As filed with the U.S. Securities and Exchange Commission on
December 29, 1998
Investment Company Act File No. 811-_________
-----------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
FORM N-2
(CHECK APPROPRIATE BOX OR BOXES)
|X| REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940
|_| Amendment No. ___
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PW TECHNOLOGY PARTNERS, L.P.
(Exact name of Registrant as specified in Charter)
1285 Avenue of the Americas
New York, New York 10019-6028
(Address of principal executive offices)
Registrant's Telephone Number, including Area Code:
(212) 713-2000
-------------------------
MARK D. GOLDSTEIN, ESQ.
c/o PaineWebber Incorporated
1285 Avenue of the Americas
New York, New York 10019-6028
(Name and address of agent for service)
Copy to:
STUART H. COLEMAN, ESQ.
Stroock & Stroock & Lavan LLP
180 Maiden Lane
New York, New York 10038-4982
-------------------------
This Registration Statement has been filed by Registrant pursuant to Section
8(b) of the Investment Company Act of 1940, as amended. However, partnership
interests in the Registrant are not being registered under the Securities Act of
1933, as amended (the "1933 Act"), since such interests will be issued solely in
private placement transactions which do not involve any "public offering" within
the meaning of Section 4(2) of the 1933 Act. Investments in the Registrant may
be made only by individuals or entities which are "accredited investors" within
the meaning of Regulation D under the 1933 Act. This Registration Statement does
not constitute an offer to sell, or the solicitation of an offer to buy, any
partnership interests in the Registrant.
<PAGE>
MEMORANDUM NO:
PW TECHNOLOGY PARTNERS, L.P.
PAINEWEBBER
<PAGE>
THE INTERESTS IN THE FUND WHICH ARE DESCRIBED IN THIS CONFIDENTIAL MEMORANDUM
("MEMORANDUM") HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED ("1933 ACT"), OR THE SECURITIES LAWS OF ANY OF THE STATES OF
THE UNITED STATES. THE OFFERING CONTEMPLATED BY THIS MEMORANDUM WILL BE MADE IN
RELIANCE UPON AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE 1933 ACT
FOR OFFERS AND SALES OF SECURITIES WHICH DO NOT INVOLVE ANY PUBLIC OFFERING, AND
ANALOGOUS EXEMPTIONS UNDER STATE SECURITIES LAWS.
THIS MEMORANDUM SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY NOR SHALL THERE BE ANY SALE OF INTERESTS IN THE FUND IN ANY
JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE IS NOT AUTHORIZED OR TO
ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER, SOLICITATION OR SALE. NO
PERSON HAS BEEN AUTHORIZED TO MAKE ANY REPRESENTATIONS CONCERNING THE FUND THAT
ARE INCONSISTENT WITH THOSE CONTAINED IN THIS MEMORANDUM. PROSPECTIVE INVESTORS
SHOULD NOT RELY ON ANY INFORMATION NOT CONTAINED IN THIS MEMORANDUM OR THE
EXHIBITS HERETO.
THIS MEMORANDUM IS INTENDED SOLELY FOR THE USE OF THE PERSON TO WHOM IT HAS BEEN
DELIVERED FOR THE PURPOSE OF EVALUATING A POSSIBLE INVESTMENT BY THE RECIPIENT
IN THE INTERESTS IN THE FUND DESCRIBED HEREIN, AND IS NOT TO BE REPRODUCED OR
DISTRIBUTED TO ANY OTHER PERSONS (OTHER THAN PROFESSIONAL ADVISERS OF THE
PROSPECTIVE INVESTOR RECEIVING THIS DOCUMENT).
PROSPECTIVE INVESTORS SHOULD NOT CONSTRUE THE CONTENTS OF THIS MEMORANDUM AS
LEGAL, TAX OR FINANCIAL ADVICE. EACH PROSPECTIVE INVESTOR SHOULD CONSULT HIS OR
HER OWN PROFESSIONAL ADVISERS AS TO THE LEGAL, TAX, FINANCIAL OR OTHER MATTERS
RELEVANT TO THE SUITABILITY OF AN INVESTMENT IN THE FUND FOR SUCH INVESTOR.
THESE SECURITIES ARE SUBJECT TO SUBSTANTIAL RESTRICTIONS ON TRANSFERABILITY AND
RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE
LIMITED PARTNERSHIP AGREEMENT OF THE FUND, THE 1933 ACT AND APPLICABLE STATE
SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS
SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS
INVESTMENT FOR UP TO TWO YEARS FROM THE DATE THAT A REPURCHASE REQUEST HAS BEEN
MADE BY AN INVESTOR.
IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY UPON THEIR OWN EXAMINATION
OF PW TECHNOLOGY PARTNERS, L.P. (THE "FUND") AND THE TERMS OF THE OFFERING,
INCLUDING THE MERITS AND RISKS INVOLVED. NEITHER THE SECURITIES AND EXCHANGE
COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF
THE FUND'S INTERESTS OR PASSED UPON THE ACCURACY OR ADEQUACY OF THE DISCLOSURE
IN THIS MEMORANDUM. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
PAGE
SUMMARY OF TERMS...........................................................1
THE FUND..................................................................12
STRUCTURE.................................................................12
INVESTMENT PROGRAM........................................................12
TYPES OF INVESTMENTS AND RELATED RISK FACTORS.............................15
ADDITIONAL RISK FACTORS...................................................27
PERFORMANCE INFORMATION...................................................29
THE DIRECTORS.............................................................30
THE MANAGER...............................................................31
VOTING....................................................................33
CONFLICTS OF INTEREST.....................................................33
BROKERAGE.................................................................35
FEES AND EXPENSES.........................................................36
CAPITAL ACCOUNTS AND ALLOCATIONS..........................................38
ALLOCATION OF SPECIAL ITEMS--CERTAIN WITHHOLDING TAXES AND OTHER
EXPENDITURES..............................................................40
SUBSCRIPTION FOR INTERESTS................................................42
REDEMPTIONS, REPURCHASES OF INTERESTS AND TRANSFERS.......................43
TAX ASPECTS...............................................................47
ERISA CONSIDERATIONS......................................................61
ADDITIONAL INFORMATION AND SUMMARY OF LIMITED PARTNERSHIP
AGREEMENT.................................................................63
Appendix A--Amended and Restated Limited Partnership Agreement...........A-1
Appendix B--Investment Fund Performance Information......................B-1
<PAGE>
SUMMARY OF TERMS
The following summary is qualified entirely by the detailed information
appearing elsewhere in this Memorandum and by the terms and conditions of the
Fund's Amended and Restated Limited Partnership Agreement (the "Partnership
Agreement"), each of which should be read carefully and retained for future
reference.
THE FUND: PW Technology Partners, L.P. (the "Fund") is
a newly formed Delaware limited partnership,
registered under the Investment Company Act
of 1940, as amended (the "1940 Act"), as a
closed- end, non-diversified, management
investment company.
The Fund is a specialized investment vehicle
that may be referred to as a registered
private investment partnership. The Fund is
similar to an unregistered private investment
partnership in that (i) the Fund's portfolio
may be more aggressively managed than other
investment companies, (ii) interests in the
Fund will be sold in large minimum
denominations in private placements solely to
high net worth individual and institutional
investors, and will be restricted as to
transfer, and (iii) the capital accounts in
the Fund of persons who purchase the
partnership interests offered hereby (the
"Limited Partners") will be subject to both
asset-based fees and performance bonuses.
Unlike a private investment partnership, but
like other registered investment companies,
however, the Fund 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 The Fund's investment objective is to
PROGRAM: maximize capital appreciation over the
long-term.
The Fund is a multi-manager fund that seeks
to achieve its objective by deploying its
assets primarily among a select group of
specialized portfolio managers (the
"Investment Managers") who invest primarily
in, or who have particular knowledge within,
the technology sector, including computer
software and service companies, semiconductor
manufacturers, computer hardware and
peripherals companies, communications and
telecommunications companies, networking
equipment and service companies, internet-
related companies, consumer electronics
companies, electronic components and
instruments manufacturers, and biomedical,
pharmaceutical, medical device and healthcare
service companies.
PW Fund Advisor, L.L.C. (the "Manager") will
select Investment Managers on the basis of
various criteria, generally including, among
other things, an analysis of the Investment
Manager's performance during various time
periods and market cycles; the Investment
Manager's reputation, experience and
training; its articulation of, and adherence
to, its investment philosophy; the presence
of risk management discipline and internal
controls; on- site interviews of the
management team; quality of support
infrastructure, including internal and
external professional staff; reporting
transparency; and whether the Investment
Manager has a substantial personal investment
in the investment program.
Investment Managers generally conduct their
investment programs through unregistered
investment partnerships, which have investors
other than the Fund, and in other registered
investment companies (collectively, the
"Investment Funds"). The Fund also may invest
its assets directly pursuant to investment
advisory agreements, granting the Investment
Managers discretionary investment authority
on a managed account basis. In addition, to
facilitate the efficient investment of the
Fund's assets, a separate investment vehicle
may be created for an Investment Manager in
which the Investment Manager serves as
general partner and the Fund is the sole
limited partner. (Investment Managers for
which such an investment vehicle is formed
and Investment Managers who manage assets
directly on a managed account basis are
collectively referred to as "Subadvisers".)
The Manager will allocate no more than 40% of
the Fund's assets to any Investment Fund that
is advised by a Subadviser and will limit its
investment in any Investment Fund that is not
advised by a Subadviser to less than 5% of
the Investment Fund's voting securities,
although the Fund may purchase non-voting
securities of the Investment Fund.
The Manager initially intends to invest
approximately [___%] of the Fund's assets in
the following Investment Funds:
[To Come]
The Manager will evaluate regularly each
Investment Manager to determine whether its
investment program is consistent with the
Fund's investment objective and whether its
investment performance is satisfactory. The
Manager may reallocate the Fund's assets
among the Investment Managers, terminate
existing Investment Managers and select
additional Investment Managers, subject to
the condition that selection of a new
Subadviser requires approval of a majority
(as defined in the 1940 Act) of the Fund's
outstanding voting securities, unless the
Fund receives an exemption from certain
provisions of the 1940 Act. See "SUMMARY OF
TERMS--Management."
Unregistered investment funds typically
provide greater flexibility than traditional
investment funds (e.g., registered investment
companies) over the types of securities that
may be owned, the types of trading strategies
employed, and in some cases, the amount of
leverage that can be used. The Investment
Managers selected by the Manager may invest
in a wide range of instruments and markets,
including, but not limited to, domestic and
foreign equities and equity-related
instruments, and fixed income and other
debt-related instruments. Each Investment
Manager may sell securities short. Investment
Managers will not be limited in the markets
(either by location or type, such as large
capitalization, small capitalization or
non-U.S. markets) in which they invest or the
investment discipline that they may employ
(such as value or growth or bottom-up or
top-down analysis).
Each Investment Manager may use various
investment techniques for hedging and
non-hedging purposes. For example, each
Investment Manager may purchase and sell
options and futures contracts and engage in
other derivative transactions, subject to
certain limitations described elsewhere in
this Memorandum. The use of these techniques
will be an integral part of their investment
programs, and involves certain risks to the
Fund. Each Investment Manager may use
leverage, which also entails risk. See "TYPES
OF INVESTMENTS AND RELATED RISK FACTORS." For
purposes of the Fund's investment
restrictions and certain investment
limitations under the 1940 Act, the Fund will
look through the Investment Funds managed by
the Subadvisers to their underlying
securities.
POTENTIAL BENEFITS OF An investment in the Fund enables investors
INVESTING IN THE FUND: to invest with Investment Managers whose
services generally are not available to the
investing public, whose investment funds may
be closed from time to time to new investors
or who otherwise may place stringent
restrictions on the number and type of
persons whose money they will manage. An
investment in the Fund also enables investors
to invest with a cross-section of Investment
Managers without incurring the high minimum
investment requirements that Investment
Managers typically would impose on investors.
In addition to benefiting from the Investment
Managers' individual investment strategies,
the Fund as a whole should achieve the
benefits of diversification by allocating its
assets among a carefully selected group of
Investment Managers. The Manager expects that
by investing through multiple Investment
Managers, the Fund may reduce the volatility
inherent in a direct investment with a single
Investment Manager.
RISK FACTORS: The Fund's investment program is speculative
and entails substantial risks. No assurance
can be given that the Fund's investment
objective will be achieved.
The Fund's performance depends upon the
performance of the Investment Managers and
the Manager's ability to select Investment
Managers and effectively allocate and
reallocate the Fund's assets among them.
The Fund's emphasis on Investment Managers
that invest primarily in securities of
technology-related companies present certain
risks that may not exist to the same degree
as in other types of investments. Technology
stocks, in general, tend to be highly
volatile as compared to other types of
investments. In addition, since the
portfolios of the Investment Managers are
concentrated in securities of
technology-related companies, the investment
risk is greater than if the portfolios were
invested in a more diversified manner among
various sectors. See "TYPES OF INVESTMENTS
AND RELATED RISK FACTORS."
Each Investment Manager's use of leverage,
short sales and derivative transactions, in
certain circumstances, can result in
significant losses to its respective
Investment Fund and, thus, to the Fund.
Investments in foreign securities also
involve certain risks. See "TYPES OF
INVESTMENTS AND RELATED RISK FACTORS."
As a non-diversified investment company,
there are no percentage limitations on the
portion of the Fund's assets that may be
invested in the securities of any one issuer.
As a result, the Fund's investment portfolio
may be subject to greater risk and volatility
than if investments had been made in the
securities of a broader range of issuers.
Each Investment Manager generally will charge
the Fund an asset- based fee and some or all
of the Investment Managers will receive
performance-based allocations. The
asset-based fees of the Investment Managers
are expected to range from 0% to 2% and the
performance-based allocations of the
Investment Managers are expected to range
from 15% to 20% of net profits.
The performance-based allocation received by
an Investment Manager may create an incentive
for the Investment Manager to make
investments that are riskier or more
speculative than those that might have been
made in the absence of the performance-based
allocation. In addition, because the
performance-based allocation is calculated on
a basis that includes unrealized appreciation
of an Investment Fund's assets, the
performance-based allocation may be greater
than if it were based solely on realized
gains.
In addition, the Manager will charge the Fund
an asset-based fee and will receive a
performance-based bonus, which gives rise to
similar risks. See "SUMMARY OF TERMS--Fees
and Expenses" and"--Performance Bonus."
An investment in the Fund entails special tax
risks. See "SUMMARY OF TERMS--Summary of
Taxation."
Interests in the Fund will not be traded on
any securities exchange or other market and
are subject to substantial restrictions on
transfer. Although the Fund may offer to
repurchase interests from time to time, a
Limited Partner may not be able to liquidate
its interest in the Fund for up to two years.
The Manager expects that generally, beginning
in 2001, it will recommend to the Directors
that the Fund offer to repurchase interests
from Partners twice in each year, in June and
December, and also intends to recommend the
making of offers to repurchase interests
effective as of April 2000 and December 2000.
See "SUMMARY OF TERMS-- Transfer
Restrictions" and"--Withdrawals and
Repurchases of Interests by the Fund."
INVESTING IN A MULTI-MANAGER FUND, SUCH AS
THE FUND, INVOLVES ADDITIONAL SPECIAL RISKS,
INCLUDING THE FOLLOWING:
An investor who met the conditions imposed by
the Investment Managers, including investment
minimums that may be considerably higher than
$150,000, could invest directly with the
Investment Managers. By investing in
investment vehicles indirectly through the
Fund, the investor bears two layers of asset-
based fees and performance-based
allocations--one at the Fund level and one at
the Investment Fund level. In addition, the
investor bears a proportionate share of the
fees and expenses of the Fund (including
operating costs, distribution expenses and
administrative fees) and, indirectly, similar
expenses of the Investment Funds.
Each Investment Manager will receive any
performance-based allocations to which it is
entitled irrespective of the performance of
the other Investment Managers and the Fund
generally. Accordingly, an Investment Manager
with positive performance may receive
compensation from the Fund, and thus
indirectly from investors, even if the Fund's
overall returns are negative.
Investment decisions of the Investment Funds
are made by the Investment Managers
independently of each other. As a result, at
any particular time, one Investment Fund may
be purchasing shares of an issuer whose
shares are being sold by another Investment
Fund. Consequently, the Fund could incur
indirectly certain transaction costs without
accomplishing any net investment result.
MANAGEMENT: Investment advice regarding the selection of
Investment Managers will be provided to the
Fund by the Manager, which also is
responsible for the Fund's day-to-day
management. The Manager also is the Fund's
General Partner.
The Manager is an indirect, wholly-owned
subsidiary of Paine Webber Group Inc. ("PW
Group"), and is registered as an investment
adviser under the Investment Advisers Act of
1940, as amended (the "Advisers Act"). The
Manager and its affiliates provide investment
advisory services to registered investment
companies, private investment funds and
individual accounts, and have more than $322
billion of assets under control and $54
billion of assets under management.
The Fund's General Partner, to the fullest
extent permitted by applicable law, has
irrevocably delegated to a group of
individuals (the "Directors") its rights and
powers to manage and control the business
affairs of the Fund, including the exclusive
authority to oversee and to establish
policies regarding the management, conduct
and operation of the Fund's business. See
"THE DIRECTORS."
PLACEMENT PaineWebber Incorporated acts as placement
AGENT: agent for the Fund, without special
compensation from the Fund, and will bear its
own costs associated with its activities as
placement agent. The Manager and PaineWebber
Incorporated intend to compensate PaineWebber
Incorporated's or its affiliates' account
executives and others for their ongoing
servicing of clients with whom they have
placed interests in the Fund. See "CONFLICTS
OF INTEREST--The Manager."
CONFLICTS OF The investment activities of the Manager and
INTEREST: the Investment Managers for their own
accounts and the other accounts they manage
may give rise to conflicts of interest which
may disadvantage the Fund. The Fund's
operations may give rise to other conflicts
of interest. See "CONFLICTS OF INTEREST."
FEES AND The Manager provides certain management and
EXPENSES: administrative services to the Fund,
including, among other things, providing
office space and other support services to
the Fund. In consideration for such services,
the Fund will pay the Manager a monthly
management fee at the annual rate of 1% of
the Fund's net assets, excluding assets
attributable to the Manager's capital account
(the "Fee"). The Fee will be paid to the
Manager out of the Fund's assets, and debited
against the Limited Partners' capital
accounts.
PFPC Inc. (the "Administrator") performs
certain administration, accounting and
investor services for the Fund and the
Investment Funds managed by the Subadvisers.
In consideration for these services, the Fund
will pay the Administrator an annual fee
calculated based upon the average net assets
of the Fund and each Investment Fund managed
by a Subadviser, subject to a minimum monthly
fee, and will reimburse the Administrator for
certain of the Administrator's expenses.
The Fund will bear all expenses incurred in
the business of the Fund, including, but not
limited to, the following: all costs and
expenses related to portfolio transactions
and positions for the Fund's account;
establishment of any Investment Funds managed
by the Subadvisers; legal fees; accounting
fees; costs of insurance; organizational and
registration expenses; certain offering
costs; and expenses of meetings of Directors
and Limited Partners.
The Investment Funds will bear all expenses
incurred in the business of the Investment
Funds, which are similar to those expenses
incurred by the Fund in the business of the
Fund. See "FEES AND EXPENSES."
ALLOCATION OF The net profits or net losses of the Fund
PROFIT 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 Manager
in its capacity as General Partner and
Limited Partners (collectively, the
"Partners") at the end of each fiscal period
in accordance with their respective
partnership percentages for such period. Each
Partner's partnership percentage will be
determined by dividing as of the start of a
fiscal period the balance of the Partner's
capital account by the sum of the balances of
the capital accounts of all Partners of the
Fund. See "CAPITAL ACCOUNTS AND
ALLOCATIONS--Allocation of Net Profits and
Net Losses."
PERFORMANCE
BONUS Generally, at the end of each fiscal year
(each, a "Measurement Period"), an amount
equal to 1% of the balance of the Limited
Partner's capital account at the end of the
Measurement Period will be credited to the
capital account of the Manager (the
"Performance Bonus"). The Performance Bonus
will be calculated separately with respect to
each Limited Partner and will be made only
if, at the end of a Measurement Period, the
net profits allocated to the Limited Partner
for the Measurement Period exceed the
Threshold Return. The "Threshold Return" is
the amount that a Limited Partner would have
earned for a Measurement Period (or portion
thereof) if it had received an annualized
rate of return of 20% on its capital account
balance at the beginning of such Measurement
Period (appropriately adjusted for
contributions and withdrawals). The Threshold
Return is not cumulative from year to year.
The Performance Bonus will be prorated for
Measurement Periods that are less than 12
months. For example, assuming a Limited
Partner receives a rate of return in excess
of 10% for a Measurement Period of six
months, the Performance Bonus for such
Measurement Period would equal 0.5% (1/2 of
1%) of the balance of the Limited Partner's
capital account at the end of such period.
See "CAPITAL ACCOUNTS AND
ALLOCATIONS--Performance Bonus."
SUBSCRIPTION FOR Both initial and additional subscriptions for
INTERESTS: interests by eligible investors may be
accepted at such times as the Manager may
determine, subject to the receipt of cleared
funds on or before the acceptance date set by
the Manager. After the initial closing,
initial subscriptions and additional capital
contributions will generally be accepted
monthly. The Fund reserves the right to
reject any subscription for interests in the
Fund. Generally, the minimum initial
investment in the Fund is $150,000. For
employees of the Manager and its affiliates,
and members of their immediate families, the
minimum initial investment is $25,000. The
Fund may vary the investment minimums from
time to time. The Fund, in its discretion,
may suspend subscriptions for interests at
any time.
INITIAL CLOSING The initial closing date for subscriptions of
DATE: interests in the Fund is March 29, 1999. The
Manager, in its sole discretion, may postpone
the closing date for up to 60 days.
TRANSFER Limited Partner interests in the Fund may be
RESTRICTIONS: transferred only by (i) operation of law
pursuant to the death, bankruptcy, insolvency
or dissolution of a Limited Partner or (ii)
with the written consent of the Manager,
which may be withheld in its sole and
absolute discretion and is expected to be
granted, if at all, only under extenuating
circumstances, in connection with a transfer
to an entity that does not result in a change
of beneficial ownership. The foregoing
permitted transferees will not be allowed to
become substituted Limited Partners without
the consent of the Manager, which may be
withheld in its sole and absolute discretion.
See "REDEMPTIONS, REPURCHASES OF INTERESTS
AND TRANSFERS--Transfers of Interests."
WITHDRAWALS AND No Limited Partner will have the right to
REPURCHASES OF require the Fund to redeem the Limited
INTERESTS BY THE Partner's interest in the Fund. The Fund from
FUND: time to time may offer to repurchase
interests pursuant to written tenders by
Partners. These repurchases will be made at
such times and on such terms as may be
determined by the Directors, in their
complete and exclusive discretion. In
determining whether the Fund should
repurchase interests or portions thereof from
Partners pursuant to written tenders, the
Directors will consider the recommendation of
the Manager. The Manager expects that
generally, beginning in 2001, it will
recommend to the Directors that the Fund
offer to repurchase interests from Partners
twice each year, in June and December, and
intends to recommend the making of an offer
to repurchase interests effective as of April
2000 and December 2000. The Directors also
will consider the following factors, among
others, in making such determination: (i)
whether any Limited Partners have requested
to tender interests or portions thereof to
the Fund; (ii) the liquidity of the Fund's
assets; (iii) the investment plans and
working capital requirements of the Fund;
(iv) the relative economies of scale with
respect to the size of the Fund; (v) the
history of the Fund in repurchasing interests
or portions thereof; (vi) the condition of
the securities markets; and (vii) the
anticipated tax consequences of any proposed
repurchases of interests or portions thereof.
In addition, the Fund may repurchase an
interest in the Fund or portion thereof of a
Partner or any person acquiring an interest
or portion thereof from or through a Partner
if, among other reasons, the Manager
determines that it would be in the best
interests of the Fund for the Fund to
repurchase such an interest or portion
thereof. See "REDEMPTIONS, REPURCHASES OF
INTERESTS AND TRANSFERS--No Right of
Redemption" and" --Repurchases of Interests."
The Partnership Agreement provides that the
Fund 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 Fund
has not been repurchased within a period of
two years of such request.
SUMMARY OF Counsel to the Fund has rendered an opinion
TAXATION: that the Fund will be treated as a
partnership and not as an association taxable
as a corporation for Federal income tax
purposes. Counsel to the Fund has rendered
its opinion that, under a "facts and
circumstances" test set forth in regulations
adopted by the U.S. Treasury Department, the
Fund will not be treated as a "publicly
traded partnership" taxable as a corporation.
Accordingly, the Fund should not be subject
to Federal income tax, and each Limited
Partner will be required to report on its own
annual tax return its distributive share of
the Fund's taxable income or loss.
If it were determined that the Fund 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 Fund or
otherwise, the taxable income of the Fund
would be subject to corporate income tax and
any distributions of profits from the Fund
would be treated as dividends.
For the Fund to complete its tax reporting
requirements, it must receive information on
a timely basis from the Investment Managers.
An Investment Manager's delay in providing
this information will delay the Fund's
preparation of tax information to investors,
which is likely to cause investors to seek
extensions on the time to file their tax
returns.
ERISA PLANS AND Investors subject to the Employee Retirement
OTHER TAX-EXEMPT Income Security Act of 1974, as amended
ENTITIES: ("ERISA"), and other tax-exempt entities
(each a "tax-exempt" entity) may purchase
interests in the Fund. The Fund's assets
should not be considered to be "plan assets"
for purposes of ERISA's fiduciary
responsibility and prohibited transaction
rules or similar provisions of the Internal
Revenue Code of 1986, as amended (the
"Code"). The Investment Managers may use
leverage in connection with their trading
activities. Therefore, a tax-exempt Limited
Partner may incur income tax liability with
respect to its share of the net profits from
such leveraged transactions to the extent
they are treated as giving rise to "unrelated
business taxable income" ("UBTI"). The Fund
will provide to tax-exempt Limited Partners
such accounting information as such Partners
require to report their UBTI for income tax
purposes.
Investment in the Fund by tax-exempt entities
requires special consideration. Trustees or
administrators of such entities are urged to
review carefully the matters discussed in
this Memorandum.
TERM: The Fund's term is perpetual unless it is
otherwise dissolved under the terms of the
Partnership Agreement. See "ADDITIONAL
INFORMATION AND SUMMARY OF LIMITED
PARTNERSHIP AGREEMENT--Term, Dissolution and
Liquidation."
REPORTS TO The Fund will furnish to Partners as soon as
PARTNERS: practicable after the end of each taxable
year such information as is necessary for
Partners to complete Federal and state income
tax or information returns, along with, any
other tax information required by law. See
"ADDITIONAL RISK FACTORS--Special Risks of
Multi-Manager Structure." The Fund also will
send to Partners a semi-annual and an
audited annual report generally within 60
days after the close of the period for which
the report is being made, or as otherwise
required by the 1940 Act. Quarterly reports
from the Manager regarding the Fund's
operations during each quarter also will be
sent to Partners.
<PAGE>
THE FUND
The Fund is registered under the 1940 Act as a closed-end, non-diversified,
management investment company. The Fund was formed as a limited partnership
under the laws of Delaware on December 28, 1998, and has no operating history.
The Fund's principal office is located at 1285 Avenue of the Americas, New York,
New York 10019, and its telephone number is (800) 486-2608. Investment advisory
services are provided to the Fund by the Manager, which also is the Fund's
General Partner.
STRUCTURE
The Fund is a specialized investment vehicle that combines many of the features
of a private investment partnership with those of a closed-end investment
company. Private investment partnerships are unregistered, commingled asset
pools that often are highly leveraged, managed aggressively and offered in large
minimum denominations, often over $1 million, through private placements to a
limited number of high net worth individual and institutional investors. The
general partners of these partnerships typically are compensated through
asset-based fees and performance-based allocations. Closed-end investment
companies are 1940 Act registered pools typically organized as corporations or
business trusts that usually are managed more conservatively than most private
investment partnerships, subject to relatively modest minimum investment
requirements (often less than $2,000), and publicly offered to a broad range of
investors. The advisers to these companies typically are compensated through
asset-based, but not performance-based, fees.
The Fund is similar to private investment partnerships in that its investment
portfolio may be actively managed and Fund interests will be sold in
comparatively large minimum denominations in private placements solely to high
net worth individual and institutional investors, whose capital accounts will be
subject to both asset-based fees and performance bonuses. However, the Fund,
like other closed-end investment companies, has registered under the 1940 Act to
be able to offer its interests without limiting the number of investors that can
participate in its investment program. This structure permits a larger number of
investors that have a higher tolerance for investment risk to participate in the
Fund's investment program without making the more substantial minimum capital
commitment that is required by many private investment partnerships.
INVESTMENT PROGRAM
The Fund's investment objective is to maximize capital appreciation over the
long term.
The Fund is a multi-manager fund that seeks to achieve its objective by
deploying its assets primarily among a select group of specialized portfolio
managers who invest primarily in, or who have particular knowledge within, the
technology sector, including computer software and service companies,
semiconductor manufacturers, computer hardware and peripherals companies,
communications and telecommunications companies, networking equipment and
service companies, internet-related companies, consumer electronics companies,
electronic components and instruments manufacturers, and biomedical,
pharmaceutical, medical device and healthcare service companies.
The Manager will select Investment Managers on the basis of various criteria,
generally including, among other things, an analysis of the Investment Manager's
performance during various time periods and market cycles; the Investment
Manager's reputation, experience and training; its articulation of, and
adherence to, its investment philosophy; the presence of risk management
discipline and internal controls; on-site interviews of the management team;
quality of support infrastructure, including internal and external professional
staff; reporting transparency; and whether the Investment Manager has a
substantial personal investment in the investment program.
The Manager's research staff assists in the selection of Investment Managers
using its comprehensive database of asset managers to narrow the universe of
potential candidates. To narrow further the universe, the Manager uses a range
of qualitative and quantitative criteria, including an assessment of:
o the asset manager's articulation of, and adherence to, its
investment philosophy;
o the asset manager's performance history;
o the quality and stability of the asset manager's organization;
o the amount of capital the asset manager has under management;
o whether the asset manager's principal has a significant personal
investment in the investment strategy;
o the asset manager's reputation and experience; and
o the asset manager's risk management and internal controls.
To complete its determination, the Manager generally conducts research on the
asset manager's investment process, contacts the asset manager's legal counsel,
accounting firm and prime broker, and contacts select clients of the asset
manager. Once an asset manager is selected as an Investment Manager, the Manager
will continue its oversight of the Investment Manager. See "APPENDIX
B--Investment Fund Performance Information."
Investment Managers generally conduct their investment programs through the
Investment Funds. The Fund also may invest its assets directly pursuant to
investment advisory agreements, granting the Investment Managers discretionary
investment authority on a managed account basis. In addition, to facilitate the
efficient investment of the Fund's assets, a separate investment vehicle may be
created for an Investment Manager in which the Investment Manager serves as
general partner and the Fund is the sole limited partner. The Manager will
allocate no more than 40% of the Fund's assets to any Investment Fund that is
advised by a Subadviser and will limit its investment in any Investment Fund
that is not advised by a Subadviser to less than 5% of the Investment Fund's
voting securities, although the Fund may purchase non-voting securities of the
Investment Fund.
The Manager initially intends to invest approximately __% of the Fund's assets
in the following Investment Funds. A brief description of their investment
strategies follows:
[To be provided]
The Manager will evaluate regularly each Investment Manager to determine whether
its investment program is consistent with the Fund's investment objective and
whether its investment performance is satisfactory. The Manager may reallocate
the Fund's assets among the Investment Managers, terminate existing Investment
Managers and select additional Investment Managers, subject to the condition
that selection of a new Subadviser requires approval of a majority (as defined
in the 1940 Act) of the Fund's outstanding voting securities, unless the Fund
receives an exemption from certain provisions of the 1940 Act.
Unregistered investment funds typically provide greater flexibility than
traditional investment funds (e.g., registered investment companies) over the
types of securities that may be owned, the types of trading strategies employed,
and in some cases, the amount of leverage that can be used. The Investment
Managers selected by the Manager may invest in a wide range of instruments and
markets, including, but not limited to, domestic and foreign equities and
equity-related instruments, and fixed income and other debt-related instruments.
Each Investment Manager may sell securities short. Investment Managers will not
be limited in the markets (either by location or type, such as large
capitalization, small capitalization or non-U.S. markets) in which they invest
or the investment discipline that they may employ (such as value or growth or
bottom-up or top-down analysis).
Each Investment Manager may use various investment techniques for hedging and
non-hedging purposes. For example, each Investment Manager may purchase and sell
options and futures contracts and engage in other derivative transactions,
subject to certain limitations. The use of these techniques will be an integral
part of their investment programs, and involves certain risks to the Fund. Each
Investment Manager may use leverage, which also entails risk. See "TYPES OF
INVESTMENTS AND RELATED RISK FACTORS--Leverage," "--Short Sales" and"-- Special
Investment Instruments and Techniques." For purposes of the Fund's investment
restrictions and certain investment limitations under the 1940 Act, the Fund
will look through the Investment Funds managed by the Subadvisers to their
underlying securities.
Each Investment Manager may invest, for defensive purposes or otherwise, some or
all of its assets in high quality fixed income securities and money market
instruments, or may hold cash or cash equivalents in such amounts as the
Investment Manager deems appropriate under the circumstances. Pending allocation
of the offering proceeds, and thereafter, from time to time, the Fund also may
invest in these instruments. See "TYPES OF INVESTMENTS AND RELATED RISK
FACTORS--Money Market Instruments."
Additional information about the types of investments that are expected to be
made by the Investment Managers, their investment practices and related risk
factors is provided below. Except as otherwise indicated, the Fund's investment
policies and restrictions are not fundamental and may be changed without a vote
of the Limited Partners. See "TYPES OF INVESTMENTS AND RELATED RISK
FACTORS--Investment Restrictions."
THE FUND'S INVESTMENT PROGRAM IS SPECULATIVE AND ENTAILS SUBSTANTIAL RISKS.
THERE CAN BE NO ASSURANCE THAT THE FUND'S OR THE INVESTMENT FUNDS' INVESTMENT
OBJECTIVES WILL BE ACHIEVED OR THAT THEIR INVESTMENT PROGRAMS WILL BE
SUCCESSFUL. IN PARTICULAR, EACH INVESTMENT MANAGER'S CONCENTRATION IN THE
TECHNOLOGY SECTOR, AS WELL AS ITS USE OF LEVERAGE, SHORT SALES AND DERIVATIVE
TRANSACTIONS, AND LIMITED DIVERSIFICATION CAN, IN CERTAIN CIRCUMSTANCES, RESULT
IN SIGNIFICANT LOSSES TO THE FUND. INVESTORS SHOULD CONSIDER THE FUND AS A
SUPPLEMENT TO AN OVERALL INVESTMENT PROGRAM AND SHOULD INVEST ONLY IF THEY ARE
WILLING TO UNDERTAKE THE RISKS INVOLVED. INVESTORS COULD LOSE SOME OR ALL OF
THEIR INVESTMENT.
TYPES OF INVESTMENTS AND RELATED RISK FACTORS
GENERAL
All securities investments risk the loss of capital. The value of the Fund's
total net assets should be expected to fluctuate and, as described below, given
the Fund's emphasis on the technology sector, may be especially volatile. To the
extent that the Fund's portfolio (which, for this purpose, means the aggregate
securities positions held by the Investment Managers) is concentrated in
securities of a single issuer or issuers in a single industry, the risk of any
investment decision is increased. Each Investment Manager's use of leverage is
likely to cause the Fund's net assets to appreciate or depreciate at a greater
rate than if leverage were not used.
For purposes of the Fund's investment restrictions and certain investment
limitations under the 1940 Act, the Fund will look through the Investment Funds
managed by the Subadvisers to their underlying securities.
TECHNOLOGY SECTOR
The Fund's emphasis on Investment Managers that invest primarily in securities
of technology- related companies presents certain risks that may not exist to
the same degree as in other types of investments. Technology stocks, in general,
tend to be highly volatile as compared to other types of investments. Since the
portfolios of the Investment Managers are concentrated in securities of
technology-related companies, the investment risk is greater than if the
portfolios were invested in a more diversified manner among various sectors.
While each Investment Manager will invest in the securities of entities in
several different industries considered to be technology related, many of those
entities share common characteristics which may affect the Investment Manager's
investment. For example, industries throughout the technology field include many
smaller and less seasoned companies. These types of companies may present
greater opportunities for capital appreciation, but also may involve greater
risks. Such companies may have limited product lines, markets, or financial
resources, or may depend on a limited management group. In addition, the
securities of smaller companies may be subject to more volatile market movements
than the securities of larger, more established companies. The companies in
which each Investment Manager invests also are strongly affected by worldwide
scientific or technological developments, and their products and services may
not be economically successful or may quickly become outdated. Certain of such
companies also offer products or services that are subject to governmental
regulation and may, therefore, be affected adversely by governmental policies.
Each Investment Manager may purchase securities of companies which have no
earnings or have experienced losses. The Investment Manager generally will make
these investments based on a belief that actual or anticipated products or
services will produce future earnings. If the anticipated event is delayed or
does not occur, or if investor perceptions about the company change, the
company's stock price may decline sharply and its securities may become less
liquid.
EQUITY SECURITIES
Each Investment Manager's investment portfolio may include long and short
positions in common stocks, preferred stocks and convertible securities of U.S.
and foreign issuers. Each Investment Manager also may invest in depositary
receipts relating to foreign securities. See "Foreign Securities" below. Equity
securities fluctuate in value, often based on factors unrelated to the value of
the issuer of the securities, and such fluctuations can be pronounced.
Each Investment Manager may invest in equity securities without restriction as
to market capitalization, such as those issued by smaller capitalization
companies, including micro cap companies. The prices of the securities of
smaller companies may be subject to more abrupt or erratic market movements than
larger, more established companies, because these securities typically are
traded in lower volume and the issuers typically are more subject to changes in
earnings and prospects. Each Investment Manager may purchase securities in all
available securities trading markets.
FIXED-INCOME SECURITIES
Each Investment Manager may invest in fixed-income securities. The Investment
Managers will invest in these securities when their yield and potential for
capital appreciation are considered sufficiently attractive and also may invest
in these securities for defensive purposes and to maintain liquidity. These
securities may pay fixed, variable or floating rates of interest, and may
include zero coupon obligations. Fixed-income securities are subject to the risk
of the issuer's inability to meet principal and interest payments on its
obligations (i.e., credit risk) and are subject to the risk of price volatility
due to such factors as interest rate sensitivity, market perception of the
creditworthiness or financial condition of the issuer and general market
liquidity (i.e., market risk).
Each Investment Manager may invest in both investment grade and non-investment
grade debt securities. Investment grade debt securities are securities that have
received a rating from at least one nationally recognized statistical rating
organization ("NRSRO") in one of the four highest rating categories or, if not
rated by any NRSRO, have been determined by the Manager to be of comparable
quality. Non-investment grade debt securities are considered by the NRSRO to be
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal. Non-investment grade debt securities in the lowest rating
categories may involve a substantial risk of default or may be in default.
Adverse changes in economic conditions or developments regarding the individual
issuer are more likely to cause price volatility and weaken the capacity of the
issuers of non-investment grade debt securities to make principal and interest
payments than is the case for higher grade debt securities. In addition, the
market for lower grade debt securities may be thinner and less liquid than for
higher grade debt securities.
FOREIGN SECURITIES
Although each Investment Manager is expected to invest principally in equity
securities of publicly traded U.S. companies, the Investment Manager may invest
in equity and fixed-income securities of foreign issuers and in depositary
receipts, such as American Depositary Receipts ("ADRs"), that represent indirect
interests in securities of foreign issuers. Foreign securities in which the
Investment Manager may invest may be listed on foreign securities exchanges or
traded in foreign over-the-counter markets.
Foreign securities markets generally are not as developed or efficient as those
in the United States. Securities of some foreign issuers are less liquid and
more volatile than securities of comparable U.S. issuers. Similarly, volume and
liquidity in most foreign securities markets are less than in the United States
and, at times, volatility of price can be greater than in the United States.
Because evidences of ownership of such securities usually are held outside the
United States, the Fund will be subject to additional risks which include
possible adverse political and economic developments, seizure or nationalization
of foreign deposits or adoption of governmental restrictions which might
adversely affect or restrict the payment of principal and interest on the
foreign securities to investors located outside the country of the issuer,
whether from currency blockage or otherwise.
Since foreign securities often are purchased with and payable in currencies of
foreign countries, the value of these assets as measured in U.S. dollars may be
affected favorably or unfavorably by changes in currency rates and exchange
control regulations.
FOREIGN CURRENCY TRANSACTIONS
Each Investment Manager may engage in foreign currency transactions for a
variety of purposes, including to fix in U.S. dollars, between trade and
settlement date, the value of a security the Investment Manager has agreed to
buy or sell, or to hedge the U.S. dollar value of securities the Investment
Manager already owns, particularly if it expects a decrease in the value of the
currency in which the foreign security is denominated.
Foreign currency transactions may involve, for example, the Investment Manager's
purchase of foreign currencies for U.S. dollars or the maintenance of short
positions in foreign currencies, which would involve the Investment Manager
agreeing to exchange an amount of a currency it did not currently own for
another currency at a future date in anticipation of a decline in the value of
the currency sold relative to the currency the Investment Manager contracted to
receive in the exchange. The Investment Manager's success in these transactions
will depend principally on its ability to predict accurately the future exchange
rates between foreign currencies and the U.S. dollar.
MONEY MARKET INSTRUMENTS
Each Investment Manager may invest, for defensive purposes or otherwise, some or
all of its assets in high quality fixed-income securities, money market
instruments, and money market mutual funds, or hold cash or cash equivalents in
such amounts as the Investment Manager deems appropriate under the
circumstances. Pending allocation of the offering proceeds and thereafter, from
time to time, the Fund also may invest in these instruments. Money market
instruments are high quality, short-term fixed-income obligations, which
generally have remaining maturities of one year or less, and may include U.S.
Government securities, commercial paper, certificates of deposit and bankers'
acceptances issued by domestic branches of United States banks that are members
of the Federal Deposit Insurance Corporation, and repurchase agreements.
NON-DIVERSIFIED STATUS
The classification of the Fund as a "non-diversified" investment company means
that the percentage of the Fund's assets that may be invested in the securities
of a single issuer is not limited by the 1940 Act. A "diversified" investment
company is required by the 1940 Act generally, with respect to 75% of its total
assets, to invest not more than 5% of such assets in the securities of a single
issuer. Since a relatively high percentage of the Fund's assets may be invested
in the securities of a limited number of issuers, some of which will be within
the same industry, the Fund's portfolio securities may be more sensitive to
changes in the market value of a single issuer and to events affecting a
particular industry or market segment.
LEVERAGE
Some or all of the Investment Managers may borrow money from brokers and banks
for investment purposes. Borrowing for investment purposes, which is known as
"leverage," is a speculative investment technique and involves certain risks.
Although leverage will increase investment return if the Fund earns a greater
return on the investments purchased with borrowed funds than it pays for the use
of such funds, using leverage will decrease investment return if the Fund fails
to earn as much on such investments as it pays for the use of such funds. Using
leverage, therefore, will magnify the volatility of the value of the Fund's
investment portfolio. If the Investment Manager's equity or debt instruments
decline in value, the Investment Manager could be required to deposit additional
collateral with the lender or suffer mandatory liquidation of the pledged
securities to compensate for the decline in value. In the event of a sudden,
precipitous drop in an Investment Fund's assets, whether resulting from changes
in market value or from redemptions, the Investment Manager might not be able to
liquidate assets quickly enough to pay off its borrowing. Money borrowed for
leveraging will be subject to interest costs that may or may not be recovered by
return on the securities purchased. The Investment Manager also may be required
to maintain minimum average balances in connection with its borrowings or to pay
a commitment or other fee to maintain a line of credit; either of these
requirements would increase the cost of borrowing over the stated interest rate.
The 1940 Act limits the amount an investment company can borrow by imposing an
asset coverage requirement of 300% of its indebtedness, including amounts
borrowed, measured at the time the investment company incurs the indebtedness
(the "Asset Coverage Requirement"). This means that the value of an investment
company's total indebtedness may not exceed one-third the value of its total
assets, including such indebtedness, measured at the time the investment company
incurs the indebtedness. These limits do not apply to the Investment Funds that
are not managed by Subadvisers and, therefore, the Fund's portfolio may be
highly leveraged and the volatility of the price of its Interests may be great.
To obtain "leveraged" market exposure in certain investments and to increase
overall return, an Investment Manager may purchase options and other instruments
that do not constitute "indebtedness" for purposes of the Asset Coverage
Requirement. These instruments nevertheless may involve significant economic
leverage and therefore, in some cases, may involve significant risks of loss.
PURCHASING INITIAL PUBLIC OFFERINGS
Each Investment Manager may purchase securities of companies in initial public
offerings or shortly thereafter. Special risks associated with these securities
may include a limited number of shares available for trading, unseasoned
trading, lack of investor knowledge of the company, and limited operating
history. These factors may contribute to substantial price volatility for the
shares of these companies and, thus, for the Fund's interests. The limited
number of shares available for trading in some initial public offerings may make
it more difficult for an Investment Fund to buy or sell significant amounts of
shares without an unfavorable impact on prevailing market prices. In addition,
some companies in initial public offerings are involved in relatively new
industries or lines of business, which may not be widely understood by
investors. Some of these companies may be undercapitalized or regarded as
developmental stage companies, without revenues or operating income, or the
near-term prospects of achieving them.
SHORT SALES
Some or all of the Investment Managers may attempt to limit exposure to a
possible market decline in the value of its portfolio securities through short
sales of securities that the Investment Manager believes possess volatility
characteristics similar to those being hedged. In addition, Investment Managers
may use short sales for non-hedging purposes to profit from anticipated declines
in prices of securities which in the view of the Investment Managers are
overvalued or are likely to be adversely affected by particular trends or events
relating to the issuer of those securities, the sector in which the issuer is
engaged or the general markets or economy. Technological advances often create
winners and losers, which presents Investment Managers with the opportunity to
profit on both the long and short side of the technology sector. To effect a
short sale, an Investment Manager will borrow a security from a brokerage firm,
or other permissible financial intermediary, to make delivery to the buyer. The
Investment Manager then is obligated to replace the borrowed security by
purchasing it at the market price at the time of replacement. The price at such
time may be more or less than the price at which the security was sold by the
Investment Manager, which would result in a loss or gain, respectively. These
techniques are speculative and, in certain circumstances, can substantially
increase the impact of adverse price movements on the Fund's portfolio. A short
sale of a security involves the risk of an unlimited increase in the market
price of the security which could result in an inability to cover the short
position and thus a theoretically unlimited loss. There can be no assurance that
securities necessary to cover the short position will be available for purchase.
REVERSE REPURCHASE AGREEMENTS
Reverse repurchase agreements involve a sale of a security to a bank or
securities dealer and the Investment Manager's simultaneous agreement to
repurchase the security for a fixed price, reflecting a market rate of interest,
on a specific date. These transactions involve a risk that the other party to a
reverse repurchase agreement will be unable or unwilling to complete the
transaction as scheduled, which may result in losses to the Fund. Reverse
repurchase agreements are a form of leverage which also may increase the
volatility of the Fund's investment portfolio.
SPECIAL INVESTMENT TECHNIQUES
Each Investment Manager may use a variety of special investment techniques to
hedge its investment portfolio against various risks or other factors that
generally affect the values of securities and for non-hedging purposes. These
techniques may involve the use of derivative transactions. The techniques the
Investment Managers may employ may change over time as new instruments and
techniques are introduced or as a result of regulatory developments. Certain of
the special investment techniques that the Investment Managers may use are
speculative and involve a high degree of risk, particularly when used for
non-hedging purposes.
DERIVATIVES. Some or all of the Investment Managers may invest in, or enter
into, derivatives ("Derivatives"). These are financial instruments which derive
their performance, at least in part, from the performance of an underlying
asset, index or interest rate. Derivatives can be volatile and involve various
types and degrees of risk, depending upon the characteristics of the particular
Derivative and the portfolio as a whole. Derivatives permit an Investment
Manager to increase or decrease the level of risk, or change the character of
the risk, to which its investment portfolio is exposed in much the same way as
the Investment Manager can increase or decrease the level of risk, or change the
character of the risk, of its investment portfolio by making investments in
specific securities.
Derivatives may entail investment exposures that are greater than their cost
would suggest, meaning that a small investment in Derivatives could have a large
potential impact on the Fund's performance.
If an Investment Manager invests in Derivatives at inopportune times or judges
market conditions incorrectly, such investments may lower the Fund's return or
result in a loss. The Fund also could experience losses if the Investment
Manager's Derivatives were poorly correlated with its other investments, or if
the Investment Manager were unable to liquidate its position because of an
illiquid secondary market. The market for many Derivatives is, or suddenly can
become, illiquid. Changes in liquidity may result in significant, rapid and
unpredictable changes in the prices for Derivatives.
OPTIONS AND FUTURES. The Investment Managers may invest in options and futures
contracts. The Investment Managers also may invest in so-called "synthetic"
options or other derivative instruments written by broker-dealers or other
permissible financial intermediaries. Options transactions may be effected on
securities exchanges or in the over-the-counter market. When options are
purchased over-the-counter, the Fund bears the risk that the counterparty that
wrote the option will be unable or unwilling to perform its obligations under
the option contract. Such options may also be illiquid and, in such cases, an
Investment Manager may have difficulty closing out its position.
Over-the-counter options purchased and sold by the Investment Manager also may
include options on baskets of specific securities.
The Investment Managers may purchase and sell call and put options in respect of
specific securities, and may write and sell covered or uncovered call and put
options. A covered call option, which is a call option with respect to which an
Investment Manager owns the underlying security, that is sold by the Investment
Manager exposes the Investment Manager during the term of the option to possible
loss of opportunity to realize appreciation in the market price of the
underlying security or to possible continued holding of a security that might
otherwise have been sold to protect against depreciation in the market price of
the security. A covered put option, which is a put option with respect to which
an Investment Manager has segregated cash or liquid securities to fulfill the
obligation undertaken, that is sold by the Investment Manager exposes the
Investment Manager during the term of the option to a decline in price of the
underlying security while depriving the Investment Manager of the opportunity to
invest the segregated assets.
An Investment Manager may close out a position when writing options by
purchasing an option on the same security with the same exercise price and
expiration date as the option that it has previously written on such security.
The Investment Manager will realize a profit or loss if the amount paid to
purchase an option is less or more, as the case may be, than the amount received
from the sale thereof. To close out a position as a purchaser of an option, the
Investment Manager would ordinarily make a similar "closing sale transaction,"
which involves liquidating the Investment Manager's position by selling the
option previously purchased, although the Investment Manager would be entitled
to exercise the option should it deem it advantageous to do so.
Although the Fund will not be a commodity pool, Derivatives subject the Fund to
the rules of the Commodity Futures Trading Commission ("CFTC") which limit
investment in certain Derivatives. Some or all of the Investment Managers may
invest in futures contracts and currency futures contracts, and options with
respect thereto for hedging purposes without limit. However, to comply with CFTC
rules, the Subadvisers may not invest in such contracts and options for other
purposes if the sum of the amount of initial margin deposits and premiums paid
for unexpired options with respect to such contracts, other than for bona fide
hedging purposes, exceed 5% of the liquidation value of the Fund's assets, after
taking into account unrealized profits and unrealized losses on such contracts
and options; provided, however, that in the case of an option that is
in-the-money at the time of purchase, the in-the-money amount may be excluded in
calculating the 5% limitation. If applicable CFTC rules change, these
percentages may change or different conditions may be applied to the Fund's use
of certain Derivatives.
The Investment Managers may enter into futures contracts in U.S. domestic
markets or on exchanges located outside the United States. Foreign markets may
offer advantages such as trading opportunities or arbitrage possibilities not
available in the United States. Foreign markets, however, may have greater risk
potential than domestic markets. For example, some foreign exchanges are
principal markets so that no common clearing facility exists and an investor may
look only to the broker for performance of the contract. In addition, any
profits an Investment Manager might realize in trading could be eliminated by
adverse changes in the exchange rate, or the Fund could incur losses as a result
of those changes. Transactions on foreign exchanges may include both commodities
which are traded on domestic exchanges and those which are not. Unlike trading
on domestic commodity exchanges, trading on foreign commodity exchanges is not
regulated by the CFTC.
Engaging in these transactions involves risk of loss to the Fund which could
adversely affect the value of the Fund's net assets. No assurance can be given
that a liquid market will exist for any particular futures contract at any
particular time. Many futures exchanges and boards of trade limit the amount of
fluctuation permitted in futures contract prices during a single trading day.
Once the daily limit has been reached in a particular contract, no trades may be
made that day at a price beyond that limit or trading may be suspended for
specified periods during the trading day. Futures contract prices could move to
the limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of futures positions and potentially
subjecting the Fund to substantial losses.
Successful use of futures by an Investment Manager also is subject to the
Investment Manager's ability to predict correctly movements in the direction of
the relevant market, and, to the extent the transaction is entered into for
hedging purposes, to ascertain the appropriate correlation between the
transaction being hedged and the price movements of the futures contract.
Pursuant to regulations and/or published positions of the SEC, a Subadviser may
be required to segregate permissible liquid assets in connection with its
commodities transactions in an amount generally equal to the value of the
underlying commodity. The segregation of such assets will have the effect of
limiting the Subadviser's ability otherwise to invest those assets.
Some or all of the Investment Managers may purchase and sell stock index futures
contracts. A stock index future obligates an Investment Manager to pay or
receive an amount of cash equal to a fixed dollar amount specified in the
futures contract multiplied by the difference between the settlement price of
the contract on the contract's last trading day and the value of the index based
on the stock prices of the securities that comprise it at the opening of trading
in such securities on the next business day.
Some or all of the Investment Managers may purchase and sell interest rate
futures contracts. An interest rate future obligates an Investment Manager to
purchase or sell an amount of a specific debt security at a future date at a
specific price.
Some or all of the Investment Managers may purchase and sell currency futures. A
currency future obligates an Investment Manager to purchase or sell an amount of
a specific currency at a future date at a specific price.
CALL AND PUT OPTIONS ON SECURITIES INDEXES. Some or all of the Investment
Managers may purchase and sell call and put options on stock indexes, such as
the Standard & Poor's 500 Composite Stock Price Index (the "S&P 500"), Standard
& Poor's 100 Index, Nasdaq High Technology Index, Pacific Stock Exchange High
Technology Index, Morgan Stanley High Tech Index, Philadelphia Semiconductor
Index or AMEX Internet Stock Index, listed on national securities exchanges or
traded in the over-the-counter market for hedging purposes and to pursue its
investment objective. A stock index fluctuates with changes in the market values
of the stocks that comprise the index. Accordingly, successful use by the
Investment Manager of options on stock indexes will be subject to the Investment
Manager's ability to predict correctly movements in the direction of the stock
market generally or segments thereof. This requires different skills and
techniques than forecasting changes in the price of individual stocks.
WARRANTS. Warrants are derivative instruments that permit, but do not obligate,
the holder to subscribe for other securities. Warrants do not carry with them
the right to dividends or voting rights with respect to the securities that they
entitle the holder to purchase, and they do not represent any rights in the
assets of the issuer. As a result, warrants may be considered more speculative
than certain other types of investments. In addition, the value of a warrant
does not necessarily change with the value of the underlying securities or
commodities, and a warrant ceases to have value if it is not exercised prior to
its expiration date.
SWAP AGREEMENTS. Some or all of the Investment Managers may enter into equity,
interest rate, index and currency rate swap agreements on behalf of the
Investment Funds. These transactions are entered into in an attempt to obtain a
particular return when it is considered desirable to do so, possibly at a lower
cost than if the Investment Manager had invested directly in the asset that
yielded the desired return. Swap agreements are two-party contracts entered into
primarily by institutional investors for periods ranging from a few weeks to
more than a year. In a standard swap transaction, two parties agree to exchange
the returns (or differentials in rates of return) earned or realized on
particular predetermined investments or instruments, which may be adjusted for
an interest factor. The gross returns to be exchanged or "swapped" between the
parties are generally calculated with respect to a "notional amount," i.e., the
return on or increase in value of a particular dollar amount invested at a
particular interest rate, in a particular foreign currency, or in a "basket" of
securities representing a particular index. Forms of swap agreements include
interest rate caps, under which, in return for a premium, one party agrees to
make payments to the other to the extent interest rates exceed a specified rate
or "cap"; interest rate floors, under which, in return for a premium, one party
agrees to make payments to the other to the extent interest rates fall below a
specified level or "floor"; and interest rate collars, under which a party sells
a cap and purchases a floor or vice versa in an attempt to protect itself
against interest rate movements exceeding given minimum or maximum levels.
Most swap agreements entered into by an Investment Manager would calculate the
obligations of the parties to the agreement on a "net basis." Consequently, the
Investment Fund's current obligations (or rights) under a swap agreement
generally will be equal only to the net amount to be paid or received under the
agreement based on the relative values of the positions held by each party to
the agreement (the "net amount"). The risk of loss with respect to swaps is
limited to the net amount of interest payments that the Investment Fund is
contractually obligated to make. If the other party to a swap defaults, the
Investment Fund's risk of loss consists of the net amount of payments that the
Investment Fund contractually is entitled to receive.
To achieve investment returns equivalent to those achieved by an investment
adviser in whose investment vehicles the Fund could not invest directly, perhaps
because of its investment minimum or its unavailability for direct investment,
the Fund may enter into swap agreements under which the Fund may agree, on a net
basis, to pay a return based on a floating interest rate, such as LIBOR, and to
receive the total return of the reference investment vehicle over a stated time
period. The Fund may seek to achieve the same investment result through the use
of other derivatives in similar circumstances. The Federal income tax treatment
of swap agreements and other derivatives used in the above manner is unclear.
Until the Federal income tax treatment of derivatives on hedge funds is
clarified, the Fund will not invest in such derivatives.
LENDING PORTFOLIO SECURITIES
Some or all of the Investment Managers may lend securities from their portfolios
to brokers, dealers and other financial institutions needing to borrow
securities to complete certain transactions. The Investment Manager continues to
be entitled to payments in amounts equal to the interest, dividends or other
distributions payable on the loaned securities which affords the Investment
Manager an opportunity to earn interest on the amount of the loan and on the
loaned securities' collateral. Loans of portfolio securities by a Subadviser may
not exceed 33-1/3% of the value of the Fund's total assets, and, in respect of
such transactions, the Fund will receive collateral consisting of cash, U.S.
Government Securities or irrevocable letters of credit which will be maintained
at all times in an amount equal to at least 100% of the current market value of
the loaned securities. The Fund might experience risk of loss if the institution
with which the Investment Manager has engaged in a portfolio loan transaction
breaches its agreement with the Investment Manager.
WHEN-ISSUED, DELAYED DELIVERY AND FORWARD COMMITMENT SECURITIES
To reduce the risk of changes in interest rates and securities prices, some or
all of the Investment Managers may purchase securities on a forward commitment
or when-issued or delayed delivery basis, which means delivery and payment take
place a number of days after the date of the commitment to purchase. The payment
obligation and the interest rate receivable with respect to such purchase are
fixed when an Investment Manager enters into the commitment, but the Investment
Manager does not make payment until it receives delivery from the counterparty.
The Investment Manager will commit to purchase such securities only with the
intention of actually acquiring the securities, but the Investment Manager may
sell these securities before the settlement date if it is deemed advisable.
Securities purchased on a forward commitment or when-issued or delayed delivery
basis are subject to changes in value, generally changing in the same way, i.e.,
appreciating when interest rates decline and depreciating when interest rates
rise, based upon the public's perception of the creditworthiness of the issuer
and changes, real or anticipated, in the level of interest rates. Securities so
purchased may expose the Fund to risks because they may experience such
fluctuations prior to their actual delivery. Purchasing securities on a
when-issued or delayed delivery basis can involve the additional risk that the
yield available in the market when the delivery takes place actually may be
higher than that obtained in the transaction itself. Purchasing securities on a
forward commitment or when-issued or delayed delivery basis when an Investment
Manager is fully or almost fully invested may result in greater potential
fluctuation in the value of the Fund's net assets. In addition, there is a risk
that securities purchased on a when- issued or delayed delivery basis may not be
delivered and that the purchaser of securities sold by the Investment Manager on
a forward basis will not honor its purchase obligation. In such cases, the Fund
may incur a loss.
RESTRICTED AND ILLIQUID INVESTMENTS
Although each Investment Manager will invest primarily in publicly traded
securities, the Fund and each Investment Manager may invest without limitation
in restricted securities and other investments which are illiquid. Restricted
securities are securities that may not be sold to the public without an
effective registration statement under the 1933 Act, or, if they are
unregistered, may be sold only in a privately negotiated transaction or pursuant
to an exemption from registration under the 1933 Act.
Where registration is required to sell a security, an Investment Manager may be
obligated to pay all or part of the registration expenses, and a considerable
period may elapse between the decision to sell and the time the Investment
Manager may be permitted to sell a security under an effective registration
statement. If during such a period adverse market conditions were to develop,
the Investment Manager might obtain a less favorable price than the prevailing
price when it decided to sell. Restricted securities for which no market exists
and other illiquid investments are valued at fair value as determined in
accordance with procedures approved and periodically reviewed by the Directors.
Investment Managers may be unable to sell restricted and other illiquid
securities at the most opportune times or at prices approximating the value at
which they purchased such securities.
In addition, the Fund's interests in unregistered Investment Funds are
themselves illiquid and subject to substantial restrictions on transfer. The
Fund may liquidate an interest and withdraw from an unregistered Investment Fund
pursuant to limited withdrawal rights. The illiquidity of these interests may
adversely affect the Fund were it to have to sell interests at an inopportune
time.
INVESTMENT RESTRICTIONS
The Fund has adopted the following investment restrictions as fundamental
policies, which cannot be changed without approval by holders of a majority (as
defined in the 1940 Act) of the Fund's outstanding voting securities. The Fund
may not:
o Issue senior securities, except that, to the extent permitted by the 1940
Act, (a) the Investment Managers may borrow money to finance portfolio
transactions and engage in other transactions involving the issuance by
the Fund of "senior securities" representing indebtedness, and (b) the
Fund may borrow money from banks for temporary or emergency purposes or
in connection with repurchases of, or tenders for, the Fund's interests.
o Underwrite securities of other issuers, except insofar as the Fund may be
deemed an underwriter under the 1933 Act in connection with the
disposition of its portfolio securities.
o Make loans, except through purchasing fixed-income securities, lending
portfolio securities or entering into repurchase agreements in a manner
consistent with the Fund's investment policies or as otherwise
permitted under the 1940 Act.
o Purchase, hold or deal in real estate, except that the Investment
Managers may invest in real estate and securities that are secured by
real estate, or securities issued by companies that invest or deal in
real estate or real estate investment trusts.
o Invest in commodities or commodity contracts, except that the Investment
Managers may purchase and sell foreign currency, options, futures and
forward contracts, including those related to indexes, and options on
indexes.
o Invest more than 25% of the value of its total assets in the securities
of issuers in any single industry, except that the Investment Managers
may purchase U.S. Government Securities without limitation. For purposes
of this Investment Restriction, the Investment Funds are not considered
part of an industry.
Under the 1940 Act, the vote of a majority of the outstanding voting securities
of an investment company, such as the Fund, means the vote, at the annual or a
special meeting of the security holders of such company duly called, (A) of 67%
or more of the voting securities present at such meeting, if the holders of more
than 50% of the outstanding voting securities of such company are present or
represented by proxy; or (B) of more than 50% of the outstanding voting
securities of such company, whichever is less.
With respect to these investment restrictions, and other policies described in
this Memorandum, the Fund will not look through the Investment Funds not managed
by Subadvisers to their underlying securities. 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 Fund's total assets, unless otherwise stated, will not constitute a
violation of such restriction or policy.
The Fund's investment objective is fundamental and may not be changed without
the vote of a majority (as defined by the 1940 Act) of the Fund's outstanding
voting securities.
ADDITIONAL RISK FACTORS
ASSET-BASED FEES AND PERFORMANCE-BASED ALLOCATIONS
Each Investment Manager generally will charge the Fund an asset-based fee and
some or all of the Investment Managers will receive performance-based
allocations. The asset-based fees of the Investment Managers are expected to
range from 0% to 2% and the performance-based allocations of the Investment
Managers are expected to range from 15% to 20% of net profits.
The performance-based allocation that will be received by an Investment Manager
may create an incentive for the Investment Manager to make investments that are
riskier or more speculative than those that might have been made in the absence
of the performance-based allocation. In addition, because the performance-based
allocation is calculated on a basis that includes realized and unrealized
appreciation of an Investment Fund's assets, the allocation may be greater than
if it were based solely on realized gains.
In addition, the Manager will charge the Fund an asset-based fee and will
receive a performance- based bonus, which gives rise to similar risks. See "FEES
AND EXPENSES" and "CAPITAL ACCOUNTS AND ALLOCATIONS--Performance Bonus."
TAX RISKS
Counsel to the Fund has rendered an opinion that the Fund will be treated as a
partnership and not as an association taxable as a corporation for Federal
income tax purposes. Counsel to the Fund has rendered its opinion that, under a
"facts and circumstances" test set forth in regulations adopted by the U.S.
Treasury Department, the Fund will not be treated as a "publicly traded
partnership" taxable as corporation. If it were determined that the Fund 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 Fund or otherwise, the taxable income of the Fund would be
subject to corporate income tax and distributions of profits from the Fund would
be treated as dividends. See "TAX ASPECTS--Tax Treatment of Fund Operations--
Classification of the Fund."
LIQUIDITY RISKS
Fund interests will not be traded on any securities exchange or other market and
are subject to substantial restrictions on transfer. Although the Fund may offer
to repurchase Limited Partner interests from time to time, a Limited Partner may
not be able to liquidate its interest in the Fund for up to two years. The
Manager expects that generally, beginning in 2001, it will recommend to the
Directors that the Fund offer to repurchase interests from Partners twice each
year, in June and December, and also intends to recommend the making of offers
to repurchase interests effective as of April 2000 and December 2000. See
"REDEMPTIONS, REPURCHASES OF INTERESTS AND TRANSFERS."
DISTRIBUTIONS TO LIMITED PARTNERS AND PAYMENT OF TAX LIABILITY
The Fund 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 Fund's taxable income, and will
have to pay such applicable taxes from sources other than Fund distributions.
The amount and times of any distributions will be determined in the sole
discretion of the Directors.
SPECIAL RISKS OF MULTI-MANAGER STRUCTURE
An investor who met the conditions imposed by the Investment Managers could
invest directly with the Investment Managers. These conditions include
investment minimums that may be considerably higher than $150,000. By investing
in investment vehicles indirectly through the Fund, the investor bears two
layers of asset-based fees and performance-based allocations--one at the Fund
level and one at the Investment Fund level. In addition, the investor bears a
proportionate share of the fees and expenses of the Fund (including operating
costs, distribution expenses and administrative fees) and, indirectly, similar
expenses of the Investment Funds.
Each Investment Manager will receive any performance-based allocations to which
it is entitled irrespective of the performance of the other Investment Managers
and the Fund generally. Accordingly, an Investment Manager with positive
performance may receive compensation from the Fund, and thus indirectly from
investors, even if the Fund's returns are negative.
Investment decisions of the Investment Funds are made by the Investment Managers
entirely independently of each other. As a result, at any particular time, one
Investment Fund may be purchasing shares of an issuer whose shares are being
sold by another Investment Fund. Consequently, the Fund could incur indirectly
certain transaction costs without accomplishing any net investment result.
For the Fund to complete its tax reporting requirements, it must receive
information on a timely basis from the Investment Managers. An Investment
Manager's delay in providing this information will delay the Fund's preparation
of tax information to investors, which is likely to cause investors to seek
extensions on the time to file their tax returns.
A noncorporate investor's share of the Fund's investment expenses (including the
asset-based fees and performance-based allocations at the Fund and Investment
Fund levels) may be subject to certain limitations on deductibility for regular
Federal income tax purposes and may be completely disallowed for purposes of
determining the noncorporate investor's alternative minimum tax liability.
PERFORMANCE INFORMATION
Appendix B contains composite performance information for the Investment Funds.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
THE DIRECTORS
The business affairs of the Fund are managed under the general supervision of
the Directors. The Fund's General Partner, to the fullest extent permitted by
applicable law, has irrevocably delegated to the Directors its rights and powers
to manage and control the business affairs of the Fund, including the complete
and exclusive authority to oversee and to establish policies regarding the
management, conduct and operation of the Fund's business. The Directors exercise
the same powers, authority and responsibilities on behalf of the Fund as are
customarily exercised by the directors of a registered investment company
organized as a corporation. The General Partner retains only those rights,
powers and duties that may not be delegated under Delaware law. The General
Partner will remain as the general partner of the Fund and will continue to be
liable as such.
The Directors are not general partners or limited partners of the Fund and,
accordingly, have no liability as such. The Directors will not contribute to the
capital of the Fund and will not hold partnership interests in the Fund. A
majority of the Directors are not "interested persons" (as defined in the 1940
Act) of the Fund (collectively, the "Independent Directors") and perform the
same functions for the Fund as are customarily exercised by the non-interested
directors of a registered investment company organized as a corporation.
The identity of the Directors and brief biographical information regarding each
Director is set forth below. Each Director who is deemed to be an "interested
person" of the Fund, as defined in the 1940 Act, is indicated by an asterisk.
Name, Address and Age Principal Occupation(s) During Past Five Years
[To Be Provided]
Each of the Directors was appointed to serve in such position by the General
Partner and, on _____, 1999, such appointment was approved and ratified by the
General Partner and __________________, in his capacity as the Fund's
organizational limited partner, who were the sole holders of partnership
interests in the Fund on such date.
A Director's position in that capacity will terminate if such Director is
removed, resigns or is subject to various disabling events such as death or
incapacity. A Director may resign upon 90 days' prior written notice to the
other Directors, and may be removed either by vote of two-thirds of the
Directors not subject to the removal vote or vote of the Partners holding not
less than two- thirds of the total number of votes eligible to be cast by all
Partners. In the event of any vacancy in the position of a Director, the
remaining Directors may appoint an individual to serve as a Director, so long as
immediately after such appointment at least two-thirds of the Directors then
serving would have been elected by the Partners. The Directors may call a
meeting of Partners to fill any vacancy in the position of a Director, and must
do so within 60 days after any date on which Directors who were elected by the
Partners cease to constitute a majority of the Directors then serving. If no
Director remains to manage the business of the Fund, the General Partner may
manage and control the Fund, but must convene a meeting of Partners within 60
days for the purpose of either electing new Directors or dissolving the Fund.
The Independent Directors are each paid an annual retainer of $_______ and per
meeting fees of $_____, or $_____ in the case of telephonic meetings, by the
Fund. The other Directors receive no annual or other fees from the Fund. All
Directors are reimbursed by the Fund for their reasonable out-of-pocket
expenses. It is estimated that the aggregate annual compensation paid by the
Fund to each Independent Director will be $______ during the coming year, and
that, together with compensation paid to them by other registered investment
companies advised by affiliates of the Manager, Messrs. ____________ and
____________ will receive aggregate annual compensation from all such companies
of approximately $______ and $_______, respectively, for such year. The
Directors do not receive any pension or retirement benefits from the Fund.
THE MANAGER
The Manager is the Fund's General Partner. The Manager will initially allocate
the Fund's assets and, thereafter, will evaluate regularly each Investment
Manager to determine whether its investment program is consistent with the
Fund's investment objective and whether its investment performance is
satisfactory. The Manager may reallocate the Fund's assets among the Investment
Managers, terminate existing Investment Managers and select additional
Investment Managers, subject to the condition that selection of a new Subadviser
requires approval of a majority (as defined in the 1940 Act) of the Fund's
outstanding voting securities, unless the Fund receives an exemption from
certain provisions of the 1940 Act. The Manager will perform its duties subject
to any policies established by the Directors. The Manager, which was formed as a
Delaware limited liability company on June 25, 1996, is an indirect,
wholly-owned subsidiary of PW Group and is registered as an investment adviser
under the Advisers Act. The Manager and its affiliates provide investment
advisory services to registered investment companies, private investment funds
and individual accounts, and have more than $322 billion of assets under control
and $54 billion of assets under management. PaineWebber Incorporated, a
wholly-owned subsidiary of PW Group, is registered as a broker-dealer under the
Securities Exchange Act of 1934, as amended, and is a member of the New York
Stock Exchange, Inc. and other principal securities exchanges.
The offices of the Manager are located at 1285 Avenue of the Americas, New York,
New York 10019, and its telephone number is (800) 486-2608. As of __________,
1999, the Manager owned 99% of the outstanding interests in the Fund (thereby
controlling the Fund) and was the only person known by the Fund to own of record
or beneficially 5% or more of the outstanding interests in the Fund. The Manager
maintains the Fund's accounts, books and other documents required to be
maintained under the 1940 Act at 1285 Avenue of the Americas, New York, New York
10019 or such other location as may be designated by the Fund.
Investment decisions for the Fund are made by a team of the Manager's portfolio
managers, and no person is primarily responsible for making recommendations to
the team.
The authority of the Manager to serve or act as investment adviser, and be
responsible for the day-to-day management, of the Fund (collectively, "Advice
and Management"), and the performance bonus arrangement between the Fund and the
Manager, as the foregoing are set forth in the Partnership Agreement, was
initially approved by the Directors, including each Independent Director, and by
vote of Partners holding interests in the Fund on ____________, 1999. The
authority of the Manager to provide Advice and Management will terminate under
the following circumstances:
(1) if revoked by (A) vote of a majority (as defined in the 1940
Act) of the outstanding voting securities of the Fund or (B)
the Directors, in either case with 60 days' prior written
notice to the Manager;
(2) at the election of the Manager, with 60 days' prior written
notice to the Directors;
(3) if, after _________, 2000, any period of 12 consecutive
months shall conclude without the approval of the
continuation of such authority by (A) the vote of a majority
(as defined in the 1940 Act) of the outstanding voting
securities of the Fund or (B) the Directors and, in either
case, approved by a majority of the Independent Directors by
vote cast at a meeting called for such purpose;
(4) to the extent required by the 1940 Act, upon the occurrence of
any event in connection with the Manager, its provision of
Advice and Management, the Partnership Agreement or otherwise
constituting an "assignment" within the meaning of the 1940
Act; or
(5) if the Manager is no longer a General Partner of the Fund.
The Manager also may withdraw, or be removed by the Fund, as a General Partner.
If the Manager gives notice to the Fund of its intention to withdraw, it will be
required to remain as a General Partner for one year, or until such earlier date
as a successor Manager is approved by the Fund, if, in the opinion of counsel to
the Fund, earlier withdrawal is likely to cause the Fund to lose its partnership
tax classification or as otherwise required by the 1940 Act. At the request of
the Fund, the Manager will remain as a General Partner of the Fund for a period
of six months if the Fund has terminated the authority of the Manager to provide
Advice and Management, unless a successor General Partner to the Manager is
earlier approved by the Fund.
VOTING
Each Partner will have the right to cast a number of votes based on the value of
such Partner's respective capital account at any meeting of Partners called by
the Directors or Partners holding at least a majority of the total number of
votes eligible to be cast by all Partners. Limited Partners will be entitled to
vote on any matter on which shareholders of a registered investment company
organized as a corporation would be entitled to vote, including selection of
Directors, approval of the authority of the Manager to provide Advice and
Management to the Fund and approval of the Fund's auditors. Except for the
exercise of their voting privileges, Limited Partners will not be entitled to
participate in the management or control of the Fund's business, and may not act
for or bind the Fund.
CONFLICTS OF INTEREST
THE MANAGER
The Manager and its affiliates manage the assets of registered investment
companies, private investment funds and individual accounts (collectively, "PWFA
Clients"). The Fund has no interest in these activities. The officers or
employees of the Manager will be engaged in substantial activities other than on
behalf of the Manager and may have conflicts of interest in allocating their
time and activity between the Manager and PWFA Clients. The Manager and its
officers and employees will devote so much of their time to the affairs of the
Manager as in their judgment is necessary and appropriate.
PaineWebber Incorporated acts as the placement agent for the Fund, without
special compensation from the Fund, and will bear its own costs associated with
its activities as placement agent. The Manager and PaineWebber Incorporated
intend to compensate PaineWebber Incorporated's or its affiliates' account
executives, as well as third-party securities dealers and other industry
professionals, for their ongoing servicing of clients with whom they have placed
interests in the Fund and such compensation will be based upon a formula that
takes into account the amount of client assets being serviced as well as the
investment results attributable to the clients' assets in the Fund. See "FEES
AND EXPENSES" and "CAPITAL ACCOUNTS AND ALLOCATIONS--Performance Bonus."
PaineWebber Incorporated or its affiliates may provide brokerage and other
services from time to time to one or more accounts or entities managed by an
Investment Manager or its affiliates. (All investment funds and other accounts
managed by the Investment Managers or their affiliates, excluding the Fund, are
referred to collectively as the "Investment Manager Accounts.")
The Manager, its affiliates or PWFA Clients may have an interest in an account
managed by an Investment Manager or its affiliates on terms different than an
interest in the Fund. In addition, the Investment Managers may receive research
products and services in connection with the brokerage services that the Manager
and its affiliates may provide from time to time to one or more Investment
Manager Accounts or to the Fund. PERTAINING TO SUBADVISERS
To the extent Subadvisers are engaged to manage the Fund's assets, the following
potential conflicts of interest may be relevant:
PARTICIPATION IN INVESTMENT OPPORTUNITIES. Each Subadviser expects to employ an
investment program for its Investment Fund that is substantially similar to the
investment program employed by the Subadviser for its Investment Manager
Accounts. Accordingly, as a general matter, the Subadviser will consider
participation by the Fund in all appropriate investment opportunities that are
under consideration for investment by the Subadviser for its Investment Manager
Accounts. There may be, however, circumstances under which a Subadviser will
cause its Investment Manager Accounts to commit a larger percentage of their
respective assets to an investment opportunity than to which the Subadviser will
commit the Fund's assets. There also may be circumstances under which a
Subadviser will consider participation by its Investment Manager Accounts in
investment opportunities in which the Subadviser does not intend to invest on
behalf of the Fund, or vice versa.
Each Subadviser will evaluate a variety of factors that may be relevant in
determining whether a particular investment opportunity or strategy is
appropriate and feasible for its respective Investment Fund or Investment
Manager Account at a particular time, including, but not limited to, the
following: (1) the nature of the investment opportunity taken in the context of
the other investments at the time; (2) the liquidity of the investment relative
to the needs of the particular entity or account; (3) the availability of the
opportunity (i.e., size of obtainable position); (4) the transaction costs
involved; and (5) the investment or regulatory limitations applicable to the
particular entity or account. Because these considerations may differ for the
Investment Fund and relevant Investment Manager Accounts in the context of any
particular investment opportunity, the investment activities of the Investment
Fund and Investment Manager Accounts may differ considerably from time to time.
In addition, the fees and expenses of the Investment Fund will differ from those
of the Investment Manager Accounts and the Fund. Accordingly, prospective
Limited Partners should note that the future performance of the Subadviser and
the Investment Manager Accounts will vary.
When a Subadviser determines that it would be appropriate for its respective
Investment Fund and one or more of its Investment Manager Accounts to
participate in an investment opportunity at the same time, they will attempt to
aggregate, place and allocate orders on a basis that the Subadviser believes to
be fair and equitable, consistent with its responsibilities under applicable
law. Decisions in this regard are necessarily subjective and there is no
requirement that each Investment Fund participate, or participate to the same
extent as the Investment Manager Accounts, in all trades. However, no
participating entity or account will receive preferential treatment over any
other and the Subadviser will take steps to ensure that no participating entity
or account will be systematically disadvantaged by the aggregation, placement
and allocation of orders.
Situations may occur, however, where the Fund could be disadvantaged because of
the investment activities conducted by the Subadvisers for the Investment
Manager Accounts. Such situations may be based on, among other things, the
following: (1) legal restrictions on the combined size of positions that may be
taken for the Investment Funds and the Investment Manager Accounts, thereby
limiting the size of the Fund's position; (2) the difficulty of liquidating an
investment for the Investment Funds and the Investment Manager Accounts where
the market cannot absorb the sale of the combined positions; and (3) the
determination that a particular investment is warranted only if hedged with an
option or other instrument and there is a limited availability of such options
or other instruments. In particular, each Subadviser may be legally restricted
from entering into a "joint transaction" (as defined in the 1940 Act) with its
Investment Fund or Investment Manager Accounts with respect to the securities of
an issuer without first obtaining exemptive relief from the SEC. See "CONFLICTS
OF INTEREST-- Other Matters."
Each Investment Manager and its principals, officers, employees and affiliates,
may buy and sell securities or other investments for their own accounts and may
have actual or potential conflicts of interest with respect to investments made
on behalf of the Fund. As a result of differing trading and investment
strategies or constraints, positions may be taken by principals, officers,
employees and affiliates of the Investment Manager that are the same, different
or made at a different time than positions taken for the Fund.
OTHER MATTERS. Except in accordance with applicable law, no Subadviser is
permitted to buy securities or other property from, or sell securities or other
property to, its respective Investment Fund. However, the Investment Fund may
effect certain principal transactions in securities with one or more Investment
Manager Accounts, except for accounts in which the Subadviser or any affiliate
thereof serves as a general partner or in which it has a financial interest,
other than an interest that results solely from the Subadviser's appointment as
an investment adviser to the account. Such transactions would be made in
circumstances where the Subadviser has determined it would be appropriate for
the Investment Fund to purchase and an Investment Manager Account to sell, or
the Investment Fund to sell and an Investment Manager Account to purchase, the
same security or instrument on the same day. Future investment activities of the
Investment Managers, or their affiliates, and the principals, partners,
directors, officers or employees of the foregoing may give rise to additional
conflicts of interest.
BROKERAGE
Each Investment Manager is directly responsible for the execution of its
portfolio investment transactions and the allocation of brokerage. Transactions
on U.S. stock exchanges and on some foreign stock exchanges involve the payment
of negotiated brokerage commissions. On the great majority of foreign stock
exchanges, commissions are fixed. No stated commission is generally applicable
to securities traded in over-the-counter markets, but the prices of those
securities include undisclosed commissions or mark-ups.
To the extent Subadvisers are engaged to manage the Fund's assets, the following
paragraphs will be relevant:
In executing transactions on behalf of its Investment Fund, each Subadviser will
seek to obtain the best price and execution for the transactions, taking into
account factors such as price, size of order, difficulty of execution and
operational facilities of a brokerage firm, and in the case of transactions
effected by the Subadviser with unaffiliated brokers, the firm's risk in
positioning a block of securities. Although each Subadviser generally will seek
reasonably competitive commission rates, a Subadviser will not necessarily pay
the lowest commission available on each transaction. The Subadvisers will have
no obligation to deal with any broker or group or brokers in executing
transactions in portfolio securities.
Following the principle of seeking best price and execution, a Subadviser may
place brokerage business with brokers that provide the Subadviser and its
affiliates with supplemental research, market and statistical information,
including advice as to the value of securities, the advisability of investing
in, purchasing or selling securities, and the availability of securities or
purchasers or sellers of securities, and furnishing analyses and reports
concerning issuers, industries, securities, economic factors and trends,
portfolio strategy and the performance of accounts. The expenses of the
Subadviser are not necessarily reduced as a result of the receipt of this
supplemental information, which may be useful to the Subadviser or its
affiliates in providing services to clients other than the Fund. In addition,
not all of the supplemental information is used by the Subadviser in connection
with the Fund. Conversely, the information provided to the Subadviser by brokers
and dealers through which other clients of the Subadviser and its affiliates
effect securities transactions may be useful to the Subadviser in providing
services to the Fund.
Although the Fund cannot accurately predict the portfolio turnover rate of the
Investment Funds managed by the Subadvisers, the Fund expects that their annual
portfolio turnover rate could exceed ___%. Higher portfolio turnover rates
usually generate additional brokerage commissions and expenses and the
short-term gains realized from these transactions are taxable as ordinary
income.
Each Investment Manager may execute portfolio brokerage transactions through its
affiliates and affiliates of the Manager, in each case subject to compliance
with the 1940 Act.
FEES AND EXPENSES
The Manager provides certain management and administrative services to the Fund,
including, among other things, providing office space and other support services
to the Fund. In consideration for such services, the Fund will pay the Manager a
monthly management fee at the annual rate of 1% of the Fund's net assets,
excluding assets attributable to the Manager's capital account (the "Fee"). Net
assets means the total value of all assets of the Fund, less an amount equal to
all accrued debts, liabilities and obligations of the Fund, calculated before
giving effect to any repurchases of interests. The Fee will be computed based on
the net assets of the Fund as of the start of business on the first business day
of each month, after adjustment for any subscriptions effective on such date,
and will be due and payable in arrears within five business days after the end
of such month. The Fee will be charged in each fiscal period to the capital
accounts of all Limited Partners in proportion to their capital accounts at the
beginning of such fiscal period.
The Administrator performs certain administration, accounting and investor
services for the Fund and the Investment Funds managed by the Subadvisers. In
consideration for these services, the Fund will pay the Administrator an annual
fee based on: (i) the average net assets of the Fund, subject to a minimum
monthly fee, and (ii) the average net assets of each Investment Fund managed by
a Subadviser, subject to a minimum monthly fee, and will reimburse the
Administrator for out-of-pocket expenses.
In addition, the capital accounts of Limited Partners may be subject to the
Performance Bonus depending upon the investment performance of the Fund. See
"CAPITAL ACCOUNTS AND ALLOCATIONS--Performance Bonus."
The Fund will bear all expenses incurred in the business of the Fund other than
those specifically required to be borne by the Manager. Expenses to be borne by
the Fund include, but are not limited to, the following:
o all costs and expenses directly related to portfolio transactions and
positions for the Fund'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;
o all costs and expenses associated with the organization and registration
of the Fund, certain offering costs and the costs of compliance with any
applicable Federal or state laws;
o all costs and expenses associated with the organization of Investment
Funds managed by Subadvisers and with the selection of Investment
Managers, including due diligence and travel-related expenses;
o the costs and expenses of holding any meetings of any Partners that are
regularly scheduled, permitted or required to be held under the terms
of the Partnership Agreement, the 1940 Act or other applicable law;
o fees and disbursements of any attorneys, accountants, auditors and other
consultants and professionals engaged on behalf of the Fund;
o the fees of custodians and other persons providing administrative
services to the Fund;
o the costs of a fidelity bond and any liability insurance obtained on
behalf of the Fund, the General Partner or the Directors;
o all costs and expenses of preparing, setting in type, printing and
distributing reports and other communications to Limited Partners;
o all expenses of computing the Fund's net asset value, including any
equipment or services obtained for the purpose of valuing the Fund's
investment portfolio;
o all charges for equipment or services used for communications
between the Fund and any custodian, or other agent engaged by the Fund;
and
o such other types of expenses as may be approved from time to time by the
Directors other than those required to be borne by the Manager.
The Manager will be reimbursed by the Fund for any of the above expenses that it
pays on behalf of the Fund.
The Fund's organizational and offering expenses are estimated at $_________. The
Fund also will bear certain on-going offering costs associated with any periodic
offers of Fund interests. Offering costs cannot be deducted by the Fund or the
Partners.
The Investment Funds will bear all expenses incurred in the business of the
Investment Funds, which are similar to those expenses incurred by the Fund in
the business of the Fund. The Investment Managers generally will charge an
asset-based fee to and receive performance-based allocations from the Investment
Funds, which effectively will reduce total distributions from the Investment
Funds to the Fund.
CAPITAL ACCOUNTS AND ALLOCATIONS
CAPITAL ACCOUNTS
The Fund will maintain a separate capital account for each Partner, which will
have an opening balance equal to such Partner's initial contribution to the
capital of the Fund. Each Partner's capital account will be increased by the sum
of the amount of cash and the value of any securities constituting additional
contributions by such Partner to the capital of the Fund, plus any amounts
credited to such Partner's capital account as described below. Similarly, each
Partner's capital account will be reduced by the sum of the amount of any
repurchase by the Fund of the interest, or portion thereof, of such Partner,
plus the amount of any distributions to such Partner which are not reinvested,
plus any amounts debited against such Partner's capital account as described
below. To the extent that any debit would reduce the balance of the capital
account of any Limited Partner below zero, that portion of any such debit will
instead be allocated to the capital account of the Manager; any subsequent
credits that would otherwise be allocable to the capital account of any such
Limited Partner will instead be allocated to the capital account of the Manager
in such amounts as are necessary to offset all previous debits attributable to
such Limited Partner.
Capital accounts of Partners are adjusted as of the close of business on the
last day of each fiscal period. Fiscal periods begin on the day after the last
day of the preceding fiscal period and end at the close of business on (1) the
last day of the fiscal year of the Fund, (2) the day preceding the date as of
which a contribution to the capital of the Fund is made, (3) the day as of which
the Fund repurchases any interest or portion of an interest of any Partner, or
(4) the day as of which any amount is credited to or debited from the capital
account of any Partner other than an amount to be credited to or debited from
the capital accounts of all Partners in accordance with their respective
partnership percentages. A partnership percentage will be determined for each
Partner as of the start of each fiscal period by dividing the balance of such
Partner's capital account as of the commencement of such period by the sum of
the balances of all capital accounts of all Partners as of such date.
ALLOCATION OF NET PROFITS AND NET LOSSES
Net profits or net losses of the Fund for each fiscal period will be allocated
among and credited to or debited against the capital accounts of all Partners as
of the last day of each fiscal period in accordance with Partners' respective
partnership percentages for such fiscal period. Net profits or net losses will
be measured as the net change in the value of the net assets of the Fund,
including any net change in unrealized appreciation or depreciation of
investments and realized income and gains or losses and expenses during a fiscal
period, before giving effect to any repurchases by the Fund of interests or
portions thereof, and adjusted to reflect the amount of any "key man" insurance
premiums or proceeds to be allocated among the capital accounts of the Partners
and any items to be allocated among the capital accounts of the Partners other
than in accordance with the Partners' respective partnership percentages.
Allocations for Federal income tax purposes generally will be made among the
Partners so as to reflect equitably amounts credited or debited to each
Partner's capital account for the current and prior fiscal years.
PERFORMANCE BONUS
So long as the Manager provides Advice and Management to the Fund, the Manager
will be entitled to a performance bonus (the "Performance Bonus"), charged to
the capital account of each Limited Partner (except, in the discretion of the
Manager, Limited Partners who are employees of the Manager and its affiliates,
and members of their immediate families) as of the last day of each Measurement
Period, in an amount equal to 1% of the balance of the Limited Partner's capital
account at the end of the Measurement Period. The Performance Bonus will be
calculated separately with respect to each Limited Partner and will be made only
if, at the end of a Measurement Period, the net profits allocated to the Limited
Partner for the Measurement Period exceed the Threshold Return. The "Threshold
Return" is the amount that a Limited Partner would have earned for a Measurement
Period (or portion thereof) if it had received an annualized rate of return of
20% on its opening capital account balance (appropriately adjusted for
contributions and withdrawals) for such period. The Threshold Return is not
cumulative from year to year. The Performance Bonus will be prorated for
Measurement Periods that are less than 12 months. For example, assuming a
Limited Partner receives a rate of return in excess of 10% for a Measurement
Period of six months, the Performance Bonus for such Measurement Period would
equal 0.5% (1/2 of 1%) of the balance of the Limited Partner's capital account
at the end of such period.
A "Measurement Period" as to each Limited Partner is a period commencing on the
admission of such Limited Partner to the Fund and ending at the close of
business on the last day of the Fund's fiscal year following such admission, and
thereafter is each period commencing as of the first day of the relevant fiscal
year of the Fund and ending as of the close of business on the first to occur of
(1) the last day of such fiscal year, (2) the day as of which the Fund
repurchases the entire interest of such Limited Partner, (3) the day as of which
the Fund admits as a substitute Limited Partner a person to whom the entire
interest (or portion thereof) of such Limited Partner has been transferred or
(4) the day as of which the authority of the Manager to provide Advice and
Management is terminated or the Manager ceases to be a general partner of the
Fund.
Within 30 days of each Measurement Period with respect to each Limited Partner,
and subject to certain limitations, the Manager may withdraw up to 98% of the
Performance Bonus, computed on the basis of unaudited data, that was credited to
the Manager's capital account and debited from the Limited Partner's capital
account with respect to such Measurement Period. The Fund will pay the balance,
subject to audit adjustments, within 30 days after the completion of the audit
of the Fund's books.
ALLOCATION OF SPECIAL ITEMS--CERTAIN WITHHOLDING TAXES AND OTHER EXPENDITURES
Withholding taxes or other tax obligations incurred by the Fund which are
attributable to any Partner will be debited against the capital account of such
Partner as of the close of the fiscal period during which the Fund paid such
obligation, and any amounts then or thereafter distributable to such Partner
will be reduced by the amount of such taxes. If the amount of such taxes is
greater than any such distributable amounts, then the Partner and any successor
to the Partner's interest is required to pay to the Fund as a contribution to
the capital of the Fund, upon demand of the Fund, the amount of such excess.
RESERVES
Appropriate reserves may be created, accrued and charged against net assets and
proportionately against the capital accounts of the Partners for contingent
liabilities as of the date any such contingent liabilities become known to the
Fund. Reserves will be in such amounts, subject to increase or reduction, which
the Fund may deem necessary or appropriate. The amount of any reserve, or any
increase or decrease therein, will be proportionately charged or credited, as
appropriate, to the capital accounts of those investors who are Partners at the
time when such reserve is created, increased or decreased, as the case may be;
provided, however, that if any such reserve, or any increase or decrease
therein, exceeds the lesser of $500,000 or 1% of the aggregate value of the
capital accounts of all such Partners, the amount of such reserve, increase, or
decrease shall instead be charged or credited to those investors who, as
determined by the Fund, were Partners at the time of the act or omission giving
rise to the contingent liability for which the reserve was established,
increased or decreased in proportion to their capital accounts at that time.
NET ASSET VALUATION
Net asset value of the Fund will be determined by or at the direction of the
Manager as of the close of business at the end of any fiscal period in
accordance with the valuation principles set forth below or as may be determined
from time to time pursuant to policies established by the Directors.
The Fund will value interests in Investment Funds not managed by the Subadvisers
at fair value, which ordinarily will be the value determined by their Investment
Managers in accordance with the policies established by the relevant Investment
Fund.
To the extent Subadvisers are engaged to manage the Fund's assets, the Fund will
value the portfolio securities of the Investments Funds managed by the
Subadvisers as described below:
Domestic exchange traded securities and securities included in the Nasdaq
National Market System will be valued at their last composite sale prices as
reported on the exchanges where such securities are traded. If no sales of such
securities are reported on a particular day, the securities will be valued based
upon their composite bid prices for securities held long, or their composite ask
prices for securities held short, as reported by such exchanges. Securities
traded on a foreign securities exchange will be valued at their last sale prices
on the exchange where such securities are primarily traded, or in the absence of
a reported sale on a particular day, at their bid prices, in the case of
securities held long, or ask prices, in the case of securities held short, as
reported by such exchange. Listed options or futures contracts will be valued
using last sales prices as reported by the exchange with the highest reported
daily volume for such options or futures contracts or, in the absence of any
sales on a particular day, at their bid prices as reported by the exchange with
the highest volume on the last day a trade was reported. Other securities for
which market quotations are readily available will be valued at their bid
prices, or ask prices in the case of securities held short, as obtained from one
or more dealers making markets for such securities. If market quotations are not
readily available, securities and other assets will be valued at fair value as
determined in good faith by, or under the supervision of, the Directors.
Debt securities will be valued in accordance with the procedures described
above, which with respect to such securities may include the use of valuations
furnished by a pricing service which employs a matrix to determine valuations
for normal institutional size trading units. The Directors will monitor
periodically the reasonableness of valuations provided by any such pricing
service. Debt securities with remaining maturities of 60 days or less, absent
unusual circumstances, will be valued at amortized cost, so long as such
valuation is determined by the Directors to represent fair value.
All assets and liabilities initially expressed in foreign currencies will be
converted into U.S. dollars using foreign exchange rates provided by a pricing
service compiled as of 4:00 p.m. London time. Trading in foreign securities
generally is completed, and the values of such securities are determined, prior
to the close of securities markets in the U.S. Foreign exchange rates are also
determined prior to such close. On occasion, the values of securities and
exchange rates may be affected by events occurring between the time as of which
determination of such values or exchange rates are made and the time as of which
the net asset value of the Fund is determined. When such events materially
affect the values of securities held by the Fund or its liabilities, such
securities and liabilities may be valued at fair value as determined in good
faith by, or under the supervision of, the Directors.
Prospective investors should be aware that situations involving uncertainties as
to the valuation of portfolio positions could have an adverse effect on the
Fund's net assets if the Directors' judgments regarding appropriate valuations
should prove incorrect.
SUBSCRIPTION FOR INTERESTS
SUBSCRIPTION TERMS
Both initial and additional subscriptions for interests in the Fund may be
accepted from eligible investors (as described below) at such times as the
Manager may determine on the terms set forth below. The Fund may, in its
discretion, suspend the offering of interests at any time or permit
subscriptions on a more frequent basis. The Fund reserves the right to reject
any subscription for interests in the Fund. After the initial closing, initial
subscriptions and additional capital contributions will generally be accepted
monthly. Generally, the minimum required initial contribution to the capital of
the Fund from each investor is $150,000. For employees of the Manager and its
affiliates, and members of their immediate families, the minimum required
initial contribution to the capital of the Fund is $25,000. The Fund may vary
the investment minimums from time to time. The initial closing date for
subscriptions of interests in the Fund is March 29, 1999. The Manager, in its
sole discretion, may postpone the closing date for up to 60 days. In addition,
because the Fund may generate UBTI, charitable remainder trusts may not want to
purchase interests in the Fund because a charitable remainder trust will not be
exempt from Federal income tax under Section 664(c) of the Code for any year in
which it has UBTI. See "TAX ASPECTS--Unrelated Business Taxable Income."
Except as otherwise permitted by the Fund, initial and any additional
contributions to the capital of the Fund by any Partner will be payable in cash,
and all contributions must be transmitted by such time and in such manner as is
specified in the subscription documents of the Fund. Initial and any additional
contributions to the capital of the Fund will be payable in one installment and
will be due prior to the proposed acceptance of the contribution, although the
Fund may accept, in its discretion, a subscription prior to its receipt of
cleared funds.
Each new Limited Partner will be obligated to agree to be bound by all of the
terms of the Partnership Agreement. Each potential investor also will be
obligated to represent and warrant in a subscription agreement, among other
things, that such investor is purchasing an interest for its own account, and
not with a view to the distribution, assignment, transfer or other disposition
of such interest.
If and when the Fund determines to accept securities as a contribution to the
capital of the Fund, the Fund will charge each Partner making such contribution
an amount determined by the Directors and not exceeding 2% of the value of such
contribution in order to reimburse the Fund for any costs it incurs in
liquidating and accepting such securities. Any such charge will be due and
payable by the contributing Partner in full at the time the contribution to the
capital of the Fund to which such charge relates is due.
ELIGIBLE INVESTORS
Each prospective investor will be required to certify that the interest
subscribed for is being acquired directly or indirectly for the account of an
"accredited investor" as defined in Regulation D under the 1933 Act, and that
such investor, as well as each of the investor's equity owners under certain
circumstances, (i) immediately after the time of subscription, has at least
$750,000 under the discretionary investment management of PW Group and its
affiliates or subsidiaries, (ii) at the time of subscription, has a net worth of
more than $1.5 million, or (iii) at the time of subscription, is a "qualified
purchaser" as defined in Section 2(a)(51)(A) of the 1940 Act (a "Qualified
Purchaser"). Existing Limited Partners who subscribe for additional interests in
the Fund and transferees of interests in the Fund will be required to represent
that the Limited Partner meets the foregoing eligibility criteria at the time of
the additional subscription. The relevant investor qualifications will be set
forth in a subscription agreement to be provided to prospective investors, which
must be completed by each prospective investor.
MANAGER'S INVESTMENT IN THE FUND
The Manager, in its capacity as General Partner, is required by the Partnership
Agreement to contribute amounts to the Fund sufficient to maintain its capital
account balance at a level, if any, necessary to ensure that the Fund will be
treated as a partnership for Federal income tax purposes.
REDEMPTIONS, REPURCHASES OF INTERESTS AND TRANSFERS
NO RIGHT OF REDEMPTION
No Partner or other person holding an interest or a portion of an interest will
have the right to require the Fund to redeem the interest or portion thereof. No
public market exists for interests in the Fund, 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 Fund, as described below.
REPURCHASES OF INTERESTS
The Directors, from time to time and in their complete and exclusive discretion,
may determine to direct the Manager to cause the Fund to repurchase interests or
portions thereof from Partners, including the Manager, pursuant to written
tenders by Partners on such terms and conditions as the Directors may determine.
In determining whether the Fund should repurchase interests or portions thereof
from Partners pursuant to written tenders, the Directors will consider the
recommendation of the Manager. The Manager expects that generally, beginning in
2001, it will recommend to the Directors that the Fund offer to repurchase
interests from Partners twice in each year, in June and December, and also
intends to recommend the making of offers to repurchase interests effective as
of April 2000 and December 2000. The Directors also will consider the following
factors, among others, in making such determination:
o whether any Partners have requested to tender interests or portions
thereof to the Fund;
o the liquidity of the Fund's assets;
o the investment plans and working capital requirements of the Fund;
o the relative economies of scale with respect to the size of the Fund;
o the history of the Fund in repurchasing interests or portions thereof;
o the condition of the securities markets; and
o the anticipated tax consequences of any proposed repurchases of interests
or portions thereof.
The Directors will determine that the Fund repurchase interests or portions
thereof from Partners pursuant to written tenders only on terms they determine
to be fair to the Fund and to all Partners or persons holding interests acquired
from Partners as applicable. When the Directors determine that the Fund will
repurchase interests in the Fund or portions thereof, notice will be provided to
each Partner describing the terms thereof, and containing information Partners
should consider in deciding whether and how to participate in such repurchase
opportunity. Partners who are deciding whether to tender their interests or
portions thereof during the period that a repurchase offer is open may ascertain
the net asset value of their interest in the Fund from the Manager during such
period.
The Partnership Agreement provides that the Fund 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 Fund has not been repurchased within a
period of two years of such request.
Repurchases of interests or portions thereof from Partners by the Fund may be
made, in the discretion of the Manager, in part or in whole for cash or for
securities of equivalent value and will be effective after receipt by the Fund
of all eligible written tenders of interests or portions thereof from Partners.
The amount due to any Partner whose interest or portion thereof is repurchased
will be equal to the value of the Partner's capital account or portion thereof
based on the net asset value of the Fund's assets as of the effective date of
repurchase, after giving effect to all allocations to be made to the Partner's
capital account as of such date. Payment of the purchase price pursuant to a
tender of interests will consist of, first, cash and/or marketable securities
traded on an established securities exchange, valued at net asset value in
accordance with the Partnership Agreement and distributed to tendering Partners
on a pari passu basis, in an aggregate amount equal to at least 95% of the
estimated unaudited net asset value of the interests tendered, determined as of
the expiration date of the tender offer (the "expiration date"). Payment of such
amount will be made promptly after the expiration date (the "cash payment").
Generally, payment pursuant to such a tender also will consist of a promissory
note that bears no interest and is not transferable (the "note") entitling the
holder thereof to a contingent payment equal to the excess, if any, of (a) the
net asset value of the interests tendered as of the expiration date, determined
based on the audited financial statements of the Fund, 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 Fund. The audit of the Fund's financial
statements is expected to be completed within 60 days after the end of each
year. The Fund does not impose any charges on a repurchase of interests or
portion of interests in the Fund, although it may allocate to tendering Partners
withdrawal or similar charges imposed by Investment Funds that are not advised
by a Subadviser if the Manager determined to withdraw from the Investment Fund
as a result of a tender and such a charge was imposed on the Fund.
The Fund intends to maintain daily a segregated account containing permissible
liquid assets in an amount equal to the aggregate amount of the notes. Payment
for repurchased interests may require the Fund to liquidate portfolio holdings
earlier than the Manager otherwise would liquidate such holdings, potentially
resulting in losses, and may increase the Fund's portfolio turnover. The Manager
intends to take measures to attempt to avoid or minimize such potential losses
and turnover.
The Fund may repurchase an interest in the Fund or portion thereof of a Partner
or any person acquiring an interest or portion thereof from or through a Partner
if:
o such an interest or portion thereof has been transferred or such an
interest or portion thereof has vested in any person by operation of
law as the result of the death, dissolution, bankruptcy or incompetency
of a Partner;
o ownership of such an interest by a Partner or other person will cause the
Fund to be in violation of, or require registration of any interest or
portion thereof under, or subject the Fund to additional registration
or regulation under, the securities, commodities or other laws of the
United States or any other relevant jurisdiction;
o continued ownership of such an interest may be harmful or injurious to
the business or reputation of the Fund or the Manager, or may subject the
Fund or any Partners to an undue risk of adverse tax or other fiscal
consequences;
o any of the representations and warranties made by a Partner in connection
with the acquisition of an interest in the Fund or portion thereof was
not true when made or has ceased to be true; or
o it would be in the best interests of the Fund for the Fund to repurchase
such an interest or portion thereof.
The Manager is entitled to tender for repurchase all or a portion of its
interest in the Fund only if the Manager maintains the requisite minimum capital
account balance described previously, or if, in the opinion of legal counsel to
the Fund, such repurchase would not jeopardize the classification of the Fund as
a partnership for U.S. Federal income tax purposes. The Manager also is entitled
to tender its interest to the Fund in certain circumstances described in the
Partnership Agreement where the status of the Manager is terminated or the
authority of the Manager to provide Advice and Management is terminated.
TRANSFERS OF INTERESTS
No person may become a substituted Limited Partner without the written consent
of the Manager, which consent may be withheld for any reason in the Manager's
sole and absolute discretion. Limited Partner interests may be transferred only
(i) by operation of law pursuant to the death, bankruptcy, insolvency or
dissolution of a Limited Partner or (ii) with the written consent of the
Manager, which may be withheld in its sole and absolute discretion and is
expected to be granted, if at all, only under extenuating circumstances, in
connection with a transfer to a family trust or other entity that does not
result in a change of beneficial ownership. Notice to the Manager of any
proposed transfer must include evidence satisfactory to the Manager that the
proposed transfer is exempt from registration under the 1933 Act, that the
proposed transferee meets any requirements imposed by the Fund with respect to
investor eligibility and suitability, including the requirement that any
investor, or investor's equity owners in certain circumstances, (i) immediately
after the time of subscription, has at least $750,000 under the discretionary
investment management of PW Group and its affiliates or subsidiaries, (ii) at
the time of subscription, has a net worth of more than $1.5 million, or (iii) at
the time of subscription, is a Qualified Purchaser, and must be accompanied by a
properly completed subscription agreement. In addition to the foregoing, no
Limited Partner will be permitted to transfer an interest or portion thereof
unless after such transfer the balance of the capital account of the transferee,
and any Partner transferring less than its entire interest, is at least
$150,000.
Any transferee meeting the eligibility requirements that acquires an interest or
portion thereof in the Fund by operation of law as the result of the death,
dissolution, bankruptcy or incompetency of a Limited Partner or otherwise, will
be entitled to the allocations and distributions allocable to the interest so
acquired and to transfer such interest in accordance with the terms of the
Partnership Agreement, but will not be entitled to the other rights of a Limited
Partner unless and until such transferee becomes a substituted Limited Partner
as provided in the Partnership Agreement. If a Limited Partner transfers an
interest or portion thereof with the approval of the Manager, under the policies
established by the Directors, the Manager will promptly take all necessary
actions to admit such transferee or successor to the Fund as a Limited Partner.
Each Limited Partner and transferee is required to pay all expenses, including
attorneys' and accountants' fees, incurred by the Fund in connection with such
transfer. If such a transferee does not meet the investor eligibility
requirements, the Fund reserves the right to redeem its partnership interest.
By subscribing for an interest in the Fund, each Limited Partner has agreed to
indemnify and hold harmless the Fund, the Directors, the Manager, each other
Limited Partner and any affiliate of the foregoing against all losses, claims,
damages, liabilities, costs and expenses, including legal or other expenses
incurred in investigating or defending against any such losses, claims, damages,
liabilities, costs and expenses or any judgments, fines and amounts paid in
settlement, joint or several, to which such persons may become subject by reason
of or arising from any transfer made by such Limited Partner in violation of
these provisions or any misrepresentation made by such Limited Partner in
connection with any such transfer.
The Manager may not transfer its interest as a General Partner, except to a
person who has agreed to be bound by all of the terms of the Partnership
Agreement and pursuant to applicable law.
TAX ASPECTS
The following is a summary of certain aspects of the income taxation of the Fund
and its Partners which should be considered by a prospective Limited Partner.
The Fund 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 Fund, nor has it obtained an opinion of counsel
with respect to any tax issues other than the characterization of the Fund as a
partnership for Federal income tax purposes.
This summary of certain aspects of the Federal income tax treatment of the Fund
is based upon the Code, judicial decisions, Treasury Regulations (the
"Regulations") and rulings in existence on the date hereof, all of which are
subject to change. This summary does not discuss the impact of various proposals
to amend the Code which could change certain of the tax consequences of an
investment in the Fund. This summary also does not discuss all of the tax
consequences that may be relevant to a particular investor, to investors that
acquire interests in the Fund other than for cash or to certain investors
subject to special treatment under the Federal income tax laws, such as
insurance companies.
EACH PROSPECTIVE LIMITED PARTNER SHOULD CONSULT WITH ITS OWN TAX ADVISER IN
ORDER FULLY TO UNDERSTAND THE FEDERAL, STATE, LOCAL AND FOREIGN INCOME TAX
CONSEQUENCES OF AN INVESTMENT IN THE FUND.
In addition to the particular matters set forth in this section, tax-exempt
organizations should review carefully those sections of this Memorandum
regarding liquidity and other financial matters to ascertain whether the
investment objective of the Fund is consistent with their overall investment
plans. Each prospective tax-exempt Limited Partner is urged to consult its own
counsel regarding the acquisition of Fund interests.
TAX TREATMENT OF FUND OPERATIONS
CLASSIFICATION OF THE FUND. The Fund has received an opinion of Stroock &
Stroock & Lavan LLP, counsel to the Fund, that under the provisions of the Code
and the Regulations, as in effect on the date of the opinion, the Fund 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 Fund will not be
traded on an established securities market. Regulations concerning the
classification of partnerships as publicly traded partnerships provide certain
safe harbors under which interests in a partnership will not be considered
readily tradable on a secondary market, or the substantial equivalent thereof.
The Fund will not be eligible for any of those safe harbors. In particular, it
will not qualify under the private placement safe harbor set forth in the
Regulations if, as is anticipated, the Fund has more than 100 Partners.
The Regulations specifically provide that the fact that a partnership does not
qualify for the safe harbors is disregarded for purposes of determining whether
interests in a partnership are readily tradable on a secondary market, or the
substantial equivalent thereof. Rather, in this event the partnership's status
is examined under a general facts and circumstances test set forth in the
Regulations. Counsel to the Fund has rendered its opinion that, under this
"facts and circumstances" test, and based upon the anticipated operations of the
Fund as well as the legislative history to Section 7704 and the text of the
Regulations, interests in the Fund will not be readily tradable on a secondary
market, or the substantial equivalent thereof, and, therefore, the Fund 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 Fund 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 Fund would be subject to corporate income tax when
recognized by the Fund; distributions of such income, other than in certain
redemptions of Fund interests, would be treated as dividend income when received
by the Partners to the extent of the Fund's current or accumulated earnings and
profits; and Partners would not be entitled to report profits or losses realized
by the Fund.
Unless otherwise indicated, references in the following discussion to the tax
consequences of Fund investments, activities, income, gain and loss, include the
direct investments, activities, income, gain and loss of the Fund, and those
indirectly attributable to the Fund as a result of it being a member of an
Investment Fund.
As a partnership, the Fund is not itself subject to Federal income tax. Each
Limited Partner will be taxed upon its distributive share of each item of the
Fund's income, gain, loss and deductions allocated to the Fund (including from
investments in other partnerships) for each taxable year of the Fund ending with
or within the Limited Partner's taxable year. Each item will have the same
character to a Limited Partner, and will generally have the same source (either
United States or foreign), as though the Limited Partner realized the item
directly. Limited Partners must report these items regardless of the extent to
which, or whether, the Fund or Limited Partners receive cash distributions for
such taxable year, and thus may incur income tax liabilities unrelated to any
distributions to or from the Fund.
ALLOCATION OF PROFITS AND LOSSES. Under the Partnership Agreement, the Fund'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 Fund for Federal income
tax purposes. The Partnership Agreement provides that items of income,
deduction, gain, loss or credit actually recognized by the Fund 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 Fund's net capital appreciation or net capital
depreciation allocated to each Partner's capital account for the current and
prior fiscal years.
Under the Partnership Agreement, the Manager has the discretion to allocate
specially an amount of the Fund's net capital gains, including short-term
capital gain, for Federal income tax purposes to a withdrawing Limited Partner
to the extent that the Partner's capital account exceeds its Federal income tax
basis in its partnership interest. There can be no assurance that, if the
Manager makes such a special allocation, the Service will accept such
allocation. If such allocation is successfully challenged by the Service, the
Fund's gains allocable to the remaining Partners would be increased.
A Limited Partner admitted to the Fund other than as of January 1 of a fiscal
year will be allocated its distributive share of Fund tax items at the end of
its year of admission based on its pro rata share of the Fund's capital.
TAX ELECTIONS; RETURNS; TAX AUDITS. The Code provides for optional adjustments
to the basis of partnership property upon distributions of partnership property
to a partner and transfers of partnership interests, including by reason of
death, provided that a partnership election has been made pursuant to Section
754. Under the Partnership Agreement, at the request of a Partner, the Manager,
in its sole discretion, may cause the Fund to make such an election. Any such
election, once made, cannot be revoked without the Service's consent. As a
result of the complexity and added expense of the tax accounting required to
implement such an election, the Manager does not presently intend to make such
election.
The Manager decides how to report the partnership items on the Fund'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 Fund
are audited by the Service, the tax treatment of the Fund's income and
deductions generally is determined at the partnership level in a single
proceeding rather than by individual audits of the Partners. The Manager,
designated as the "Tax Matters Partner," has considerable authority to make
decisions affecting the tax treatment and procedural rights of all Partners. In
addition, the Tax Matters Partner has the authority to bind certain Partners to
settlement agreements and the right on behalf of all Partners to extend the
statute of limitations relating to the Partners' tax liabilities with respect to
Fund items.
TAX CONSEQUENCES TO A WITHDRAWING LIMITED PARTNER
A Limited Partner receiving a cash liquidating distribution from the Fund, in
connection with a complete withdrawal from the Fund 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 Fund. However, a withdrawing Limited Partner will recognize ordinary
income to the extent such Limited Partner's allocable share of the Fund'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 Fund will
be treated as an unrealized receivable with respect to the withdrawing Limited
Partner. A Limited Partner receiving a cash nonliquidating distribution will
recognize income in a similar manner only to the extent that the amount of the
distribution exceeds such Limited Partner's adjusted tax basis in its
partnership interest.
As discussed above, the Partnership Agreement provides that the Manager may
specially allocate items of Fund capital gain, including short-term capital
gain, to a withdrawing Limited Partner to the extent its liquidating
distribution would otherwise exceed its adjusted tax basis in its Fund interest.
Such a special allocation may result in the withdrawing Partner recognizing
capital gain, which may include short-term gain, in the Partner's last taxable
year in the Fund, thereby reducing the amount of long-term capital gain
recognized during the tax year in which it receives its liquidating distribution
upon withdrawal.
Distributions of property other than cash, whether in complete or partial
liquidation of a Limited Partner's interest in the Fund, generally will not
result in the recognition of taxable income or loss to the Limited Partner,
except to the extent such distribution is treated as made in exchange for such
Limited Partner's share of the Fund's unrealized receivables.1
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1 It should be noted, however that gain generally must be recognized where the
distribution consists of marketable securities unless the distributing
partnership is an "investment partnership" and the recipient is an "eligible
partner" as defined in Section 731(c) of the Code. While there can be no
assurance, the General Partner anticipates that the Partnership will qualify as
an "investment partnership." Thus, if a Limited Partner is an "eligible
partner," which term should include a Limited Partner whose sole contributions
to the Partnership consisted of cash, the nonrecognition rule described above
should apply.
<PAGE>
TAX TREATMENT OF FUND INVESTMENTS
IN GENERAL. The Fund through the Investment Funds expects to act as a trader or
investor, and not as a dealer, with respect to its securities transactions. A
trader and an investor are persons who buy and sell securities for their own
accounts. A dealer, on the other hand, is a person who purchases securities for
resale to customers rather than for investment or speculation.
Generally, the gains and losses realized by a trader or investor on the sale of
securities are capital gains and losses. Thus, subject to the treatment of
certain currency exchange gains as ordinary income and certain other
transactions described below, the Fund expects that its gains and losses from
its securities transactions typically will be capital gains and capital losses.
See "Currency Fluctuations--'Section 988' Gains or Losses" below and certain
other transactions described below. These capital gains and losses may be
long-term or short-term depending, in general, upon the length of time a
particular investment position is maintained and, in some cases, upon the nature
of the transaction. Property held for more than one year generally will be
eligible for long-term capital gain or loss treatment. The application of
certain rules relating to short sales, to so-called "straddle" and "wash sale"
transactions and to "Section 1256 contracts" may serve to alter the manner in
which the holding period for a security is determined or may otherwise affect
the characterization as long-term or short-term, and also the timing of the
realization, of certain gains or losses. Moreover, the straddle rules and short
sale rules may require the capitalization of certain related expenses.
The maximum ordinary income tax rate for individuals is 39.6%, and the maximum
individual income tax rate for long-term capital gains is 20%, unless the
taxpayer elects to be taxed at ordinary rates, although in any case the actual
rate may be higher due to the phase out of certain tax deductions and
exemptions. See "Limitation on Deductibility of Interest" below. The excess of
capital losses over capital gains may be offset against the ordinary income of
an individual taxpayer, subject to an annual deduction limitation of $3,000. For
corporate taxpayers, the maximum income tax rate is 35%. Capital losses of a
corporate taxpayer may be offset only against capital gains, but unused capital
losses may be carried back three years, subject to certain limitations, and
carried forward five years.
The Fund may realize ordinary income from accruals of interest and dividends on
securities. The Fund through the Investment Funds may hold debt obligations with
"original issue discount." In such case, the Fund 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 Fund through the Investment Funds also may
acquire debt obligations with "market discount." Upon disposition of such an
obligation, the Fund generally would be required to treat gain realized as
interest income to the extent of the market discount which accrued during the
period the debt obligation was held. The Fund may realize ordinary income or
loss with respect to its investments in partnerships engaged in a trade or
business. Income or loss from transactions involving derivative instruments,
such as swap transactions, also may constitute ordinary income or loss. In
addition, periodic amounts payable by the Investment Funds in connection with
equity swaps, interest rate swaps, caps, floors and collars likely would be
considered "miscellaneous itemized deductions" which, for a noncorporate Limited
Partner, may be subject to restrictions on their deductibility. See
"Deductibility of Fund Investment Expenditures by Noncorporate Limited Partners"
below. Moreover, gain recognized from certain "conversion transactions" will be
treated as ordinary income.2
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2 Generally, a conversion transaction is one of several enumerated transactions
where substantially all of the taxpayer's return is attributable to the time
value of the net investment in the transaction. The enumerated transactions are
(i) the holding of any property, whether or not actively traded, and entering
into a contract to sell such property, or substantially identical property, at a
price determined in accordance with such contract, but only if such property was
acquired and such contract was entered into on a substantially contemporaneous
basis, (ii) certain straddles, (iii) generally any other transaction that is
marketed or sold on the basis that it would have the economic characteristics of
a loan but the interest-like return would be taxed as capital gain or (iv) any
other transaction specified in Regulations.
<PAGE>
CURRENCY FLUCTUATIONS--"SECTION 988" GAINS OR LOSSES. The amount of gain or loss
on securities denominated in a foreign currency frequently will be affected by
the fluctuation in the value of such foreign currencies relative to the value of
the dollar. Generally, gains or losses with respect to investments in common
stock of foreign issuers will be taxed as capital gains or losses at the time of
the disposition of such stock. However, under Section 988 of the Code, gains and
losses on the acquisition and disposition of foreign currency (e.g., the
purchase of foreign currency and subsequent use of the currency to acquire
stock) will be treated as ordinary income or loss. Moreover, under Section 988,
gains or losses on disposition of debt securities denominated in a foreign
currency to the extent attributable to fluctuation in the value of the foreign
currency between the date of acquisition of the debt security and the date of
disposition will be treated as ordinary income or loss. Similarly, gains or
losses attributable to fluctuations in exchange rates that occur between the
time the taxpayer accrues interest or other receivables or accrues expenses or
other liabilities denominated in a foreign currency and the time the taxpayer
actually collects such receivables or pays such liabilities may be treated as
ordinary income or ordinary loss.
The Fund through the Investment Funds may acquire foreign currency forward
contracts. See "TYPES OF INVESTMENTS AND RELATED RISK FACTORS--Foreign Currency
Transactions." Generally, any gain or loss with respect to any forward currency
contracts will be ordinary, unless (i) the contract is a capital asset in the
hands of the holder and is not a part of a straddle transaction and (ii) the
holder makes an election, by the close of the day the transaction is entered
into, to treat the gain or loss attributable to such contract as capital gain or
loss.
SECTION 1256 CONTRACTS. In the case of "Section 1256 Contracts," the Code
generally applies a "mark to market" system of taxing unrealized gains and
losses on such contracts and otherwise provides for special rules of taxation.
Under these rules, Section 1256 Contracts, which include certain regulated
futures contracts, certain foreign currency forward contracts and certain
options contracts, held at the end of each taxable year are treated for Federal
income tax purposes as if they were sold by the holder for their fair market
value on the last business day of such taxable year. The net gain or loss, if
any, resulting from such deemed sales, known as "marking to market," together
with any gain or loss resulting from actual sales of Section 1256 Contracts,
must be taken into account by the holder in computing its taxable income for
such year. If a Section 1256 Contract held at the end of a taxable year is sold
in the following year, the amount of any gain or loss realized on such sale will
be adjusted to reflect the gain or loss previously taken into account under the
"mark to market" rules.
Capital gains and losses from such Section 1256 contracts generally are
characterized as short- term capital gains or losses to the extent of 40%
thereof and as long-term capital gains or losses to the extent of 60% thereof.
Such gains and losses will be taxed under the general rules described above.
Gains and losses from certain foreign currency transactions will be treated as
ordinary income and losses. See 'Currency Fluctuations--'Section 988' Gains or
Losses." If an individual taxpayer incurs a net capital loss for a year, the
portion thereof, if any, which consists of a net loss on "Section 1256
Contracts" may, at the election of the taxpayer, be carried back three years.
Losses so carried back may be deducted only against net capital gain to the
extent that such gain includes gains on "Section 1256 Contracts."
MIXED STRADDLE ELECTION. The Code allows a taxpayer to elect to offset gains and
losses from positions which are part of a "mixed straddle." A "mixed straddle"
is any straddle in which one or more but not all positions are Section 1256
Contracts.
Temporary Regulations provide for the establishment of mixed straddle accounts
for certain of its mixed straddle trading positions. The mixed straddle account
rules require a daily "marking to market" of all open positions in the account
and a daily netting of gains and losses from positions in the account. At the
end of a taxable year, the annual net gains or losses from the mixed straddle
account are recognized for tax purposes. The application of the Temporary
Regulations' mixed straddle account rules is not entirely clear, and therefore,
there can be no assurance that a mixed straddle account election in the
circumstances here will be accepted by the Service.
SHORT SALES. Gain or loss from a short sale of property is generally considered
as capital gain or loss to the extent the property used to close the short sale
constitutes a capital asset in the taxpayer's hands. Except with respect to
certain situations where the property used to close a short sale has a long-term
holding period on the date of the short sale, special rules would generally
treat the gains on short sales as short-term capital gains. These rules may also
terminate the running of the holding period of "substantially identical
property" held by the taxpayer. Moreover, a loss on a short sale will be treated
as a long-term capital loss if, on the date of the short sale, "substantially
identical property" has been held by the taxpayer for more than one year.
The Taxpayer Relief Act of 1997 included constructive sale provisions that
generally will apply if the taxpayer either holds an appreciated financial
position with respect to stock, certain debt obligations, or partnership
interests and then enters into a short sale respecting the same or substantially
identical property or holds an appreciated financial position that is a short
sale and then acquires property that is the same as or substantially identical
to the underlying property. In each instance, with certain exceptions, the
taxpayer generally will recognize gain as if the appreciated financial position
were sold at its fair market value on the date it enters into the short sale or
acquires the property, respectively. The holding period for any appreciated
financial position that is subject to the constructive sale rules will be
determined as if such position were acquired on the date of the constructive
sale.
EFFECT OF STRADDLE RULES ON PARTNERS' SECURITIES POSITIONS. The Service may
treat certain positions in securities held, directly or indirectly, by a partner
and its indirect interest in similar securities held by the partnership as
"straddles" for Federal income tax purposes. The application of the "straddle"
rules in such a case could affect a partner's holding period for the securities
involved and may defer the recognition of losses with respect to such
securities.
LIMITATION ON DEDUCTIBILITY OF INTEREST. For noncorporate taxpayers, Section
163(d) of the Code limits the deduction for "investment interest" (i.e.,
interest or short sale expenses for "indebtedness incurred or continued to
purchase or carry property held for investment"). Investment interest is not
deductible in the current year to the extent that it exceeds the taxpayer's
"investment income," consisting of net gain and ordinary income derived from
investments in the current year. For this purpose, any long-term capital gain is
excluded from investment income unless the taxpayer elects to pay tax on such
amount at ordinary income tax rates.
For purposes of this provision, the Fund'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 Fund'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 Fund's ordinary losses attributable to
interest and short sale expenses unless it had sufficient investment income from
all sources including the Fund. 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
Fund. 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 FUND INVESTMENT EXPENDITURES BY NONCORPORATE PARTNERS.
Investment expenses (e.g., investment advisory fees) of an individual, trust and
estate are deductible only to the extent that such expenses exceed 2% of
adjusted gross income.3 In addition, the Code further restricts the ability of
an individual with an adjusted gross income in excess of a specified amount, for
1999, $126,600 or $63,300 for a married person filing a separate return, to
deduct such investment expenses. Under such provision, investment expenses in
excess of 2% of adjusted gross income may only be deducted to the extent such
excess expenses, along with certain other itemized deductions, exceed the lesser
of (i) 3% of the excess of the individual's adjusted gross income over the
specified amount or (ii) 80% of the amount of certain itemized deductions
otherwise allowable for the taxable year. Moreover, such investment expenses are
miscellaneous itemized deductions which are not deductible by a noncorporate
taxpayer in calculating its alternative minimum tax liability.
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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 2% of adjusted gross income floor on
deductibility. The Service, however, has stated that it will not follow this
decision outside of the Sixth Circuit. Limited Partners that are trusts or
estates should consult their tax advisers as to the applicability of this case
to the investment expenses that are allocated to them.
<PAGE>
Pursuant to Temporary Regulations issued by the Treasury Department, these
limitations on deductibility should not apply to a noncorporate Limited
Partner's share of the expenses of the Fund to the extent that such expenses are
allocable to an Investment Fund that is considered to be in a trade or business
within the meaning of the Code. These limitations will apply, however, to a
noncorporate Limited Partner's share of the expenses of the Fund to the extent
that such expenses are allocable to an Investment Fund that is not considered to
be in a trade or business within the meaning of the Code. Although the Fund
intends to treat the trade or business related expenses and any
performance-based allocations as not being subject to the foregoing limitations
on deductibility, there can be no assurance that the Service may not treat such
items as investment expenses which are subject to the limitations.
The consequences of these limitations will vary depending upon the particular
tax situation of each taxpayer. Accordingly, noncorporate Limited Partners
should consult their tax advisers with respect to the application of these
limitations.
APPLICATION OF RULES FOR INCOME AND LOSSES FROM PASSIVE ACTIVITIES. The Code
restricts the deductibility of losses from a "passive activity" against certain
income which is not derived from a passive activity. This restriction applies to
individuals, personal service corporations and certain closely held
corporations. Pursuant to Temporary Regulations issued by the Treasury
Department, income or loss from the Fund's securities trading activity generally
will not constitute income or loss from a passive activity. Therefore, passive
losses from other sources generally could not be deducted against a Limited
Partner's share of income and gain from the Fund. Income or loss attributable to
investments in partnerships engaged in a trade or business may constitute
passive activity income or loss.
"PHANTOM INCOME" FROM FUND 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
Fund through the Investment Funds in certain foreign corporations may cause a
Limited Partner to (i) recognize taxable income prior to the Fund's receipt of
distributable proceeds, (ii) pay an interest charge on receipts that are deemed
as having been deferred or (iii) recognize ordinary income that, but for the
"anti-deferral" provisions, would have been treated as long-term capital gain.
FOREIGN TAXES
It is possible that certain dividends and interest received from sources within
foreign countries will be subject to withholding taxes imposed by such
countries. In addition, some foreign countries may impose capital gains taxes on
certain securities transactions involving foreign issuers. Tax treaties between
certain countries and the United States may reduce or eliminate such taxes.
The Fund will inform Partners of their proportionate share of the foreign taxes
paid or incurred by the Fund that Partners will be required to include in their
income. The Partners generally will be entitled to claim either a credit,
subject to the limitations discussed below, and provided that, in the case of
dividends, the foreign stock is held for the requisite holding period, or, if
they itemize their deductions, a deduction, subject to the limitations generally
applicable to deductions, for their share of such foreign taxes in computing
their Federal income taxes. A Partner that is tax exempt will not ordinarily
benefit from such credit or deduction.
Generally, a credit for foreign taxes is subject to the limitation that it may
not exceed the Partner's Federal tax, before the credit, attributable to its
total foreign source taxable income. A Partner's share of dividends and interest
from non-U.S. securities generally will qualify as foreign source income.
Generally, the source of income realized upon the sale of personal property,
such as securities, will be based on the residence of the seller. In the case of
a partnership, the determining factor is the residence of the partner. Thus,
absent a tax treaty to the contrary, the gains from the sale of securities
allocable to a Partner that is a U.S. resident will be treated as derived from
U.S. sources, even though the securities are sold in foreign countries. However,
proposed regulations would generally provide that certain securities losses
realized by U.S. residents would be recharacterized as foreign source to the
extent of certain dividends and other deemed inclusions of income taken into
account by that U.S. resident in respect of the shares during the two-year
period ending on the date of the sale. Certain currency fluctuation gains,
including fluctuation gains from foreign currency denominated debt securities,
receivables and payables, will also be treated as ordinary income derived from
U.S. sources.
The limitation on the foreign tax credit is applied separately to foreign source
passive income, such as dividends and interest. In addition, the foreign tax
credit is allowed to offset only 90% of the alternative minimum tax imposed on
corporations and individuals.
Furthermore, for foreign tax credit limitation purposes, the amount of a
Partner's foreign source income is reduced by various deductions that are
allocated and/or apportioned to such foreign source income. One such deduction
is interest expense, a portion of which generally will reduce the foreign source
income of any Partner who owns (directly or indirectly) foreign assets. For
these purposes, foreign assets owned by the Fund will be treated as owned by the
investors in the Fund and indebtedness incurred by the Fund will be treated as
incurred by investors in the Fund. Because of these limitations, Partners may be
unable to claim a credit for the full amount of their proportionate share of the
foreign taxes paid by the Fund. The foregoing is only a general description of
the foreign tax credit under current law. Moreover, since the availability of a
credit or deduction depends on the particular circumstances of each Partner,
Partners are advised to consult their own tax advisers.
UNRELATED BUSINESS TAXABLE INCOME
Generally, an exempt organization is exempt from Federal income tax on its
passive investment income, such as dividends, interest and capital gains,
whether realized by the organization directly or indirectly through a
partnership in which it is a partner.4
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This general exemption from tax does not apply to the UBTI of an exempt
organization. Generally, except as noted above with respect to certain
categories of exempt trading activity, UBTI includes income or gain derived,
either directly or through partnerships, from a trade or business, the conduct
of which is substantially unrelated to the exercise or performance of the
organization's exempt purpose or function. UBTI also includes "unrelated
debt-financed income," which generally consists of (i) income derived by an
exempt organization, directly or through a partnership, from income-producing
property with respect to which there is "acquisition indebtedness" at any time
during the taxable year, and (ii) gains derived by an exempt organization,
directly or through a partnership, from the disposition of property with respect
to which there is "acquisition indebtedness" at any time during the 12-month
period ending with the date of such disposition. With respect to its investments
in partnerships engaged in a trade or business, the Fund's income, or loss, from
these investments may constitute UBTI.
The Fund through the Investment Funds may incur "acquisition indebtedness" with
respect to certain 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,
short sales of securities will be treated as not involving "acquisition
indebtedness" and therefore not generating UBTI.5 The percentage of income
(i.e., dividends and interest) from securities with respect to which there is
"acquisition indebtedness" during a taxable year which will be treated as UBTI
generally will be based on the percentage which the "average acquisition
indebtedness" incurred with respect to such securities is of the "average amount
of the adjusted basis" of such securities during the taxable year.
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4 With certain exceptions, tax-exempt organizations which are private
foundations are subject to a 2% Federal excise tax on their "net investment
income." The rate of the excise tax for any taxable year may be reduced to 1% if
the private foundation meets certain distribution requirements for the taxable
year. A private foundation will be required to make payments of estimated tax
with respect to this excise tax.
5 Moreover, income realized from option writing and futures contract
transactions generally would not constitute UBTI.
<PAGE>
The percentage of capital gain from securities with respect to which there is
"acquisition indebtedness" at any time during the twelve-month period ending
with the date of their disposition which will be treated as UBTI will be based
on the percentage which the highest amount of such "acquisition indebtedness" is
of the "average amount of the adjusted basis" of such securities during the
taxable year. In determining the unrelated debt-financed income of the Fund, an
allocable portion of deductions directly connected with the debt-financed
property is taken into account. Thus, for instance, a percentage of capital
losses from debt-financed securities, based on the debt/basis percentage
calculation described above, would offset gains treated as UBTI.
Since the calculation of the Fund's "unrelated debt-financed income" is complex
and will depend in large part on the amount of leverage, if any, used by the
Investment Funds from time to time,6 it is impossible to predict what percentage
of the Fund'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 Fund which is treated as UBTI may not be offset by losses of the
exempt organization either from the Fund or otherwise, unless such losses are
treated as attributable to an unrelated trade or business (e.g., losses from
securities for which there is acquisition indebtedness).
To the extent that the Fund 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 Fund will be required to report to a
Partner which is an exempt organization information as to the portion, if any,
of its income and gains from the Fund for each year which will be treated as
UBTI. The calculation of such amount with respect to transactions entered into
by the Fund is highly complex, and there is no assurance that the Fund'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 Fund'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
Fund generally should not affect the tax-exempt status of such an exempt
organization.7 However, a charitable remainder trust will not be exempt from
Federal income tax under Section 664(c) of the Code for any year in which it has
UBTI. A title-holding company will not be exempt from tax if it has certain
types of UBTI. Moreover, the charitable contribution deduction for a trust under
Section 642(c) of the Code may be limited for any year in which the trust has
UBTI. A prospective investor should consult its tax adviser with respect to the
tax consequences of receiving UBTI from the Fund. See "ERISA CONSIDERATIONS."
- -----------------
6 The calculation of a particular exempt organization's UBTI would also be
affected if it incurs indebtedness to finance its investment in the Partnership.
An exempt organization is required to make estimated tax payments with respect
to UBTI.
7 Certain exempt organizations which realize UBTI in a taxable year will
not constitute "qualified organizations" for purposes of Section
514(c)(9)(B)(iv)(I) of the Code, pursuant to which, in limited circumstances,
income from certain real estate partnerships in which such organizations invest
might be treated as exempt from UBTI. A prospective tax-exempt Limited Partner
should consult its tax adviser in this regard.
<PAGE>
CERTAIN ISSUES PERTAINING TO SPECIFIC EXEMPT ORGANIZATIONS
PRIVATE FOUNDATIONS. Private foundations and their managers are subject to
excise taxes if they invest "any amount in such a manner as to jeopardize the
carrying out of any of the foundation's exempt purposes." This rule requires a
foundation manager, in making an investment, to exercise "ordinary business care
and prudence" under the facts and circumstances prevailing at the time of making
the investment, in providing for the short-term and long-term needs of the
foundation to carry out its exempt purposes. The factors which a foundation
manager may take into account in assessing an investment include the expected
rate of return, both income and capital appreciation, the risks of rising and
falling price levels, and the needs for diversification within the foundation's
portfolio.
In order to avoid the imposition of an excise tax, a private foundation may be
required to distribute on an annual basis its "distributable amount," which
includes, among other things, the private foundation's "minimum investment
return," defined as 5% of the excess of the fair market value of its
nonfunctionally related assets, assets not used or held for use in carrying out
the foundation's exempt purposes, over certain indebtedness incurred by the
foundation in connection with such assets. It appears that a foundation's
investment in the Fund would most probably be classified as a nonfunctionally
related asset. A determination that an interest in the Fund 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 Fund. Of course,
this factor would create less of a problem to the extent that the value of the
investment in the Fund is not significant in relation to the value of other
assets held by a foundation.
In some instances, an investment in the Fund 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 Fund, 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 Fund 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 Fund is
"passive" within the applicable provisions of the Code and Regulations. Although
there can be no assurance, the Manager believes that the Fund will meet this 95%
gross income test.
A substantial percentage of investments of certain "private operating
foundations" may be restricted to assets directly devoted to their tax-exempt
purposes. Otherwise, generally, rules similar to those discussed above govern
their operations.
QUALIFIED RETIREMENT PLANS. Employee benefit plans subject to the provisions of
ERISA, Individual Retirement Accounts ("IRAs") and Keogh Plans should consult
their counsel as to the implications of such an investment under ERISA. See
"ERISA CONSIDERATIONS."
ENDOWMENT FUNDS. Investment managers of endowment funds should consider whether
the acquisition of an Interest is legally permissible. This is not a matter of
Federal law, but is determined under state statutes. It should be noted,
however, that under the Uniform Management of Institutional Funds Act, which has
been adopted, in various forms, by a large number of states, participation in
investment partnerships or similar organizations in which funds are commingled
and investment determinations are made by persons other than the governing board
of the endowment fund is allowed.
STATE AND LOCAL TAXATION
In addition to the Federal income tax consequences described above, prospective
investors should consider potential state and local tax consequences of an
investment in the Fund. 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 Fund generally will be required to be included in determining its
reportable income for state and local tax purposes in the jurisdiction in which
it is a resident.
A partnership in which the Fund acquires an interest may conduct business in a
jurisdiction which will subject to tax a Limited Partner's share of the Fund's
income from that business. Prospective investors should consult their tax
advisers with respect to the availability of a credit for such tax in the
jurisdiction in which that Limited Partner is a resident.
The Fund should not be subject to the New York City unincorporated business tax,
which is not imposed on a partnership which purchases and sells securities for
its "own account." (This exemption may not be applicable if a partnership in
which the Fund invests conducts a business in New York City.) By reason of a
similar "own account" exemption, it is also expected that a nonresident
individual Partner should not be subject to New York State personal income tax
with respect to his share of income or gain realized directly by the Fund. A
nonresident individual Partner will not be subject to New York City earnings tax
on nonresidents with respect to his or her investment in the Fund. Individual
Limited Partners who are residents in New York State and New York City should be
aware that the New York State and New York City personal income tax laws limit
the deductibility of itemized deductions for individual taxpayers at certain
income levels. This limitation would likely apply to a Limited Partner's share
of some or all of the Fund's expenses. Prospective investors are urged to
consult their tax advisers with respect to the impact of these provisions and
the Federal limitations on the deductibility of certain itemized deductions and
investment expenses on their New York State and New York City tax liability.
For purposes of the New York State corporate franchise tax and the New York City
general corporation tax, a corporation generally is treated as doing business in
New York State and New York City, respectively, and is subject to such corporate
taxes as a result of the ownership of a limited partnership interest in a
partnership which does business in New York State and New York City,
respectively.8 Each of the New York State and New York City corporate taxes are
imposed, in part, on the corporation's taxable income or capital allocable to
the relevant jurisdiction by application of the appropriate allocation
percentages. Moreover, a non-New York corporation which does business in New
York State may be subject to a New York State license fee. A corporation which
is subject to New York State corporate franchise tax solely as a result of being
a limited partner in a New York partnership may, under certain circumstances,
elect to compute its New York State corporate franchise tax by taking into
account only its distributive share of such partnership's income and loss. There
is currently no similar provision in effect for purposes of the New York City
general corporation tax.
- ----------------------
8 New York State (but not New York City) generally exempts from corporate
franchise tax a non-New York corporation which (i) does not actually or
constructively own a 1% or greater limited partnership interest in a partnership
doing business in New York and (ii) has a tax basis in such limited partnership
interest not greater than $1 million.
<PAGE>
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 Fund's qualification as such a portfolio investment partnership
must be determined on an annual basis and with respect to a taxable year, the
Fund may not qualify as a portfolio investment partnership.
A trust or other unincorporated organization which by reason of its purposes or
activities is exempt from Federal income tax is also exempt from New York State
and New York City personal income tax. A nonstock corporation which is exempt
from Federal income tax is generally presumed to be exempt from New York State
corporate franchise tax and New York City general corporation tax. New York
State imposes a tax with respect to such exempt entities on UBTI, including
unrelated debt-financed income, at a rate which is currently equal to the New
York State corporate franchise tax rate, plus the corporate surtax. There is no
New York City tax on the UBTI of an otherwise exempt entity.
ERISA CONSIDERATIONS
Persons who are fiduciaries with respect to an employee benefit plan or other
arrangement subject to the Employee Retirement Income Security Act of 1974, as
amended (an "ERISA Plan" and "ERISA," respectively), and persons who are
fiduciaries with respect to an IRA or Keogh plan, which is not subject to ERISA
but is subject to the prohibited transaction rules of Section 4975 of the Code
(together with ERISA Plans, "Benefit Plans") should consider, among other
things, the matters described below before determining whether to invest in the
Fund.
ERISA imposes certain general and specific responsibilities on persons who are
fiduciaries with respect to an ERISA Plan, including prudence, diversification,
an obligation not to engage in a prohibited transaction and other standards. In
determining whether a particular investment is appropriate for an ERISA Plan,
Department of Labor ("DOL") regulations provide that a fiduciary of an ERISA
Plan must give appropriate consideration to, among other things, the role that
the investment plays in the ERISA Plan's portfolio, taking into consideration
whether the investment is designed reasonably to further the ERISA Plan's
purposes, an examination of the risk and return factors, the portfolio's
composition with regard to diversification, the liquidity and current return of
the total portfolio relative to the anticipated cash flow needs of the ERISA
Plan, the income tax consequences of the investment (see "TAX ASPECTS--Unrelated
Business Taxable Income" and"--Certain Issues Pertaining to Specific Exempt
Organizations") and the projected return of the total portfolio relative to the
ERISA Plan's funding objectives. Before investing the assets of an ERISA Plan in
the Fund, 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 Fund may be too
illiquid or too speculative for a particular ERISA Plan, and whether the assets
of the ERISA Plan would be sufficiently diversified. If a fiduciary with respect
to any such ERISA Plan breaches its or his responsibilities with regard to
selecting an investment or an investment course of action for such ERISA Plan,
the fiduciary itself or himself may be held liable for losses incurred by the
ERISA Plan as a result of such breach.
Because the Fund will register as an investment company under the 1940 Act, the
underlying assets of the Fund should not be considered to be "plan assets" of
the ERISA Plans investing in the Fund for purposes of ERISA's (or the Code's)
fiduciary responsibility and prohibited transaction rules. Thus, the Manager
will not be a fiduciary within the meaning of ERISA by reason of its authority
with respect to the Fund.
The Manager will require a Benefit Plan which proposes to invest in the Fund to
represent that it, and any fiduciaries responsible for such Plan's investments,
are aware of and understand the Fund's investment objective, policies and
strategies, that the decision to invest plan assets in the Fund was made with
appropriate consideration of relevant investment factors with regard to the
Benefit Plan and is consistent with the duties and responsibilities imposed upon
fiduciaries with regard to their investment decisions under ERISA and/or the
Code.
Certain prospective Benefit Plan investors may currently maintain relationships
with the Manager or other entities which are affiliated with the Manager. Each
of such persons may be deemed to be a party in interest to and/or a fiduciary of
any Benefit Plan to which it provides investment management, investment advisory
or other services. ERISA prohibits (and the Code penalizes) the use of ERISA and
Benefit Plan assets for the benefit of a party in interest and also prohibits
(or penalizes) an ERISA or Benefit Plan fiduciary from using its position to
cause such Plan to make an investment from which it or certain third parties in
which such fiduciary has an interest would receive a fee or other consideration.
ERISA and Benefit Plan investors should consult with counsel to determine if
participation in the Fund 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 Fund was made by them as
fiduciaries that are independent of such affiliated persons, that such
fiduciaries are duly authorized to make such investment decision and that they
have not relied on any individualized advice or recommendation of such
affiliated persons, as a primary basis for the decision to invest in the Fund.
The provisions of ERISA and the Code are subject to extensive and continuing
administrative and judicial interpretation and review. The discussion of ERISA
and the Code contained in this Memorandum is general and may be affected by
future publication of regulations and rulings. Potential Benefit Plan investors
should consult their legal advisers regarding the consequences under ERISA and
the Code of the acquisition and ownership of interests.
ADDITIONAL INFORMATION AND SUMMARY OF LIMITED PARTNERSHIP AGREEMENT
The following is a summary description of additional items and of select
provisions of the Partnership Agreement which are not described elsewhere in
this Memorandum. The description of such items and provisions is not definitive
and reference should be made to the complete text of the Partnership Agreement
contained in Appendix A.
LIABILITY OF LIMITED PARTNERS
Pursuant to applicable Delaware law, Limited Partners generally are not
personally liable for obligations of the Fund unless, in addition to the
exercise of their rights and powers as Limited Partners, they participate in the
control of the business of the Fund. Any such Limited Partner would be liable
only to persons who transact business with the Fund reasonably believing, based
on such Limited Partner's conduct, that the Limited Partner is a General
Partner. Under the terms of the Partnership Agreement, the Limited Partners do
not have the right to take part in the control of the Fund, but they may
exercise the right to vote on matters requiring approval under the 1940 Act and
on certain other matters. Although such right to vote should not constitute
taking part in the control of the Fund'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 Fund 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 Fund (plus
any accretions in value thereto prior to withdrawal) and a Limited Partner may
be obligated to make certain other payments provided for in the Partnership
Agreement and to return to the Fund amounts wrongfully distributed to him.
DUTY OF CARE OF THE GENERAL PARTNER
The Partnership Agreement provides that the General Partner shall not be liable
to the Fund or any of the Limited Partners for any loss or damage occasioned by
any act or omission in the performance of the General Partner's services as
General Partner in the absence of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of the
General Partner's office. The Partnership Agreement also contains provisions for
the indemnification, to the extent permitted by law, of the General Partner by
the Fund, but not by the Limited Partners individually, against any liability
and expense to which the General Partner may be liable as General Partner which
arise in connection with the performance of its activities on behalf of the
Fund. The General Partner will not be personally liable to any Limited Partner
for the repayment of any positive balance in such Limited Partner's capital
account or for contributions by such Limited Partner to the capital of the Fund
or by reason of any change in the Federal or state income tax laws applicable to
the Fund or its investors. The rights of indemnification and exculpation
provided under the Partnership Agreement do not provide for indemnification of
the General Partner for any liability, including liability under Federal
securities laws which, under certain circumstances, impose liability even on
persons that act in good faith, to the extent, but only to the extent, that such
indemnification would be in violation of applicable law.
AMENDMENT OF THE PARTNERSHIP AGREEMENT
The Partnership Agreement may be amended with the approval of (i) the Directors,
including a majority of the Independent Directors, if required by the 1940 Act,
(ii) the Manager or (iii) a majority, as defined in the 1940 Act, of the
outstanding voting securities of the Fund. Certain amendments involving capital
accounts and allocations thereto may not be made without the consent of any
Partners adversely affected thereby or unless each Limited Partner has received
notice of such amendment and any Limited Partner objecting to such amendment has
been allowed a reasonable opportunity to tender its entire interest for
repurchase by the Fund. However, the Manager may at any time without the consent
of the other Partners of the Fund amend the Partnership Agreement to (i) restate
the Partnership Agreement, (ii) effect compliance with any applicable law or
regulation, or (iii) make such changes as may be necessary to assure the Fund's
continuing eligibility to be classified for U.S. Federal income tax purposes as
a partnership which is not treated as a corporation under Section 7704(a) of the
Code, subject to the requirement that any amendment of the Partnership Agreement
made pursuant to items (ii) or (iii) above must be approved by the Directors.
POWER OF ATTORNEY
By subscribing for an interest in the Fund, each Partner will appoint the
Manager and each of the Directors his or her attorney-in-fact for purposes of
filing required certificates and documents relating to the formation and
continuance of the Fund as a limited partnership under Delaware law or signing
all instruments effecting authorized changes in the Fund or the Partnership
Agreement and conveyances and other instruments deemed necessary to effect the
dissolution or termination of the Fund.
The power-of-attorney granted in the Partnership Agreement is a special
power-of-attorney coupled with an interest in favor of the Manager and each of
the Directors and as such is irrevocable and continues in effect until all of
such Partner's interest in the Fund has been withdrawn pursuant to a periodic
tender or transferred to one or more transferees that have been approved by the
Manager for admission to the Fund as substitute Partners.
TERM, DISSOLUTION AND LIQUIDATION
The Fund will be dissolved:
o upon the affirmative vote to dissolve the Fund by both (1) the Directors
and (2) Partners holding at least two-thirds of the total number of
votes eligible to be cast by all Partners;
o upon either of (1) an election by the Manager to dissolve the Fund or (2)
the termination of the Manager's status as a general partner of the
Fund (other than as a result of a transfer as provided in the
Partnership Agreement), unless (A) as to clause (2) above, there is at
least one other general partner of the Fund who is authorized to and
does carry on the business of the Fund, and (B) as to either event both
the Directors and Partners holding not less than two-thirds of the
total number of votes eligible to be cast by all Partners shall elect
within 60 days after such event to continue the business of the Fund
and a person to be admitted to the Fund, effective as of the date of
such event, as an additional General Partner has agreed to make such
contributions to the capital of the Fund as are required to be made in
the Partnership Agreement;
o upon the expiration of any two-year period which commences on the date on
which any Limited Partner has submitted to the Fund a written request
in accordance with the Partnership Agreement to tender its entire
interest for repurchase by the Fund if such Limited Partner's interest
has not been repurchased during such period;
o upon the failure of Partners to elect successor Directors at a meeting
called by the Manager when no Director remains; or
o as required by operation of law.
Upon the occurrence of any event of dissolution, the General Partner, or a
liquidator, if the General Partner is unable to perform this function, is
charged with winding up the affairs of the Fund and liquidating its assets. Net
profits or net loss during the fiscal period including the period of liquidation
will be allocated as described in the section titled "CAPITAL ACCOUNTS AND
ALLOCATIONS--Allocation of Net Profits and Net Losses."
Upon the dissolution of the Fund, its assets are to be distributed (1) first to
satisfy the debts, liabilities and obligations of the Fund, other than debts to
Partners, including actual or anticipated liquidation expenses, (2) next to
satisfy debts owing to the Partners, and (3) finally to the Partners
proportionately in accordance with the balances in their respective capital
accounts. Assets may be distributed in-kind on a pro rata basis if the General
Partner or liquidator determines that such a distribution would be in the
interests of the Partners in facilitating an orderly liquidation.
REPORTS TO PARTNERS
The Fund will furnish to Partners as soon as practicable after the end of each
taxable year such information as is necessary for such Partners to complete
Federal and state income tax or information returns, along with any other tax
information required by law. The Fund will send to Partners a semi-annual and an
audited annual report within 60 days after the close of the period for which it
is being made, or as otherwise required by the 1940 Act. Quarterly reports from
the Manager regarding the Fund's operations during such period also will be sent
to Partners.
FISCAL YEAR
The Fund's fiscal year ends on December 31st.
ACCOUNTANTS AND LEGAL COUNSEL
Ernst & Young LLP serves as the independent public accountants of the Fund. Its
principal business address is at 787 Seventh Avenue, New York, New York 10019.
Stroock & Stroock & Lavan LLP, New York, New York, acts as legal counsel to the
Fund.
_______________________________________ acts as legal counsel to the Manager and
its affiliates. Each of such counsel from time to time may serve as counsel to
one or more Investment Managers.
CUSTODIAN
PNC Bank, N.A. (the "Custodian") serves as the primary custodian of the assets
of the Fund and the Investment Funds managed by the Subadvisers, and may
maintain custody of such assets with domestic and foreign subcustodians (which
may be banks, trust companies, securities depositories and clearing agencies)
approved by the Directors. Assets of the Fund and Investment Funds are not held
by the Manager or Subadvisers, respectively, or commingled with the assets of
other accounts other than to the extent that securities are held in the name of
a custodian in a securities depository, clearing agency or omnibus customer
account of such custodian. The Custodian's principal business address is Airport
Business Center, International Court 2, 200 Stevens Drive, Lester, Pennsylvania
19113.
INQUIRIES
Inquiries concerning the Fund and interests in the Fund, including information
concerning subscription and withdrawal procedures, should be directed to:
PW Fund Advisor, L.L.C.
c/o PaineWebber Incorporated
Alternative Investment Group
1285 Avenue of the Americas
New York, New York 10019
Telephone: (800) 486-2608
Telecopier: (212) 713-1498
For additional information contact:
Robert Discolo, Vice President
* * * * *
All potential investors in the Fund are encouraged to consult appropriate
legal and tax counsel.
<PAGE>
APPENDIX A
PW TECHNOLOGY PARTNERS, L.P.
AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT
[TO COME]
<PAGE>
APPENDIX B
INVESTMENT FUND PERFORMANCE INFORMATION
[To be provided]
<PAGE>
FORM N-2
PW TECHNOLOGY PARTNERS, L.P.
PART C - OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(1) Financial Statements:
Because the Registrant has no assets, financial statements are
omitted.
(2) Exhibits:
(a) (1) Certificate of Limited Partnership.
(2) Agreement of Limited Partnership.
(3) Amended and Restated Limited Partnership
Agreement.*
(b) Not Applicable.
(c) Not Applicable.
(d) See Item 24(2)(a)(3).
(e) Not Applicable.
(f) Not Applicable.
(g) See Item 24(2)(a)(3).
(h) Not Applicable.
(i) Not Applicable.
(j) Custody Agreement.*
(k) (1) Management and Administration Agreement.*
(2) Administration, Accounting and Investor
Services Agreement.*
(l) Not Applicable.
(m) Not Applicable.
(n) Not Applicable.
(o) Not Applicable.
(p) Not Applicable.
(q) Not Applicable.
(r) Not Applicable.
--------------
* To be filed by Amendment.
ITEM 25. MARKETING ARRANGEMENTS
Not Applicable.
ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION*
Blue Sky fees and expenses (including fees of counsel) $
Legal and accounting fees and expenses
Printing and engraving
Offering expenses
Miscellaneous --------
$
========
- -----------
* To be filed by Amendment.
ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL
After completion of the private offering of interests, the Registrant
expects that no person will be directly or indirectly under common control with
the Registrant, except that the Registrant may be deemed to be controlled by PW
Fund Advisor, L.L.C. (the "Manager"), the general partner of the Registrant.
Information regarding the ownership of PW Fund Advisor, L.L.C. is set forth in
its Form ADV, as filed with the Commission (File No. 801-55537).
ITEM 28. NUMBER OF HOLDERS OF SECURITIES
Title of Class Number of Record Holders
- -------------- -------------------------
Limited Partnership 1 (The Registrant anticipates Interests
that as a result of the private
offering of interests there will
be more than 100 record holders
of such interests in the future.)
ITEM 29. INDEMNIFICATION
To be filed by amendment.
ITEM 30. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
A description of any other business, profession, vocation, or
employment of a substantial nature in which the investment adviser of the
Registrant, and each member, director, executive officer, or partner of any such
investment adviser, is or has been, at any time during the past two fiscal
years, engaged in for his or her own account or in the capacity of member,
director, officer, employee, partner or trustee, is set forth in the
Registrant's Confidential Memorandum in the section entitled "THE MANAGER."
Information as to the members and officers of PW Fund Advisor, L.L.C. is
included in its Form ADV as filed with the Commission (File No. 801-55537), and
is incorporated herein by reference.
ITEM 31. LOCATION OF ACCOUNTS AND RECORDS
The Administrator maintains certain required accounting related and
financial books and records of the Registrant at _________________. The other
required books and records are maintained by the Manager c/o PW Fund Advisor,
L.L.C., 1285 Avenue of the Americas, New York, New York 10019.
ITEM 32. MANAGEMENT SERVICES
Not Applicable.
ITEM 33. UNDERTAKINGS
Not Applicable.
- --------
<PAGE>
FORM N-2
PW TECHNOLOGY PARTNERS, L.P.
SIGNATURES
Pursuant to the requirements of the Investment Company Act of 1940,
the Registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York,
and State of New York, on the 28th day of December, 1998.
PW TECHNOLOGY PARTNERS, L.P.
By: PW FUND ADVISOR, L.L.C.
GENERAL PARTNER
By: /S/ ROBERT DISCOLO
----------------------
Name: Robert Discolo
Title: Authorized Representative
<PAGE>
FORM N-2
PW TECHNOLOGY PARTNERS, L.P.
EXHIBIT INDEX
EXHIBIT NUMBER DOCUMENT DESCRIPTION
(a) (1) Certificate of Limited Partnership.
(2) Agreement of Limited Partnership.
(3) Amended and Restated Limited Partnership Agreement.*
(c) Not Applicable.
(d) See Exhibit (a)(3).
(e) Not Applicable.
(f) Not Applicable.
(g) See Exhibit (a)(3).
(h) Not Applicable.
(i) Not Applicable.
(j) Custodian Agreement.*
(k) (1) Management and Administration Agreement.*
(2) Administration, Accounting and Investor Services Agreement.*
(l) Not Applicable.
(m) Not Applicable.
(n) Not Applicable.
(o) Not Applicable.
(p) Not Applicable.
(q) Not Applicable.
- ----------------------
* To be filed by Amendment.
Exhibit (a)(1)
CERTIFICATE OF LIMITED PARTNERSHIP
OF
PW TECHNOLOGY PARTNERS, L.P.
This Certificate of Limited Partnership of PW Technology Partners,
L.P. (the "Partnership"), dated as of December 28, 1998, is being duly executed
and filed by PW Fund Advisor, L.L.C., a Delaware limited liability company, as
general partner, to form a limited partnership under the Delaware Revised
Uniform Limited Partnership Act (6 DEL.C. ss.17-101, et seq.).
1. NAME. The name of the limited partnership formed hereby is PW
Technology Partners, L.P.
2. REGISTERED OFFICE. The address of the registered office of the
Partnership in the State of Delaware is c/o Corporation Service Company, 1013
Centre Road, Wilmington, New Castle County, Delaware 19805.
3. REGISTERED AGENT. The name and address of the registered agent for
service of process on the Partnership in the State of Delaware is Corporation
Service Company, 1013 Centre Road, Wilmington, New Castle County, Delaware
19805.
4. GENERAL PARTNER. The name and business address of the sole general
partner of the Partnership is PW Fund Advisor, L.L.C., 1285 Avenue of the
Americas, New York, New York 10019.
IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Limited Partnership as of the date first-above written.
GENERAL PARTNER:
PW FUND ADVISOR, L.L.C.
By: /S/ ROBERT DISCOLO
------------------------
Name: Robert Discolo
Title: Authorized Person
Exhibit (a)(2)
AGREEMENT OF LIMITED PARTNERSHIP
OF
PW TECHNOLOGY PARTNERS, L.P.
This Agreement of Limited Partnership of PW Technology Partners, L.P.
(this "Agreement"), is entered into by and between PW Fund Advisor, L.L.C., as
general partner (the "General Partner"), and Norman E. Sienko, Jr., as limited
partner (the "Initial Limited Partner").
The General Partner and the Initial Limited Partner hereby form a
limited partnership pursuant to and in accordance with the Delaware Revised
Uniform Limited Partnership Act (6 DEL.C. ss.17-101, et seq.), as amended from
time to time (the "Act"), and hereby agree as follows:
1. NAME. The name of the limited partnership formed hereby is PW
Technology Partners, L.P. (the "Partnership").
2. PURPOSE. The Partnership is formed for the object and purpose of,
and the nature of the business to be conducted and promoted by the Partnership
is, engaging in any lawful act or activity for which limited partnerships may be
formed under the Act and engaging in any and all activities necessary or
incidental to the foregoing.
3. REGISTERED OFFICE. The registered office of the Partnership in the
State of Delaware is c/o Corporation Service Company, 1013 Centre Road,
Wilmington, New Castle County, Delaware 19805.
4. REGISTERED AGENT. The name and address of the registered agent of
the Partnership for service of process on the Partnership in the State of
Delaware is Corporation Service Company, 1013 Centre Road, Wilmington, New
Castle County, Delaware 19805.
5. PARTNERS. The names and the business, residence or mailing
addresses of the General Partner and the Initial Limited Partner are as follows:
GENERAL PARTNER:
PW Fund Advisor, L.L.C.
1285 Avenue of the Americas
New York, New York 10019
INITIAL LIMITED PARTNER:
Norman E. Sienko, Jr.
c/o PaineWebber Incorporated
1285 Avenue of the Americas
New York, New York 10019
6. POWERS. The powers of the General Partner include all powers,
statutory and otherwise, possessed by general partners under the laws of the
State of Delaware.
7. DISSOLUTION. The Partnership shall dissolve, and its affairs shall
be wound up, at such time as (a) all of the partners of the Partnership approve
in writing, (b) an event of withdrawal of a general partner has occurred under
the Act, or (c) an entry of a decree of judicial dissolution has occurred under
ss.17-802 of the Act; PROVIDED, HOWEVER, the Partnership shall not be dissolved
or required to be wound up upon an event of withdrawal of a general partner
described in Section 7(b) if (i) at the time of such event of withdrawal, there
is at least one (1) other general partner of the Partnership who carries on the
business of the Partnership (any remaining general partner being hereby
authorized to carry on the business of the Partnership), or (ii) within ninety
days after the occurrence of such event of withdrawal, all remaining partners
agree in writing to continue the business of the Partnership and the
appointment, effective as of the date of the event of withdrawal, of one or more
additional general partners of the Partnership.
8. CAPITAL CONTRIBUTIONS. The partners of the Partnership have
contributed the following amounts, in cash, and no other property, to the
Partnership:
GENERAL PARTNER:
PW Fund Advisor, L.L.C. $99.00
INITIAL LIMITED PARTNER:
Norman E. Sienko, Jr. $1.00
9. ADDITIONAL CONTRIBUTIONS. No partner of the Partnership is required
to make any additional capital contribution to the Partnership.
10. ALLOCATION OF PROFITS AND LOSSES. The Partnership's profits and
losses shall be allocated in proportion to the capital contributions of the
partners of the Partnership.
11. DISTRIBUTIONS. Distributions shall be made to the partners of the
Partnership at the times and in the aggregate amounts determined by the General
Partner. Such distributions shall be allocated among the partners of the
Partnership in the same proportion as their then capital account balances.
12. ASSIGNMENTS.
(a) The Initial Limited Partner may assign
all or any part of its partnership interest in the Partnership and may
withdraw from the Partnership only with the consent of the General Partner.
(b) The General Partner may assign all or
any part of its partnership interest in the Partnership and may withdraw from
the Partnership without the consent of the Initial Limited Partner.
13. WITHDRAWAL. Except to the extent set forth in Section 12, no right
is given to any partner of the Partnership to withdraw from the Partnership.
14. ADMISSION OF ADDITIONAL OR SUBSTITUTE PARTNERS.
(a) One or more additional or substitute
limited partners of the Partnership may be admitted to the Partnership with only
the consent of the General Partner.
(b) One or more additional or substitute
general partners of the Partnership may be admitted to the Partnership with only
the consent of the General Partner.
15. LIABILITY OF INITIAL LIMITED PARTNER. The Initial Limited Partner
shall not have any liability for the obligations or liabilities of the
Partnership except to the extent provided in the Act.
16. GOVERNING LAW. This Agreement shall be governed by, and construed
under, the laws of the State of Delaware, all rights and remedies being governed
by said laws.
IN WITNESS WHEREOF, the undersigned, intending to be legally bound
hereby, have duly executed this Agreement of Limited Partnership as of the 28th
day of December, 1998.
GENERAL PARTNER:
PW FUND ADVISOR, L.L.C.
By: /S/ ROBERT DISCOLO
----------------------
Name: Robert Discolo
Title: Authorized Representative
INITIAL LIMITED PARTNER:
/S/ NORMAN E. SIENKO, JR.
----------------------------
Name: Norman E. Sienko, Jr.
