partners, in their sole discretion, shall allocate such gains
as follows: (i) to allocate such gains among such Positive Basis Partners, pro
rata in proportion to the respective Positive Basis (as hereinafter defined) of
each such Positive Basis Partner, until either the full amount of such gains
shall have been so allocated or the Positive Basis of each such Positive Basis
Partner shall have been eliminated and (ii) to allocate any gains not so
allocated to Positive Basis Partners to the other Partners in such manner as
shall equitably reflect the amounts allocated to such
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Partners' Capital Accounts pursuant to Section 5.3; provided, however, that if,
following such fiscal year, the Partnership realizes gains from a sale of
Securities the proceeds of which are designated on the Partnership's books and
records as being used to effect payments of all or part of the interest in the
Partnership of any Positive Basis Partner, there shall be allocated to any
Positive Basis Partner an amount of such gains equal to the amount, if any by
which his or its Positive Basis as of the effective date of his or its
withdrawal exceeds the amount allocated to him or it pursuant to clause (i) of
this sentence.
If the Partnership realizes capital losses (including long-term
capital losses) for Federal income tax purposes ("losses") for any fiscal year
during or as of the end of which one or more Negative Basis Partners (as
hereinafter defined) withdraw from the Partnership pursuant to Articles IV or
VI, the Individual General Partners, unless otherwise determined by the
Individual General Partners, in their sole discretion, shall allocate such
losses as follows: (i) to allocate such losses among such Negative Basis
Partners, pro rata in proportion to the respective Negative Basis (as
hereinafter defined) of each such Negative Basis Partner, until either the full
amount of such losses shall have been so allocated or the Negative Basis of each
such Negative Basis Partner shall have been eliminated and (ii) to allocate any
losses not so allocated to Negative Basis Partners to the other Partners in such
manner as shall equitably reflect the amounts allocated to such Partners'
Capital Accounts pursuant to Section 5.3; provided, however, that if, following
such fiscal year, the Partnership realizes losses from a sale of Securities the
proceeds of which are designated on the Partnership's books and records as being
used to effect payments of all or part of the interest in the Partnership of any
Negative Basis Partner, there shall be allocated to any Negative Basis Partner
an amount of such losses equal to the amount, if any by which his or its
Negative Basis as of the effective date of his or its withdrawal exceeds the
amount allocated to him or it pursuant to clause (i) of this sentence.
As used herein, (i) the term "Positive Basis" shall mean, with
respect to any Partner and as of any time of calculation, the amount by which
its interest in the Partnership as of such time exceeds its "adjusted tax
basis", for Federal income tax purposes, in its interest in the Partnership as
of such time (determined without regard to any adjustments made to such
"adjusted tax basis" by reason of any transfer or assignment of such interest,
including by reason of death, and without regard to such Partner's share of the
liabilities of the Partnership under Section 752 of the Code), and (ii) the term
"Positive Basis Partner" shall mean any Partner who withdraws from the
Partnership and who has Positive Basis as of the effective date of its
withdrawal, but such Partner shall cease to be a Positive Basis Partner at such
time as it shall have received allocations pursuant to clause (i) of the second
paragraph of this Section 5.10 equal to its Positive Basis as of the effective
date of its withdrawal.
As used herein, (i) the term "Negative Basis" shall mean, with
respect to any Partner and as of any time of calculation, the amount by which
its interest in the Partnership as of such time is less than its "adjusted tax
basis", for Federal income tax purposes, in its interest in the Partnership as
of such time (determined without regard to any adjustments made to such
"adjusted tax basis" by reason of any transfer or assignment of such interest,
including by reason of death, and without regard to such Partner's share of the
liabilities of the Partnership under Section 752 of the Code), and (ii) the term
"Negative Basis Partner" shall mean any Partner who
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withdraws from the Partnership and who has Negative Basis as of the effective
date of its withdrawal, but such Partner shall cease to be a Negative Basis
Partner at such time as it shall have received allocations pursuant to clause
(i) of the third paragraph of this Section 5.10 equal to its Negative Basis as
of the effective date of its withdrawal.
Notwithstanding anything to the contrary in the foregoing, if the
Partnership realizes taxable gains in any fiscal year with respect to which the
Special Advisory Limited Partner is entitled to an Incentive Allocation under
Section 5.8 hereof, the Individual General Partners (, at the request of the
Special Advisory Limited Partner,) may specially allocate such gains to the
Special Advisory Limited Partner in an amount by which the Incentive Allocation
exceeds the Special Advisory Limited Partner's "adjusted tax basis" (determined
without regard to any allocation to be made pursuant to this paragraph) in its
interest in the Partnership as of the time it withdraws such Incentive
Allocation. The Special Advisory Limited Partner's "adjusted tax basis", for
these purposes, shall be increased by any amount of the Incentive Allocation
withdrawal which it elects to contribute as a Limited Partner to the Partnership
as of the date of the withdrawal of the Incentive Allocation.
5.11 DISTRIBUTIONS.
(a) The Individual General Partners may, in their sole
discretion, authorize the Partnership to make distributions in cash at any time
to all of the Partners on a pro rata basis in accordance with the Partners'
Partnership Percentages.
(b) The Individual General Partners may withhold taxes from
any distribution to any Partner to the extent required by the Code or any other
applicable law. For purposes of this Agreement, any taxes so withheld by the
Partnership with respect to any amount distributed by the Partnership to any
Partner shall be deemed to be a distribution or payment to such Partner,
reducing the amount otherwise distributable to such Partner pursuant to this
Agreement and reducing the Capital Account of such Partner.
5.12 FOREIGN WITHHOLDING.
Notwithstanding any provision of this Agreement to the contrary, the
Individual General Partners shall withhold and pay over to the Internal Revenue
Service, pursuant to Sections 1441, 1442, 1445 or 1446 of the Code, or any
successor provisions, at such times as required by such Sections, such amounts
as the Partnership is required to withhold under such Sections, as from time to
time are in effect. To the extent that a foreign Limited Partner claims to be
entitled to a reduced rate of, or exemption from, U.S. withholding tax pursuant
to an applicable income tax treaty, or otherwise, the foreign Limited Partner
shall furnish the Individual General Partners with such information and forms as
such foreign Limited Partner may be required to complete where necessary to
comply with any and all laws and regulations governing the obligations of
withholding tax agents. Each foreign Limited Partner represents and warrants
that any such information and forms furnished by such foreign Limited Partner
shall be true and accurate and agrees to indemnify the Partnership and each of
the Limited Partners from any and all damages, costs and expenses resulting from
the filing of inaccurate or incomplete information or forms relating to such
withholding taxes.
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Any amount of withholding taxes withheld and paid
over by the Individual General Partners with respect to a foreign Limited
Partner's distributive share of the Partnership's gross income, income or gain
shall be treated as a distribution to such foreign Limited Partner and shall be
charged against the Capital Account of such foreign Limited Partner.
--------------------------
ARTICLE VI
DISSOLUTION AND LIQUIDATION
---------------------------
6.1 DISSOLUTION.
(a) The Partnership shall be dissolved:
(1) upon the affirmative vote to dissolve the
Partnership by: (i) the Individual General
Partners or (ii) Limited Partners holding at
least two-thirds (2/3) of the total number
of votes eligible to be cast by all
Partners;
(2) upon the failure of Limited Partners to
elect successor Individual General Partners
at a meeting called by the Adviser in
accordance with Section 2.6(c) hereof when
no Individual General Partner remains to
continue the business of the Partnership;
(3) upon the expiration of any two year period
which commences on the date on which any
Limited Partner has submitted a written
notice to the Partnership requesting to
tender its entire Interest for repurchase by
the Partnership if such Interest has not
been repurchased by the Partnership;
(4) as required by operation of law.
Dissolution of the Partnership shall be effective on the later of the day on
which the event giving rise to the dissolution shall occur or the conclusion of
any applicable 60 day period during which the Individual General Partners and
Limited Partners may elect to continue the business of the Partnership as
provided above, but the Partnership shall not terminate until the assets of the
Partnership have been liquidated in accordance with Section 6.2 hereof and the
Certificate has been canceled.
(b) Upon the occurrence of an event of withdrawal under
Section 17-402 of the Delaware Act with respect to any General Partner
(including any event specified in Section 4.1, 4.2, 4.3 or 4.4 hereof that
causes such General Partner to cease to be a Partner in the Partnership), all
remaining General Partners are authorized to carry on the business of the
Partnership as permitted by Section 17-801(3) of the Delaware Act and to the
extent permitted by this Agreement. Except as
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provided in Section 6.1(a) hereof or in the Delaware Act, the death, mental
illness, dissolution, termination, liquidation, bankruptcy, reorganization,
merger, sale of substantially all of the stock or assets of or other change in
the ownership or nature of a Partner, the admission to the Partnership of a new
Partner, the withdrawal of a Partner from the Partnership, or the transfer by a
Partner of his Interest to a third party shall not cause the Partnership to
dissolve.
6.2 LIQUIDATION OF ASSETS.
(a) Upon the dissolution of the Partnership as provided in
Section 6.1 hereof, the Individual General Partners shall promptly appoint the
Administrator as the liquidator and the Administrator shall liquidate the
business and administrative affairs of the Partnership, except that if the
Individual General Partners do not appoint the Administrator as the liquidator
or the Administrator is unable to perform this function, a liquidator elected by
Limited Partners holding a majority of the total number of votes eligible to be
cast by all Limited Partners shall promptly liquidate the business and
administrative affairs of the Partnership. Net Profit and Net Loss during the
period of liquidation shall be allocated pursuant to Section 5.4 hereof. The
proceeds from liquidation (after establishment of appropriate reserves for
contingencies in such amount as the Individual General Partners or liquidator
shall deem appropriate in their or its sole discretion as applicable) shall be
distributed in the following manner:
(1) the debts of the Partnership, other than
debts, liabilities or obligations to
Partners, and the expenses of liquidation
(including legal and accounting expenses
incurred in connection therewith), up to and
including the date that distribution of the
Partnership's assets to the Partners has
been completed, shall first be paid on a pro
rata basis;
(2) such debts, liabilities or obligations as
are owing to the Partners shall next be paid
in their order of seniority and on a pro
rata basis;
(3) The Special Advisory Limited Partner shall
next be paid any balance in the Special
Advisory Account after giving effect to the
Incentive Allocation, if any, to be made
pursuant to Section 5.8 hereof; and
(4) the Limited Partners shall next be paid on a
pro rata basis the positive balances of
their respective Capital Accounts after
giving effect to all allocations to be made
to such Partners' Capital Accounts for the
Fiscal Period ending on the date of the
distributions under this Section 6.2(a)(3).
(b) Anything in this Section 6.2 to the contrary notwithstanding, upon
dissolution of the Partnership, the Individual General Partners or other
liquidator may distribute ratably in kind any assets of the Partnership;
provided, however, that if any in-kind distribution is to be made (i) the assets
distributed in kind shall be valued pursuant to Section 7.3 hereof as of the
actual date of their distribution and charged as so valued and distributed
against amounts to be paid under Section 6.2(a) above, and (ii) any profit or
loss attributable to property distributed in-kind
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shall be included in the Net Profit or Net Loss for the Fiscal Period ending on
the date of such distribution.
-----------------------------
ARTICLE VII
ACCOUNTING, VALUATIONS AND BOOKS AND RECORDS
-----------------------------
7.1 ACCOUNTING AND REPORTS.
(a) The Partnership shall adopt for tax accounting purposes
any accounting method which the Individual General Partners shall decide in
their sole discretion is in the best interests of the Partnership. The
Partnership's accounts shall be maintained in U.S. currency.
(b) After the end of each taxable year, the Partnership shall
furnish to each Partner such information regarding the operation of the
Partnership and such Partner's Interest as is necessary for Partners to complete
federal and state income tax or information returns and any other tax
information required by federal or state law.
(c) Except as otherwise required by the 1940 Act, or as may
otherwise be permitted by rule, regulation or order, within 60 days after the
close of the period for which a report required under this Section 7.1(c) is
being made, the Partnership shall furnish to each Limited Partner a semi-annual
report and an annual report containing the information required by such Act. The
Partnership shall cause financial statements contained in each annual report
furnished hereunder to be accompanied by a certificate of independent public
accountants based upon an audit performed in accordance with generally accepted
accounting principles. The Partnership may furnish to each Partner such other
periodic reports as it deems necessary or appropriate in its discretion.
7.2 DETERMINATIONS BY INDIVIDUAL GENERAL PARTNERS.
(a) All matters concerning the determination and allocation
among the Partners of the amounts to be determined and allocated pursuant to
Article V hereof, including any taxes thereon and accounting procedures
applicable thereto, shall be determined by the Individual General Partners
unless specifically and expressly otherwise provided for by the provisions of
this Agreement or required by law, and such determinations and allocations shall
be final and binding on all the Partners.
(b) The Individual General Partners may make such adjustments
to the computation of Net Profit or Net Loss, the Allocation Change with respect
to any Limited Partner, or any components comprising any of the foregoing as it
considers appropriate to reflect fairly and accurately the financial results of
the Partnership and the intended allocation thereof among the Partners.
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7.3 VALUATION OF ASSETS.
(a) Except as may be required by the 1940 Act, the Individual
General Partners shall value or have valued any Securities or other assets and
liabilities of the Partnership as of the close of business on the last day of
each Fiscal Period in accordance with such valuation procedures as shall be
established from time to time by the Individual General Partners and which
conform to the requirements of the 1940 Act. In determining the value of the
assets of the Partnership, no value shall be placed on the goodwill or name of
the Partnership, or the office records, files, statistical data or any similar
intangible assets of the Partnership not normally reflected in the Partnership's
accounting records, but there shall be taken into consideration any items of
income earned but not received, expenses incurred but not yet paid, liabilities,
fixed or contingent, and any other prepaid expenses to the extent not otherwise
reflected in the books of account, and the value of options or commitments to
purchase or sell Securities or commodities pursuant to agreements entered into
prior to such valuation date.
(b) The value of Securities and other assets of the
Partnership and the net worth of the Partnership as a whole determined pursuant
to this Section 7.3 shall be conclusive and binding on all of the Partners and
all parties claiming through or under them.
---------------------------
ARTICLE VIII
MISCELLANEOUS PROVISIONS
-----------------------------
8.1 AMENDMENT OF PARTNERSHIP AGREEMENT.
(a) Except as otherwise provided in this Section 8.1, this
Agreement may be amended, in whole or in part, with: (i) the approval of the
Individual General Partners (including the vote of a majority of the Independent
General Partners, if required by the 1940 Act) and (ii) if required by the 1940
Act, the approval of the Limited Partners by such vote as is required by the
1940 Act.
(b) Any amendment that would:
(1) increase the obligation of a Partner to make
any contribution to the capital of the
Partnership;
(2) reduce the Capital Account of a Partner or
Special Advisory Account other than in
accordance with Article V; or
(3) modify the events causing the dissolution of
the Partnership;
may be made only if (i) the written consent of each Partner adversely affected
thereby is obtained prior to the effectiveness thereof or (ii) such amendment
does not become effective until (A) each
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Limited Partner has received written notice of such amendment and (B) any
Limited Partner objecting to such amendment has been afforded a reasonable
opportunity (pursuant to such procedures as may be prescribed by the Individual
General Partners) to tender his entire Interest for repurchase by the
Partnership.
(c) The power of the Individual General Partners to amend this
Agreement at any time without the consent of the other Partners as set forth in
paragraph (a) of this Section 8.01 shall specifically include the power to:
(1) restate this Agreement together with any
amendments hereto which have been duly
adopted in accordance herewith to
incorporate such amendments in a single,
integrated document;
(2) amend Section 2.7 hereof to authorize the
admittance of Limited Partners more
frequently than quarterly;
(3) amend this Agreement (other than with
respect to the matters set forth in Section
8.1(b) hereof) to effect compliance with any
applicable law or regulation, including but
not limited to, to satisfy the requirements,
or to reflect any relaxation of such
requirements in the future, of the Bank
Holding Company Act or other U.S. or
Canadian banking laws, or any regulations,
guidelines or policies or interpretations of
the banking regulatory agencies or the staff
thereof, or to cure any ambiguity or to
correct or supplement any provision hereof
which may be inconsistent with any other
provision hereof, provided that such action
does not adversely affect the rights of any
Partner in any material respect; and
(4) amend this Agreement to make such changes as
may be necessary or desirable, based on
advice of legal counsel to the Partnership,
to assure the Partnership's continuing
eligibility to be classified for U.S.
federal income tax purposes as a partnership
which is not treated as a corporation under
Section 7704(a) of the Code.
(d) The Individual General Partners shall cause written notice
to be given of any amendment to this Agreement (other than any amendment of the
type contemplated by clause (1) of Section 8.1(c) hereof) to each Partner, which
notice shall set forth (i) the text of the amendment or (ii) a summary thereof
and a statement that the text thereof will be furnished to any Partner upon
request.
8.2 SPECIAL POWER OF ATTORNEY.
(a) Each Limited Partner hereby irrevocably makes, constitutes
and appoints each of the Individual General Partners, acting severally, and any
liquidator of the Partnership's assets appointed pursuant to Section 6.2 hereof
with full power of substitution, the true and lawful representatives and
attorneys-in-fact of, and in the name, place and stead of, such Partner, with
the
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power from time to time to make, execute, sign, acknowledge, swear to, verify,
deliver, record, file and/or publish:
(1) any amendment to this Agreement which
complies with the provisions of this
Agreement (including the provisions of
Section 8.1 hereof);
(2) any amendment to the Certificate required
because this Agreement is amended,
including, without limitation, an amendment
to effectuate any change in the membership
of the Partnership; and
(3) all such other instruments, documents and
certificates which, in the opinion of legal
counsel to the Partnership, may from time to
time be required by the laws of the United
States of America, the State of Delaware or
any other jurisdiction in which the
Partnership shall determine to do business,
or any political subdivision or agency
thereof, or which such legal counsel may
deem necessary or appropriate to effectuate,
implement and continue the valid existence
and business of the Partnership as a limited
partnership under the Delaware Act.
(b) Each Limited Partner is aware that the terms of this
Agreement permit certain amendments to this Agreement to be effected and certain
other actions to be taken or omitted by or with respect to the Partnership
without such Partner's consent. If an amendment to the Certificate or this
Agreement or any action by or with respect to the Partnership is taken in the
manner contemplated by this Agreement, each Limited Partner agrees that,
notwithstanding any objection which such Partner may assert with respect to such
action, the attorneys-in-fact appointed hereby are authorized and empowered,
with full power of substitution, to exercise the authority granted above in any
manner which may be necessary or appropriate to permit such amendment to be made
or action lawfully taken or omitted. Each Limited Partner is fully aware that
each Partner will rely on the effectiveness of this special power-of-attorney
with a view to the orderly administration of the affairs of the Partnership.
(c) This power-of-attorney is a special power-of-attorney and
is coupled with an interest in favor of each of the Individual General Partners
and as such:
(1) shall be irrevocable and continue in full
force and effect notwithstanding the
subsequent death or incapacity of any party
granting this power-of-attorney, regardless
of whether the Partnership or Individual
General Partners shall have had notice
thereof; and
(2) shall survive the delivery of a Transfer by
a Limited Partner of the whole or any
portion of such Partner's Interest, except
that where the transferee thereof has been
approved by the Individual General Partners
for admission to the Partnership as a
substituted Limited
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Partner, this power-of-attorney given by the
transferor shall survive the delivery of
such assignment for the sole purpose of
enabling the Individual General Partners to
execute, acknowledge and file any instrument
necessary to effect such substitution.
8.3 NOTICES.
Notices which may or are required to be provided under this
Agreement shall be made, if to a Limited Partner, by regular mail, or if to an
Individual General Partner or the Adviser, by hand delivery, registered or
certified mail return receipt requested, commercial courier service, telex or
telecopier, and shall be addressed to the respective parties hereto at their
addresses as set forth in the books and records of the Partnership. Notices
shall be deemed to have been provided when delivered by hand, on the date
indicated as the date of receipt on a return receipt or when received if sent by
regular mail, commercial courier service, telex or telecopier. A document that
is not a notice and that is required to be provided under this Agreement by any
party to another party may be delivered by any reasonable means.
8.4 AGREEMENT BINDING UPON SUCCESSORS AND ASSIGNS.
This Agreement shall be binding upon and inure to the benefit
of the parties hereto and their respective heirs, successors, assigns,
executors, trustees or other legal representatives, but the rights and
obligations of the parties hereunder may not be Transferred or delegated except
as provided in this Agreement and any attempted Transfer or delegation thereof
which is not made pursuant to the terms of this Agreement shall be void.
8.5 APPLICABILITY OF 1940 ACT AND FORM N-2.
The parties hereto acknowledge that this Agreement is not
intended to, and does not, set forth the substantive provisions contained in the
1940 Act and the Form N-2 which affect numerous aspects of the conduct of the
Partnership's business and of the rights, privileges and obligations of the
Partners. Each provision of this Agreement shall be subject to and interpreted
in a manner consistent with the applicable provisions of the 1940 Act and the
Form N-2.
8.6 CHOICE OF LAW; ARBITRATION.
(a) Notwithstanding the place where this Agreement may be
executed by any of the parties hereto, the parties expressly agree that all the
terms and provisions hereof shall be construed under the laws of the State of
Delaware, including the Delaware Act without regard to the conflict of law
principles of such State.
(b) UNLESS OTHERWISE AGREED IN WRITING, EACH PARTNER AGREES TO
SUBMIT ALL CONTROVERSIES ARISING BETWEEN PARTNERS OR ONE OR MORE PARTNERS AND
THE PARTNERSHIP TO ARBITRATION IN ACCORDANCE WITH THE PROVISIONS SET FORTH BELOW
AND UNDERSTANDS:
(1) ARBITRATION IS FINAL AND BINDING ON THE PARTIES;
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(2) THEY ARE WAIVING THEIR RIGHT TO SEEK
REMEDIES IN COURT, INCLUDING THE RIGHT TO A
JURY TRIAL;
(3) PRE-ARBITRATION DISCOVERY IS GENERALLY MORE
LIMITED AND DIFFERENT FROM COURT
PROCEEDINGS;
(4) THE ARBITRATOR'S AWARD IS NOT REQUIRED TO
INCLUDE FACTUAL FINDINGS OR LEGAL REASONING
AND A PARTY'S RIGHT TO APPEAL OR TO SEEK
MODIFICATION OF RULINGS BY ARBITRATORS IS
STRICTLY LIMITED; AND
(5) THE PANEL OF ARBITRATORS WILL TYPICALLY
INCLUDE A MINORITY OF ARBITRATORS WHO WERE
OR ARE AFFILIATED WITH THE SECURITIES
INDUSTRY.
(b) ALL CONTROVERSIES THAT MAY ARISE AMONG PARTNERS AND ONE OR
MORE PARTNERS AND THE PARTNERSHIP CONCERNING THIS AGREEMENT SHALL BE DETERMINED
BY ARBITRATION IN NEW YORK CITY IN ACCORDANCE WITH THE FEDERAL ARBITRATION ACT,
TO THE FULLEST EXTENT PERMITTED BY LAW. ANY ARBITRATION UNDER THIS AGREEMENT
SHALL BE DETERMINED BEFORE AND IN ACCORDANCE WITH THE RULES THEN OBTAINING OF
EITHER THE NEW YORK STOCK EXCHANGE, INC. (THE "NYSE") OR THE NATIONAL
ASSOCIATION OF SECURITIES DEALERS, INC. (THE "NASD"), AS THE PARTNER OR ENTITY
INSTITUTING THE ARBITRATION MAY ELECT. IF THE NYSE OR NASD DOES NOT ACCEPT THE
ARBITRATION FOR CONSIDERATION, THE ARBITRATION SHALL BE SUBMITTED TO, AND
DETERMINED IN ACCORDANCE WITH THE RULES THEN OBTAINING OF, THE CENTER FOR PUBLIC
RESOURCES, INC. IN NEW YORK CITY. JUDGMENT ON ANY AWARD OF ANY SUCH ARBITRATION
MAY BE ENTERED IN THE SUPREME COURT OF THE STATE OF NEW YORK OR IN ANY OTHER
COURT HAVING JURISDICTION OF THE PERSON OR PERSONS AGAINST WHOM SUCH AWARD IS
RENDERED. ANY NOTICE OF SUCH ARBITRATION OR FOR THE CONFIRMATION OF ANY AWARD IN
ANY ARBITRATION SHALL BE SUFFICIENT IF GIVEN IN ACCORDANCE WITH THE PROVISIONS
OF THIS AGREEMENT. EACH PARTNER AGREES THAT THE DETERMINATION OF THE ARBITRATORS
SHALL BE BINDING AND CONCLUSIVE UPON THEM.
(c) NO PARTNER SHALL BRING A PUTATIVE OR CERTIFIED CLASS
ACTION TO ARBITRATION, NOR SEEK TO ENFORCE ANY PRE-DISPUTE ARBITRATION AGREEMENT
AGAINST ANY PERSON WHO HAS INITIATED IN COURT A PUTATIVE CLASS ACTION; OR WHO IS
A MEMBER OF A PUTATIVE CLASS WHO HAS NOT OPTED OUT OF THE CLASS WITH RESPECT TO
ANY CLAIMS ENCOMPASSED BY THE PUTATIVE CLASS ACTION UNTIL: (i) THE CLASS
CERTIFICATION IS DENIED; OR (ii) THE CLASS IS DECERTIFIED; OR (iii) THE PARTNER
IS EXCLUDED FROM THE CLASS BY THE COURT. SUCH FORBEARANCE TO ENFORCE AN
AGREEMENT TO ARBITRATE SHALL NOT CONSTITUTE A WAIVER OF ANY RIGHTS UNDER THIS
AGREEMENT EXCEPT TO THE EXTENT STATED HEREIN.
8.7 NOT FOR BENEFIT OF CREDITORS.
The provisions of this Agreement are intended only for the
regulation of relations among past, present and future Partners and the
Partnership. This Agreement is not intended for the benefit of non-Partner
creditors and no rights are granted to non-Partner creditors under this
Agreement.
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8.8 CONSENTS.
Any and all consents, agreements or approvals provided for or
permitted by this Agreement shall be in writing and a signed copy thereof shall
be filed and kept with the books of the Partnership.
8.9 MERGER AND CONSOLIDATION.
(a) The Partnership may merge or consolidate with or into one
or more limited partnerships formed under the Delaware Act or other business
entities pursuant to an agreement of merger or consolidation which has been
approved in the manner contemplated by Section 17-211(b) of the Delaware Act.
(b) Notwithstanding anything to the contrary contained
elsewhere in this Agreement, an agreement of merger or consolidation approved in
accordance with Section 17-211(b) of the Delaware Act may, to the extent
permitted by Section 17-211(g) of the Delaware Act, (i) effect any amendment to
this Agreement (ii) effect the adoption of a new partnership agreement for the
Partnership if it is the surviving or resulting limited partnership in the
merger or consolidation, or (iii) provide that the partnership agreement of any
other constituent partnership to the merger or consolidation (including a
limited partnership formed for the purpose of consummating the merger or
consolidation) shall be the partnership agreement of the surviving or resulting
limited partnership.
8.10 PRONOUNS.
All pronouns shall be deemed to refer to the masculine,
feminine, neuter, singular or plural, as the identity of the person or persons,
firm or corporation may require in the context thereof.
8.11 CONFIDENTIALITY.
(a) A Limited Partner may obtain from the Partnership such
information regarding the affairs of the Partnership as is just and reasonable
under the Delaware Act, subject to reasonable standards (including standards
governing what information and documents are to be furnished, at what time and
location and at whose expense) established by the Individual General Partners.
(b) Each Partner covenants that, except as required by
applicable law or any regulatory body, it will not divulge, furnish or make
accessible to any other person the name and/or address (whether business,
residence or mailing) of any Limited Partner (collectively, "Confidential
Information") without the prior written consent of the Individual General
Partners, which consent may be withheld in their sole discretion.
(c) Each Partner recognizes that in the event that this
Section 8.11 is breached by any Partner or any of its principals, partners,
members, directors, officers, employees or agents or any of its affiliates,
including any of such affiliates' principals, partners, members, directors,
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officers, employees or agents, irreparable injury may result to the
non-breaching Partners and the Partnership. Accordingly, in addition to any and
all other remedies at law or in equity to which the non-breaching Partners and
the Partnership may be entitled, such Partners shall also have the right to
obtain equitable relief, including, without limitation, injunctive relief, to
prevent any disclosure of Confidential Information, plus reasonable attorneys'
fees and other litigation expenses incurred in connection therewith. In the
event that any non-breaching Partner or the Partnership determines that any of
the other Partners or any of its principals, partners, members, directors,
officers, employees or agents or any of its affiliates, including any of such
affiliates' principals, partners, members, directors, officers, employees or
agents should be enjoined from or required to take any action to prevent the
disclosure of Confidential Information, each of the other non-breaching Partners
agrees to pursue in a court of appropriate jurisdiction such injunctive relief.
8.12 CERTIFICATION OF NON-FOREIGN STATUS.
Each Limited Partner or transferee of an Interest from a
Limited Partner shall certify, upon admission to the Partnership and at such
other time thereafter as the Individual General Partners may request, whether he
is a "United States Person" within the meaning of Section 7701(a)(30) of the
Code on forms to be provided by the Partnership, and shall notify the
Partnership within 30 days of any change in such Partner's status. Any Limited
Partner who shall fail to provide such certification when requested to do so by
the Individual General Partners may be treated as a non-United States Person for
purposes of U.S. federal tax withholding.
8.13 SEVERABILITY.
If any provision of this Agreement is determined by a court of
competent jurisdiction not to be enforceable in the manner set forth in this
Agreement, each Partner agrees that it is the intention of the Partners that
such provision should be enforceable to the maximum extent possible under
applicable law. If any provisions of this Agreement are held to be invalid or
unenforceable, such invalidation or unenforceability shall not affect the
validity or enforceability of any other provision of this Agreement (or portion
thereof).
8.14 FILING OF RETURNS.
The Individual General Partners or their designated agent
shall prepare and file, or cause the accountants of the Partnership to prepare
and file, a Federal information tax return in compliance with Section 6031 of
the Code and any required state and local income tax and information returns for
each tax year of the Partnership.
8.15 TAX MATTERS PARTNER.
An Individual General Partner shall be designated on the
Partnership's annual Federal income tax return, and have full powers and
responsibilities, as the Tax Matters Partner of the Partnership for purposes of
Section 6231(a)(7) of the Code. Each person (for purposes of this Section 8.15,
called a "Pass-Thru Partner") that holds or controls an interest as a Limited
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<PAGE> 45
Partner on behalf of, or for the benefit of, another person or persons, or which
Pass-Thru Partner is beneficially owned (directly or indirectly) by another
person or persons, shall, within 30 days following receipt from the Tax Matters
Partner of any notice, demand, request for information or similar document,
convey such notice or other document in writing to all holders of beneficial
interests in the Partnership holding such interests through such Pass-Thru
Partner. In the event the Partnership shall be the subject of an income tax
audit by any Federal, state or local authority, to the extent the Partnership is
treated as an entity for purposes of such audit, including administrative
settlement and judicial review, the Tax Matters Partner shall be authorized to
act for, and its decision shall be final and binding upon, the Partnership and
each Partner thereof. All expenses incurred in connection with any such audit,
investigation, settlement or review shall be borne by the Partnership.
8.16 SECTION 754 ELECTION.
In the event of a distribution of Partnership property to a
Partner or an assignment or other transfer (including by reason of death) of all
or part of the interest of a Limited Partner in the Partnership, at the request
of a Partner, the Individual General Partners, in their discretion, may cause
the Partnership to elect, pursuant to Section 754 of the Code, or the
corresponding provision of subsequent law, to adjust the basis of the
Partnership property as provided by Sections 734 and 743 of the Code.
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THE UNDERSIGNED ACKNOWLEDGES HAVING READ THIS AGREEMENT IN ITS ENTIRETY
BEFORE SIGNING, INCLUDING THE PRE-DISPUTE ARBITRATION CLAUSE SET FORTH IN
SECTION 8.6 AND THE CONFIDENTIALITY CLAUSE SET FORTH IN SECTION 8.11.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
INDIVIDUAL GENERAL PARTNERS:
/s/
-----------------------------------
/s/
-----------------------------------
/s/
-----------------------------------
LIMITED PARTNERS:
Each person who shall sign
a Limited Partner Signature
Page and who shall be
accepted by the Individual
General Partners to the
Partnership as a Limited
Partner.
SPECIAL ADVISORY LIMITED PARTNER:
CIBC OPPENHEIMER ADVISERS, L.L.C.
By: CIBC Oppenheimer Corp.
Managing Member
By: /s/
----------------------------
Name:
Title:
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<PAGE> 1
EXHIBIT (g)
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made the ___th day of [September,] 1998, by and
between Wynstone Partners, L.P., a Delaware limited partnership (the
"Partnership"), and CIBC Oppenheimer Advisers, L.L.C., a Delaware limited
liability company (the "Adviser"):
W I T N E S S E T H:
WHEREAS, the Partnership intends to engage in business as a
closed-end, non-diversified management investment company and is registered as
such under the Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Adviser is registered as an investment adviser
under the Investment Advisers Act of 1940, as amended, and will engage in the
business of acting as an investment adviser; and
WHEREAS, the Partnership desires to retain the Adviser to
render investment advisory services to the Partnership in the manner and on the
terms and conditions hereinafter set forth; and
WHEREAS, the Adviser desires to be retained to perform such
services on said terms and conditions:
NOW, THEREFORE, in consideration of the premises and the
mutual covenants hereinafter contained, the Partnership and the Adviser agree as
follows:
1. The Partnership hereby retains the Adviser to act as its
investment adviser and, subject to the supervision and control of the Individual
General Partners of the Partnership (the "IGPs"), to manage the investment
activities of the Partnership as hereinafter set forth. Without limiting the
generality of the foregoing, the Adviser shall: obtain and evaluate such
information and advice relating to the economy, securities markets, and
securities as it deems necessary or useful to discharge its duties hereunder;
continuously manage the assets of the Partnership in a manner consistent with
the investment objective, policies and restrictions of the Partnership, as set
forth in the Confidential Memorandum of the Partnership and as may be adopted
from time to time by the IGPs, and applicable laws and regulations; determine
the securities to be purchased, sold or otherwise disposed of by the Partnership
and the timing of such purchases, sales and dispositions; and take such further
action, including the placing of purchase and sale orders and the voting of
securities on behalf of the Partnership, as the Adviser shall deem necessary or
appropriate. The Adviser shall furnish to or place at the disposal of the
Partnership such of the information, evaluations, analyses and opinions
formulated or obtained by the Adviser in the discharge of its duties as the
Partnership may, from time to time, reasonably request.
2. Without limiting the generality of paragraph 1 hereof, the
Adviser shall be authorized to open, maintain and close accounts in the name and
on behalf of the Partnership with brokers and dealers as it determines are
appropriate; to select and place
<PAGE> 2
orders with brokers, dealers or other financial intermediaries for the
execution, clearance or settlement of any transactions on behalf of the
Partnership on such terms as the Adviser considers appropriate and which are
consistent with the policies of the Partnership; and, subject to any policies
adopted by the IGPs and to the provisions of applicable law, to agree to such
commissions, fees and other charges on behalf of the Partnership as it shall
deem reasonable in the circumstances taking into account all such factors as it
deems relevant (including the quality of research and other services made
available to it even if such services are not for the exclusive benefit of the
Partnership and the cost of such services does not represent the lowest cost
available) and shall be under no obligation to combine or arrange orders so as
to obtain reduced charges unless otherwise required under the federal securities
laws. The Adviser may use, subject to such procedures as may be adopted by the
IGPs, affiliates of the Adviser as brokers to effect the Partnership's
securities transactions and the Partnership may pay such commissions to such
brokers in such amounts as are permissible under applicable law.
3. The Adviser shall, at its own expense, maintain such staff
and employ or retain such personnel and consult with such other persons as may
be necessary to render the services required to be provided by the Adviser or
furnished to the Partnership under this Agreement. Without limiting the
generality of the foregoing, the staff and personnel of the Adviser shall be
deemed to include persons employed or otherwise retained by the Adviser or made
available to the Adviser by its members.
4. The Partnership will, from time to time, furnish or
otherwise make available to the Adviser such financial reports, proxy
statements, policies and procedures and other information relating to the
business and affairs of the Partnership as the Adviser may reasonably require in
order to discharge its duties and obligations hereunder.
5. The Adviser shall bear the cost of rendering the services
to be performed by it under this Agreement.
6. The Partnership assumes and shall pay or cause to be paid
all expenses of the Partnership not expressly assumed by the Adviser under this
Agreement, including without limitation: 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; attorneys' fees and disbursements associated with updating the
Partnership's Confidential Memorandum and subscription documents (the "Offering
Materials"); the costs of printing the Offering Materials; the costs of
distributing the Offering Materials to prospective investors; and attorneys'
fees and disbursements associated with the review of subscription documents
executed and delivered to the Partnership in connection with offerings of
interests in the Partnership of the Partnership; the costs and expenses of
holding meetings of the IGPs and any meetings of limited partners of the
Partnership; fees and disbursements of any attorneys,
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<PAGE> 3
accountants, auditors and other consultants and professionals engaged on behalf
of the Partnership; the administrative services fee paid to CIBC Oppenheimer
Corp. pursuant to the Administrative Services Agreement and the fees of
custodians and persons providing administrative services to the Partnership; the
costs of a fidelity bond and any liability insurance obtained on behalf of the
Partnership or the IGPs; all expenses of computing the Partnership's net asset
value, including any equipment or services obtained for these purposes; and all
charges for equipment or services used in communicating information regarding
the Partnership's transactions among the Adviser and any custodian or other
agent engaged by the Partnership.
7. As full compensation for the services provided to the
Partnership and the expenses assumed by the Adviser under this Agreement, the
Adviser shall be entitled to be the Special Advisory Limited Partner of the
Partnership pursuant to the terms of the Limited Partnership Agreement of the
Partnership (the "Partnership Agreement"). As the Special Advisory Limited
Partner, the Adviser shall be entitled to receive an incentive allocation in
accordance with the terms and conditions of Section 5.8 of the Partnership
Agreement.
8. The Adviser will use its best efforts in the supervision
and management of the investment activities of the Partnership and in providing
services hereunder, but in the absence of willful misfeasance, bad faith, gross
negligence or reckless disregard of its obligations hereunder, neither the
Adviser nor any of its members, directors, officers or employees thereof, nor
any of their affiliates, executors, heirs, assigns, successors or other legal
representatives (collectively, the "Affiliates") shall be liable to the
Partnership for any error of judgment for any mistake of law or for any act or
omission by the Adviser and its Affiliates.
9. (a) The Partnership shall indemnify the Adviser, its
members, directors, officers or employees and any of their affiliates,
executors, heirs, assigns, successors or other legal representatives (each an
"Indemnified Person") against any and all costs, losses, claims, damages or
liabilities, joint or several, including, without limitation, reasonable
attorneys' fees and disbursements, resulting in any way from the performance or
non-performance of any Indemnified Person's duties in respect of the
Partnership, except those resulting from the willful malfeasance, bad faith or
gross negligence of an Indemnified Person or the Indemnified Person's reckless
disregard of such duties, and in the case of criminal proceedings, unless such
Indemnified Person had reasonable cause to believe its actions unlawful
(collectively, "disabling conduct"). Indemnification shall be made following:
(i) a final decision on the merits by a court or other body before whom the
proceeding was brought that the Indemnified Person was not liable by reason of
disabling conduct or (ii) a reasonable determination, based upon a review of the
facts and reached by (A) the vote of a majority of the IGPs who are not parties
to the proceeding or (B) legal counsel selected by a vote of a majority of the
IGPs in a written advice, that the Indemnified Person is entitled to
indemnification hereunder. The Partnership shall advance to an Indemnified
Person (to the extent that it has available assets and need not borrow to do so)
reasonable attorneys' fees and other costs and expenses incurred in connection
with defense of any action or proceeding arising out of such performance or
non-performance. The Adviser agrees, and each other Indemnified Person will
agree as a condition to any such advance, that in the event it or he receives
any such advance, it or he
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<PAGE> 4
shall reimburse the Partnership for such fees, costs and expenses to the extent
that it shall be determined that it or he was not entitled to indemnification
under this paragraph 9.
(b) Notwithstanding any of the foregoing to the contrary, the
provisions of this paragraph 9 shall not be construed so as to relieve the
Indemnified Person of, or provide indemnification with respect to, any liability
(including liability under Federal Securities laws, which, under certain
circumstances, impose liability even on persons who act in good faith) to the
extent (but only to the extent) that such liability may not be waived, limited
or modified under applicable law or that such indemnification would be in
violation of applicable law, but shall be construed so as to effectuate the
provisions of this paragraph 9 to the fullest extent permitted by law.
10. Nothing contained in this Agreement shall prevent the
Adviser or any affiliated person of the Adviser from acting as investment
adviser or manager for any other person, firm or corporation and, except as
required by applicable law (including Rule 17j-1 under the 1940 Act), shall not
in any way bind or restrict the Adviser or any such affiliated person from
buying, selling or trading any securities or commodities for their own accounts
or for the account of others for whom they may be acting. Nothing in this
Agreement shall limit or restrict the right of any member, officer or employee
of the Adviser to engage in any other business or to devote his or her time and
attention in part to the management or other aspects of any other business
whether of a similar or dissimilar nature.
11. This Agreement shall remain in effect for an initial term
expiring [September ___,] 2000, and shall continue in effect from year to year
thereafter provided such continuance is approved at least annually by the vote
of a majority of the outstanding voting securities of the Partnership, as
defined by the 1940 Act and the rules thereunder, or by the IGPs; and provided
that in either event such continuance is also approved by a majority of the IGPs
who are not parties to this Agreement or "interested persons" (as defined by the
1940 Act) of any such party (the "Independent IGPs"), by vote cast in person at
a meeting called for the purpose of voting on such approval. The Partnership may
at any time, without payment of any penalty, terminate this Agreement upon sixty
days' prior written notice to the Adviser, either by majority vote of the IGPs
or by the vote of a majority of the outstanding voting securities of the
Partnership (as defined by the 1940 Act and the rules thereunder). The Adviser
may at any time, without payment of penalty, terminate this Agreement upon sixty
days' prior written notice to the Partnership. This Agreement shall
automatically terminate in the event of its assignment (to the extent required
by the 1940 Act and the rules thereunder) unless such automatic termination
shall be prevented by an exemptive order of the Securities and Exchange
Commission.
12. Any notice under this Agreement shall be given in writing
and shall be deemed to have been duly given when delivered by hand or facsimile
or five days after mailed by certified mail, post-paid, by return receipt
requested to the other party at the principal office of such party.
13. This Agreement may be amended only by the written
agreement of the parties. Any amendment shall be required to be approved by the
IGPs and by a majority of the Independent IGPs in accordance with the provisions
of Section 15(c) of the 1940 Act and the
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<PAGE> 5
rules thereunder. If required by the 1940 Act, any amendment shall also be
required to be approved by such vote of limited partners of the Partnership as
is required by the 1940 Act and the rules thereunder.
14. This Agreement shall be construed in accordance with the
laws of the state of New York and the applicable provisions of the 1940 Act. To
the extent the applicable law of the State of New York, or any of the provisions
herein, conflict with the applicable provisions of the 1940 Act, the latter
shall control.
15. The Partnership represents that this Agreement has been
duly approved by the IGPs, including a majority of the Independent IGPs, and by
the sole initial limited partner of the Partnership, in accordance with the
requirements of the 1940 Act and the rules thereunder.
16. The parties to this Agreement agree that the obligations
of the Partnership under this Agreement shall not be binding upon any of the
IGPs, limited partners of the Partnership or any officers, employees or agents,
whether past, present or future, of the Partnership, individually, but are
binding only upon the assets and property of the Partnership.
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<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Agreement on the day and year first above written.
WYNSTONE PARTNERS, L.P.
By:
----------------------------------
Attest: Name:
------------------------- Title: Individual General Partner
CIBC OPPENHEIMER ADVISERS, L.L.C.
By: CIBC Oppenheimer Corp.,
its Managing Member
By:
----------------------------------
Attest: Howard M. Singer
------------------------ Managing Director
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<PAGE> 1
EXHIBIT (h)
WYNSTONE PARTNERS, L.P.
CIBC OPPENHEIMER TOWER
ONE WORLD FINANCIAL CENTER
31ST FLOOR
200 LIBERTY STREET
NEW YORK, NEW YORK 10281
CIBC Oppenheimer Corp.
CIBC Oppenheimer Tower
One World Financial Center - 31st Floor
200 Liberty Street
New York, New York 10281
Re: Appointment as Placement Agent
Ladies and Gentlemen:
Wynstone Partners, L.P., a limited partnership organized under
the laws of the State of Delaware (the "Partnership"), hereby agrees with you as
follows:
1. Partnership Offering.
The Partnership proposes to issue and to sell its limited
partnership interests ("Interests") in accordance with a Confidential
Memorandum issued by the Partnership dated [September] 1998, as amended from
time to time (the "Memorandum").
2. Definitions.
All capitalized terms used in this Agreement which are not
separately defined herein shall have the respective meaning set forth in the
Memorandum.
3. Placement of Interests.
(a) Subject to the terms and conditions set forth herein, the
Partnership hereby appoints you as its placement agent in connection with the
placement of Interests. Subject to the performance in all material respects by
the Partnership of its obligations hereunder, and to the completeness and
accuracy in all material respects of all of the representations and warranties
of the Partnership contained herein, you hereby accept such agency and agree on
the terms and conditions herein set forth to use your best efforts to find
qualified subscribers for Interests and to use all reasonable efforts to assist
the Partnership in obtaining performance by each subscriber. You shall not have
any liability to the Partnership in the event that any subscriber fails to
consummate the purchase of Interests for any reason other than your willful
misconduct or gross negligence.
(b) The offers and sales of Interests are to be effected
pursuant to the exemption from the registration requirements of the Securities
Act of 1933, as amended (the
<PAGE> 2
"Securities Act"), pursuant to Section 4(2) thereof and Regulation D under the
Securities Act. Both you and the Partnership have established the following
procedures in connection with the offer and sale of Interests and agree that
neither of you will make offers or sales of any Interests except in compliance
with such procedures:
(i) Offers and sales of Interests will be made only in
compliance with Regulation D under the Securities Act and only to investors that
qualify as "accredited investors," as defined in Rule 501(a) under the
Securities Act.
(ii) No sale of Interests to any one Purchaser will be for
less than the minimum denominations as may be specified in the Memorandum.
(iii) No offer or sale of any Interest shall be made in any
state or jurisdiction, or to any prospective investor located in any state or
jurisdiction, where such Interests have not been registered or qualified for
offer and sale under applicable state securities laws unless such Interests are
exempt from the registration or qualification requirements of such laws.
(iv) Sales of Interests will be made only to investors that
qualify as eligible clients under Rule 205-3 under the Investment Advisers Act
of 1940, as amended.
(c) For purposes of the offering of Interests, the Partnership
has furnished to you copies of the Memorandum and subscription documentation
which shall be furnished to prospective investors. Additional copies will be
furnished in such numbers as you may reasonably request for purposes of the
offering. You are authorized to furnish to prospective purchasers only such
information concerning the Partnership and the offering as may be contained in
the Memorandum or any written supplements thereto, and such other materials as
you have prepared and which comply with applicable laws and regulations,
including to the extent applicable the rules of the National Association of
Securities Dealers, Inc. (the "NASD").
4. Subscriptions During the Initial Offering Period.
(a) The initial offering period for the Interests shall
commence as soon as practicable after the date as of which this Agreement is
effective and be closed on November 2, 1998 or such later date as may be
specified by the Individual General Partners of the Partnership (the "IGPs"), in
their sole discretion, which date shall not be more than 90 days thereafter (the
"Initial Offering Period").
(b) All subscriptions for Interests and payments by
subscribers of subscription amounts for Interests shall be made pursuant to the
terms and conditions set forth in the Memorandum and subscription documentation.
Subscriptions shall be subject to acceptance by you as agent for the
Partnership, as described in Section 6 below.
(c) All payments received by you hereunder for subscriptions
in the name and on behalf of the Partnership shall be handled by you in
accordance with the terms of the subscription documentation.
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<PAGE> 3
(d) If the offering is not completed in accordance with the
conditions set forth in the Memorandum, the Partnership may terminate the
offering. In such case, you will instruct PFPC Inc. or any other escrow agent
who may be serving in such capacity for the time being to return all
subscription payments to investors.
5. Subscriptions After the Initial Offering Period.
(a) After the Initial Offering Period, the Partnership may
from time to time, in the sole discretion of the IGPs, offer Interests to
investors for purchase ("Subsequent Offerings").
(b) In Subsequent Offerings, the minimum additional investment
requirements shall be such amounts as are specified in the Memorandum. All
subscriptions for Interests in Subsequent Offerings and payments therefor shall
be made pursuant to the terms and conditions set forth in the Memorandum, and
subscriptions shall be subject to acceptance by you as agent for the
Partnership, as described in Section 6 below. In Subsequent Offerings, the
procedures set forth in Sections 4(c) and (d) shall also be applicable.
6. Acceptance of Subscriptions.
You are appointed as agent of the Partnership for purposes of
determining whether to accept or to reject subscriptions for Interests.
Subscriptions shall be accepted only if the investor: (a) has supplied, or in
the case of an additional subscription by an existing limited partner,
previously supplied, to you properly completed subscription documentation; and
(b) has made proper payment for Interests. Subscriptions shall be rejected if it
appears to you that any of the terms or conditions applicable to subscriptions
for Interests as set forth in the Memorandum or subscription documentation have
not been satisfied. The IGPs reserve the right to reject any subscription for
Interests in the Partnership.
7. Representations and Warranties of the Partnership.
The Partnership represents and warrants to you that:
(a) The Partnership has been duly formed and is validly
existing as a limited partnership in good standing under the laws of the State
of Delaware with all requisite power and authority, all necessary
authorizations, approvals, orders, licenses, certificates and permits of and
from all governmental regulatory officials and bodies, and all necessary rights,
licenses and permits from other parties, to conduct its business as described in
the Memorandum.
(b) Interests to be or which may be issued by the Partnership
have been duly authorized for issuance and sale and, when issued and delivered
by the Partnership, Interests will conform to all statements relating thereto
contained in the Memorandum.
(c) The issue and sale of Interests and the execution,
delivery and performance of the Partnership's obligations under the Memorandum
will not result in the violation of any applicable law.
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<PAGE> 4
(d) The Partnership will apply the proceeds from the sale of
Interests for the purposes set forth in the Memorandum.
(e) The Memorandum will not contain an untrue statement of any
material fact or omit to state any material fact necessary in order to make
statements therein in the light of the circumstances under which they were made,
not misleading.
(f) This Agreement has been duly authorized, executed and
delivered by the Partnership and, assuming your execution hereof, will
constitute a valid and binding agreement of the Partnership.
(g) Prior to and on the effective date of this Agreement,
neither the Partnership, nor to the knowledge of the Partnership any person
acting on behalf of the Partnership, has directly or indirectly offered or sold,
or attempted to offer or sell any Interests to or solicited offers to buy any
Interests from, or otherwise approached or negotiated with respect thereto with,
any prospective investor in connection with the placement thereof.
8. Covenants of the Partnership.
The Partnership covenants and agrees with you as follows:
(a) You and your counsel shall be furnished with such
documents and opinions as you and they may require, from time to time, for the
purpose of enabling you or them to pass upon the issuance and sale of Interests
as herein contemplated and related proceedings, or in order to evidence the
accuracy of any of the representations and warranties, or the fulfillment of any
of the conditions herein contained; and all proceedings taken by the Partnership
and in connection with the issuance and sale of Interests as herein contemplated
shall be satisfactory in form and substance to you and your counsel.
(b) If, at any time after the commencement of an offering of
Interests and prior to its termination, an event occurs which in the opinion of
counsel to the Partnership materially affects the Partnership and which should
be set forth in an amendment or supplement to the Memorandum in order to make
the statements therein not misleading in light of the circumstances under which
they are made, the Partnership will notify you as promptly as practical of the
occurrence of such event and prepare and furnish to you copies of an amendment
or supplement to the Memorandum, in such reasonable quantities as you may
request in order that the Memorandum will not contain any untrue statement of
any material fact or omit to state a material fact which in the opinion of such
counsel is necessary to make the statements therein not misleading in light of
the circumstances under which they are made.
9. Representations and Warranties of the Placement Agent.
You represent and warrant that:
(a) You are duly authorized to enter into and perform, and
have duly executed and delivered, this Agreement.
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<PAGE> 5
(b) You have and will maintain all licenses and registrations
necessary under applicable law and regulations (including the rules of the NASD)
to provide the services required to be provided by you hereunder.
(c) You have not and will not solicit any offer to buy or
offer to sell Interests in any manner which would be inconsistent with
applicable laws and regulations, or with the procedures for solicitations
contemplated by the Memorandum or by any form of general solicitation or
advertising, including, but not limited to, any advertisement, article, notice
or other communication published in any newspaper, magazine or similar medium or
broadcast over television or radio or conduct any seminar or meeting whose
attendees have been invited by any general solicitation or advertising.
(d) You will furnish each subscriber of Interests, identified
either by you or the Partnership, a copy of the Memorandum and subscription
documentation prior to such person's admission as a limited partner of the
Partnership.
10. Compensation of Placement Agent.
(a) You will receive no fee, payment or other remuneration for
your services under this Agreement.
(b) Except as may otherwise be agreed to by the Partnership,
you shall be responsible for the payment of all costs and expenses incurred by
you in connection with the performance of your obligations under this Agreement,
including the costs associated with the preparation, printing and distribution
of any sales materials.
(c) We acknowledge that you intend to compensate your account
executives for their ongoing servicing of clients with whom they have placed
Interests in the Partnership. This 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 clients' assets invested in the
Partnership.
11. Indemnification and Contribution.
The parties agree to indemnify one another as follows:
(a) The Partnership agrees to indemnify and hold harmless you
and each person, if any, who controls you within the meaning of Section 15 of
the Securities Act or Section 20(a) of the Securities Exchange Act of 1934 (the
"Exchange Act"), against any and all losses, liabilities, claims, damages and
expenses whatsoever (including, but not limited to, attorneys' fees and any and
all expenses whatsoever incurred in investigating, preparing or defending
against any litigation, commenced or threatened, or any claim whatsoever, and
any and all amounts paid in settlement of any claim or litigation), joint or
several, to which you or they may become subject under the Securities Act, the
Exchange Act or any other law or statute in any jurisdiction otherwise, insofar
as such losses, liabilities, claims, damages or expense (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
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<PAGE> 6
statement of a material fact contained in the Memorandum or the subscription
documentation or any amendment or supplement thereto, or arise out of or are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading; provided, however, that the Partnership will not be liable in any
such case to the extent, but only to the extent, that any such loss, liability,
claim, damage or expense arises out of or is based upon any such untrue
statement or alleged untrue statement or omission or alleged omission made
therein in reliance upon and in conformity with written information furnished to
the Partnership by you or through you expressly for the use therein; and further
provided that this indemnity shall not protect you or any other person who may
otherwise be entitled to indemnity hereunder from or against any liability to
which you or they would be subject by reason of your own or their own willful
misfeasance, bad faith, gross negligence or reckless disregard of your or their
duties hereunder. This indemnity will be in addition to any liability which the
Partnership may otherwise have included under this Agreement.
(b) You agree to indemnify and hold harmless the Partnership
and each person who controls the Partnership within the meaning of Section 15 of
the Securities Act or Section 20(a) of the Exchange Act, against any losses,
liabilities, claims, damages and expenses whatsoever (including, but not limited
to, attorneys' fees and any and all expenses whatsoever incurred in
investigating, preparing or defending against any litigation, commenced or
threatened, or any claim whatsoever, and any and all amounts paid in settlement
of any claim or litigation), joint or several, to which you or they may become
subject under the Securities Act, the Exchange Act or any other law or statute
in any jurisdiction, insofar as such losses, liabilities, claims, damages or
expenses (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of a material fact contained in the
Memorandum or Subscription Agreement, or any amendment or supplement thereto, or
arise out of or are based upon the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading, in each case to the extent, but only to the
extent, that any such loss, liability, claim, damage or expense arises out of or
is based upon any such untrue statement or alleged untrue statement or omission
or alleged omission made therein in reliance upon and in conformity with written
information furnished to the Partnership by you or on your behalf through you
expressly for use therein. This indemnity will be in addition to any liability
which you may otherwise have incurred under this Agreement.
(c) Promptly after receipt by an indemnified party under
subsection (a) or (b) above of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify the party against whom
indemnification is to be sought in writing of the commencement thereof (but the
failure so to notify an indemnifying party shall not relieve it from any other
liability which it may have under this Section 11 (except to the extent that it
has been prejudiced in any material respect by such failure) or from any
liability which it may have otherwise). In case any such action is brought
against any indemnified party, and it notifies an indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate
therein and, to the extent it may elect by written notice delivered to the
indemnified party promptly after receiving the aforesaid notice from such
indemnified party, to assume the defense thereof with counsel satisfactory to
such indemnified party; provided, however, that if, in the judgment of such
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<PAGE> 7
indemnified party, a conflict of interest exists where it is advisable for such
indemnified party to be represented by separate counsel, the indemnified party
shall have the right to employ separate counsel in any such action, in which
event the fees and expenses of such separate counsel shall be borne by the
indemnifying party or parties. After notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof and the
approval by the indemnified party of counsel, the indemnifying party shall not
be liable to such indemnified party under such subsections for any legal
expenses of other counsel or any other expenses, in each case subsequently
incurred by such indemnified party, in connection with the defense thereof other
than reasonable costs of investigation unless (i) the indemnified party shall
have employed separate counsel in accordance with the proviso to the next
preceding sentence (it being understood, however, that the indemnifying party or
parties shall not be liable for the expenses of more than one such separate
counsel representing the indemnified parties under subparagraph (a) of this
Section 11 who are parties to such action), (ii) the indemnifying party or
parties shall not have employed counsel satisfactory to the indemnified party to
represent the indemnified party within a reasonable time after notice of
commencement of the action or (iii) the indemnifying party or parties have
authorized the employment of counsel for the indemnified party at the expense of
the indemnifying party or parties; and except that, if clause (i) or (iii) is
applicable, such liability shall be only in respect of the counsel referred to
in such clause (i) or (iii). No indemnifying party shall, without the prior
written consent of the indemnified party, effect any settlement of any pending
or threatened proceeding in respect of which any indemnified party is or could
have been a party and indemnity could have been sought hereunder by such
indemnified party, unless such settlement includes an unconditional release of
such indemnified party from all liability on claims that are the subject matter
of such proceeding.
12. Representations and Indemnities to Survive Delivery.
The agreements, representations, warranties, indemnities and
other statements of the parties and their officers set forth in or made pursuant
to this Agreement will remain in full force and effect, regardless of (i) any
termination of this Agreement, (ii) any investigation made by or on behalf of
you, or the Partnership, any general partners, directors or officers of any of
the foregoing or any person controlling any of the foregoing, and (iii)
acceptance of any payment for Interests hereunder. The provisions of this
Section 12 shall survive the termination or cancellation of this Agreement.
13. Effective Date and Term of Agreement.
This Agreement shall become effective for all purposes as of
[September __,] 1998, and shall remain in effect for an initial term of two
years from such date. Thereafter, this Agreement shall continue in effect from
year to year, provided that each such continuance is approved by the IGPs,
including the vote of a majority of the IGPs who are not "interested persons,"
as defined by the Investment Company Act of 1940 (the "1940 Act") and the rules
thereunder, of the Partnership or of CIBC Oppenheimer Corp.
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<PAGE> 8
14. Termination.
This Agreement may be terminated as follows:
(a) Either party may terminate this Agreement without cause by
written notice to the other on not less than thirty (30) days notice, or, if
there has been a material breach of any condition, warranty, representation or
other term of this Agreement by the other, by written notice to such other at
any time.
(b) By written notice to the Partnership, you may terminate
this Agreement at any time if (i) there has been, since the respective dates as
of which information is given in the Memorandum, any material adverse change in
the condition, financial or otherwise, of the Partnership, which in your
opinion, will make it inadvisable to proceed with the delivery of Interests;
(ii) there has occurred any outbreak of hostilities or other domestic or
international calamity or crisis the effect of which on the financial markets is
so substantial and adverse as to make it, in your judgment, impracticable to
market Interests or enforce contracts for the sale of Interests; and (iii) any
order suspending the sale of Interests shall have been issued by any
jurisdiction in which a sale or sales of Interests shall have been made, or
proceedings for that purpose shall have been initiated or, to your best
knowledge and belief, shall be contemplated.
(c) This Agreement shall terminate automatically in the event
of its "assignment" as such term is defined by the 1940 Act and the rules
thereunder.
15. Delegation of Powers.
You shall be entitled to delegate all or any of your duties,
functions or powers under this Agreement to another person as sub-agents subject
to the approval of the Partnership. However, you shall be solely responsible for
the acts and omissions of any such sub-agent and for the payment of any
remuneration to such sub-agent.
16. Notices.
All communications under this Agreement shall be given in
writing, sent by (i) telecopier, (ii) telex confirmed by answerback, or (iii)
registered mail to the address set forth below or to such other address as such
party shall have specified in writing to the other party hereto, and shall be
deemed to have been delivered effective at the earlier of its receipt or within
two (2) days after dispatch,
If to CIBC Oppenheimer Corp.:
CIBC Oppenheimer Corp.
Oppenheimer Tower
One World Financial Center
31st Floor
200 Liberty Street
New York, NY 10281
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<PAGE> 9
Telephone: (212) 667-7300
Attn.: Robert I. Kleinberg, General Counsel
If to Wynstone Partners, L.P.:
Wynstone Partners, L.P.
CIBC Oppenheimer Tower
One World Financial Center
31st Floor
200 Liberty Street
New York, NY 10281
Telephone: (212) 667-4225
Attn.: Howard M. Singer
17. Miscellaneous.
(a) This Agreement may be executed in two or more
counterparts, each of which when so executed and delivered shall constitute one
and the same instrument. This Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective successors and assigns and
no other person shall have any right or obligation hereunder.
(b) This Agreement supersedes all prior agreements and
understandings relating to the subject matter hereof, and neither this Agreement
nor any term hereof may be changed, waived, discharged or terminated except by
an instrument in writing signed by the party against whom enforcement of the
change, waiver, discharge or termination is sought. The headings in this
Agreement are for purposes of reference only and shall not limit or otherwise
affect the meaning hereof.
18. Governing Law.
This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without regard to the
conflicts of laws provisions thereof, and with the provisions of the 1940 Act.
In the event of any conflict between the provisions of the laws of New York and
those of the 1940 Act, the 1940 Act provisions shall control.
19. The parties to this Agreement agree that the obligations
of the Partnership under this Agreement shall not be binding upon any of the
IGPs, limited partners of the Partnership or any officers, employees or agents,
whether past, present or future, of the Partnership, individually, but are
binding only upon the assets and property of the Partnership.
If the foregoing correctly sets forth our understanding with
you, please indicate your acceptance in the space provided below whereupon this
letter will form a valid and binding contract among the signers in accordance
with its terms.
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<PAGE> 10
Very truly yours,
WYNSTONE PARTNERS, L.P.
By: ______________________________
Name:
Title: Individual General Partner
Date:
Agreed to and accepted:
CIBC OPPENHEIMER CORP.
By: ____________________
Name: Howard M. Singer
Title: Managing Director
Date:
-10-
<PAGE> 1
EXHIBIT (k)(1)
ADMINISTRATIVE SERVICES AGREEMENT
BY AND BETWEEN
CIBC OPPENHEIMER CORP.
AND
WYNSTONE PARTNERS, L.P.
CIBC Oppenheimer Corp. ("CIBC Opco") and Wynstone Partners,
L.P. (the "Partnership") hereby agree as follows:
THIS ADMINISTRATIVE SERVICES AGREEMENT (the "Agreement") is
made as of this ___ day of [September], 1998, by and between CIBC Opco and the
Partnership.
WHEREAS, CIBC Opco is in the business of providing
administrative services to investment partnerships; and
WHEREAS, the Partnership wishes to retain CIBC Opco to provide
certain administrative services;
NOW THEREFORE, in consideration of the terms and conditions
herein contained, the parties agree as follows:
1. Appointment of CIBC Opco.
(a) The Partnership hereby retains CIBC Opco to
provide and CIBC Opco hereby agrees to provide certain administrative services
to the Partnership. These services shall include:
(i) the provision of office space, telephone
and utilities;
(ii) the provision of administrative and
secretarial, clerical and other
personnel as necessary to provide the
services required to be provided under
this Agreement;
(iii) the general supervision of the
entities which are retained by the
Partnership to provide administrative
services and custody services to the
Partnership;
<PAGE> 2
(iv) the handling of investor inquiries regarding
the Partnership and providing them with
information concerning their investment in
the Partnership and capital account
balances;
(v) monitoring relations and communications
between investors and the Partnership;
(vi) assisting in the drafting and updating of
disclosure documents relating to the
Partnership and assisting in the preparation
of offering materials;
(vii) maintaining and updating investor
information, such as change of address and
employment;
(viii) assisting in the preparation and mailing of
investor subscription documents and
confirming the receipt of such documents and
funds;
(ix) assisting in the preparation of regulatory
filings with the Securities and Exchange
Commission and state securities regulators
and other Federal and state regulatory
authorities;
(x) preparing reports to and other informational
materials for limited partners and,
assisting in the preparation of proxy
statements and other limited partner
communications;
(xi) monitoring compliance with regulatory
requirements and with the Partnership's
investment objective, policies and
restrictions as established by the
Individual General Partners of the
Partnership (the "IGPs");
(xii) reviewing accounting records and financial
reports of the Partnership, assisting with
the preparation of the financial reports of
the Partnership and acting as liaison with
the Partnership's accounting agent and
independent auditors;
(xiii) assisting in preparation and filing of tax
returns;
(xiv) coordinating and organizing meetings of the
IGPs and meetings of the limited partners of
the Partnership, in each case when called by
such persons;
(xv) preparing materials and reports for use in
connection with meetings of the IGPs;
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<PAGE> 3
(xvi) maintaining and preserving those books and
records of the Partnership not maintained by
the Adviser or the Partnership's accounting
agent or custodian;
(xvii) reviewing and arranging for payment of the
expenses of the Partnership;
(xviii) assisting the Partnership in conducting
offers to limited partners of the
Partnership to repurchase limited
partnership interests; and
(xix) reviewing and approving all regulatory
filings of the Partnership required under
applicable law.
(b) Notwithstanding the appointment of CIBC Opco to
provide administrative services hereunder, the IGPs shall remain responsible for
supervising and controlling the management, business and affairs of the
Partnership.
2. CIBC Opco Fee; Reimbursement of Expenses.
(a) In consideration for the provision by CIBC Opco
of its services hereunder, the Partnership will pay CIBC Opco a monthly
management fee of 0.08333% (1% on annualized basis) of the Partnership's "net
assets" (the "CIBC Opco Fee"). "Net assets" shall equal the total value of all
assets of the Partnership, less an amount equal to all accrued debts,
liabilities, and obligations of the Partnership calculated before giving effect
to any repurchases of interests.
(b) The CIBC Opco Fee will be computed based on the
net assets of the Partnership as of the start of business on the first business
day of each month, after adjustment for any subscriptions effective on such
date, and will be due and payable in arrears within five business days after the
end of such month. The CIBC Opco Fee will be charged in each fiscal period to
the capital accounts of the Partnership's limited partners in proportion to
their capital accounts at the beginning of that fiscal period. In the event that
the CIBC Opco Fee is payable in respect of a partial month, such fee will be
appropriately pro-rated.
(c) CIBC Opco is responsible for all costs and
expenses associated with the provision of its services hereunder. The
Partnership shall pay all other expenses associated with the conduct of its
business.
(d) The Partnership understands that CIBC Opco may
pay a portion of the fees received by it hereunder to KBW Asset Management, Inc.
3. Liability. CIBC Opco will not be liable for any error of
judgment or mistake of law or for any loss suffered by the Partnership or its
partners in connection with the performance of its duties under this Agreement,
except a loss (as to which it will be liable and will indemnify and hold
harmless the Partnership) resulting from willful misfeasance, bad faith or gross
negligence on CIBC Opco's part (or on the part of an officer or employee of CIBC
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<PAGE> 4
Opco) in the performance of its duties hereunder or reckless disregard by it of
its duties under this Agreement.
4. Effective Date and Termination. This Agreement shall become
effective as of the date first noted above, and shall remain in effect for an
initial term of two years from the date of its effectiveness. This Agreement may
be continued in effect from year to year after its initial term provided that
such continuance is approved annually by the IGPs, including the vote of a
majority of the IGPs who are not "interested persons" of the Partnership, as
defined by the Investment Company Act of 1940 and the rules thereunder (the
"1940 Act"). This Agreement may be terminated by CIBC Opco, by the IGPs or by
vote of a majority of the outstanding voting securities of the Partnership at
any time, in each case upon not less than 60 days' prior written notice. This
Agreement shall also terminate automatically in the event of its "assignment,"
as such term is defined by the 1940 Act and the rules thereunder.
5. Entire Agreement.This Agreement embodies the entire
understanding of the parties. This Agreement cannot be altered, amended,
supplemented, or abridged, or any provisions waived except by written agreement
of the parties.
6. Choice of Law. This Agreement shall be construed and
enforced in accordance with the laws of the State of New York and the 1940 Act.
In the event the laws of New York conflict with the 1940 Act, the applicable
provisions of the 1940 Act shall control.
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<PAGE> 5
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the day and year first above written.
CIBC OPPENHEIMER CORP.
By: ___________________________
Name: Howard M. Singer
Title: Managing Director
WYNSTONE PARTNERS, L.P.
By: ___________________________
Name:
Title: Individual General Partner
-5-
